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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)........ April 11, 1997
INNOVATIVE GAMING CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
MINNESOTA 22482 41-1713864
- ---------------------------- ----------------------- ----------------------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification Number)
4750 Turbo Circle
Reno, Nevada 89502
------------------
(Address of principal executive offices)
Registrant's telephone number, including area code ....... (702) 823-3000
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
Innovative Gaming Corporation of America announced today that it has
completed a private placement of convertible preferred stock, all as set forth
more fully in the press release and agreements filed as exhibits herewith.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: April 11, 1997 INNOVATIVE GAMING CORPORATION OF
AMERICA
By /s/ Scott H. Shackelton
------------------------------
Its Chief Financial Officer
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EXHIBIT INDEX
99.1 Press Release
99.2 Certificate of Designation
99.3 Form of Subscription Agreement
99.4 Form of Registration Rights Agreement
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INNOVATIVE GAMING
SCOTT SHACKELTON
(702) 823-3000
FOR IMMEDIATE RELEASE-
MONDAY, APRIL 14, 1997
INNOVATIVE GAMING ANNOUNCES PAUL BIBLE AS A NEW
DIRECTOR AND COMPLETION OF A $4.0 MILLION PRIVATE PLACEMENT
RENO, NEVADA, APRIL 14, 1997 - INNOVATIVE GAMING CORPORATION OF AMERICA
(NASDAQ: IGCA) announced that Paul A. Bible, former chairman of the Nevada
Gaming Commission, has joined the IGCA Board of Directors, replacing Stanley M.
Taube. Bible is president of the law firm Bible, Haney, Hoy, Trachok, Wadhams &
Woloson. "I have known and worked with Paul for a number of years and couldn't
be more pleased to have someone with such an outstanding reputation in our
industry assisting us in the strategic planning and positioning of our Company
for continuing growth," stated Edward Stevenson, President and CEO.
The Company also announced that it has raised $4.0 million through a
private placement of convertible preferred stock, convertible into shares of
the Company's Common Stock. The Preferred Stock, which pays an annual dividend
of 4%, is convertible into Common Stock at a price equal to 82% of the closing
price of the Company's Common Stock at the time of conversion provided that
the maximum conversion price may not exceed $8.1725. Following registration of
the Common Stock, the Preferred Shares are convertible into Common Stock in 25%
increments beginning 90 days after issuance. Preferred Stock not converted
eleven months from the effectiveness of the registration statement
automatically converted.
"This financing will be primarily used for part and component purchases as we
increase our production to meet the anticipated machine demand, particularly
for the Nevada and Australia markets. Additionally we will be investing in
development of our new P.C. based platform for future games," stated Mr.
Stevenson.
IGCA's three multi-player video games were recently approved in Nevada. In
Australia, pursuant to an exclusive five year distribution agreement with
Aristocrat Leisure Industries, a minimum of 100 games will be purchased each
year once the Company's Blackjack and Roulette games are approved in New South
Wales, Australia. The approval of these games is anticipated in mid-year 1997.
The Company has filed a Form 8-K with the SEC describing the terms of the
Preferred Stock.
Innovative Gaming Corporation of America, through its wholly-owned operating
subsidiary Innovative Gaming, Inc., develops, manufactures and distributes
innovative gaming machines. The Company distributes its products both directly
to the gaming market and through licensed distributors.
The Convertible Preferred Stock, and the shares of Common Stock issued upon
conversion of
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such Convertible Preferred Stock, have not been registered under the Securities
Act of 1933 and may not be offered or sold in the United States absent a
registration under or exemption from registration under the Securities Act of
1933.
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Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Except for historical information, the forward looking matters discussed
in this news release are subject to certain risks and uncertainties including,
but not limited to, acceptance of new gaming products, and subjective
regulatory technical game approvals as well as other risks indicated from time
to time in the Company's filings with the Securities and Exchange Commission.
The Company assumes no obligation to update or supplement forward-looking
statements that become untrue because of subsequent events.
<PAGE> 1
EXHIBIT 99.2
INNOVATIVE GAMING CORPORATION OF AMERICA
CERTIFICATE OF DESIGNATION OF
SERIES A CONVERTIBLE PREFERRED STOCK
Pursuant to Section 401(3)(b) of the Business Corporation Act of the State
of Minnesota, Innovative Gaming Corporation of America (the "Company"), a
corporation organized and existing under the Business Corporation Act of the
State of Minnesota, DOES HEREBY CERTIFY:
That pursuant to the authority conferred upon the Board of Directors of
the Company by the Articles of Incorporation of the Company, and in accordance
with the provisions of Section 401(3)(a) of the Business Corporation Act of the
State of Minnesota, the Board of Directors of the Company as of March 12, 1997,
adopted the following resolution creating a series of preferred stock
designated as Series A Convertible Preferred Stock:
RESOLVED: That pursuant to the authority vested in the Board of Directors
of the Company in accordance with the provisions of its Articles of
Incorporation, as amended, a series of preferred stock, $.01 par value, to be
titled the Series A Convertible Preferred Stock (the "Preferred Shares") of the
Company is hereby created and designated. The number of shares of Preferred
Shares shall be 4,000 shares. The voting powers, preferences and relative,
participating, optional and other special rights of the Preferred Shares, and
the qualifications, limitations and restrictions thereof, are as follows:
1. Designation. The series of preferred stock established hereby shall be
designated the Series A Convertible Preferred Stock (and shall be referred to
herein as the "Preferred Shares") and the authorized number of Preferred
Shares shall be 4,000.
2. Voting Rights. Except as otherwise provided by law or pursuant to
Section 6(g) hereof, the holders of Preferred Shares shall have no voting
rights and their consent shall not be required (except to the extent required
by law) for taking any corporate action.
3. Dividends.
(a) Dividend Terms. The holders of Preferred Shares shall be
entitled to receive out of funds legally available for such purpose, quarterly
cumulative dividends paid in arrears at the rate of 4% of the Liquidation Value
per annum per share payable in Common Stock or cash at the discretion of the
Company. The first payment shall occur three months from the date of the
issuance of the Preferred Shares and every three months thereafter. If such
dividends are paid in Common Stock, holders of Preferred Shares shall be
entitled to at least 24 hour written notice in advance to the address of such
holder as it appears in the Company's register. Accrued but unpaid dividends
shall not bear interest. Such dividends shall accrue from day to day and shall
be payable before any dividends on any shares of Common Stock
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shall be declared or paid or set apart for payment, and shall be cumulative, so
that if at any time dividends on the outstanding Preferred Shares at such rate
have not been paid thereon, or funds set apart for the payment thereof, with
respect to all preceding dividend periods, the amount of such deficiency shall
be fully paid, or set apart for payment, before any distribution by way of
dividend or otherwise shall be declared or paid upon, or set apart for, the
shares of Common Stock or any other class of shares of the Company ranking
junior to the Preferred Shares with respect to the payment of dividends or upon
liquidation, dissolution or winding up of the Company.
(b) Dividend Preferences. In no event shall any dividend be paid or
declared, other than dividends paid solely in shares of Common Stock, on the
Common Stock or any other class of shares of the Company ranking junior to the
Preferred Shares, nor shall any distribution be made on the Common Stock or any
other class of shares of the Company ranking junior to the Preferred Shares,
nor shall any Common Stock or any other class of shares of the Company ranking
junior to the Preferred Shares, be purchased, redeemed or otherwise acquired by
the Company for value, unless all dividends on the Preferred Shares for all
past dividend periods and for the then current dividend period shall have been
paid or declared and a sum sufficient for the payment thereof set apart for
payment. In the event that the Company thereafter declares or pays any
dividends upon the Common Stock (whether payable in cash, securities or other
property), other than dividends payable solely in shares of Common Stock, the
Company shall also declare and pay to the holders of the Preferred Shares at
the same time that it declares and pays such dividends to the holders of the
Common Stock, the dividends which would have been declared and paid with
respect to the Common Stock issuable upon conversion of the Preferred Shares
had all of the outstanding Preferred Shares been converted immediately prior to
the record date for such dividend, or if no record date is fixed, the date as
of which the record holders of Common Stock entitled to such dividends are to
be determined.
(c) Stock Split, Stock Dividend, Recapitalization, etc. If the Company,
at any time while any Preferred Shares are outstanding, (a) shall pay a stock
dividend or otherwise make a distribution or distributions payable in shares of
its capital stock (whether payable in shares of its Common Stock or of capital
stock of any class), (b) subdivide outstanding shares of Common Stock into a
larger number of shares, (c) combine outstanding shares of Common Stock into a
smaller number of shares, or (d) issue by reclassification of shares of Common
Stock any shares of capital stock of the Company, the number of issued and
outstanding Preferred Shares and the Maximum Conversion Price designated in
Section 5(f) shall be appropriately adjusted in proportion to the change in the
outstanding shares of Common Stock. If any of the aforementioned events
occurred during a Valuation Period, the Maximum Conversion Price with respect
to the days within such Valuation Period occurring prior to the date of such
event, shall be multiplied by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding before such event and of which the
denominator shall be the number of shares of Common Stock outstanding after
such event. Any adjustment made pursuant to this Section shall become
effective immediately after the
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record date for the determination of shareholders entitled to receive such
dividend or distribution and shall become effective immediately after the
effective date in the case of a subdivision, combination or reclassification.
(d) Cash Dividend in Excess of 10% of Market Capitalization. If the
Company, at any time while any Preferred Shares are outstanding, shall pay a
cash dividend in excess of 10 percent of the market capitalization of the
Company's issued and outstanding Common Stock, as defined herein, the Maximum
Conversion Price will be reduced by an amount equal to the per share cash
dividend distributed.
4. Liquidation Right and Preference. In the event of the liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary, the
holders of Preferred Shares shall be entitled to receive in cash, out of the
assets of the Company, an amount equal to $1,000 per share (the "Liquidation
Value") for each outstanding Preferred Share (appropriately adjusted to reflect
stock splits, stock dividends, reorganizations, consolidations and similar
changes hereafter effected) plus all accumulated but unpaid dividends, before
any payment shall be made or any assets distributed to the holders of Common
Stock or any other class of shares of the Company ranking junior to Preferred
Shares. If, upon any liquidation, dissolution or winding up of the Company,
the assets of the Company are insufficient to pay such $1,000 per share, plus
all accumulated but unpaid dividends, the holders of such Preferred Shares
shall share pro rata with pari passu securities issued by the Company in any
such distribution in proportion to the full amounts to which they would
otherwise be respectively entitled. Following such payment to the holders of
Preferred Shares upon such liquidation, dissolution or a winding up of the
Company, the holders of Common Stock and Preferred Shares shall then share
ratably in all the assets of the Company thereafter remaining. For purposes of
this joint distribution of assets to the holders of Common Stock and the
holders of Preferred Shares, the holders of Preferred Shares should be regarded
as owning that number of Common Stock into which the Preferred Shares would
then be convertible.
5. Conversion Rights.
(a) Conversion Limitation. No amount of Preferred Shares shall be
convertible into Common Stock of the Company if the sum of 1) the number of
Common Stock beneficially owned by the holder of Preferred Shares and its
affiliates (other than shares of Common Stock which may be deemed beneficially
owned through ownership of the unconverted portion of the principal amount of,
and interest on, the Preferred Shares); and 2) the number of shares of Common
Stock issuable upon conversion of the Preferred Shares and any other preferred
stock issued to the holder of Preferred Shares, would result in beneficial
ownership by the holder of Preferred Shares and its affiliates of more than
4.9% of the Company's issued and outstanding Common Stock; provided, however,
nothing shall prevent the conversion of all Preferred Shares pursuant to an
event enumerated in Section 6(a) hereof.
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(b) Optional Conversion. Subject to Section 5(a) hereof, each Preferred
Share shall be convertible at the option of the holder thereof into Common
Stock of the Company in accordance with the following schedule:
i) if the Common Stock issuable upon exercise of the
Preferred Shares is registered with the Securities and
Exchange Commission within 90 days from closing of the
acquisition of the Preferred Shares (the "Closing Date"), 25%
of the Preferred Shares held by the holder as of the Closing
Date shall be convertible into Common Stock 90 days after the
Closing Date; 25% of the Preferred Shares shall be
convertible into Common Stock 120 days after the Closing Date;
25% of the Preferred Shares held by the holder as of the
Closing Date shall be convertible into Common Stock 150 days
after the Closing Date; and 25% of the Preferred Shares held
by the holder as of the Closing Date shall be convertible into
Common Stock 180 days after the Closing Date.
ii) if the Common Stock issuable upon exercise of the
Preferred Shares are registered with the Securities and
Exchange Commission at or after 90 days from the Closing Date,
25% of the Preferred Shares held by the holder as of the
Closing Date shall be convertible into Common Stock on such
date of registration (the "Registration Date"); 25% of the
Preferred Shares held by the holder as of the Closing Date
shall be convertible into Common Stock 30 days after the
Registration Date; 25% of the Preferred Shares held by the
holder as of the Closing Date shall be convertible into Common
Stock 60 days after the Registration Date; and 25% of the
Preferred Shares held by the holder as of the Closing Date
shall be convertible into Common Stock 90 days after the
Registration Date.
(c) Conversion Mechanics. In order to exercise the conversion privilege,
a holder of Preferred Shares shall 1) notify the Company via facsimile of such
holder's intent to convert a specified portion of such shares (the "Conversion
Notice" and the date of such notice, the "Conversion Notice Date") and 2) send
via express mail on the Conversion Notice Date to the Company at its principal
office the certificate evidencing the Preferred Shares being converted, duly
endorsed to the Company and accompanied by written notice to the Company that
the holder elects to convert a specified portion or all of such shares.
Preferred Shares converted at the option of the holder shall be deemed to have
been converted on the day of receipt by the Company of the certificate
representing such shares for conversion in accordance with the foregoing
provisions (the "Conversion Date" ), and at such time the rights of the holder
of such Preferred Shares other than the right to receive shares of Common Stock
upon conversion of the Preferred Shares pursuant to the terms hereof, as such
holder, shall cease and such holder shall be treated for all purposes as the
record holder of Common Stock issuable upon conversion. As promptly as
practicable on or after the Conversion Date, the Company shall
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issue and mail or deliver to such holder a certificate or certificates for the
number of Common Stock issuable upon conversion, computed to the nearest
full share, and a certificate or certificates for the balance of Preferred
Shares surrendered, if any, not so converted into Common Stock.
(d) Automatic Conversion. Subject to Section 5(a) hereof, Preferred
Shares, and any accrued but unpaid Dividends, shall be automatically converted
into Common Stock eleven months after registration of such shares with the
Securities and Exchange Commission.
(e) Acceleration of Conversion. Subject to Section 5(a) hereof,
Preferred Shares, and any accrued by unpaid Dividends, may, at the option of
the holder thereof, be converted into Common Stock upon the filing of a
registration statement with Securities and Exchange Commission of a second
offering of the Company's Common Stock.
(f) Conversion Price and Adjustments. The number of shares of Common
Stock issuable in exchange for Preferred Shares upon either optional or
automatic conversion shall be equal to the conversion price then in effect
(the "Conversion Price"). The Conversion Price shall equal 82% of the average
closing bid price of the Company's Common Stock as reported by Bloomberg, L.P.
over the last ten days of trading ending on the day prior to the Conversion
Notice Date (the "Valuation Period"), provided, however, that the Conversion
Price shall not exceed $ 8.1725 (the "Maximum Conversion Price").
6. Other Terms of Series A Convertible Preferred Shares.
(a) Issuances of Rights, Warrants. If the Company, at any time while any
Preferred Shares are outstanding, shall issue rights or warrants to all holders
of Common Stock entitling them to subscribe for or purchase shares of Common
Stock at a price per share less than the average closing bid price of Common
Stock at the record date mentioned below, the Conversion Price and the Maximum
Conversion Price (collectively, the "Conversion Prices") designated in Section
5(f) shall be multiplied by a fraction, of which the denominator shall be the
number of shares of Common Stock outstanding on the date of issuance of such
rights or warrants plus the number of additional shares of Common Stock offered
for subscription of purchase, and of which the numerator shall be the number of
shares of Common Stock outstanding on the date of issuance of such rights or
warrants plus the number of shares which the aggregate offering price of the
total number of shares so offered would purchase at such average closing bid
price. Such adjustment shall be made whenever such rights or warrants are
issued, and shall become effective immediately after the record date for the
determination of shareholders entitled to receive such rights or warrants.
However, upon the expiration of any right or warrant to purchase Common Stock
the issuance of which resulted in an adjustment in the Conversion Prices
designated in Section 5(f) pursuant to this Section 6(a), if any such right or
warrant shall expire and shall not have been exercised, the Conversion Prices
designated in Section 5(f) shall immediately upon such expiration be recomputed
and effectively immediately upon such expiration be increased to the price
which it would have been (but reflecting any other adjustments in the
Conversion Prices made pursuant to the provisions of this Section 5 after the
issuance of such rights or warrants) had the adjustment of the Conversion
Prices
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made upon the issuance of such rights or warrants been made upon the issuance
of such rights or warrants been made on the basis of offering for
subscription or purchase only that number of shares of Common Stock actually
purchased upon the exercise of such rights or warrants actually exercised.
(b) Issuances of Assets, Evidences of Indebtedness. If the Company, at
any time while Preferred Shares are outstanding, shall distribute to all
holders of Common Stock (and not to holders of Preferred Shares) evidences of
its indebtedness or assets or rights or warrants to subscribe for or purchase
any security (excluding those referred to above) then in each such case the
Conversion Prices, at which each Preferred Share shall thereafter be
convertible shall be determined by multiplying the Conversion Prices in effect
immediately prior to the record date fixed for determination of shareholders
entitled to receive such distribution by a fraction of which the denominator
shall be the average closing bid price of Common Stock determined as of the
record date mentioned above, and of which the numerator shall be such average
closing bid price of the Common Stock on such record date less the then fair
market value at such record date of the portion of such assets or evidence of
indebtedness so distributed applicable to one outstanding share of Common Stock
as determined by the Board of Directors in good faith; provided, however that
in the event of a distribution exceeding fifty percent (50%) of the net assets
of the Company, such fair market value shall be determined by a nationally
recognized or major regional investment banking firm or firm of independent
certified public accountants of recognized standing (which may be the firm that
regularly examines the financial statements of the Company) (an "Appraiser")
selected in good faith by the holders of a majority in interest of the shares
of Preferred Shares; and provided, further that the Company, after receipt of
the determination by such Appraiser shall have the right to select an
additional Appraiser, in which case the fair market value shall be equal to the
average of the determinations by each such Appraiser. In either case the
adjustments shall be described in a statement provided to all holders of
Preferred Shares of the portion of assets or evidences of indebtedness so
distributed or such subscription rights applicable to one share of Common
Stock. Such adjustment shall be made whenever any such distribution is made
and shall become effective immediately after the record date mentioned above.
(c) Notice of Conversion Price Adjustment. Whenever the Conversion
Prices are adjusted, the Company shall promptly mail to each holder of Preferred
Shares, a notice setting forth the Conversion Prices after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
(d) Merger, Consolidation, Exchange. In case of any reclassification of
the Common Stock, any consolidation or merger of the Company with or into
another person, the sale or transfer of all or substantially all of the assets
of the Company or any compulsory share exchange pursuant to which the Common
Stock is converted into other securities, cash or property, the holders of the
Preferred Shares then outstanding shall have the right thereafter to convert
such shares only into the shares of stock and other securities and property
receivable upon or deemed to be held by holders of Common Stock following such
reclassification, consolidation, merger,
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sale, transfer or share exchange, and the holders of the Preferred Shares shall
be entitled upon such event to receive such amount of securities or property as
the shares of the Common Stock of the Company into which such shares of
Preferred Shares could have been converted immediately prior to such
reclassification, consolidation, merger, sale, transfer or share exchange would
have been entitled.
(e) Notice of Certain Events. This provision shall similarly apply to
successive reclassifications, consolidations, mergers, sales, transfers or
share exchanges. If:
i. the Company shall declare a dividend (or any
other distribution) on its Common Stock; or
ii. the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
iii. the Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any
rights; or
iv. the approval of any shareholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company (other than a subdivision or
combination of the outstanding shares of Common Stock), any
consolidation or merger to which the Company is a party, any
sale or transfer of all of substantially all of the assets
of the Company, or any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or
property; or
v. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding-up of the affairs of
the Company;
then the Company shall mail to the holders of Preferred Shares at their last
addresses as shall appear upon the stock books of the Company, at least 10
calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the holders of Common
Stock of record to be entitled to such dividend, distributions, redemption,
rights or warrants are to be determined, or (y) the date of which such
reclassification, consolidation, merger, sale, transfer, share exchange,
dissolution, liquidation or winding-up is expected to become effective, and the
date as of which it is expected that holders of Common Stock for securities or
other property deliverable upon such reclassification, consolidation, merger,
sale, transfer, share exchange, dissolution, liquidation or winding-up;
provided, however, that the failure to mail such notice or any defect therein
or in the
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mailing thereof shall not affect the validity of the corporate action required
to be specified in such notice.
(f) Additional Issuances of Preferred Stock.
(i) Right of First Refusal. So long as Preferred
Shares are outstanding, the Company may not issue any
preferred shares of stock having a conversion price lower than
100% of the average closing bid price of the Company's Common
Stock ("Priority Shares") unless the Company first offers such
Priority Shares to the holders of Preferred Shares, provided
however, that holders of Preferred Shares may not have such
rights for Priority Shares issued by the Company in
connection with any joint venture, a merger, acquisition, or
business combination with a third party.
(ii) Provisions. If the holder of Preferred Shares
has rights of first refusal as enumerated in Section 6(f)(i)
hereof, the Company shall give written notice to the holders
of Preferred Shares at the address indicated in the Company's
stock register of the terms of the Priority Shares (the
"Notice of Proposed Sale"). The holders of Preferred Shares
shall have five business days following receipt of such notice
to exercise its Right of First Refusal to purchase all, but
not less than all, of the Priority Shares, by sending, via
certified mail, to the Company's principal executive offices,
a notice of exercise (the "Exercise Notice"). Within ten
business days of receipt of the Exercise Notice, the Company
shall offer and the holders of Preferred Shares shall acquire
the Priority Shares on the terms and conditions enumerated in
the Notice of Proposed Sale.
(g) Special Voting Rights. Without the affirmative vote of the holders
(acting together as a class) of at least seventy-five percent of the Preferred
Shares at the time outstanding given in person or by proxy at any annual
meeting, or at such special meeting called for that purpose and/or other
purposes, or, if permitted by law, in writing without a meeting, the Company
shall not:
(i) authorize or issue any (i) additional Preferred
Shares or (ii) shares of stock having priority over Preferred
Shares as to the payment of dividends or as to the payment or
distribution of assets upon the liquidation or dissolution,
voluntary or involuntary, of the Company;
(ii) alter or amend the rights or preferences of
Preferred Shares as stated in this Certificate of Designation.
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(h) Redemption. If the Company is required to redeem any outstanding
Preferred Shares pursuant to Article 8 of its Articles of Incorporation, as
amended (the " Redeemed Preferred Shares " ), the " Fair Market Value " of a
Redeemed Preferred Share shall mean the equivalent of an 18 percent discount to
the $1,000 denomination per Preferred Share plus any accrued but unpaid
dividends. The 18 percent discount shall be prorated from the date of issuance
of the Preferred Shares to 120 days after such issuance. The Fair Market Value
for any Redeemed Preferred Shares after such 120 days shall remain at the 18%
discount equivalent for those Preferred Shares that are not able to be
converted pursuant to this Certificate of Designation.
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IN WITNESS WHEREOF, Innovative Gaming Corporation of America has caused
this Certificate to be duly executed in its corporate name on this 9th day of
April, 1997.
INNOVATIVE GAMING CORPORATION OF AMERICA
By: /s/ Edward G. Stevenson
--------------------------------------------
Edward G. Stevenson
Its: President and Chief Executive Officer
-------------------------------------------
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EXHIBIT 99.3
INNOVATIVE GAMING CORPORATION OF AMERICA
4750 Turbo Circle
Reno, Nevada 89502
SUBSCRIPTION AGREEMENT
Including Investment Representations
Series A Convertible Preferred Stock
Ladies and Gentlemen:
[ ] ("Buyer") desires to purchase upon the terms
and conditions set forth below from Innovative Gaming Corporation of America, a
Minnesota corporation (the "Company"), Series A Convertible Preferred Stock of
the Company (the "Preferred Shares") convertible into shares of Common Stock of
the Company (the "Common Shares," and collectively with the Preferred Shares,
the "Shares") pursuant to the terms of that certain Certificate of Designation
of Series A Convertible Preferred Stock. The Preferred Shares being offered
are described in the Company's Confidential Private Placement Memorandum, dated
March 14, 1997 (the "Memorandum").
1. AGENT. The name of Buyer's agent or sub-agent for this offering is
____________________________________________.
(INSERT NAME OF AGENT/SUB-AGENT, IF ANY)
2. SUBSCRIPTION.
a. Buyer hereby subscribes to purchase [
] Preferred Shares and agrees to pay to the Company the
purchase price of: $[ ].
b. Buyer shall pay the purchase price by delivering
at the Closing same day funds in United States Dollars to the
Company, to be delivered to the order of the Company upon
delivery of the Preferred Shares.
c. Company and Buyer are executing and delivering
this Agreement in reliance upon the exemption from securities
registration afforded by Rule 506 under Regulation D
("Regulation D") as promulgated by the United States
Securities and Exchange Commission under the Securities Act of
1933, as amended (the "Securities Act").
<PAGE> 2
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER. In connection
with the sale of the Preferred Shares to it, Buyer hereby acknowledges,
represents, warrants and covenants as follows:
a. Buyer has received and carefully reviewed a copy
of the Memorandum and the Company's Annual Report on Form 10-K
for Fiscal 1996. In purchasing the Preferred Shares, Buyer
has not relied on any information or representation other than
those contained in the Memorandum or that is publicly
disclosed or that which is contained in this Agreement, the
Registration Rights Agreement or the Certificate of
Designation relating to the Preferred Shares.
b. Without effecting Buyer's right to rely on the
representations and warranties of the Company contained
herein, Buyer has been given access to full and complete
information regarding the Company (including the opportunity
to meet with Company officers) and has utilized such access to
its satisfaction for the purpose of obtaining information in
addition to, or verifying information included in, the
Memorandum.
c. Buyer is experienced and knowledgeable in
financial and business matters, and is capable of evaluating
the merits and risks of investing in the Preferred Shares.
d. Buyer believes the investment is suitable for it
based on its investment objectives and financial needs. Buyer
can bear the economic risk of an investment in the Preferred
Shares for an indefinite period of time and can afford a
complete loss of such investment.
e. Buyer understands that there will be no market
for the Preferred Shares, that there are significant
restrictions on the transferability of the Preferred Shares,
and that for these and other reasons, Buyer may not be able to
liquidate an investment in the Preferred Shares for an
indefinite period.
f. Buyer acknowledges that the Company's Articles of
Incorporation provide that no person or entity may become the
beneficial owner of 5% or more of the Company's shares of
capital stock of every series and class unless such person or
entity agrees to provide personal background and financial
information to gaming authorities, consent to a background
investigation, and respond to questions from gaming
authorities. Buyer further acknowledges that the Company may,
pursuant to the terms of its Articles of Incorporation and
Section 6(h) of the Certificate of Designation, repurchase
shares held by any person or entity whose status as a
shareholder, jeopardizes the approval, continued existence, or
renewal by any gaming authority of a tribal, federal or state
license or franchise held
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<PAGE> 3
by the Company or any of its subsidiaries. The foregoing
restrictions will be contained in a legend on each
certificate of Common Stock.
g. Buyer has no existing short position with respect
to the Common Stock of the Company and agrees not to enter
into any short sales or other hedging transactions with
respect to the Common Stock of the Company at any time after
the execution of this Agreement by it and prior to the date on
which Buyer files a notice of conversion with the Company.
Buyer further agrees that, at all times after the execution of
this Agreement by it and prior to ten days after the closing
of the purchase of the Preferred Shares, it will keep its
purchase of the Preferred Shares confidential, except as
required by law and except as necessary in the ordinary course
of its business.
h. Buyer is not subscribing for the Preferred Shares
as a result of or pursuant to any advertisement, article,
notice, or other communication published in any newspaper,
magazine, or similar media or broadcast over television or
radio.
i. Buyer acknowledges that in no event shall Buyer
be entitled to convert any portion of the principal of or
interest on the Preferred Shares in excess of that amount upon
conversion of which the sum of 1) the number of Common Shares
beneficially owned by Buyer and its affiliates (other than
shares of Common Shares which may be deemed beneficially owned
through ownership of the unconverted portion of the principal
amount of, and interest on, the Preferred Shares); and 2) the
number of Common Shares issuable upon conversion of the
Preferred Shares, would result in beneficial ownership by
Buyer and its affiliates of more than 4.9% of the outstanding
shares of the Company's issued and outstanding Common Stock.
Buyer acknowledges that any beneficial ownership in excess of
4.9% may require filing certain documents with the Securities
and Exchange Commission and certain state gaming regulatory
agencies and that beneficial ownership in excess of 10% could
trigger certain Minnesota anti-takeover statutes.
j. Buyer acknowledges that the Company or any
transfer agent of the Company shall register the transfer or
exchange of any of the Preferred Shares only upon receipt of
the certificate(s) evidencing such Preferred Shares with the
transfer notice set forth thereon appropriately completed,
upon the receipt of an opinion of counsel acceptable to the
Company, that the transfer is exempt from registration under
the Securities Act of 1933 and upon receipt in writing from
the transferee or the recipient of such Preferred Shares in
such transfer or exchange (as the case may be) of a
certificate setting forth the representations, warrants and
covenants in Paragraphs 3 and 4 hereof transferee or any
affiliated person of such transferee, provided, however, that
the Buyer may not transfer or
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<PAGE> 4
exchange any of the Preferred Shares to any proposed
transferee who the Company reasonably believes is: (1) a
convicted felon; (2) convicted of gaming-related offenses or
(3) publicly known to be associated with organized crime. With
respect to such transferee, the Company has ten (10) business
days following receipt of written notice of the identity of
such transferee to conduct any investigation and make any
objection to such transfer.
k. Buyer acknowledges that it is not acquiring the
Shares for the purpose of exerting any control over the
Company.
4. INVESTMENT INTENT; RESTRICTIONS ON TRANSFER OF PREFERRED SHARES.
a. Buyer represents and warrants that it is
purchasing the Preferred Shares for its own account, for
investment and without the current intention of reselling or
redistributing the Preferred Shares except pursuant to the
terms of this Agreement and pursuant to an effective
registration statement under the 1933 Act and State Laws or
pursuant to an exemption from such registration. Buyer has
made no arrangement or agreement with others regarding any of
the Preferred Shares.
b. Buyer understands that Preferred Shares have not
been registered as of the date of the closing of this offering
under the Securities Act of 1933, as amended (the "1933 Act"),
or applicable state securities laws (the "State Laws"), and
are being offered and sold pursuant to exemptions from
registration under the 1933 Act and the State Laws. Buyer
understands that the Company's reliance on such exemptions is
predicated in part on its representations and warranties
contained herein.
c. Buyer understands that neither the Preferred
Shares nor the underlying Common Shares may be sold by it
except pursuant to an effective registration statement under
the 1933 Act and State Laws, or an exemption from such
registration.
d. Buyer understands that any transfer of the
Preferred Shares by it will be further restricted by a legend
placed on the certificate(s) representing the Preferred Shares
containing substantially the following language:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
THE SECURITIES LAW OF ANY STATE. THE SHARES HAVE BEEN
ACQUIRED FOR INVESTMENT AND WITHOUT A VIEW TO THEIR
DISTRIBUTION AND MAY NOT BE SOLD OR OTHERWISE DISPOSED
OF IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION
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<PAGE> 5
STATEMENT FOR THE SHARES UNDER THE SECURITIES ACT OF
1933 OR UNLESS AN EXEMPTION FROM REGISTRATION IS
AVAILABLE UNDER THE SECURITIES LAWS."
5. RESIDENCE. BUYER REPRESENTS AND WARRANTS AS FOLLOWS.
a. Buyer's principal executive office is located in
the State of ____________.
b. The Preferred Shares are being purchased by Buyer
in its name solely for its own beneficial interest and not as
nominee for, on behalf of, for the beneficial interest of, or
with the intention to transfer to, any other person, trust, or
organization, except as specifically set forth in this
Subscription Agreement.
6. CONVERSION. The Company shall use its best efforts to issue and
deliver to Buyer a certificate or certificates for the number of Common Shares
to which Buyer shall be entitled within three (3) business days after Buyer has
fulfilled all conditions required for conversion as set forth in this Agreement
and the Certificate of Designation of Series A Preferred Stock (the
"Deadline"). The Company understands that a delay in the issuance of the
registered Common Shares beyond the Deadline could result in economic loss to
Buyer. The Company agrees to pay liquidated damages to Buyer for late issuance
of registered Common Shares to Buyer upon conversion in the amount of one
percent (1%) of the requested conversion amount, per day, beginning on the
sixth (6th) business day from the date of receipt by the Company of a duly
executed notice of conversion accompanied by the certificate representing the
Preferred Shares, all in accordance with this Agreement, the Preferred Shares
and the requirements of the Company's transfer agent. Said liquidated damages
shall accrue each day through the date the registered Common Shares are issued
to Buyer upon conversion, and shall be paid by wire transfer to an account
designated by Buyer upon the earlier to occur of (i) issuance of the Preferred
Shares to Buyer, or (ii) each monthly anniversary of the receipt by the Company
of such Buyer's notice of conversion. Nothing herein shall waive the Company's
obligations to deliver Common Shares upon conversion of the Preferred Shares.
7. THIRD PARTY BENEFICIARY. The parties acknowledge and agree that LG
Partners, Inc. ("LG Partners") shall be deemed a third party beneficiary of the
Company's agreements and representations set forth in this Agreement, entitled
to enforce the terms thereof, and to indemnification for any damages resulting
to LG Partners from any actual or threatened breach thereof by the Company,
both in LG Partner's personal capacity and, should LG Partners so elect, on
behalf of Buyer.
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<PAGE> 6
8. INVESTOR QUALIFICATIONS.
ACCREDITED INVESTOR. The undersigned subscriber is an ENTITY and
represents and warrants as follows:
/ / 1. The undersigned (or, in the case of a trust, the undersigned
trustee) is a bank, or savings and loan association as defined in
Sections 3(a)(2) and 3(a)(5)(A), respectively, of the 1933 Act,
acting either in its individual or fiduciary capacity.
/ / 2. The undersigned is an insurance company as defined in Section 2(13)
of the 1933 Act.
/ / 3. The undersigned is an investment company registered under the
Investment Company Act of 1940 or a business development company as
defined in Section 2(a)(48) of that Act.
/ / 4. The undersigned is a Small Business Investment Company licensed by
the U.S. Small Business Administration under Section 301(c) or (d)
of the Small Business Investment Act of 1959.
/ / 5. The undersigned is an employee benefit plan within the meaning of
Title I of the Employee Retirement Income Security Act of 1974 and
either (check one or more, as applicable):
/ / a. the investment decision is made by a plan fiduciary, as
defined in Section 3(21) of such Act, which is either a bank,
savings and loan association, insurance company, or registered
investment adviser; or
/ / b. the employee benefit plan has total assets in
excess of $5,000,000; or
/ / c. the plan is a self-directed plan with investment
decisions made solely by persons who are "Accredited
Investors" as defined under the 1933 Act.
/ / 6. The undersigned has total assets in excess of $5,000,000, was not
formed for the specific purpose of acquiring shares of the Company
and is one or more of the following (check one or more, as
appropriate):
/ / a. an organization described in Section 501(c)(3) of the
Internal Revenue Code; or
/ / b. a corporation; or
/ / c. a Massachusetts or similar business trust; or
/ / d. a partnership.
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<PAGE> 7
/ / 7. The undersigned is a private business development company as
defined in Section 202(a)(22) of the Investment Advisers Act of
1940.
/ / 8. The undersigned is a trust with total assets exceeding $5,000,000
which was not formed for the purpose of acquiring shares of the
Company and whose purchase is directed by a person who has such
knowledge and experience in financial and business matters that he
or she is capable of evaluating the merits and risks of the
investment in the Preferred Shares.
/ / 9. All of the equity owners of the undersigned meet one of the tests
set forth in I.a through I.c or II.a through II.h above. Please
indicate the names of each such equity owner and which test applies
to each:
9. REPRESENTATIONS, WARRANTS AND COVENANTS OF THE COMPANY. In
connection with the sale of the Preferred Shares by it, the Company hereby
acknowledges, represents, warrants and covenants as follows:
9.1 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the laws of
the State of Minnesota, and has the requisite corporate power and
authority to carry on its business in all material respects as it
is now being conducted and to enter into this Agreement and the
Registration Rights Agreement by and between the Company and Buyer
dated as of the date hereof (the "Registration Rights Agreement")
and to issue Preferred Shares and Common Stock pursuant to the
Certificate of Designation.
9.2 Qualification. The Company is duly qualified or licensed as a
foreign corporation in good standing in each jurisdiction wherein
the nature of its activities makes such qualification or licensing
necessary and failure to be so qualified or licensed would have a
material adverse impact on its business.
9.3 Corporate Acts and Proceedings. This Agreement and the
Registration Rights Agreement and the consummation of the
transactions contemplated by the Certificate of Designation have
been duly authorized by all necessary corporate action on behalf of
the Company, and have been duly executed and delivered by authorized
officers of the Company. All corporate action necessary for the
authorization, creation, issuance and delivery of the Preferred
Shares and the Common Shares, including reservation of such Common
Shares (provided the per share price of the Common Stock exceeds
$.15), has been taken on the part of the Company. This Agreement
and the Registration Rights Agreement are valid and binding
agreements of the Company enforceable in accordance with their
respective terms, except as the enforceability thereof may be
limited by bankruptcy, insolvency, moratorium, reorganization or
other similar laws affecting the enforcement of creditors' rights
generally, and except for judicial
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<PAGE> 8
limitations on the enforcement of the remedy of specific enforcement
and other equitable remedies.
9.4 Brokers or Finders. Other than fees paid to LG Partners, Inc.,
for which the Company is responsible, no person, firm or
corporation has or will have any right, interest or valid claim
against the Company for any commission, fee or other compensation
as a finder or broker, or in any similar capacity, in connection
with the transactions contemplated by this Agreement.
9.5 Governmental Approvals. Based upon the representations and the
warranties of the Buyer made herein, no registration or filing,
consent or approval of or other action by any federal, state or
other governmental agency or instrumentality is necessary for the
valid execution, delivery and performance of the Company of this
Agreement and the issuance of the Preferred Shares, except for the
filing of a Form D with the Securities and Exchange Commission.
9.6 Adverse Governmental or Legal Actions. There are no legal or
governmental actions, suits or proceedings pending, or to the best
of the Company's knowledge, threatened to which the Company is or
may be a party to which would adversely affect the Company or the
transactions contemplated by this Agreement, the Registration
Rights Agreement and the Certificate of Designation.
9.7 Disclosure. To the best knowledge of the Company, neither this
Agreement, the Registration Rights Agreement nor the Memorandum
contains any untrue statement of a material fact or omits a
material fact necessary to make the statements made by the Company
herein or therein, in light of the circumstances in which made, not
misleading. The Company has not provided to Buyer any material
non-public information regarding the Company.
9.8 Capitalization. Except for stock options issued to employees
of the Company pursuant to the Company's 1992 Stock Option and
Incentive Compensation Plan, there have been no issuances of
capital stock, warrants, outstanding subscriptions, contracts,
calls, commitments or any purchase rights of any nature or character
(including preemptive rights) relating to the Company's capital
stock since December 31, 1996.
9.9 Conflicts. This Agreement, the Registration Rights Agreement,
the Certificate of Designation and the performance of the
transactions contemplated hereby and thereby, will not conflict
with or violate the Company's Articles, Bylaws nor conflict with,
violate or cause a default of any lien, indenture, mortgage, lease,
agreement, or instrument to which the Company is a party in any
material respect or, to the best of our knowledge, result in a
violation of any law, rule, order or decree applicable to the
Company.
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<PAGE> 9
9.10 Issuance of Shares. The Preferred Shares and the Common
Shares have been duly authorized and the Preferred Shares, when
issued, delivered and paid for pursuant to the terms hereof and
the Common Shares, when issued pursuant to the terms of the
Certificate of Designation relating to the Preferred Shares, will
be duly authorized, validly issued, fully paid and nonassessable
and free from all taxes, liens and other encumbrances and will not
be subject to preemptive rights.
9.11 Nasdaq National Market Listing. The Company will use its
best efforts to list the shares of Common Shares on the NASDAQ
National Market and to maintain such listing. To the best of the
Company's knowledge, the Company is not in material violation of
the NASDAQ National Market listing requirements.
9.12 Exchange Act Reports. The Company will use its best efforts
to timely file all Annual Reports on Form 10-K, Quarterly Reports
on Form 10-Q, Reports on Form 8-K or other reports required to be
filed with the Securities and Exchange Commission by the Company.
The Company has not had any material adverse changes since its last
filing with the Securities and Exchange Commission. The Company
has filed all such documents historically on a timely basis with
the Securities and Exchange Commission and such financial
statements contained in such documents have been prepared in
accordance with GAAP.
10. OPINION OF COUNSEL. As a condition to Closing, the Buyer shall
receive an opinion from the Company's counsel substantially in the form
attached hereto as Annex A.
11. MISCELLANEOUS.
a. Buyer agrees to furnish any additional
information that the Company or its counsel deem necessary in
order to verify the responses set forth above.
b. Buyer represents and warrants that it has not
reproduced or distributed the Memorandum, in whole or in part,
or divulged any of its contents, and that it will not do so
without the prior written consent of the Company.
c. Buyer understands the meaning and legal
consequences of the agreements, representations, warranties
and covenants contained herein. Buyer further agrees to
indemnify and hold harmless the Company, and each current and
future officer, director, employee, agent and shareholder of
the Company, and each current and future officer, director,
employee, agent and shareholder of the Company, from and
against any and all loss, damage or liability due to, or
arising out of, a breach of any of Buyer's agreements,
representations or warranties contained herein, which shall
survive the execution hereof.
d. The Company understands the meaning and legal
consequences of the agreements, representations, warranties
and covenants contained herein.
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<PAGE> 10
Company further agrees to indemnify and hold harmless
the Buyer, and each current and future officer, director,
employee, agent and shareholder of the Buyer, from and against
any and all loss, damage or liability due to, or arising out
of, a breach of any of the Company's agreements,
representations or warranties contained herein, which shall
survive the execution hereof.
e. This Agreement shall be binding upon and shall
inure to the benefit of the parties hereto and to the
successors and assigns of the Company and to the legal
representatives, successors and permitted assignees of the
undersigned.
f. This Subscription Agreement shall be governed by,
and construed and enforced in accordance with, Minnesota law,
without reference to principles of conflicts of laws.
g. This instrument contains the entire agreement of
the parties, and there are no representations, covenants or
other agreements except as stated or referred to herein.
SIGNATURES/SUBSCRIBER INFORMATION
Entity Subscriber:
Dated: April 9, 1997
[____________________________________________________]
Name of Entity (Typed or Printed)
_________________________________________________
Signature
_________________________________________________
Name (Typed or printed) and Title
_________________________________________________
Contact Person (If different from person signing)
_________________________________________________
Tax I.D. No.
( )___________________________________________
Telephone No.
_________________________________________________
Principal Executive Office Address
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<PAGE> 11
__________________________________________________________
(Must be same state indicated in question 7)
__________________________________________________________
Mailing Address (Only if different from residence address)
__________________________________________________________
City, State & Zip Code
- 11 -
<PAGE> 12
ENTITY SUBSCRIBER TYPE OF OWNERSHIP:
The Shares subscribed for are to be registered in the following form of
ownership (check only one):
/ / Partnership / / Trust or Estate (Describe and
enclose evidence of signer's authority)
/ / Corporation / / IRA Trust Account
/ / Other (Describe) _____________________________________________
___________________________________________________________________________
ACCEPTANCE
This Subscription Agreement of [________________] for [_______] shares of
the Company's Convertible Preferred Stock is hereby accepted by Innovative
Gaming Corporation of America.
Dated: April ___, 1997
INNOVATIVE GAMING CORPORATION OF AMERICA
By __________________________________________________________
Edward G. Stevenson, President and Chief Executive Officer
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<PAGE> 1
EXHIBIT 99.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of April 9, 1997 (this
"Agreement"), is made by and among Innovative Gaming Corporation of
America, a Minnesota corporation (the "Company"), and the person named
on the signature page hereto (the "Initial Investor").
WITNESSETH:
WHEREAS, in connection with the Subscription Agreement, dated
as of April 9, 1997, between the Initial Investor and the Company
(the "Subscription Agreement"), the Company has agreed, upon the
terms and subject to the conditions of the Subscription Agreement,
to issue and sell to the Initial Investor shares of Series A
Convertible Preferred Stock (the "Shares"), convertible into
shares of Common Stock, $.01 par value (the "Common Stock"); and
WHEREAS, to induce the Initial Investor to execute and
deliver the Subscription 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 "Securities Act"),
with respect to the Shares;
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 the Initial Investor hereby agree as
follows:
1. DEFINITIONS.
(a) As used in this Agreement, the following terms shall have
the following meanings:
(i) "Investor" means the Initial Investor and any transferee
or assignee who agrees to become bound by the provisions of this
Agreement in accordance with Section 9 hereof.
(ii) "register," "registered," and "registration"
refer to a registration effected by preparing and filing a
Registration Statement or Statements in compliance with the
Securities Act on such appropriate registration form promulgated
by the Commission as shall be selected by the Company and the
declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and
Exchange Commission ("SEC").
<PAGE> 2
(iii) "Registrable Securities" means the Common Stock
issuable upon conversion of the Shares.
(iv) "Registration Statement" means a registration statement
under the Securities Act registering securities of the Company.
(b) Capitalized terms used herein and not otherwise defined
herein shall have the respective meanings set forth in the
Subscription Agreement.
2. REGISTRATION.
(a) REGISTRATION. The Company shall prepare and file a
shelf- Registration Statement covering the issuance of Registrable
Securities (the "Registration Statement") with the SEC pursuant to
Rule 415 of the Securities Act within ten (10) business days after
the closing of the purchase of the Shares pursuant to the
Subscription Agreement (the "Closing"), provided that the Company
shall not be obligated to make any such filing before April 10,
1997. As part of such Registration Statement, the Company may
include up to 200,000 additional shares of Common Stock registered
on behalf of the Company or the holders of such additional shares.
(b) PAYMENTS BY THE COMPANY. The Company will use its best
efforts to have the Registration Statement become effective with
the SEC no later than 90 days from the closing of the purchase of
the Preferred Shares (the "Closing"). If the Registration
Statement covering the Registrable Securities is not effective
within 120 days after the closing, then the Company will make
payments to each holder of Registrable Securities (each, a
"Holder") in such amounts and at such times as shall be determined
pursuant to this Section 2(b). The amount to be paid by the
Company to the Holders shall be determined as of each Computation
Date, and such amount shall be equal to (1) in the case of the
first Computation Date, two percent (2%) and (2) in the case of
each other Computation Date, three percent (3%), in each case of
the aggregate subscription price paid by the Investor for the
Shares pursuant to the Subscription Agreement (the "Periodic
Amount"); provided, however, that if any Computation Date is less
than 30 days subsequent to another Computation Date, then the
Periodic Amount payable on the later Computation Date shall be
prorated. The Periodic Amount shall be divided among all the
Holders in the same proportion as each Holder's Registrable
Securities bears to the total of the outstanding Registrable
Securities. The Periodic Amount shall be paid by the Company
within ten business days after each Computation Date and shall be
payable in cash; provided, however, that the Company may elect in
lieu of payment of any Periodic Amount in cash to deliver to the
Investor shares of Common Stock having an Aggregate Market Value
equal to the amount of the Periodic Amount if, but only if, (1)
such shares are freely tradable by the Investor
<PAGE> 3
without any restriction under the Securities Act or any state
securities or "blue sky" law and (2) after the issuance of such
shares to Holder, the aggregate number of shares of Common Stock
beneficially owned by the Holder (determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act")) would not exceed 4.9% of the outstanding
shares of Common Stock.
As used in this Section 2(b), the following terms shall have
the following meanings:
"Aggregate Market Value" of any shares of Common Stock as of
any Computation Date means the product obtained by multiplying (a)
such number of shares of Common Stock times (b) the Average Market
Price of the Common Stock for the Measurement Period for such
Computation Date.
"Average Market Price" of any security for any period shall
be computed as the average closing price of the shares over the
Measurement Period.
"Computation Date" means the date which is 150 days after the
Closing and each 30 days thereafter for the purposes of this
Section 2(b).
"Measurement Period" means the period of ten consecutive
trading days for the Common Stock ending on (or on the last
trading day preceding) each Computation Date.
3. OBLIGATIONS OF THE COMPANY. In connection with the
registration of the Registrable Securities, the Company shall:
(a) prepare promptly and file with the SEC promptly (but in
no event later than 10 business days) after the Closing, a
Registration Statement or Statements with respect to all
Registrable Securities pursuant to Rule 415 under the Securities
Act, and thereafter use its best efforts to cause the Registration
Statement to become effective within 90 days. The Company shall
keep the Registration Statement effective pursuant to Rule 415 at
all times until the earlier of (1) the Registerable Securities
have been disposed thereunder or (2) eleven months from the date
the Registration Statement is declared effective (or the aggregate
period of eleven months of effectiveness in the event that the
effectiveness of such Registration Statement is temporarily
suspended (the "Registration Period"). In any case, the
Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein) filed by the Company
shall not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein, or
necessary to make the statements therein, (in case of a prospect
in light of the circumstances in which
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<PAGE> 4
they were made), not misleading; provided, however, that if at any
time the Investors shall be entitled to sell all Registrable
Securities held by them pursuant to Rule 144 promulgated under the
Securities 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 and without imposing
restrictions arising under the federal securities laws on the
purchases thereof in a period of three consecutive months, then the
Company shall, so long as it meets the current public information
requirements of Rule 144, thereafter no longer be required to
maintain the registration of Registrable Securities pursuant to this
Agreement;
(b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to the Registration
Statement and the prospectus used in connection with the
Registration Statement as may be necessary to keep the
Registration Statement effective at all times through the
Registration Period, and, during such period, comply with the
provisions of the Securities Act with respect to the disposition
of all Registrable Securities of the Company covered by the
Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof as set
forth in the Registration Statement or prospectus supplement;
(c) prepare promptly and file all necessary documents
relating to the Registration Securities with State gaming
authorities whose consent or approval of the Registration
Statement is required.
(d) furnish to each Investor whose Registrable Securities are
included in the Registration Statement, such number of copies of a
prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other documents as such Investor
may reasonably request in order to facilitate the disposition of
the Registrable Securities owned by such Investor;
(e) use reasonable efforts to (i) register and qualify the
Registrable Securities covered by the Registration Statement under
such other securities or blue sky laws of such jurisdictions as
the Investors who hold a majority in interest of the Registrable
Securities being offered reasonably request, (ii) prepare and
file in those jurisdictions such amendments (including
post-effective amendments) and supplements, (iii) take such other
actions as may be necessary to maintain such registrations and
qualifications in effect at all times through 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 therewith or as a condition thereto to (I)
qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(e), (II)
subject itself to general taxation in
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<PAGE> 5
any such jurisdiction, (III) file a general consent to
service of process in any such jurisdiction, (IV) provide any
undertakings that cause more than nominal expense or burden to the
Company or (V) make any change in its charter or bylaws;
(f) as promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being
sold pursuant to such registration of the happening of any event
of which the Company has knowledge, as a result of which the
prospectus included in the Registration Statement, as then in
effect, includes an untrue statement of a material fact or omits
to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and use
its best efforts promptly to prepare a supplement or amendment to
the Registration Statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or
amendment to each Investor as such Investor may reasonably
request;
(g) as promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being
sold pursuant to such registration (or, in the event of an
underwritten offering, the managing underwriters) of the issuance
by the SEC of any stop order or other suspension of effectiveness
of the Registration Statement at the earliest possible time;
(h) permit a single firm of counsel designated as selling
stockholders' counsel by the Investors who hold a majority in
interest of the Registrable Securities being sold pursuant to such
registration to review the Registration Statement and all
amendments and supplements thereto a reasonable period of time
prior to their filing with the SEC, and shall not file any
document in a form to which such counsel reasonably objects;
(j) use its best efforts either to (i) cause all the
Registrable Securities covered by the Registration Statement to be
listed on a national securities exchange and on each additional
national securities exchange on which similar securities 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 of all the Registrable
Securities covered by the Registration Statement as a National
Association of Securities Dealers Automated Quotations System
("Nasdaq") "national market system security" within the meaning of
Rule 11Aa2-1 of the SEC under the Exchange Act and the quotation
of the Registrable Securities on the Nasdaq National Market System
or, if, despite the Company's best efforts to satisfy the
preceding clause (i) or (ii), the Company is unsuccessful in
satisfying the preceding clause (i) or (ii), to secure listing on
a national securities exchange or Nasdaq authorization and
quotation for such Registrable Securities and, without limiting
the generality of the foregoing, to arrange for at least two
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<PAGE> 6
market makers to register with the National Association of
Securities Dealers, Inc. ("NASD") as such with respect to such
Registrable Securities;
(k) provide a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the
effective date of the Registration Statement;
(l) cooperate with the Investors who hold Registrable
Securities being sold to facilitate the timely preparation and
delivery of certificates (not bearing any restrictive legends)
representing Registrable Securities to be sold pursuant to the
denominations or amounts as the case may be, and registered in
such names as the Investors may reasonably request; and
(m) take all other reasonable actions necessary to expedite
and facilitate disposition by the Investor of the Registrable
Securities pursuant to the Registration Statement;
4. OBLIGATIONS OF THE INVESTORS. In connection with the
registration of the Registrable Securities, the Investors shall
have the following obligations:
(a) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this Agreement with
respect to each Investor that such Investor shall furnish to the
Company 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 registration of the Registrable Securities
and shall execute such documents in connection with such
registration as the Company may reasonably request. At least ten
(10) business days prior to the first anticipated filing date of
the Registration Statement, the Company may notify each Investor
of the information the Company requires from each such Investor
(the "Requested Information"). If within five (5) business days
prior to the filing date the Company has requested and not
received the Requested Information from an Investor (a
"Non-Responsive Investor"), then the Company may file the
Registration Statement without including Registrable Securities of
such Non-Responsive Investor;
(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 the Registration Statement hereunder;
(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(f) such Investor will immediately
discontinue disposition of Registrable Securities pursuant
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<PAGE> 7
to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 3(f) and,
if so directed by the Company, such Investor shall deliver to the
Company (at the expense of the Company) or destroy (and deliver to
the Company a certificate of destruction) all copies in such
Investor's possession, of the prospectus covering such Registrable
Securities current at the time of receipt of such notice; and
5. EXPENSES OF REGISTRATION. All expenses (other than fees
and expenses of investment bankers and other than brokerage
commissions) incurred in connection with registrations, filings or
qualifications pursuant to Section 3, including, without
limitation, all registration, listing and qualifications fees,
printers and accounting fees and the fees and disbursements of
counsel for the Company, shall be borne by the Company; provided,
however, that the Investors shall bear the fees and out-of-pocket
expenses of its legal counsel and accountants and agents selected
by it.
6. INDEMNIFICATION. In the event any Registrable Securities
are included in a Registration Statement under this Agreement:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Investor who holds such
Registrable Securities, the directors, if any, of such Investor,
the officers, if any, of such Investor, each person, if any, who
controls any Investor within the meaning of the Securities Act or
the Exchange Act, (each, an "Indemnified Person"),
against any losses, claims, damages, expenses or liabilities
(joint or several) (collectively "Claims") to which any of them
become subject under the Securities Act, the Exchange Act or
otherwise, insofar as such Claims (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of
or are based upon any of the following statements, omissions or
violations in the Registration Statement, or any post-effective
amendment thereof, or any prospectus included therein: (i) any
untrue statement or alleged untrue statement of a material fact
contained in the Registration Statement or any post-effective
amendment thereof or the omission or alleged omission to state
therein 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 light of the
circumstances under which the statements therein were made, not
misleading or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act or any state
securities law or
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<PAGE> 8
any rule or regulation (the matters in the foregoing clauses
(i) through (iv) being, collectively, "Violations"). Subject to the
restrictions set forth in Section 6 (d) with respect to the number of
legal counsel, the Company shall reimburse the Investors promptly as
such expenses are incurred and are due and payable, 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 arising
out of or based upon a Violation which occurs in reliance upon and in
conformity with information furnished in writing to the Company by
any Indemnified Person expressly for use in connection with the
preparation of the Registration Statement or any such amendment
thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(d) hereof; (II) with
respect to any preliminary prospectus, shall not inure to the benefit
of any such person from whom the person asserting any such Claim
purchased the Registrable Securities that are the subject thereof (or
to the benefit of any person controlling such person) if the untrue
statement or omission of material fact contained in the preliminary
prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the
Company pursuant to Section 3(d) hereof; and (III) shall not apply to
amounts paid in settlement of any Claim if such settlement is
effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld. Such indemnity shall
remain in full force and effect regardless of any investigation made
by or on behalf of the Indemnified Persons 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 indemnify
and hold harmless, to the same extent and in the same manner set
forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if
any, who controls the Company within the meaning of the Securities
Act or the Exchange Act, and any other stockholder selling
securities pursuant to the Registration Statement or any of its
directors or officers or any person who controls such stockholder
within the meaning of the Securities Act or the Exchange Act
(collectively and together with an Indemnified Person, an
"Indemnified Party"), against any Claim to which any of them may
become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is 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 furnished to the Company by such Investor
expressly for use in connection with such Registration Statement;
and such Investor will promptly reimburse any legal or other
expenses reasonably incurred by them in connection with
investigating or defending any such Claim; provided, however, that
the indemnity agreement contained in this Section 6(b) shall not
apply to amounts paid
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<PAGE> 9
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; provided, further, however, that
the Investor shall be liable under this Section 6(b) for only that
amount of a Claim as does not exceed the net 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) The Company shall be entitled to receive indemnities from
selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same
extent as provided above, with respect to information such persons
so furnished in writing by such persons expressly for inclusion in the
Registration Statement.
(d) Promptly after receipt by an Indemnified Person or
Indemnified Party under this Section 6 of notice of the
commencement of any action (including any governmental action),
such Indemnified Person or Indemnified Party shall, if a Claim in
respect thereof is to made against any indemnifying party under
this Section 6, deliver to the indemnifying party a written notice
of the commencement thereof and this 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 parties;
provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel, with the fees and
expenses 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 differing interests
between such Indemnified Person or Indemnified Party and other
party represented by such counsel in such proceeding. The Company
shall pay for only one separate legal counsel for the Investors;
such legal counsel shall be selected by the Investors holding a
majority in interest of the Registrable Securities. 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
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<PAGE> 10
such action. 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 such expense, loss, damage or
liability is incurred and is due and payable.
7. CONTRIBUTION. To the extent any indemnification provided
for herein 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 (a)
no contribution shall be made under circumstances where the maker
would not have been liable for indemnification under the fault
standards set forth in Section 6, (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled
to contribution from any seller of Registrable Securities who was
not guilty of such fraudulent misrepresentation and (c)
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.
8. REPORTS UNDER EXCHANGE ACT. With a view to making
available to the Investors the benefits of Rule 144 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, until such time as the Investors have sold
all the Registrable Securities pursuant to a Registration
Statement or Rule 144, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144;
(b) file with the SEC all reports and other documents
required of the Company under the Securities Act and the Exchange
Act; and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written
statement by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange Act,
(ii) a copy of the most recent annual or quarterly report of the
Company and such other reports and documents so filed by the
Company and (iii) such other information as may be reasonably
requested to permit the Investors to sell such securities pursuant
to Rule 144 without registration.
9. ASSIGNMENT OF THE REGISTRATION RIGHTS. The rights to have
the Company register Registrable Securities pursuant to this
Agreement shall be automatically assigned by the Investors to
transferees or assignees of all or any portion of such securities
only if: (a) the Company is, within a reasonable time
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<PAGE> 11
after such transfer or assignment, furnished with written
notice of (i) the name and address of such transferee or assignee and
(ii) the securities with respect to which such registration rights
are being transferred or assigned, (b) immediately following such
transfer or assignment the further disposition of such securities by
the transferee or assignee is restricted under the Securities Act and
applicable state securities laws, (c) at or before the time the
Company received the written notice contemplated by clause (a) of
this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein, and
(d) such transfers of Registered Securities complies with the
Subscription Agreement.
10. AMENDMENT OF REGISTRATION RIGHTS. Any provision 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 Investors who hold a majority in interest of the
Registrable Securities. Any amendment or waiver effected in accordance
with this Section 10 shall be binding upon each Investor and the
Company.
11. THIRD PARTY BENEFICIARY. The parties acknowledge and
agree that LG Partners, Inc. ("LG Partners") shall be deemed a
third party beneficiary of the Company's agreements and
representations set forth in this Agreement, entitled to enforce
the terms thereof, and to indemnification for any damages
resulting to LG Partners from any actual or threatened breach
thereof by the Company, both in LG Partners' personal capacity
and, should LG Partners so elect, on behalf of the Investor.
12. MISCELLANEOUS.
(a) A person or entity is deemed to be a holder of
Registrable Securities whenever such person or entity owns of
record such Registrable Securities. If the Company receives
conflicting instructions, notices or elections from two or more
persons or entities with respect to the same Registrable
Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such
Registrable Securities.
(b) Notices required or permitted to be given hereunder shall
be in writing and shall be deemed to be sufficiently given when
personally delivered or when sent by registered mail, return
receipt requested, addressed (i) if to the Company, at Innovative
Gaming Corporation of America, 4750 Turbo Circle, Reno, Nevada,
89502, Attention: Scott H. Shackelton, Chief Financial Officer
(ii) if to the Initial Investor, at the address set forth under
its name in the Subscription Agreement and (iii) if to any other
Investor, at such address as such Investor shall
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<PAGE> 12
have provided in writing to the Company, or at such other
address as each such party furnishes by notice given in accordance
with this Section 12(b), and shall be effective, when personally
delivered, upon receipt, and when so sent by certified mail, four
business days after deposit with the United States Postal Service.
(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) This Agreement shall be enforced, governed by and
construed in accordance with the laws of the State of Minnesota
applicable to the agreements made and to be performed entirely
within such state, without giving effect to rules governing the
conflict of laws. In the event that any provision of this
Agreement is invalid or unenforceable under any applicable statute or
rule of law, then such provision shall be deemed inoperative to the
extent that it may conflict therewith and shall be deemed modified to
conform with such statute or rule of law. Any provision hereof which
may prove invalid or unenforceable under any law shall not affect the
validity or enforceability of any other provision hereof.
(e) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There
are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context
may require .
(h) The headings in the Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
hereof.
(i) This Agreement may be executed in two or more
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 telephone line facsimile transmission of a copy of this
Agreement bearing the signature of the party so delivering this
Agreement.
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<PAGE> 13
IN WITNESS WHEREOF, the parties have caused this Agreement to
be duly executed by their respective officers thereunto duly
authorized as of day and year first above written.
INNOVATIVE GAMING CORPORATION
OF AMERICA
By:_______________________________________________
Edward G. Stevenson
Its:______________________________________________
President and Chief Executive Officer
INVESTOR:
[ ]
By:_______________________________________________
Its:______________________________________________
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