<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended March 31, 1998
--------------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from ________ to _________.
Commission file number 0-22482.
INNOVATIVE GAMING CORPORATION OF AMERICA
- --------------------------------------------------------------------------------
(Exact Name of Registrant as Specified in Its Charcarter)
Minnesota 41-1713864
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
4750 Turbo Circle, Reno, Nevada 89502
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices)
(702) 823-3000
- --------------------------------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
- --------------------------------------------------------------------------------
(Former Address, If Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days.
Yes X No
--- ---
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: At May 7, 1998 there were 7,535,211
shares of Common Stock, $0.01 par value, outstanding.
Page 1 of 12
<PAGE> 2
INNOVATIVE GAMING CORPORATION OF AMERICA
Form 10-Q Index
March 31, 1998
<TABLE>
<S> <C> <C>
Part I: Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
March 31, 1998 (Unaudited) and December 31, 1997 3
Consolidated Condensed Statements of
Operations for the three months ended March
31, 1998 and 1997 (Unaudited) 4
Consolidated Condensed Statements of Cash
Flows for the three months ended March 31,
1998 and 1997 (Unaudited) 5
Notes to Consolidated Condensed
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 8
Part II: Other Information
Item 1. Legal Proceedings 11
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 12
</TABLE>
Page 2 of 12
<PAGE> 3
INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARY
CONSOLIDATED CONDENSED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
--------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 281 $ 518
Restricted investments 1,000 1,000
Accounts receivable 1,672 1,929
Current portion of notes receivable 364 276
Inventories 10,293 10,191
Prepaid expenses and other 174 159
-------- --------
Total current assets 13,784 14,073
NOTES RECEIVABLE, LESS CURRENT PORTION 548 552
PROPERTY AND EQUIPMENT, NET 1,974 2,107
DEFERRED INCOME TAXES 720 720
INTANGIBLE ASSETS, NET 1,641 1,729
-------- --------
TOTAL ASSETS $ 18,667 $ 19,181
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 751 $ 568
Accrued liabilities 372 423
Notes payable - current portion 296 322
Customer deposits 120 157
-------- --------
Total current liabilities 1,539 1,470
Notes payable - net of current portion 487 509
-------- --------
Total liabilities 2,026 1,979
-------- --------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock, $.01 par value, 100,000,000 shares authorized,
7,535,211 shares issued and outstanding 75 75
Additional paid-in capital 29,575 29,575
Accumulated deficit (13,009) (12,448)
-------- --------
Total stockholders' equity 16,641 17,202
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 18,667 $ 19,181
======== ========
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
Page 3 of 12
<PAGE> 4
INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------------
1998 1997
------- --------
<S> <C> <C>
SALES $ 2,249 $ 467
COST OF SALES 1,627 399
------- -------
Gross profit 622 68
SELLING, GENERAL AND ADMINISTRATIVE 1,214 1,429
------- -------
Loss from operations (592) (1,361)
INTEREST INCOME, NET 31 85
------- -------
NET LOSS ATTRIBUTABLE TO COMMON SHAREHOLDERS ($ 561) ($1,276)
======= =======
BASIC - LOSS PER SHARE OF COMMON STOCK ($ 0.07) ($ 0.20)
======= =======
WEIGHTED AVERAGE
COMMON SHARES OUTSTANDING 7,535 6,477
======= =======
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
Page 4 of 12
<PAGE> 5
INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARY
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------------
1998 1997
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ($ 561) ($1,276)
Adjustments to reconcile net loss to
cash flows from operating activities -
Depreciation and amortization 248 139
Provision for inventory obsolescence 83 35
Loss on sale of securities and investments - - 2
Changes in operating assets and liabilities 67 (200)
------- -------
Cash flows (used in) operating activities (163) (1,300)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of securities and investments - - (1,043)
Proceeds from sale of securities and investments - - 1,759
Inventory returned from gaming operations 84 - -
Purchases of property and equipment (111) (256)
------- -------
Cash flows provided from (used in) investing activities (27) 460
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on notes payable (47) (10)
------- -------
Cash flows (used in) financing activities (47) (10)
------- -------
DECREASE IN CASH AND CASH EQUIVALENTS (237) (850)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,518 2,993
------- -------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 1,281 $ 2,143
======= =======
SUPPLEMENTAL DISCLOSURE OF CASH FLOWS INFORMATION:
Cash paid for interest $ 1 - -
======= =======
</TABLE>
See Notes to Consolidated Condensed Financial Statements.
Page 5 of 12
<PAGE> 6
INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MARCH 31, 1998
(UNAUDITED)
(1) BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited consolidated condensed financial statements have been
prepared by the Company pursuant to the rules and regulations of the Securities
and Exchange Commission. Certain information and footnote disclosures normally
included in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules and
regulations. Although management believes that the disclosures are adequate to
make the information presented not misleading, it is suggested that these
interim consolidated condensed financial statements be read in conjunction with
the Company's most recent audited consolidated financial statements and notes
thereto included in the Company's Annual Report to Shareholders and Form 10-K
for the year ended December 31, 1997. In the opinion of management, all
adjustments (consisting only of normal recurring adjustments) necessary for a
fair presentation of the financial position, results of operations and cash
flows for the interim periods presented have been made. Operating results for
the three months ended March 31, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998.
(2) COMMITMENTS AND CONTINGENCIES
The manufacture, distribution and sale of the Company's products are regulated
by various jurisdictions and entities, including requirements to obtain licenses
and product approval in several jurisdictions. The Company has obtained required
licenses and product approvals in certain jurisdictions and is continuing
efforts to obtain such approvals in other jurisdictions. Failure to successfully
obtain and/or maintain such licenses and approvals, or meet other regulatory
requirements could materially impact the expansion and future operation of the
Company. Additionally, there is no assurance that the Company's products will be
accepted in the marketplace upon obtaining regulatory approvals. As a result,
the Company's quarterly results may be volatile until all product approvals have
been obtained and appropriate marketing efforts have been successfully performed
in major gaming markets.
The Company purchases certain key electronic components, which are not available
from other sources, from a Japanese supplier at a negotiated fixed price for a
period extending into mid-1999.
(3) RELATED PARTY TRANSACTIONS
Grand Casinos, Inc. ("GCI"), which is in the business of owning, managing and
developing casinos, is a stockholder of the Company. Lyle Berman, Chairman of
the Board of the Company, is a principal shareholder and Chairman of the Board
of GCI, and was Chief Executive Officer from October 1991 through March 1998.
Under an existing machine purchase agreement, GCI may purchase up to an
aggregate of 125 games in quantity purchases at distributor level prices.
Previous quantity sales were also made to GCI at distributor level prices for
the purpose of testing, evaluating and marketing the Company's blackjack, craps
and roulette games. The Company made no machine sales to GCI during the
three-month periods ended March 31, 1997 or 1998.
(4) COMMON STOCK
On October 20, 1994, the Company's Board of Directors authorized the Company to
repurchase up to 500,000 shares of its currently outstanding Common Stock from
time to time on the open market or in privately negotiated transactions
depending on market conditions. As of March 31, 1998, the Company had
repurchased 248,500 shares at prices ranging from $3.56 to $6.08 per share for
total consideration of $1,199,000. No shares were repurchased during the
three-month periods ended March 31, 1997 or 1998.
(5) INCOME TAXES
The Company has adopted Statement of Financial Accounting Standards
No. 109-"Accounting for Income Taxes", under which deferred income tax assets
and liabilities are recognized for differences between financial and income tax
reporting basis of assets and liabilities based on currently enacted rates and
laws. The Company had cumulative federal net operating loss carry forwards of
approximately $10,294,000 as of December 31, 1997. These losses, if not used,
begin to expire in 2009 through 2012. The use of approximately $1,250,000 of
these losses is limited to approximately $250,000 per year for the next five
years because the loss was generated in a short tax year. Future changes in the
ownership of the Company may place limitations on the use of these net operating
loss carry forwards.
Page 6 of 12
<PAGE> 7
INNOVATIVE GAMING CORPORATION OF AMERICA AND SUBSIDIARY
NOTES TO CONSOLIDATED CONDENSED FINANCIAL STATEMENTS - CONTINUED
MARCH 31, 1998
(UNAUDITED)
(6) EARNINGS PER SHARE
The Company has adopted Statement of Financial Accounting Standards No. 128
"Earnings Per Share"-(SFAS No. 128). SFAS No. 128 is effective for periods
ending after December 15, 1997, and replaces previously reported earnings per
share with "basic" and "diluted" earnings per share. The earnings per share data
for the periods presented is based on weighted average common shares outstanding
and on the same basis as "basic" earnings per share calculated under SFAS No.
128. Diluted earnings per share is not presented because the resulting earnings
per share would be antidilutive for each period reported.
(7) FINANCING ARRANGEMENT
In March 1998, Innovative Gaming, Inc. entered into a loan commitment securing
$2 million from a third party lender. The initial funding of approximately
$910,000 was completed on April 13, 1998. The loan is payable in 36 equal
installments including interest paid in arrears at a rate of 12.06 percent. This
financing is secured by certain of the Company's long-term receivables and a
corporate guarantee from IGCA. Additional funding under this arrangement is
available through December 1, 1998. The Company's borrowing capacity under this
arrangement is dependent upon the level of receivables generated through "bucket
sales" agreements.
Page 7 of 12
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company was formed in 1991 to develop, manufacture, market and distribute
group participation and other specialty gaming machines. The Company
manufactures, distributes and markets electronic blackjack (including
progressive blackjack), craps, roulette and Bonus StreakTM machines to gaming
markets worldwide. Since inception, the Company has focused most of its
resources on the regulatory approval process and the sale and installation of
its machines and the development of other products.
In February 1997, the Company received technical game approval for its
multi-station blackjack machine from Colorado regulatory authorities. The
Company, through its Colorado distributor, Vista Gaming Corporation, commenced
placing its blackjack games in Colorado casinos on a lease basis in late
February 1997. In February and March 1997, the Nevada Gaming Commission granted
the Company technical game approval of its Hot Shot DiceTM , BJ BlitzTM and
Lightning StrikeTM Roulette machines for use in Nevada. In May 1997, the Nevada
Gaming Commission granted the Company technical game approval of its Bonus
StreakTM specialty game. In September 1997, the Company received interim
approval for its multi-station blackjack and roulette games for use in the club
markets of New South Wales, Australia.
The Company distributes its products both directly to the gaming marketplace and
through licensed distributors. In certain jurisdictions, the Company has
received technical game approval but has not sought or received its
distributor's license. In certain jurisdictions the Company may use an existing
licensed distributor to sell its products pursuant to any necessary Tribal or
regulatory transaction approvals. The Company has, and/or intends to apply for
necessary licenses or technical game approvals in key jurisdictions both
domestically and internationally where legalized electronic gaming is permitted.
RESULTS OF OPERATIONS FOR THE THREE MONTHS
ENDED MARCH 31, 1998 COMPARED TO MARCH 31, 1997
For the three months ended March 31, 1998, the Company recorded a loss
attributable to common shareholders of $561,000, or $.07 per share, compared to
a loss of $1,276,000, or $.20 per share, recorded for the three months ended
March 31, 1997. The improved operating results were primarily attributable to an
increase in revenues and productivity gains. The operating loss in the prior
year was primarily attributable to low sales volume and gross profit while
expenses were incurred related to the Company's continuing efforts to
develop/enhance and license its products and introduce those products into new
markets.
SALES, COST OF SALES AND GROSS PROFIT
Total sales for the quarter ended March 31, 1998, were $2,249,000 compared to
$467,000 recorded in the quarter ended March 31, 1997. The Company sold 43 games
in the 1998 period compared to 6 games in the prior year period. Sales for the
three month period ended March 31, 1998, included 19 games sold to the Company's
distributor in Australia, while no sales were made to this customer in the
comparable 1997 period. Sales will continue to be volatile while, among other
things, new jurisdictional licenses and/or distribution agreements are obtained
and marketing efforts successfully performed. In addition, the Company believes
that sales to its Australian distributor will continue to account for a
significant portion of the Company's 1998 sales. Disruption in this agreement
could have a material adverse affect on the Company's 1998 results of
operations.
The Company also recognized lease/participation revenues in 1998 attributable to
placement of games in Colorado and Nevada casinos, subsequent to receiving
regulatory approval in those jurisdictions in the first half of 1997. In Nevada,
game placements under lease/participation agreements have been slower than
originally expected due to increasing customer resistance with participation
arrangements. The Company has expanded its marketing strategy in Nevada to
attract a greater number of casino operators by also offering its games for
sale.
Page 8 of 12
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31,
1998 COMPARED TO MARCH 31, 1997 - CONTINUED
The gross margin for the first quarter of 1998 was 27.7% compared to 14.6% for
the first quarter of 1997. The higher gross margin in 1998 was primarily due to
the increase in revenues and spreading fixed overhead costs over the larger
number of units produced, design changes to reduce production costs and
purchasing materials domestically at more competitive prices than were
previously paid to foreign sources.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expense for the three months ended March 31,
1998 was $1,214,000 compared to $1,429,000 for the three months ended March 31,
1997. In the quarter ended March 31, 1997, expenses related to establishing the
production operation were charged to operating expense. In 1998, with full
production operations implemented, the costs were included in cost of sales as
labor and overhead included in the products assembled and sold.
INTEREST INCOME
In the quarter ended March 31, 1998, interest income was $31,000 compared to
$85,000 in the quarter ended March 31, 1997. The decrease in interest income was
due to a decrease in investments in interest bearing accounts.
ACCUMULATED DEFICIT
The Company had an accumulated deficit of $13,009,000 as of March 31, 1998. Due
to the high degree of regulation and other factors of the business environment
in which the Company operates, the likelihood of future profitable quarters
cannot be predicted. Future results are highly dependent on the Company's
ability to, among other things, obtain the necessary licenses and/or product
approvals in various jurisdictions in order to expand its market base. There can
be no assurance as to the time frame during which such anticipated approvals may
occur due to uncertain time periods involved in the regulatory approval process.
Due to the unique nature and prices of the Company's products, it is difficult
to predict the appropriate selling cycle time frame involved in each new
jurisdiction. Operating results are also affected by seasonal factors in certain
markets, cycles of casino expansions and equipment replacements, changing
technology and the expansion or addition of gaming markets.
As a result of these and other factors, the Company expects quarterly results to
be volatile until licenses and approvals are obtained in certain major gaming
markets and appropriate marketing efforts can be performed in new jurisdictions.
The Company has experienced delays in acquiring certain gaming licenses and/or
product approvals in key jurisdictions. Future sales and earnings levels are
expected to continue to be negatively impacted until, among other things,
approvals are received in new jurisdictions. The Company is currently in the
process of obtaining technical game approval of its products in Quebec, Canada,
and in France.
LIQUIDITY AND CAPITAL RESOURCES
On October 20, 1994, the Company's Board of Directors authorized the Company to
repurchase up to 500,000 shares of its currently outstanding Common Stock from
time to time on the open market or in privately negotiated transactions
depending on market conditions. As of March 31, 1998, the Company had
repurchased 248,500 shares at prices ranging from $3.56 to $6.08 per share for
total consideration of $1,199,000. No shares were repurchased during the three
months ended March 31, 1997 or 1998.
Page 9 of 12
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - CONTINUED
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED
MARCH 31, 1998 COMPARED TO MARCH 31, 1997 - CONTINUED
In March 1998, Innovative Gaming, Inc. entered into a loan commitment securing
$2 million from a third party lender. The initial funding of approximately
$910,000 was completed on April 13, 1998. The loan is payable in 36 equal
installments including interest paid in arrears at a rate of 12.06 percent. This
financing is secured by certain of the Company's long-term receivables and a
corporate guarantee from IGCA. Additional funding under this arrangement is
available through December 1, 1998. The Company's borrowing capacity under this
arrangement is dependent upon the level of receivables generated through "bucket
sales" agreements.
On May 13, 1998, the Company issued 3,000 shares of Series B Convertible
Preferred Stock (the "Preferred Stock") at a price of $1,000 per share in a
private placement for total proceeds of $3,000,000. The Company expects net
proceeds to be approximately $2,830,000 from such private placement after the
payment of fees and expenses associated with such private placement. An annual
dividend of 4% shall be paid quarterly in arrears either in Preferred Stock of
the Company or cash at the Company's discretion.
Each share of Preferred Stock is convertible into shares of the Company's Common
Stock at a conversion price of 91% of the three consecutive day average of the
lowest closing bid price of the Company's Common Stock over the twenty-day
trading period ending the day prior to conversion (the "Conversion Price"). The
Conversion Price may not exceed 135% of the ten day average of the closing bid
price of the Company's Common Stock ending on May 12, 1998. The maximum number
of shares of Common Stock that may be issued upon conversion is 1,505,000. The
Company has the right to redeem the Preferred Stock at 115% of par in cash
beginning July 13, 1998. Twenty-five percent (25%) of the Preferred Stock is
convertible into Common Stock, at the election of the holder thereof, at the
earlier of August 14, 1998 or the date of effectiveness of the Registration
Statement with the Securities and Exchange Commission (the "Effective Date") and
all necessary gaming regulatory approvals. Twenty-five percent (25%) of the
Preferred Stock is convertible 30 days after the Effective Date; (25%) of the
Preferred Stock is convertible 60 days after the Effective Date; and the
remaining (25%) of the Preferred Stock is convertible 90 days after the
Effective Date. All outstanding shares of Preferred Stock will automatically be
converted into Common Stock eighteen months following the Effective Date. A
holder of Preferred Stock may not convert such stock into Common Stock if,
following such conversion, the holder beneficially owns in excess of 4.9% of the
Company's Common Stock. The Company is obligated to file a Registration
Statement related to the Common Stock at the expense of the Company pursuant to
obligations contained in a Registration Rights Agreement dated May 13, 1998.
As of March 31, 1998, the Company had a $1,000,000 standby letter of credit
primarily to facilitate acquisition of components and supplies from a foreign
vendor. As of March 31, 1998, no amount was outstanding. The facility is
collateralized by short-term investments of the Company.
The Company had $281,000 and $518,000 in cash and cash equivalents as of March
31, 1998 and December 31, 1997, respectively. As mentioned above, the Company
secured a loan commitment in March 1998 and obtained initial funding of
approximately $910,000 under the agreement in April 1998. In addition, the
Company is actively seeking equity based financing in the form of a private
placement of approximately $3 million in convertible preferred stock. The
Company believes that its cash and cash equivalents, restricted investments, and
existing debt arrangements will be sufficient to meet the Company's immediate
liquidity and capital requirements. Long-term capital requirements are expected
to be fulfilled through cash flows from operations and additional debt and
equity financings. No assurance can be given that the Company can obtain, or
obtain on terms acceptable to the Company, such additional debt and equity
financing. The Company had long-term debt of $487,000 as of March 31, 1998.
PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.
The foregoing Management's Discussion and Analysis contains various
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933, as amended, and Sections 21E of the Securities Exchange Act of
1934, as amended, which represent the Company's expectations or beliefs
concerning future events, including statements regarding the demand for the
Company's products in certain key jurisdictions such as Nevada and Australia. In
addition, statements containing expressions such as "believes," "anticipates,"
"hopeful" or "expects" used in the Company's periodic reports on Forms 10-K and
10-Q filed with the SEC are intended to identify forward looking statements. The
Company cautions that these and similar statements included in this report and
in previously filed periodic reports including reports filed on Forms 10-K and
10-Q are further qualified by important factors that could cause actual results
to differ materially from those in the forward-looking statement, including,
without limitation, the following: decline in demand for gaming products or
reduction in the growth rate of new markets; increased competition; the effect
of economic conditions; a decline in the market acceptability of gaming; ability
to obtain additional financing through leasing, equity or other arrangements;
political and economic instability in developing international markets; a
decrease in the desire of established casinos to upgrade machines in response to
added competition from newly constructed casinos; the loss of a distributor;
changes in interest rates causing a reduction of investment income or in the
market interest rate sensitive investments; loss or retirement of key
executives; approval of pending patent applications or infringement upon
existing patents; the effect of regulatory and governmental actions; unfavorable
determination of suitability by regulatory authorities with respect to officers,
directors or key employees; the limitation, conditioning or suspension of any
gaming license; adverse results of significant litigation matters; fluctuation
in exchange rates, tariffs and other barriers. Many of the foregoing factors
have been discussed in the Company's prior SEC filings and, had the amendments
to the Securities Act of 1933 and Securities Exchange Act of 1934 become
effective at a different time, would have been discussed in an earlier filing.
Page 10 of 12
<PAGE> 11
PART II
OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 4 - Certificate of Designation dated as of May 13, 1998.
Exhibit 10.1 - Loan Agreement between the Company and Finova
Capital Corporation dated as of April 13, 1998.
Exhibit 10.2 - Form of Subscription Agreement dated as of May 13,
1998.
Exhibit 10.3 - Form of Registration Rights Agreement dated as of
May 13, 1998.
Exhibit 27 - Financial Data Schedule - which is only submitted
electronically to the Securities and Exchange Commission for
EDGAR information purposes.
(b) Reports on Form 8-K
None.
Page 11 of 12
<PAGE> 12
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant has duly
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
INNOVATIVE GAMING CORPORATION OF AMERICA
/s/ Scott Shackelton
------------------------------
Scott Shackelton
Chief Financial Officer
(Principal Accounting Officer)
Date: May 14, 1998
Page 12 of 12
<PAGE> 13
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
- ------- -----------
<S> <C>
4 Certificate of Designation dated as of May 13, 1998
10.1 Loan Agreement between the Company and Finova Capital
Corporation dated as of April 13, 1998
10.2 Form of Subscription Agreement dated as of May 13, 1998
10.3 Form of Registration Rights Agreement dated as of May 13, 1998
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 4
INNOVATIVE GAMING CORPORATION OF AMERICA
CERTIFICATE OF DESIGNATION OF
SERIES B 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 May 13, 1998,
adopted the following resolution creating a series of preferred stock designated
as Series B 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 B 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 B 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(f) 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 Preferred Shares 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 Preferred Shares, 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 and the holders of Preferred Shares shall be entitled to
receive a number of Preferred Shares with a Liquidation Value equal to the value
of the dividend being paid. Accrued but
<PAGE> 2
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
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, the Maximum Conversion Price designated in Section
5(f) and the Maximum Common Stock Issuance designated in Section 5(g) shall be
appropriately adjusted in proportion to the change in the outstanding shares of
Common Stock. Any adjustment made pursuant to this Section shall become
effective immediately after the 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.
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<PAGE> 3
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.
(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:
25% of the Preferred Shares held by the holder as of the closing
of the acquisition of the Preferred Shares (the "Closing Date")
shall be convertible into Common Stock upon the earlier of; a) 90
days after the Closing Date; or b) the date the Common Stock
issuable upon exercise of the Preferred Shares is registered with
the Securities and Exchange Commission (the "First Conversion
Date"); 50% of the Preferred Shares shall be convertible into
Common Stock at any time on or after the 30th day after the First
Conversion Date; 75% of the Preferred Shares shall be convertible
into Common Stock at any time on or after
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<PAGE> 4
the 60th day after the First Conversion Date; and all of the
Preferred Shares shall be convertible into Common Stock at any
time on or after the 90th day after the First Conversion 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, but in any event within five (5)
business days, the Company shall 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 eighteen months after issuance of such shares at the
Conversion Price (as defined herein).
(e) Redemption by Company. The Company may, at any time after the 60th
day following the Closing Date, redeem any or all of the Preferred Shares at
115% of the Liquidation Value of each Preferred Share upon not less than ten
(10) days prior written notice to the holder of Preferred Shares at the address
indicated in the Company's records.
(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 Liquidation Value of the Preferred
Shares being converted divided by the conversion price then in effect (the
"Conversion Price"). The Conversion Price on any Conversion Date shall equal 91%
of the average of the lowest three consecutive closing bid prices of the
Company's Common Stock as reported by Bloomberg, L.P., or if Bloomberg, L.P. is
not reporting such information, any other reporting firm mutually acceptable to
the holder of Preferred Shares being converted and the Company, over the 20
trading days prior to the Conversion Notice Date; provided, however, that the
Conversion Price shall not exceed 135% of the ten (10) day average closing bid
prices of the Company's Common Stock on the day prior to the Closing Date (the
"Maximum Conversion Price").
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<PAGE> 5
(g) Maximum Common Stock Issuance. The Company may not issue more than
1,505,000 shares of Common Stock (the "Maximum Common Stock Issuance" ) at the
Conversion Price upon conversion of the Preferred Shares unless the Company
receives shareholder approval from the holders of the Company's Common Stock.
(h) Inability to Fully Convert. If, upon the Company's receipt of a
Conversion Notice, the Company cannot issue shares of Common Stock in
satisfaction of such Conversion Notice because (i) the Company has issued the
Maximum Common Stock Issuance and has not received the approval of the holders
of the Company's Common Stock pursuant to Section 5(g) hereof or (ii) the
limitations of Section 5(a) are applicable, or (iii) the Company is otherwise
prohibited by applicable law or by the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Company or its securities, including without
limitation the NASDAQ National Market from issuing all of the Common Stock which
is to be issued to a holder of Preferred Shares pursuant to a Conversion Notice
at the Conversion Price, then the Company shall issue as many shares of Common
Stock as it is able to issue in accordance with such holder's Conversion Notice
and pursuant to Section 5(g) above and, with respect to the unconverted
Preferred Shares, the Company will, at the Company's option:
1) Redemption. Redeem the unconverted Preferred Shares for cash at a
price equal to 115% of the Liquidation Value of such shares; or
2) (i) Stock Issuance at Fair Market Value. Convert such unconverted
Preferred Shares without a discount into Common Stock at a conversion
price equal to the greater of (a) the closing sales price of the
Company's Common Stock on the Closing Date; or (b) 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 Date (the "Conversion Date Price"); and
(ii) Cash Payment. Pay cash to the holder of such unconverted
Preferred Shares equal to (a) the difference of (i) the number of shares
of Common Stock that would have been issued at the lesser of the
Conversion Price or the average closing bid price of the Company's
Common Stock as reported by Bloomberg, L.P. over the last four days of
trading ending on the day prior to the Conversion Date and (ii) the
number of shares of Common Stock issued pursuant to Section 5(h)(2)(i)
above multiplied by (b) the Conversion Date Price; or
(3) any combination of Section 5(h)(1) and Section 5(h)(2) above.
6. Other Terms of Series B 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
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<PAGE> 6
average closing bid price of Common Stock at the record date mentioned below,
the 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 or 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 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 Maximum Conversion Price 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
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<PAGE> 7
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, 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
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<PAGE> 8
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 mailing thereof
shall not affect the validity of the corporate action required to be specified
in such notice.
(f) 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 pari passu or 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.
(g) 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 Company shall redeem such
Redeemed Preferred Shares at 115% of the Liquidation Value of each Preferred
Share.
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<PAGE> 9
IN WITNESS WHEREOF, Innovative Gaming Corporation of America has caused
this Certificate to be duly executed in its corporate name on this ____ day of
May, 1998.
INNOVATIVE GAMING CORPORATION OF AMERICA
By: /s/ Edward G. Stevenson
----------------------------------------------
Edward G. Stevenson
Its: President and Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.1
PROMISSORY NOTE
April 13, 1998
$909,698.50 Paramus, New Jersey
FOR VALUE RECEIVED, INNOVATIVE GAMING, INC., a Nevada corporation, having its
principal place of business at 4750 Turbo Circle, Reno, Nevada 89502 (the
"Borrower"), hereby promises to pay to the order of FINOVA CAPITAL CORPORATION
(the "Lender"), at 115 West Century Road, Paramus, New Jersey 07652, the
principal sum of Nine Hundred and Nine Thousand Six Hundred Ninety-Eight and
50/100 Dollars ($909,698.50), plus interest on the unpaid principal balance the
rate of interest equal to the Index Rate plus six and fifty-one hundredths
(6.5l%) percent per annum (the "Interest Rate"), payable in thirty six (36)
equal and consecutive monthly installments of principal and interest each in an
amount which will fully amortize the principal amount of the Note at the
Interest Rate over thirty six (36) months. The "Index Rate" shall be the highest
yield, as published in The Wall Street Journal on the first business day
preceding the date hereof for Treasury Notes having a maturity date on or
closest to he maturity date of this Note. Interest shall be calculated on basis
of a year of 360 days and twelve months of thirty (30) days each and charged on
a daily basis. The first such monthly payment of principal and interest shall be
due and payable on the thirtieth (30th) day of the month immediately succeeding
the date hereof and continuing on a like day in each month thereafter
<PAGE> 2
through and including the maturity date, upon which date, all outstanding
principal, interest and charges due hereunder shall paid in full. If the date
hereof is not the thirtieth (30th)day of the month, Borrower shall pay on the
thirtieth (30th) day the current month, interest only, at the Interest Rate,
from the date hereof to the second to last day of the current month. Lender
shall compute the amount of each payment and advise Borrower of such amount.
This Note is one of the Notes referred to in that certain Security
Agreement (the "Security Agreement") dated April 13, 1998 by and between the
Lender and the Borrower, is secured as set forth therein, and is entitled to the
benefits thereof. All capitalized terms used in this Note which are not
otherwise defined herein shall have the respective meanings ascribed thereto in
the Security Agreement. All of the terms of the Security Agreement are
incorporated in this Note by reference as if fully set forth herein.
All payments made by the Borrower hereunder, shall be applied first to
late charges, fees, costs, expenses and all other amounts due the Lender, if
any, under the Security Agreement, this Note or otherwise (including legal fees
and expenses incurred in enforcing its rights) , other than principal and
interest, then to interest at the rate of interest then in
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<PAGE> 3
effect, and the balance to the principal balance due under this Note.
All payments on this Note are to be made in lawful money of the United
States of America in immediately available funds, without setoff, counterclaim
or deduction of any nature, at the office of the Lender at 115 West Century
Road, Paramus, New Jersey 07062, or such other place as the holder hereof shall
designate to the Borrower in writing.
All indebtedness outstanding under this Note shall bear interest after
maturity, whether at its maturity date, by acceleration or otherwise, at the
interest rate then in effect plus four percent (4%) per annum, but in no event
greater than the highest rate of interest which may be charged by the Lender or
which the Borrower may legally contract to pay under applicable law.
If the Borrower shall fail to make any payments within ten (10) days
after the same is due, the Borrower shall pay a late charge of ten percent (10%)
of the unpaid amounts, but in no event greater than the maximum rate permitted
by law, to cover the Lender's administrative costs occasioned by such delay.
If any payment of principal or interest becomes due on a Saturday,
Sunday or any other day which is not a business day,
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<PAGE> 4
such payment shall be deferred to, and shall be payable on, the next business
day.
The Lender and the Borrower intend this Note to comply in all respects
with all provisions of law and not to violate, in any way, any legal limitations
on interest charges. Accordingly, if for any reason the Borrower is required to
pay or has paid, interest at a rate in excess of the highest rate of interest
which may be charged by the Lender or which the Borrower may legally contract to
pay under applicable law (the "Maximum Rate") , then the interest rate shall be
deemed to be reduced, automatically and immediately, to the Maximum Rate, and
interest payable hereunder shall be computed and paid at the Maximum Rate and
the portion of all prior payments of interest in excess of the Maximum Rate
shall be deemed to have been payments in reduction of the outstanding principal
of this Note and applied as partial prepayments.
This Note may not be prepaid in whole or in part.
Upon the occurrence of an Event of Default, the Lender shall have all of
the rights and remedies contained in the Security Agreement, including, without
limitation, the right, at its option, to declare all indebtedness under this
Note to be immediately due and payable.
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<PAGE> 5
The Borrower hereby expressly waives presentment for payment, demand for
payment, notice of dishonor, protest, notice of protest, notice of non-payment,
and all lack of diligence or delays in collection or enforcement of this Note or
the Agreement.
The Lender may extend the time of payment of this Note, postpone the
enforcement hereof, release any collateral securing this Note, or grant any
other indulgences whatsoever without affecting or diminishing the Lender's right
of recourse against the Borrower, as provided herein, which right is hereby
expressly reserved. The failure to assert any right by the Lender shall not be
deemed a waiver thereof.
This Note is binding upon the Borrower and its successors and assigns;
provided, however, that the Borrower shall not be entitled to assign or delegate
any rights or obligations under his Note without the prior written consent of
the Lender. The Borrower hereby consents to the Lender's sale, assignment,
transfer or other disposition at any time or times hereafter, of this Note, of
any right or interest herein contained. Upon such assignment, the assignee shall
have all of the rights of the Lender to enforce any term of this Note. The
Borrower agrees not to assert as against any such assignee any claims, offsets,
deductions or defenses it may have against the Lender for breach of this Note or
otherwise.
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<PAGE> 6
This Note may be amended, modified or supplemented only by written
agreement signed on behalf of the Lender and the Borrower.
The Borrower agrees to pay all costs, fees and expenses of collection,
including, without limitation, the Lender's reasonable attorneys' fees and
disbursements, in the event that any action, suit or proceeding is brought by
the holder hereof to collect this Note or if an Event of Default shall have
occurred.
THIS NOTE SHALL BE DEEMED TO HAVE BEEN MADE IN AND SHALL BE CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA.
THE BORROWER IRREVOCABLY CONSENTS THAT ANY LEGAL ACTION OR PROCEEDING
AGAINST IT UNDER, ARISING OUT OF OR IN ANY MANNER RELATING TO THIS NOTE, MAY BE
BROUGHT IN ANY COURT OF THE STATE OF NEVADA LOCATED IN CLARK COUNTY OR ANY
UNITED STATES DISTRICT COURT LOCATED IN THE STATE OF NEVADA. THE BORROWER, BY
ITS EXECUTION AND DELIVERY OF THIS NOTE, EXPRESSLY AND IRREVOCABLY ASSENTS AND
SUBMITS TO THE PERSONAL JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR
PROCEEDING. THE BORROWER FURTHER AGREES THAT ANY LEGAL ACTION OR PROCEEDING
BORROWER MAY BRING, ARISING OUT OF OR IN ANY MANNER RELATING TO THIS NOTE, THE
SECURITY AGREEMENT OR ANY OTHER LOAN DOCUMENTS, SHALL ONLY BE BROUGHT IN ANY
STATE COURT OF THE STATE OF NEVADA LOCATED IN CLARK COUNTY OR IN THE UNITED
STATES DISTRICT COURT FOR THE
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<PAGE> 7
DISTRICT OF NEVADA. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
ANY COMPLAINT, SUMMONS, NOTICE OR OTHER PROCESS RELATING TO SUCH ACTION OR
PROCEEDING BY DELIVERY THEREOF TO IT BY HAND OR BY MAIL IN THE MANNER PROVIDED
FOR IN THE SECURITY AOREEMENT. THE BORROWER HEREBY EXPRESSLY AND IRREVOCABLY
WAIVES ANY CLAIM OR DEFENSE IN ANY SUCH ACTION OR PROCEEDING BASED ON ANY
ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON CONVENIENS OR
ANY SIMILAR BASIS. THE BORROWER SHALL NOT BE ENTITLED IN ANY SUCH ACTION OR
PROCEEDING TO ASSERT ANY DEFENSE GIVEN OR ALLOWED UNDER THE LAWS OF ANY STATE
OTHER THAN THE STATE OF NEVADA, UNLESS SUCH DEFENSE IS ALSO GIVEN OR ALLOWED BY
THE LAWS OF THE STATE OF NEVADA. NOTHING IN THIS PARAGRAPH SHALL AFFECT OF
IMPAIR IN ANY MANNER OR TO ANY EXTENT THE RIGHT OF THE LENDER TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY JURISDICTION OR TO
SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
TO THE EXTENT PERMITTED BY LAW, THE BORROWER HEREBY WAIVES ANY RIGHT TO
A TRIAL BY JURY.
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<PAGE> 8
IN WITNESS WHEREOF, the Borrower has duly executed this Grid Note on the
date first above written.
INNOVATIVE GAMING, INC.
By: /s/ S. Shackelton
-------------------------
Title: V.P. Finance & CFO
----------------------
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<PAGE> 9
SECURITY AGREEMENT
SECURITY AGREEMENT, made this 13th day of April, 1998, by and between
INNOVATIVE GAMING, INC , a Nevada corporation, having an office at 4750 Turbo
Circle, Reno, Nevada 89502 (the "Borrower"); and FINOVA CAPITAL CORPORATION, a
New Jersey corporation, having an office at 115 West Century Road, Paramus, New
Jersey 07652 (the "Lender");
WITNESSETH:
WHEREAS, contemporaneously herewith, the Lender is making one or more
loans (collectively, the "Loans") to the Borrower in the maximum principal sum
of Two Million Dollars ($2,000,000);
WHEREAS, the Loan is or will be evidenced by one or more (Promissory Notes
(collectively, the "Notes") in the aggregate principal sum of the Loans; and
WHEREAS, the Lender may, in the future and in its sole discretion, make
additional loans or other financial accommodations to the Borrower; and
WHEREAS, in order to induce the Lender to make the Loans and any such
future loans or financial accommodations to the Borrower, the Borrower has
agreed to execute and deliver this Security Agreement.
NOW, THEREFORE, in consideration of the foregoing, and of any extension of
credit heretofore, now or hereafter made by the Lender to the Borrower, the
parties hereto hereby agree as follows:
1. Security Interest. To secure the due payment and performance by the
Borrower of all indebtedness and other liabilities and obligations, whether now
existing or hereafter arising, of the Borrower to the Lender under, arising out
of or in any way connected with this Agreement, the Notes and all agreements,
instruments, guaranties and other documents executed and delivered in connection
herewith or therewith (this Agreement, the Notes and such other agreements,
instruments and
<PAGE> 10
documents are sometimes hereinafter referred to collectively as (the "Loan
Documents") , or otherwise, and to secure any other obligations of the Borrower
to the Lender, joint, several or otherwise, whether now existing or hereafter
arising, all hereinafter referred to collectively as the "Obligations", the
Borrower hereby assigns, grants, mortgages, pledges, hypothecates, transfers and
sets over to the Lender, a lien on ad security interest in and to the following
(collectively, the "Collateral"):
(i) all rights, powers and remedies (but no obligations) of Borrower under
the Bucket Sales Agreements for gaming equipment entered into between Borrower
and casino operators (the "Casinos") listed on Schedule I annexed hereto made a
part hereof (the "Bucket Sales Agreements")
(ii) the payments due and to become due under the Bucket Sales Agreements
(the "Payments")
(iii) the equipment which is the subject of the Bucket Sales Agreements
(the "Equipment"); and
(iv) all replacements, substitutions and proceeds of the foregoing,
including without limitation, insurance proceeds.
2. Financing Statements and Notices of Assignment. At the Lender's
request, the Borrower shall execute and/or deliver to the Lender, at any time or
times hereafter, all Uniform Commercial Code financing statements and amendments
and all other agreements, documents and instruments requested by the Lender to
perfect and maintain the Lender's security interest in the Collateral. The
Borrower agrees that a carbon, photographic, photostatic or other reproduction
of this Agreement or of a financing statement is sufficient as a financing
statement. To the extent permitted by law, the Borrower authorizes the Lender to
sign and file Uniform Commercial Code financing statements and amendments
without the Borrower's signature. The Borrower shall have delivered to Lender on
Borrower's standard letterhead notices of assignment executed by Borrower in the
form of Exhibit A annexed hereto, provided Lender shall not complete nor
- 2 -
<PAGE> 11
mail such notices to the Casinos unless an Event of Default occurs.
3. The Lender's Payment Of Claims Asserted Against The Collateral. The
Lender may, but shall have no obligation to, pay, acquire, discharge and/or
accept an assignment of any security interest, lien, claim or encumbrance
asserted by any person against the Collateral, provided that the Lender shall
first give the Borrower written notice of the Lender's intent to do the same,
and the Borrower does not, within ten (10) days of such notice, pay such claim
and/or obtain to the Lender's reasonable satisfaction the release of the
security interests, liens, claims or encumbrances to which such notice relates.
All sums paid by the Lender in respect thereof and all costs, fees and expenses,
including reasonable attorneys' fees, court costs, expenses and other charges
relating thereto, which are incurred by the Lender on account thereof, shall be
payable, on demand, by the Borrower to the Lender and shall be additional
obligations hereunder secured by the Collateral.
4. Reassignment And Release Upon Termination And Payment Of All
Indebtedness. Upon the receipt of evidence satisfactory to Lender of the payment
in full of all indebtedness and the satisfaction of all of any Casino's
obligations to Borrower under the related Bucket Sales Agreement, the Lender
shall release the security interest in the Collateral related to such Bucket
Sales Agreement and file termination statements with respect to all financing
statements covering such Collateral; provided, however, Lender may require
Borrower to substitute collateral acceptable to Lender in its sole judgment for
the Collateral released.
5. Representations And Warranties. The Borrower represents and warrants
that:
(a) The Borrower is a Nevada corporation, duly organized and
existing under the laws of the State of Nevada and is duly authorized to do
business and in good standing wherever the ownership of its property or the
conduct of its business requires such authorization.
(b) The Borrower has the right and power and is duly authorized
and empowered to enter into, execute, deliver and perform this Agreement and any
other agreement or instrument
- 3 -
<PAGE> 12
referred to herein, and this Agreement and all such other agreements and
instruments are valid and binding upon and enforceable against the Borrower in
accordance with their respective terms. The Borrower has taken all action
required to authorize the execution1 delivery and performance of this Agreement
and all other agreements or documents required hereunder and the transactions
contemplated hereby.
(c) The execution, delivery and/or performance by the Borrower of
this Agreement and any other agreement or instrument referred to herein shall
not, by the lapse of time the giving of notice or otherwise, constitute a
violation of, or result in the breach of or accelerate or permit the
acceleration of the performance required by the terms of any applicable law,
rule or regulation of any governmental body, or any provision contained in the
Borrower's certificate of incorporation or by-laws or contained in any
agreement, instrument or document to which the Borrower is now a party or by
which it or its assets are bound, result in the creation of any claim, lien,
charge or encumbrance upon any of the property or assets of the Borrower (except
those granted to the Lender pursuant hereto) - No consent, approval,
authorization or declaration of, designation or filing with any governmental
authority or other person or entity on the part of the Borrower is required in
connection with the valid execution, delivery or performance of this Agreement
and the consummation of the transactions contemplated hereby, except as have
been obtained prior to the date hereof or are necessary to perfect the Lender's
security interest in the Collateral.
(d) The original Bucket Sales Agreements have been de1ivered to
Lender. The Bucket Sales Agreements are genuine and each represents a valid
deferred payment obligation of the Casino for the amount of the Payments. To the
best of Borrower's knowledge, the Casino does not have, and will not have, any
defense, offset or claim with respect to the Bucket Sales Agreements, the
Equipment or the Payments. The Bucket Sales Agreements conform to all applicable
laws, except where failure to comply would not have a material adverse effect on
this Agreement. The Borrower has the right to assign, pledge or encumber the
Collateral. The Borrower has a perfected first security interest in the
Equipment, free and clear of all liens,
- 4 -
<PAGE> 13
claims, security interests and encumbrances except those granted
to the Lender pursuant hereto.
(e) The Borrower is not in violation of any applicable statute,
regulation or ordinance of any governmental entity or authority, including,
without limitation, the United States of America, any state, city, town,
municipality, county or of any other jurisdiction, or of any agency thereof,
which could in any respect materially and adversely affect the Collateral or the
Borrower's business, property, assets, operations or condition, financial or
otherwise.
(f) The Borrower is not in default in any material respect with
respect to any indenture, loan agreement, mortgage, lease, deed or other similar
agreement relating to the borrowing of monies to which the Borrower is a party,
or by which the Borrower or the Borrower's assets may be bound.
(g) The Borrower has delivered to the Lender the Borrower's
financial statements as part of the Lender's credit review (the "Financial
Statements") . Such Financial Statements have been prepared in accordance with
generally accepted accounting principles consistently applied and fully and
fairly resent the assets, liabilities and financial condition of the Borrower as
of the respective dates thereof and for the periods covered thereby; there are
no omissions of other facts or circumstances which are or may be material and
there has been no material adverse change in the financial condition of the
Borrower or its shareholders since the date of such Financial Statements except
as may have been previously disclosed to the Lender.
(h) There are no actions or proceedings which are pending or
threatened in any court or before any governmental agency or instrumentality
against the Borrower, its assets, or the Collateral, which may materially
adversely affect the Borrower or the Collateral.
(i) The Borrower has filed or has obtained extensions or the
filing of all federal, state and local tax returns and her reports it is
required by law to file and has paid all taxes, assessments and charges
reflected thereon that are due payable and has reserved funds or made adequate
provision for the
- 5 -
<PAGE> 14
payment of such taxes, assessments and charges accruing but not yet payable.
(j) The security interest granted by the Borrower to Lender in
the Collateral constitutes a valid first perfected lien and security interest in
the Collateral.
(k) No representation or warranty by the Borrower contained
herein or in any certificate or other document furnished by the Borrower
pursuant hereto, in connection with the transactions contemplated hereby,
contains any untrue statement material fact, or omits to state of material fact
necessary to make it not misleading, or necessary to provide the Lender with
proper information as to the Borrower and the Borrower's affairs.
(l) All representations and warranties of the Borrower are true
at the time of the Borrower's execution of this Agreement and shall survive the
execution, delivery and acceptance hereof for the duration of the Notes but not
thereafter.
6. Covenants Of The Borrower. The Borrower covenants that:
(a) Preservation of Corporate Existence. The Borrower will
preserve and maintain its corporate existence and good standing in each State
where it conducts business and shall at all times be a wholly owned subsidiary
of Innovative Gaming Corporation of America.
(b) Liens. The Borrower will not create or permit to exist any
mortgage, pledge, title retention lien, or other lien, encumbrance or security
interest with respect to the Collateral, other than liens to which the Lender
shall have given its prior written consent, and encumbrances in favor of the
Lender.
(c) Insurance. The Borrower will, at its own expense, maintain
and deliver evidence to Lender of such insurance required by Lender, written by
insurers and in amounts satisfactory to Lender. Should the Borrower fail to
furnish the Lender with such insurance, the Lender shall have the right to
effect same and charge the cost thereof to the Borrower, together with interest
thereon at twelve percent (12%) per annum. Such cost, including interest, shall
be additional Obligations
- 6 -
<PAGE> 15
hereunder and secured by the Collateral The Lender's sole obligation hereunder
shall be to credit the Borrower's account with the net proceeds of any insurance
payments received on account of any loss and the Lender shall have no liability
with respect to any loss. The Borrower hereby appoints the Lender as Borrower's
attorney in-fact to adjust all insurance claims and endorse all checks and
drafts in settlement thereof.
(d) Personal Property. The Equipment is and shall remain personal
property at all times regardless of how attached installed at or to the premises
at which the Equipment is located.
(e) Location of Equipment. The Equipment shall at all times be
located in the State of Nevada,
(f) Books and Records; Financial Statements. The Borrower shall
keep books of account and prepare financial statements and furnish to the
Lender:
(i) As soon as practicable after the end of each of the
first three quarterly fiscal periods of the fiscal year of the Borrower,
and in any event within forty-five (45)days thereafter, an unaudited
balance sheet of the Borrower as of the end of such period and an
unaudited statement of income and expense of the Borrower for the period
from the beginning of the fiscal year to the end of such quarterly period,
setting forth in comparative form the figures for the corresponding period
for the previous fiscal year, all in reasonable detail and certified as
complete and correct, subject to year-end adjustments, by the chief
financial officer of the Borrower;
(ii) As soon as practicable after the end of each fiscal
year, and in any event within ninety (90) days thereafter, a balance
sheet of the Borrower as at the end of such year, and a statement of
income and expense of the Borrower for such year, setting forth in
comparative form the figures for the previous fiscal year, all in
reasonable detail and prepared by independent public accountants;
(iii) No later than the tenth (10th) day of each month a
report of the Payments received by the Borrower
- 7 -
<PAGE> 16
pursuant each Bucket Sales Agreement during the immediately preceding
month; and
(iv) Such other data and information (financial and
otherwise) as the Lender, from time to time, may reasonably request,
bearing upon or related to the Collateral and/or the Borrower's financial
condition and/or results of operations.
(g) Litigation. The Borrower will notify the Lender in writing,
promptly upon learning thereof, of the institution of any suit or administrative
proceeding against the Borrower with respect to the Collateral, or directly
against the Collateral, whether or not the claim is considered by the Borrower
to be covered by insurance, and of the institution of any suit or administrative
proceeding which may materially and adversely affect the operations, financial
condition or business of the Borrower or the Lender's security interest in the
Collateral.
(h) Payment of Taxes and Claims. The Borrower will duly pay and
discharge when due and payable, all taxes, assessments and governmental and
other charges, levies or claims levied or imposed, which are, or which if unpaid
might become, a lien or charge upon the Collateral, provided, however, that
nothing contained in this paragraph shall require the Borrower to pay and
discharge, or cause to be paid and discharged, any such tax, assessment, charge,
levy or claim so long as the Borrower in good faith shall contest the validity
thereof and shall set aside on its books adequate reserves with respect thereto.
(i) Inspection. To the extent permitted by the Casinos where the
Equipment is located, the Borrower will permit the Lender, its officers,
employees and/or agents, at all times, during normal business hours to enter
into and upon any premises where the Collateral is located for the purpose of
inspecting the Collateral and all records related thereto (and to make extracts
from such records), observing the Collateral's use or otherwise protecting the
interests of the Lender therein.
(j) Maintenance of Equipment. The Borrower will cause the
Equipment to be maintained in good condition and repair (normal wear and tear
excepted) and cause to be paid and discharged, when due, the cost of repairs or
maintenance, and
- 8 -
<PAGE> 17
will pay or cause to be paid all rent due on the premises where any
Collateral is or may be held.
(k) Landlord and Mortgagee Waivers. If requested by the Lender,
the Borrower shall use its best efforts to obtain and deliver to the Lender any
and all landlord's and mortgagee's waivers, estoppel certificates and other
similar documents to confirm, among other things, that the Equipment shall
remain personal property and that such persons have no interest in the
Equipment.
(l) Dispositions of Assets. The Borrower shall not sell, convey,
assign, lease, abandon or otherwise transfer or dispose of, voluntarily or
involuntarily, the Collateral.
7. Events Of Default; Rights And Remedies On Default.
(a) Event of Default. The occurrence of any one or more of the
following events shall constitute an "Event of default":
(i) The Borrower fails to pay the Notes or any installment
thereunder on the due date thereof;
(ii) The Borrower fails to make any other payment due to
the Lender however arising on the due date thereof;
(iii) The Borrower fails or neglects to perform or observe
any other term, covenant, warranty or representation contained
in this Agreement or any other Loan Document, which is required
to be performed or observed by the Borrower (other than for the
payment of money) and the same is not cured to the Lender's
reasonable satisfaction within thirty (30) days after the giving
of notice by the Lender to the Borrower of such failure;
(iv) The Collateral or a significant part of the
Borrower's other assets are attached, seized, levied upon or
subjected to a writ or distress warrant, or come within the
possession of any receiver, trustee, custodian or assignee for
the benefit of creditors and
- 9 -
<PAGE> 18
the same is not cured within thirty (30) days thereafter;
(v) Any guarantor of the Obligations defaults under or
otherwise breaches any of the terms of his, her or its guaranty
of the Obligations;
(vi) Any guarantor of the Obligations fails or neglects to
perform or observe any other term, covenant, warranty or
representation contained in any Loan Document executed by a
guarantor, which is required to be performed or observed by a
guarantor (other than a guaranty) and the same is not cured to
the Lender's reasonable satisfaction within thirty (30) days
after the giving of notice by the Lender to such guarantor of
such failure;
(vii) The Borrower breaches or defaults under the terms of
any agreement, instrument or document with or for the benefit of
the Lender which is not a Loan Document, including, without
limitation, promissory notes, guaranties, equipment leases and
security documents (including security agreements and deeds of
trust)
(viii) Any guarantor of the Obligations breaches or
defaults under the terms of any agreement, instrument or document
with or for the benefit of the Lender which is not a Loan
Document, including, without limitation, promissory notes,
guaranties, equipment leases and security documents (including
security agreements and deeds of trust)
(ix) An application is made by the Borrower or any person
other than the Borrower for the appointment of a receiver,
trustee or custodian for the Collateral or any other of the
Borrower's assets and in the case of an application made by a
third party, the same is not dismissed within sixty (60) days
after the application therefor;
(x) A petition under any section or chapter of the
Bankruptcy Code or any similar law or regulation
- 10 -
<PAGE> 19
shall be filed by or against the Borrower, and in the case of any
petition filed by any third party, such petition is not dismissed
within sixty (60) days of such filing, or the Borrower makes an
assignment for the benefit of its creditors or any case or
proceeding is filed by or against the Borrower for its dissolution,
liquidation, or termination;
(xi) The indictment or threatened indictment of the
Borrower or any guarantor of the Borrower's Obligations under any
criminal statute, or commencement or threatened commencement of
criminal or civil proceedings against the Borrower or any guarantor
of the Borrower's Obligations pursuant to which the proceedings,
penalties or remedies sought or available include forfeiture of any
of the property of the Borrower or each guarantor;
(xii) The Borrower ceases to conduct its business or is
enjoined, restrained or in any way prevented by court order from
conducting all or any material part of its business affairs; or
(xiii) The Lender in good faith believes that either (i)
the prospect of payment or performance of the Obligations is
impaired, or (ii) the Collateral is not sufficient to secure fully
any of the Obligations
(b) Acceleration of the Obligations. Upon and after an event of
Default, all of the Obligations may, at the option of the Lender and without
presentment, demand, notice, protest or legal process of any kind, be declared,
and immediately shall become, due and payable.
(c) Remedies. Upon and after an Event of Default, the Lender shall
have the following rights and remedies:
(i) All of the rights and remedies of a secured party
under the Uniform Commercial Code or other applicable law, all of
which rights and remedies shall be cumulative, and nonexclusive,
to the extent permitted by law, in addition to any other rights
and remedies contained in this Agreement;
- 11 -
<PAGE> 20
(ii) The right to notify the Casinos of the assignment of
the Bucket Sales Agreements and the Payments
(iii) The right to take any and all action or actions
provided for in this Agreement or any other Loan Document; and
(iv) The right to take such other and further action as
the Lender may at law or in equity be entitled to take.
(d) Notice. Any notice required to be given by the Lender of a
sale, lease, other disposition of the Collateral or any other intended action
by the Lender, may be given in any manner provided for delivery of notices in
this Agreement, five days prior to such proposed action, and, if so given,
shall constitute commercially reasonable and fair notice thereof to the
Borrower.
(e) Costs. The Borrower shall pay all fees and expenses incurred
by the Lender in connection with the transactions contemplated hereby and in the
Notes and the other Loan Documents (including, without limitation, the
enforcement of their terms), including, but not limited to, the Lender's
attorney's fees.
8. Miscellaneous.
(a) Payments. All payments under this Agreement and the Notes
shall be made by the Borrower to the Lender without defense, set-off or
counterclaim and without deduction for any present or future income, stamp or
other taxes, levies, imposts, deductions, charges or withholdings whatsoever
imposed, assessed, levied or collected by or for the benefit of any
jurisdiction or taxing authority. In addition, the Borrower shall pay any and
all taxes (stamp or otherwise) payable or determined to be payable in
connection with the execution and delivery of this Agreement, the Notes and
the other Loan Documents to be delivered hereunder, and on all payments to be
made by the Borrower hereunder and under the Notes (other than the Lender's
income taxes) and all taxes payable in connection with or related to the
Collateral.
- 12 -
<PAGE> 21
(b) Further Assurances. The Borrower shall at any time and from
time to time upon the written request of the Lender, execute and deliver such
further agreements, instruments documents and do such further acts and things
as the Lender reasonably request in order to effect the purposes of this
Agreement.
(c) Costs and Expenses. The Borrower shall pay (or at Lender's
option, reimburse the Lender for) all of the Lender's reasonable fees, costs
and expenses (including Attorneys' fees) incurred in connection with the
drafting, negotiation, closing and enforcement of this Agreement, the Notes
and the other Loan Documents. The Borrower shall also pay (or at Lender's
option, reimburse the Lender for) all recording and filing fees and other
costs and expenses incurred in connection with the transactions contemplated
by this Agreement.
(d) Modification of Agreement; Sale of Interest. This Agreement
may not be modified, altered or amended, except by an agreement in writing
signed by the Borrower and the Lender The Borrower may not sell, assign or
transfer this Agreement, or any portion thereof, including, without
limitation, the Borrower's rights, title, interests, remedies, powers, and/or
duties hereunder or thereunder. The Borrower hereby consents to the Lender's
sale, assignment, transfer or other disposition at any me or times hereafter,
of this Agreement, or any portion hereof thereof, including, without
limitation, the Lender's rights, title, interests, remedies, powers, and/or
duties hereunder or thereunder.
(e) Waiver by the Lender. The Lender's failure, at any time or
times hereafter, to require strict performance by the Borrower of any
provision of this Agreement shall not waive, affect or diminish any right of
the Lender thereafter to demand strict compliance and performance therewith.
Any suspension or waiver by the Lender of any Event of Default by the
Borrower under this Agreement shall not suspend, waive or affect any other
Event of Default by the Borrower under this Agreement, whether the same is
prior or subsequent thereto and whether of the same of a different type.
None of the undertakings, agreements, warranties, covenants and
representations of the Borrower contained in this Agreement and no Event of
Default by the Borrower under this Agreement shall be deemed to have been
- 13 -
<PAGE> 22
suspended or waived by the Lender, unless such suspension or waiver is by an
instrument in writing specifying such suspension waiver and signed by an
officer or other authorized person of the Lender and directed to the
Borrower.
(f) Severability. Wherever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be
prohibited by or be invalid under applicable law, such provision shall be
ineffective to the extent such prohibition or invalidity without invalidating
the reminder of this Agreement.
(g) Parties. This Agreement shall be binding upon and inure to
the benefit of the successors and assigns of the Borrower and the Lender.
(h) Governing Law. THIS AGREEMENT SHALL BE DEEMED TO HAVE BEEN
DELIVERED AT AND SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE
PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF
NEVADA.
(i) Venue. THE BORROWER IRREVOCABLY CONSENTS THAT ANY LEGAL
ACTION OR PROCEEDING AGAINST IT UNDER, ARISING OUT OF OR IN ANY MANNER RELATING
TO THIS AGREEMENT, THE NOTES OR THE OTHER LOAN DOCUMENTS, MAY BE BROUGHT IN ANY
STATE COURT OF THE STATE OF NEVADA LOCATED IN CLARK COUNTY OR IN THE UNITED
STATES DISTRICT COURT FOR THE DISTRICT OF NEVADA. THE BORROWER, BY THE EXECUTION
AND DELIVERY OF THIS AGREEMENT, EXPRESSLY AND IRREVOCABLY CONSENTS AND SUBMITS
TO THE PERSONAL JURISDICTION OF ANY OF SUCH COURTS IN ANY SUCH ACTION OR
PROCEEDING. THE BORROWER FURTHER AGREES THAT ANY LEGAL ACTION OR PROCEEDING
BORROWER MAY BRING, ARISING OUT OF OR IN ANY MANNER RELATING TO THIS AGREEMENT
OR THE OTHER LOAN DOCUMENTS, SHALL ONLY BE BROUGHT IN ANY STATE COURT OF THE
STATE OF NEVADA LOCATED IN CLARK COUNTY OR IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEVADA. THE BORROWER FURTHER IRREVOCABLY CONSENTS TO THE
SERVICE OF ANY COMPLAINT, SUMMONS, NOTICE OR OTHER PROCESS RELATING TO SUCH
ACTION OR PROCEEDING BY DELIVERY THEREOF TO BORROWER BY HAND OR BY MAIL IN THE
MANNER PROVIDED FOR IN THIS AGREEMENT. THE BORROWEP HEREBY EXPRESSLY AND
IRREVOCABLY WAIVES ANY CLAIM OR DEFENSE IN ANY SUCH ACTON OR PROCEEDING BASED ON
ANY ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR FORUM NON
CONVENIENS OR ANY
- 14 -
<PAGE> 23
SIMILAR BASIS. THE BORROWER SHALL NOT BE ENTITLED IN ANY SUCH ACTION OR
PROCEEDING TO ASSERT ANY DEFENSE GIVEN OR ALLOWED UNDER LAWS OF ANY STATE
OTHER THAN THE STATE OF NEVADA UNLESS SUCH DEFENSE IS ALSO GIVEN OR ALLOWED
BY THE LAWS OF THE STATE OF NEVADA. NOTHING IN THIS AGREEMENT SHALL AFFECT OR
IMPAIR IN ANY MANNER TO ANY EXTENT THE RIGHT OF THE LENDER TO COMMENCE LEGAL
PRECEEDINGS OR OTHERWISE PROCEED AGAINST THE BORROWER IN ANY JURISDICTION OR
TO SERVE PROCESS IN ANY MANNER PERMITTED BY LAW.
(j) Waiver of Jury Trial. THE BORROWER HEREBY WAIVES ANY RIGHT TO
TRIAL BY JURY WITH RESPECT TO ANY ACTION OR PROCEEDING RELATING TO THIS
AGREEMENT OR ANY AGREEMENT, INSTRUMENT OR DOCUMENT EXECUTED AND DELIVERED IN
CONNECTION HEREWITH OR THEREWITH, INCLUDING THE LOAN DOCUMENTS.
(k) Notice. Any notice required hereunder shall be in writing,
and shall be deemed to have been validly served if delivered by overnight
courier, such as Federal Express with proper postage prepaid, or by hand and
addressed to the party to be notified at the address of such party set forth in
this Agreement or to such other address as each party may designate for itself
by like notice. Such notice shall be deemed received, if sent by overnight
courier, the next day, and if sent by hand, upon delivery.
(l) Complete Agreement. This Agreement and the other
Loan Documents are the complete agreement of the parties with respect to the
subject matter hereof.
(m) Section Titles. The Section titles contained in this
Agreement are and shall be without substantive meaning or content of any kind
whatsoever and are not a part of the Agreement between the parties hereto.
- 15 -
<PAGE> 24
IN WITNESS WHEREOF, this Agreement has been duly executed as of the day and
year specified at the beginning thereof.
BORROWER:
INNOVATIVE GAMING, INC
By: /s/ S.Shackelton
----------------------------------
Title:V.P. Finance & CFO
LENDER:
FINOVA CAPITAL CORPORATION
By:
--------------------------------
Title:
-----------------------------
- 16 -
<PAGE> 25
SCHEDULE I
Bucket Sales Agreements
1. Bucket Sales Agreement between Innovative and Stratosphere Gaming Corporation
dated as of December 1, 1997
2. Bucket Sales Agreement between Innovative and Bally's Las Vegas dated as of
December 1,1997
3. Bucket Sales Agreement between Innovative and Las Vegas Hilton dated as of
December 1, 1997
- 17 -
<PAGE> 26
EXHIBIT A
[LETTERHEAD OF INNOVATIVE GAMING, INC.]
____________,1998
(CASINO)
Re: Bucket Sales Agreement dated
between Innovative Gaming, Inc. and _____________________
Dear ______________:
We have assigned to FINOVA Capital Corporation all of our rights (and
none of our obligations) under the Bucket Sales Agreement, including our right
to receive all payments due or to become due thereunder.
You are hereby directed to make all payments required under the Bucket
Sales Agreement as directed by FINOVA Capital Corporation.
Commencing this date and hereafter, you will receive all further
instructions regarding the Bucket Sales Agreement only from FINOVA Corporation
or its designees and you should not comply with instructions from any other
party, including Innovative Gaming, Inc.
Very truly yours,
INNOVATIVE GAMING, INC
By
----------------------------
Its
----------------------------
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<PAGE> 27
CORPORATE GUARANTY
This Guaranty dated April 13, 1998, is made by the undersigned
("Guarantor"), in favor of FINOVA CAPITAL CORPORATION, a Delaware corporation,
having an office at 115 West Century Road, Paramus, New Jersey 07652 ("Lender")
WITNESSETH :
WHEREAS, Lender has agreed to make one or more loans (the "Loans") to
Innovative Gaming, Inc. ("Debtor") secured by a Security Agreement between
Debtor and Lender (all capitalized terms used in this Guaranty which are not
defined herein, but which are defined in the Security Agreement, shall have the
respective meanings ascribed thereto in the Security Agreement);
WHEREAS, the Loans will be evidenced by one or more promissory notes of
Debtor (as the same may from time to time be amended, modified or supplemented,
referred to as the "Notes") in the principal sum of the Loans;
WHEREAS, Guarantor is the sole shareholder of Debtor and will derive
direct and indirect benefits from the Loans; and
WHEREAS, in order to induce Lender to execute the Security Agreement and
the other Loan Documents and to make the Loans and to further induce Lender to
make future loans and financial accommodations to Debtor, in Lender's sole and
absolute discretion, Guarantor has agreed to execute and deliver this Guaranty;
NOW, THEREFORE, Guarantor agrees as follows:
1. Guaranty.
(a) Guarantor absolutely and unconditionally guarantees the prompt
payment and satisfaction, when due, of all indebtedness, liabilities and
Obligations of Debtor to Lender, of every kind and nature, however arising
(including, without limitation, under indemnities), and whether now existing or
hereafter arising, including, without limitation, the indebtedness, liabilities
and obligations of Debtor to Lender under, in connection with or arising out of
the Loans, the Security Agreement, the Notes and the other Loan Documents
(hereinafter collectively called the Indebtedness").
(b) Guarantor absolutely and unconditionally guarantees the prompt, full
and faithful performance and discharge by Debtor of each and every term,
condition, agreement, representation, warranty and provision on the part of
Debtor contained in the
<PAGE> 28
Notes and the other Loan Documents or in any modification, amendment, supplement
or substitution thereof or in any document or instrument evidencing a financial
accommodation between Lender and Debtor.
(c) Guarantor shall, on demand, reimburse Lender for all reasonable
expenses, collection charges, court costs and attorneys' fees incurred by Lender
in endeavoring to collect or enforce any of Lender's rights and remedies against
Debtor and/or Guarantor or any other person or concern liable thereto.
(d) Guarantor shall absolutely and unconditionally guarantee to pay all
of the foregoing amounts and perform all of the foregoing terms, covenants and
conditions, regardless of any her agreements or circumstances of any nature
whatsoever which might otherwise constitute a defense to this Guaranty and
notwithstanding that any part or all of the Loan Documents or any financial
accommodation shall be void or voidable as against Debtor or any of Debtor's
creditors, including a trustee in bankruptcy of Debtor, by reason of any fact or
circumstances including, without limitation, failure by any person to file any
document or to take any other action to make any of the Loan Documents or any
other financial accommodation enforceable in accordance with their respective
terms. Guarantor also agrees that Guarantor's obligations hereunder shall not be
relieved in the event Lender fails to protect or otherwise impairs any
collateral, whether as a result of Lender's negligence or otherwise.
2. Waivers by Guarantor.
(a) Guarantor waives notice of acceptance hereof and of all notices and
demands of any kind to which Guarantor may be entitled including, without
limitation, all demands of payment and notice of nonpayment, protest and
dishonor to Guarantor, or Debtor, or the makers or endorsers of any notes or
other instruments for which Guarantor is or may be liable hereunder. Guarantor
further waives notice of and hereby consents to any agreement or arrangement for
subordination, composition, arrangement, discharge or release of the whole or
any part of Debtor's obligations under the Notes, the Security Agreement or any
other Loan Documents or financial accommodation, or release of other guarantors,
or for compromise of any sums due in any way whatsoever; and the same shall in
no way impair Guarantor's liability hereunder.
(b) Guarantor waives any right to require Lender to: (i)proceed against
Debtor; (ii) proceed against or exhaust any security held by Lender of Debtor or
otherwise; or (iii) pursue any other remedy which Lender may have, including
against any other guarantor of Debtor's obligations to Lender.
- 2 -
<PAGE> 29
(c) Until all the Obligations are satisfied in full, Guarantor expressly
waives any and all rights of subrogation, reimbursement, indemnity, exoneration,
contribution or any other claim which Guarantor may now or hereafter have
against Debtor or any person directly or contingently liable for the obligations
guaranteed hereunder, or against or with respect to Debtor's property
(including, without limitation, property collateralizing the obligations
guaranteed hereunder), arising from the existence or performance of this
guaranty. If any amount is paid to Guarantor on account of any subrogation or
other rights waived hereunder at any time when all of the Indebtedness or
Obligations have not been paid in full, such amount shall be held in trust for
the benefit of Lender, shall be segregated from the other funds of Guarantor and
shall forthwith be paid over to Lender to be applied in whole or in part by
Lender against the outstanding Obligations, whether matured or unmatured, and
all such other sums guaranteed hereunder.
(d) GUARANTOR WAIVES ANY AND ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION
OR PROCEEDING BASED HEREON. GUARANTOR ALSO WAIVES THE BENEFIT OF ANY STATUTE OF
LIMITATIONS AFFECTING GUARANTOR'S LIABILITY HEREUNDER OR THE ENFORCEMENT
THEREOF.
3. Guarantor's Property as Security for Guaranty. All sums at any time to
Guarantor's credit and any of Guarantor's property at any time in Lender's
possession shall be deemed held by Lender as security for any and all of
Guarantor's obligations to Lender hereunder.
4. Primary Nature of Guaranty. The liability of Guarantor is present, absolute,
unconditional, continuing, primary, direct and independent of the obligations of
Debtor. Nothing shall discharge or satisfy Guarantor's liability hereunder
except the full performance and payment of all of Debtor's Obligations to
Lender, with interest. Guarantor shall have no right of subrogation,
reimbursement or indemnity whatsoever and no right of recourse to or with
respect to any assets or property of Debtor. This Guaranty will continue to be
effective until Debtor no longer has any Obligations to Lender and will be
reinstated, at any time after a payment is made to Lender, or any successor or
assignee of Lender, such payment is rescinded or must be returned upon the
insolvency, bankruptcy or reorganization of Debtor, Guarantor or otherwise, as
if such payment had never been made.
5. Events of Default. If Guarantor or Debtor should at any time become insolvent
or make a general assignment for the benefit of creditors, or if a proceeding
shall be commenced by, against or in respect of Guarantor or Debtor under the
Federal Bankruptcy Code or any state insolvency law, or if any individual
Guarantor dies, any and all of Guarantor's obligations under this
- 3 -
<PAGE> 30
Guaranty shall, at Lender's option, forthwith become duo and payable without
notice.
6. Continuing Nature of Guaranty. This is a continuing guaranty. This instrument
shall continue in full force and effect until terminated by the actual receipt
by Lender, of written notice of termination from Guarantor. Such termination
shall be applicable only to transactions having their inception thereafter, and
rights and obligations arising out of transactions having their inception prior
to such termination shal1 not be affected.
7. Covenants of Guarantor. Guarantor represents that all financial and other
information furnished to Lender was, at the time of delivery, true and correct.
Guarantor agrees to provide Lender with (i) interim financial statements within
forty-five (45) days after the end of each of the first three fiscal quarters of
each fiscal year prepared in accordance with generally accepted accounting
principles applied on a consistent basis ("GAAP") and certified by the chief
financial officer of Debtor, and (ii) audited annual financial statements within
ninety (90) days after the end of each fiscal year (each prepared accordance
with GAAP and certified by independent certified public accountants satisfactory
to Lender) and such other finnancial, credit or other information as Lender
reasonably requests until all Obligations of Debtor to Lender are paid in full.
8. No Waiver by Lender. No failure, omission or delay on the part of Lender in
exercising any rights hereunder or in taking any action to collect or enforce
payment or performance of the Loan Documents or any financial accommodations,
either against Debtor or any other person liable therefor, shall operate as a
waiver of any such right or shall, in any manner, prejudice the rights of Lender
against Guarantor.
9. Cumulative Remedies. All of Lender's rights, remedies and recourse under the
Loan Documents or any financial accommodations or this Guaranty, are separate
and cumulative and may be pursued separately, successively or concurrently, are
non-exclusive and the exercise of any one or more of them, shall in no way limit
or prejudice any other legal or equitable right, remedy or recourse to which
Lender may be entitled.
10. Modifications. No provision hereof shall be modified or limited, except by a
written agreement expressly referring hereto and to the provision so modified or
limited, and signed by Guarantor and Lender.
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<PAGE> 31
11. Merger This writing is intended by the parties as a final expression of this
agreement of guaranty and is intended also as a complete and exclusive statement
of the terms thereof. No course of prior dealings between the parties, no usage
of the trade, and no parol or extrinsic evidence of any nature shall be used or
be relevant to supplement or explain or modify any term used in this agreement
of guaranty.
12. Severability. In case any one or more of the provisions contained in this
Guaranty shall for any reason be held to be invalid, illegal or unenforceable in
any respect, such validity, illegality or unenforceability shall not affect any
other provision hereof, and this Guaranty shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
13. Notices. Any notice required hereunder shall be in writing, and shall be
deemed to have been validly served if delivered by overnight courier, such as
Federal Express, with proper postage prepaid, or by hand and addressed to the
party to be notified at the address of such party set forth in this Guaranty or
to such other address as each party may designate for itself by like notice.
Such notice shall be deemed received, if sent by overnight courier, the next
day, and if sent by hand, upon delivery.
14. Governing Law. THIS GUARANTY SHALL BE DEEMED TO HAVE BEEN DELIVERED AT AND
SHALL BE INTERPRETED, AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO
DETERMINED, IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEVADA.
15. Venue. GUARANTOR IRREVOCABLY CONSENTS THAT ANY LEGAL ACTION OR PROCEEDING
AGAINST GUARANTOR UNDER, ARISING OUT OF OR IN ANY MANNER RELATING TO THIS
GUARANTY OR THE OTHER LOAN DOCUMENTS, MAY BE BROUGHT IN ANY COURT OF THE STATE
OF NEVADA LOCATED IN CLARK COUNTY OR IN THE UNITED STATES DISTRICT COURT FOR THE
DISTRICT OF NEVADA. GUARANTOR, BY THE EXECUTION AND DELIVERY OF THIS GUARANTY,
EXPRESSLY AND IRREVOCABLY ASSENTS AND SUBMITS TO THE PERSONAL JURISDICTION OF
ANY OF SUCH COURTS IN ANY SUCH ACTION OR PROCEEDING. GUARANTOR FURTHER AGREES
THAT ANY LEGAL ACTION OR PROCEEDING GUARANTOR MAY BRING, ARISING OUT OF OR IN
ANY MANNER RELATING TO THIS GUARANTY OR THE OTHER LOAN DOCUMENTS, SHALL ONLY BE
BROUGHT IN ANY STATE COURT OF THE STATE OF NEVADA LOCATED IN CLARK COUNTY OR IN
THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF NEVADA. GUARANTOR ALSO
IRREVOCABLY CONSENTS TO THE SERVICE OF ANY COMPLAINT, SUMMONS, NOTICE OR OTHER
PROCESS RELATING TO SUCH ACTION OR PROCEEDING BY DELIVERY THEREOF TO IT BY HAND
OR BY MAIL IN THE MANNER PROVIDED FOR IN THIS GUARANTY. GUARANTOR HEREBY
EXPRESSLY AND IRREVOCABLY WAIVES ANY CLAIM OR DEFENSE IN ANY SUCH ACTION OR
PROCEEDING BASED ON ANY ALLEGED LACK OF PERSONAL JURISDICTION, IMPROPER VENUE OR
FORUM NON
- 5 -
<PAGE> 32
CONVENIENS OR ANY SIMILAR BASIS. GUARANTOR SHALL NOT BE ENTITLED IN ANY SUCH
ACTION OR PROCEEDING TO ASSERT ANY DEFENSE GIVEN OR ALLOWED UNDER THE LAWS OF
ANY STATE OTHER THAN THE STATE OF NEVADA UNLESS SUCH DEFENSE IS ALSO GIVEN OR
ALLOWED BY THE LAWS THE STATE OF NEVADA. NOTHING IN THIS GUARANTY SHALL AFFECT
OF IMPAIR IN ANY MANNER OR TO ANY EXTENT THE RIGHT OF LENDER TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST GUARANTOR ANY JURISDICTION OR TO SERVE
PROCESS IN ANY MANNER PERMITTED BY LAW.
16. Successors and Assigns. This Guaranty shall inure to the benefit of Lender,
its successors and assigns and shall be binding on Guarantor and Guarantor's
heirs, administrators, estate, executors, successors and assigns; provided,
however, that Guarantor may not assign or delegate any of its obligations
contained in this Guaranty. Guarantor hereby consents to Lender's sale,
assignment, transfer or other disposition at any time or times hereafter, of
this Guaranty, or any portion hereof, including, without limitation, Lender's
rights, title, interests, remedies and/or duties hereunder.
IN WITNESS WHEREOF, the undersigned Guarantor has duly executed Guaranty on the
date first above set forth.
INNOVATIVE GAMING CORPORATION
OF AMERICA
By: /s/ Shackelton
------------------------------
Title: V.P. Finance & CFO
---------------------------
Address:4750 Turbo Circle Reno NV
-------------------------
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<PAGE> 1
EXHIBIT 10.2
INNOVATIVE GAMING CORPORATION OF AMERICA
4750 Turbo Circle
Reno, Nevada 89502
SUBSCRIPTION AGREEMENT
Including Investment Representations
Series B Convertible Preferred Stock
Ladies and Gentlemen:
KA Investments LDC ("Buyer") desires to purchase upon the terms and conditions
set forth below from Innovative Gaming Corporation of America, a Minnesota
corporation (the "Company"), Series B 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 B
Convertible Preferred Stock (the "Certificate of Designation"). The Preferred
Shares being offered are described in the Company's Confidential Private
Placement Memorandum, dated April 28, 1998 (the "Memorandum"). This Agreement,
the Certificate of Designation and the Registration Rights Agreement by and
between Buyer and the Company dated the date hereof (the "Registration Rights
Agreement") shall be collectively referred to herein as the "Transaction
Documents").
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 3,000 Preferred Shares
and agrees to pay to the Company the purchase price
of: $3,000,000.
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 exhibits thereto. 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. 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(g) 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 by
the Company or any of its subsidiaries. The foregoing
restrictions will be contained in a legend on each
certificate of Common Stock.
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<PAGE> 3
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, or cause
others to do so, at any time after the execution of this
Agreement by it and prior to the date of effectiveness
of the Registration Statement relating to the Common
Shares with the Securities and Exchange Commission ("SEC
Effectiveness"). After SEC Effectiveness, so long as
Preferred Shares remain outstanding, Buyer agrees not to
enter into any short sales or hedging transactions in
Common Stock that would exceed the number of Preferred
Shares that are available for conversion pursuant to the
Certificate of Designation relating to the Preferred
Shares. 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
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<PAGE> 4
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 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.
l. The Company acknowledges and agrees that the Buyer makes
no representations or warranties with respect to the
transactions contemplated hereby other than those
specifically set forth in this Section 3, and in Sections
4, 5 and 7 of this Agreement.
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:
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<PAGE> 5
"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 STATEMENT FOR THE
SHARES UNDER THE SECURITIES ACT OF 1933 OR UNLESS AN
EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER THE
SECURITIES LAWS."
e. Certificates for Common Shares issued on conversion of
Preferred Shares shall not contain any legend, other
than the legends indicated on Annex A, if the conversion
of Preferred Shares occurs at any time while a
Registration Statement relating to the Common Stock
issuable upon conversion of the Preferred Shares (the
"Common Shares Registration Statement") is effective
under the Securities Act or, in the event there is not
an effective Common Shares Registration Statement at
such time, if in the opinion of counsel to the Company
such legend is not required under applicable
requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff
of the Commission). The Company agrees that it will
provide the Buyer, upon request, with a certificate or
certificates representing the Common Shares issuable
upon exercise of the Preferred Shares free from such
legend, other than the legends indicated on Annex A, at
such time as such legend is no longer required
hereunder. The Company may not make any notation on its
records or give instructions to any transfer agent of
the Company which enlarge the restrictions of transfer
set forth in this Section 4(e).
5. RESIDENCE. Buyer represents and warrants as follows.
a. Buyer is a corporation organized and existing under the
laws of the British Virgin Islands.
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 B Preferred Stock (the
-5-
<PAGE> 6
"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 fifth
(5th) 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 or
Buyer's other rights and remedies in the event of a breach of this Section 6.
7. INVESTOR QUALIFICATIONS. The undersigned subscriber represents and
warrants that the undersigned was not formed for the specific purpose of
acquiring shares of the Company and is a corporation with total assets in excess
of $5,000,000.
8. 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:
8.1 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. Each of the Company's
subsidiaries is duly organized, validly existing and in
good standing under the laws of its respective
incorporation, with all requisite corporate power and
authority to carry out its business in all material
respects as it is now being conducted.
8.2 Qualification. The Company and each of its subsidiaries 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.
8.3 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
-6-
<PAGE> 7
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 has been taken on the
part of the Company. The Company at all times while the
Preferred Stock is outstanding will maintain an adequate
reserve of duly authorized shares of Common Stock to
enable it to timely perform its conversion, exercise and
other obligations under this Agreement and the Certificate
of Designation. As of the date hereof, the Company has
reserved 1,505,000 shares of Common Stock for issuance
upon conversion of the Preferred Shares. 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 limitations on the
enforcement of the remedy of specific enforcement and
other equitable remedies.
8.4 Brokers or Finders. Other than fees paid to Equity
Securities, Inc. and R.J. Steichen & Co., 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.
8.5 Adverse Government 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
8.6 Capitalization. Except for stock options issued to
employees of the Company pursuant to the Company's 1992
Stock Option and Incentive Compensation Plan and the
Company's 1997 Director's Stock Option Plan and except for
warrants issued to a consultant of the Company to acquire
up to 10,000 shares of the Company's Common Stock, 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, 1997.
8.7 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
-7-
<PAGE> 8
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.
8.8 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 do not and will not (i)
conflict with or violate any provision of its certificate
of incorporation, bylaws or other charter documents (each
as amended through the date hereof) or (ii) subject to
obtaining the consents referred to in Section 8.9,
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 (evidencing a
Company debt or otherwise) to which the Company is a party
or by which any property or asset of the Company or any of
its subsidiaries is bound or affected, or (iii) result in
a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or
governmental authority to which the Company or any of its
subsidiaries is subject (including federal and state
securities laws and regulations), or by which any property
or asset of the Company or any of its subsidiaries is
bound or affected, except in the case of each of clauses
(ii) and (iii), as could not, individually or in the
aggregate, have or result in a material adverse effect on
the financial condition of the Company and its
subsidiaries taken as a whole ("Material Adverse Effect").
The business of the Company and its subsidiaries is not
being conducted in violation of any law, ordinance or
regulation of any governmental authority, except for
violations which, individually or in the aggregate, do not
have a Material Adverse Effect.
8.9 Consents and Approvals. Except for consents and approvals
required by the Nevada Gaming Commission and the
Mississippi Gaming Commission, neither the Company nor any
of its subsidiaries is required to obtain any consent,
waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state,
local or other govern mental authority or other Person in
connection with the execution, delivery and performance by
the Company of the Transaction Documents other than (i)
the filing of a Registration Statement with the Securities
and Exchange Commission (the "Commission"), which shall be
filed in the time period set forth in the Registration
Rights Agreement and (ii) other than, in all other cases,
where the failure to obtain such consent, waiver,
authorization or order, or to give or make such notice or
filing, could not have or result in, individually or in
the aggregate, a Material Adverse Effect (together with
the consents, waivers, authorizations, orders, notices and
filings referred to in herein, the "Required Approvals").
The consummation of the transactions contemplated hereby
does not and will not require the approval
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<PAGE> 9
of the Company's shareholders under the rules of the
NASDAQ National Market.
8.10 Litigation; Proceedings. Except as specifically disclosed
in the Disclosure Materials (as hereinafter defined),
there is no action, suit, notice of violation, proceeding
or investigation pending or, to the best knowledge of the
Company, threatened against or affecting the Company or
any of its subsidiaries or any of their respective
properties before or by any court, governmental or
administrative agency or regulatory authority (Federal,
state, county, local or foreign) which (i) adversely
affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the
Shares or (ii) could, individually or in the aggregate,
have or result in a Material Adverse Effect.
8.11 No Default or Violation. None of the Company or any of its
subsidiaries (i) is not in default under or in violation
of (and no event has occurred which has not been waived
which, with notice or lapse of time or both, would result
in a default by the Company under), nor has the Company
received notice of a claim that it is in default under or
that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it
is a party or by which it or any of its properties is
bound except as could not individually or in the
aggregate, have or result in, individually or in the
aggregate, Material Adverse Effect, (ii) is in violation
of any order of any court, arbitrator or governmental
body, or (iii) is in violation of any statute, rule or
regulation of any governmental authority, except as could
not individually or in the aggregate, have or result in,
individually or in the aggregate, a Material Adverse
Effect.
8.12 Private Offering. Assuming the accuracy of the
representations and warranties of the Buyer set forth
herein, the issuance and sale of the Preferred Shares to
the Buyer as contemplated hereby are exempt from the
registration requirements of the Securities Act. Except as
provided in the Transaction Documents, neither the Company
nor any person acting on its behalf has taken or will take
any action which might subject the offering, issuance or
sale of the Preferred Shares to the registration
requirements of the Securities Act.
8.13 SEC Documents; Financial Statements; No Adverse Change.
The Company has filed all reports required to be filed by
it under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), including pursuant to Section 13(a)
or 15(d) thereof, for the two years preceding the date
hereof (or such shorter period as the Company was required
by law to file such material) (the foregoing materials
being collectively referred to herein as the "SEC
Documents" and, together with the Schedules to this
Agreement and the Memorandum, the "Disclosure Materials")
on a timely basis or has
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<PAGE> 10
received a valid extension of such time of filing and has
filed any such SEC Documents prior to the expiration of
any such extension. As of their respective dates, the SEC
Documents complied in all material respects with the
requirements of the Securities Act and the Exchange Act
and the rules and regulations of the Commission
promulgated thereunder, and none of the SEC Documents,
when filed, contained any untrue statement of a material
fact or omitted to state a material fact required to be
stated therein or necessary in order to make the
statements therein, in light of the circumstances under
which they were made, not misleading. All material
agreements to which the Company is a party or to which the
property or assets of the Company are subject have been
filed as exhibits to the SEC Documents as required. The
financial statements of the Company included in the SEC
Documents comply in all material respects with applicable
accounting requirements and the rules and regulations of
the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been
prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the
periods involved, except as may be otherwise specified in
such financial statements or the notes thereto, and fairly
present in all material respects the financial position of
the Company as of and for the dates thereof and the
results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to
normal year end audit adjustments. Since the date of the
financial statements included in the last filed Annual
Report on Form 10-K for the year ended December 31, 1997
for the Company, there has been no event, occurrence or
development that has had a Material Adverse Effect which
has not been specifically disclosed to the Buyer by the
Company. The Company last filed audited financial
statements with the Commission in connection with its 1997
Form 10-K, and has not received any comments from the
Commission in respect thereof.
8.14 Form S-3 Eligibility. The Company is, and at the Closing
Date will be, eligible to register securities for resale
with the Commission under Form S-3 promulgated under the
Securities Act.
8.15 Investment Company. The Company is not, and is not an
affiliate of, an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
8.16 Solicitation Materials. The Company has not (i)
distributed any offering materials in connection with the
offering and sale of the Preferred Shares other than, or
that are materially different from, the Disclosure
Materials and any amendments and supplements thereto or
(ii) solicited any offer to buy or sell the Preferred
Shares by means of any form of general solicitation or
advertising.
-10-
<PAGE> 11
8.17 Listing and Maintenance Requirements Compliance. Except
as indicated on Schedule 8.17, since the date on which
the Company's Common Stock was initially listed on the
NASDAQ National Market, the Company has not received
written notice from the NASDAQ to the effect that the
Company is not in compliance with the listing,
maintenance or other requirements of such market. The
Company has no reason to believe that it does not now or
will not in the future meet any such requirements.
8.18 Disclosure. All information relating to or concerning
the Company set forth in the Transaction Documents or
the Disclosure Materials, or provided to the Buyer or
its respective representatives and counsel in connection
with the transactions contemplated hereby is true and
correct in all material respects and does not fail to
state any material fact necessary in order to make the
statements herein or therein, in light of the
circumstances under which they were made, not
misleading. The Company confirms that it has not
provided to the Buyer or any of its representatives,
agents or counsel any information that constitutes or
might constitute material nonpublic information. The
Company understands and confirms that the Buyer shall be
relying on the foregoing representation in effecting
transactions in securities of the Company.
9. CONDITIONS OF CLOSING. Buyer shall have no obligation to consummate
the transactions contemplated hereby until the following conditions have been
met:
a. The Certificate of Designation shall have been duly
filed with the Secretary of State of the State of
Minnesota.
b. The Buyer shall have received the opinion of Maslon
Edelman Borman & Brand LLP, counsel to the Company, with
respect to the issuance and sale of the Preferred Shares
and the Common Shares, in form attached hereto as Annex
B.
c. No events or circumstances shall have occurred that
would have a Material Adverse Effect.
10. MISCELLANEOUS.
a. Buyer agrees to furnish any additional information that
the Company or its counsel reasonably 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.
-11-
<PAGE> 12
c. Buyer understands the meaning and legal consequences of
the agreements, representations, warranties and
covenants contained herein.
d. As long as the Buyer owns any Preferred Shares or Common
Shares, the Company covenants to use its best efforts to
timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports
required to be filed by the Company after the date
hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. If at any time prior to the date on which
the Purchasers may resell all of the Common Shares
without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act (as determined by
counsel to the Company pursuant to a written opinion
letter to such effect, addressed and acceptable to the
Company's transfer agent for the benefit of and
enforceable by the Buyer) the Company is not required to
file reports pursuant to such sections, it will prepare
and furnish to the Purchasers and make publicly
available in accordance with Rule 144(c) promulgated
under the Securities Act annual and quarterly financial
statements, together with a discussion and analysis of
such financial statements in form and substance
substantially similar to those that would otherwise be
required to be included in reports required by Section
13(a) or 15(d) of the Exchange Act in the time period
that such filings would have been required to have been
made under the Exchange Act.
e. The Company shall (i) not later than the tenth trading
day following the closing date prepare and file with the
NASDAQ National Market (as well as any other national
securities exchange or market on which the Common Stock
is then listed) an additional shares listing application
or a letter acceptable to the NASDAQ National Market
covering and listing at least 1,505,000 shares of Common
Stock, (ii) take all reasonable steps necessary to cause
the Common Shares to be approved for listing in the
NASDAQ National Market (as well as on any other national
securities exchange or market on which the Common Stock
is then listed) as soon as possible thereafter, and
(iii) provide to the Buyers, if requested, evidence of
such listing, and the Company shall take all steps
reasonably necessary to maintain the listing of its
Common Shares on such exchange. In addition, if at any
time following the listing of the Common Shares in
accordance with the foregoing, the number of shares of
Common Stock issuable on conversion of all then
outstanding Preferred Shares, and on account of accrued
and unpaid dividends thereon is greater than the number
of shares of Common Stock theretofore listed, the
Company shall promptly take such action to file an
additional shares listing application covering at least
a number of shares as the Buyer shall reasonably
request.
f. If at any time while the Buyer (or any assignee thereof)
owns any Preferred Shares, the shares of Common Stock
cease to be Actively Traded (as defined below), or the
Common Shares Registration Statement ceases to be
effective,
-12-
<PAGE> 13
or the prospectus included in the Common Shares
Registration Statement may not be used by the Buyer, in
each case for more than five trading days in the
aggregate, at the option of the Buyer exercisable by
written notice to the Company delivered after the
expiration of such five trading day period, the Company
shall redeem all Preferred Shares and Common Shares in
cash, then held by such Buyer, at an aggregate purchase
price equal to the sum of (I) the number of shares of
Preferred Shares then held by the Buyer multiplied by the
product of (1) the average Per Share Market Value for the
five (5) Trading Days immediately preceding (a) the day of
such notice or (b) the date of payment in full of the
redemption price calculated under this Section, whichever
is greater and (2) the Conversion Ratio on the date of the
repurchase notice, (II) the aggregate of all accrued but
unpaid dividends payable in respect of all shares of
Preferred Stock to be redeemed, (III) the number of Shares
and Common Shares then held by such Purchaser multiplied
by the average Per Share Market Value for the five (5)
Trading Days immediately preceding (A) the date of the
notice or (B) the date of payment in full by the Company
of the redemption price calculated under this Section,
whichever is greater, and (IV) interest on the amounts set
forth in (I) - (III) above accruing from the 5th Trading
Day after such notice until the repurchase price under
this Section is paid in full at the rate of 12% per annum
for the first three months after the date due, and 15% per
annum thereafter. For purposes of this Section 10(f), the
Common Stock shall not be "Actively Traded" if trading in
the Common Stock is suspended (other than as a result of
the suspension of trading in securities on such market
generally or temporary suspensions pending the release of
material information) or the Common Stock is delisted from
the NASDAQ National Market other than in connection with a
listing of the shares on the NASDAQ SmallCap, the New York
Stock Exchange or the American Stock Exchange (a "Major
Exchange"), or trading is suspended (other than as a
result of the suspension of trading in securities on such
exchange or market generally or temporary suspensions
pending the release of material information) or the Common
Stock is delisted from a Major Exchange without being
immediately thereafter listed on another Major Exchange or
on the NASDAQ National Market; provided, however, that if
the Common Stock is delisted from the NASDAQ National
Market or a Major Exchange and is immediately thereafter
quoted in the OTC Bulletin Board, the Common Stock shall
be deemed to be Actively Traded so long as there are at
all times not less than four market makers actively
entering quotations for the Common Stock and the daily
reported trading volume for the Common Stock is not less
than 80% of the reported average daily volume for the
shares during the 30 days immediately preceding the date
on which the delisting occurred. For purposes of this
Section 10(f), "Conversion Ratio" at any date with respect
to a Preferred Share shall mean the Liquidation Value of
such Preferred Shares (as defined in the Certificate of
Designation) divided by the applicable Conversion Price.
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<PAGE> 14
g. The Company shall use all of the proceeds from the sale
of the Preferred Shares for working capital purposes and
not to redeem any equity or equity-equivalent
securities of the Company.
h. The Company understands the meaning and legal
consequences of the agreements, representations,
warranties and covenants contained herein. 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.
i. 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.
j. This Subscription Agreement shall be governed by, and
construed and enforced in accordance with, Minnesota
law, without reference to principles of conflicts of
laws.
k. 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.
-14-
<PAGE> 15
SIGNATURES/SUBSCRIBER INFORMATION
Entity Subscriber:
Dated: May 13, 1998
------------------------------------------
Name of Entity (Typed or Printed)
------------------------------------------
Signature
------------------------------------------
Name (Typed or printed) and Title
------------------------------------------
Contact Person (If different from person signing)
Address for Notices:
Bank of Butterfield International (Cayman) Ltd.
Butterfield House
Fort Strut, George Town
Grand Cayman, Cayman Island
With a copy to:
1712 Hopkins Cross Road
Minnetonka, MN 55305
Attention: Ivana Bozjak
Facsimile (612) 542-4284
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<PAGE> 16
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)
[X] Corporation [ ] IRA Trust Account
[ ] Other (Describe) ---------------------------------------
-------------------
ACCEPTANCE
This Subscription Agreement of KA Investments, LDC for 3,000 shares of
the Company's Series B Convertible Preferred Stock is hereby accepted by
Innovative Gaming Corporation of America.
Dated: May 13, 1998
INNOVATIVE GAMING CORPORATION OF AMERICA
By
-------------------------------------------------------------------
Edward G. Stevenson, President and Chief Executive Officer
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<PAGE> 17
SCHEDULE 8.17
The Company received notice or April 30, 1997, that its private
placement of Series A Convertible Preferred Stock may violate NASDAQ rules in
that the Company could issue in excess of 20% of its outstanding Common Stock at
a discount without shareholder approval. The Company revised the terms of its
Certificate of Designation relating to the Series A Convertible Preferred Stock
to accommodate NASDAQ and NASDAQ subsequently retracted such notice in May 1997.
-17-
<PAGE> 1
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of May 13, 1998 (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 May 13, 1998, 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 B Convertible
Preferred Stock (such shares, including any additional shares of Series
B Convertible Preferred Stock issued as dividends on such shares, are
referred to as 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) "Certificate of Designation" means the Certificate of
Designation of Series B Convertible Preferred Stock as filed with
the Minnesota Secretary of State and as amended from time to
time.
<PAGE> 2
(ii) "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.
(iii) "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").
(iv) "Registrable Securities" means the Common Stock
issuable upon conversion of the Shares.
(v) "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 sale by the Investor 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"). As part of such Registration
Statement, with the approval of the Investor (with such approval being
given hereby for the registration of up to 10,000 shares issued upon
exercise of certain Warrants issued to Gaming Venture Corporation), the
Company may include additional shares of Common Stock registered on
behalf of the Company or the holders of such additional shares. In light
of the fact that the number of shares of Common Stock into which the
Shares are convertible is variable, the Company shall include in the
Registration Statement a number of Registrable Securities equal to not
less than 1,505,000 shares. If at any time the number of Registrable
Securities included in the Registration Statement is insufficient to
enable the Investor to sell all Registrable Securities, the Company
shall promptly file an additional registration statement to register for
resale such additional Registrable Securities as may be required.
(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
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<PAGE> 3
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, one percent (1%)
and (2) in the case of each other Computation Date, two percent (2%), 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 (assuming, for purposes of such
computation, that all Shares have been converted into Common Stock). 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 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 120 days after
the Closing and each 30 days thereafter for the purposes of this Section
2(b).
-3-
<PAGE> 4
"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 after Closing. In the event the Registration
Statement is not effective within 180 days after the Closing, the
Investor shall have the right to require the Company to redeem all
Registrable Securities as provided in the Subscription Agreement. The
Company shall keep the Registration Statement effective pursuant to Rule
415 at all times until the earlier of (1) the Registrable Securities
have been disposed thereunder or (2) two years from the date of Closing
(or the aggregate period of two years 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
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, without volume or other restrictions, 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
-4-
<PAGE> 5
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) If necessary, 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 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;
-5-
<PAGE> 6
(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 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;
-6-
<PAGE> 7
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 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.
-7-
<PAGE> 8
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, and each
broker, dealer or underwriter selling shares on behalf of the Investor,
and the controlling persons thereof (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 any rule or regulation (the matters in the
foregoing clauses (i) through (iii) 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
-8-
<PAGE> 9
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 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.
-9-
<PAGE> 10
(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 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
-10-
<PAGE> 11
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 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
-11-
<PAGE> 12
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. 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: 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
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 11(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
-12-
<PAGE> 13
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.
-13-
<PAGE> 14
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, President and CEO
INVESTOR:
KA INVESTMENTS, LDC
By:______________________________________
Its:______________________________________
Address for Notices:
Bank of Butterfield International (Cayman) Ltd.
Butterfield House
Fort Strut, George Town
Grand Cayman, Cayman Island
With a copy to:
1712 Hopkins Cross Road
Minnetonka, MN 55305
Attention: Ivana Bozjak
Facsimile (612) 542-4284
-14-
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