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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 8-K
Current Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported)........ June 1, 1999
INNOVATIVE GAMING CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
MINNESOTA 22482 41-1713864
----------- ------------------------ ------------
(State or other jurisdiction (Commission File Number) (I.R.S. Employer
of incorporation) Identification Number)
4725 Aircenter Circle
Reno, Nevada 89502
------------------
(Address of principal executive offices)
Registrant's telephone number, including area code ....... (775) 823-3000
4750 Turbo Circle
Reno, Nevada 89502
-----------------------------------------------------------
(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS.
Innovative Gaming Corporation of America announced today that it has
completed a financial restructuring as set forth more fully in the press release
and agreements filed as exhibits herewith.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
3.1(a) Articles of Incorporation, as amended (Incorporated
herein by reference to Exhibit 3.1 to the Company's
Registration Statement on Form SB-2 (File No. 33-61492C)
(the "SB-2")
3.1(b) Certificate of Designation relating to Series B
Convertible Preferred Stock (Incorporated herein by
reference to Exhibit 4 to the Company's report on Form
10-Q for the quarter ended March 31, 1998) (the "March
31, 1998 10-Q")
3.1(c) Articles of Amendment of Certificate of Designation of
Series B Convertible Preferred Stock as filed June 1,
1999
3.1(d) Certificate of Designation relating to Series C
Convertible Preferred Stock as filed June 1, 1999
10.1 Series B Convertible Preferred Stock Amendment Agreement
dated June 1, 1999 by and between the Company and KA
Investments, LDC
10.2 Subscription Agreement with respect to Series C
Convertible Preferred Stock dated June 1, 1999 by and
between the Company and The Shaar Fund, Ltd
10.3 Registration Rights Agreement with respect to
Series C Convertible Preferred Stock dated June 1, 1999
by and between the Company and The Shaar Fund, Ltd
10.4 Form of Note Subscription Agreement
10.5 Form of 12% Secured Convertible Promissory Note
10.6 Form of Warrant
10.7 Security Agreement, dated June 1, 1999, by Innovative
Gaming, Inc. in favor of certain Noteholders
99.1 Press Release dated June 3, 1999
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Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: June 7, 1999 INNOVATIVE GAMING CORPORATION OF
AMERICA
By /s/ Scott H. Shackelton
---------------------------------------
Its Chief Financial Officer
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EXHIBIT INDEX
3.1(c) Articles of Amendment of Certificate of Designation of Series B
Convertible Preferred Stock as filed June 1, 1999
3.1(d) Certificate of Designation relating to Series C Convertible Preferred
Stock as filed June 1, 1999
10.1 Series B Convertible Preferred Stock Amendment Agreement dated June 1,
1999 by and between the Company and KA Investments, LDC
10.2 Subscription Agreement with respect to Series C Convertible
Preferred Stock dated June 1, 1999 by and between the Company and The
Shaar Fund, Ltd.
10.3 Registration Rights Agreement with respect to Series C Convertible
Preferred Stock dated June 1, 1999 by and between the Company and The
Shaar Fund, Ltd.
10.4 Form of Note Subscription Agreement
10.5 Form of 12% Secured Convertible Promissory Note
10.6 Form of Warrant
10.7 Security Agreement, dated June 1, 1999, by Innovative Gaming, Inc. in
favor of certain Noteholders
99.1 Press Release dated June 3, 1999
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EXHIBIT 3.1(c)
INNOVATIVE GAMING CORPORATION OF AMERICA
ARTICLES OF AMENDMENT OF
CERTIFICATE OF DESIGNATION OF
SERIES B CONVERTIBLE PREFERRED STOCK
The undersigned, Chief Executive Officer of 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 the following Articles of Amendment of Certificate of Designation
were adopted pursuant to Chapter 302A of the Business Corporation Act of the
State of Minnesota, by written action of the shareholders of the Company's
Series B Convertible Preferred Stock on June 1, 1999 and by the Company's Board
of Directors on May 24, 1999, to amend the Certificate of Designation filed with
the Secretary of State of Minnesota on May 13, 1998 as follows:
RESOLVED, that Article 5(d) of the Certificate of Designation be
amended and restated as follows:
(d) Automatic Conversion. Subject to Section 5(a) hereof, Preferred
Shares, and any accrued but unpaid Dividends, shall be automatically converted
into Common Stock on June 1, 2001 at the Conversion Price (as defined herein).
RESOLVED, that Article 5(h) of the Certificate of Designation be
amended and restated as follows:
(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
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;
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2) Series C Convertible Preferred Stock. Issue Series C Convertible
Preferred Stock ("Series C Convertible Preferred Stock") in an amount
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.
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IN WITNESS WHEREOF, Innovative Gaming Corporation of America
has caused this Amendment to be duly executed in its corporate name on this 1st
day of June, 1999.
INNOVATIVE GAMING CORPORATION OF AMERICA
By:/s/Edward G. Stevenson
----------------------------------------------------
Edward G. Stevenson
Its: Chairman and Chief Executive Officer
STATE OF MINNESOTA
FILED - DUPLICATE COPY
JUN 01 1999
Secretary of State
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EXHIBIT 3.1(d)
INNOVATIVE GAMING CORPORATION OF AMERICA
CERTIFICATE OF DESIGNATION OF
SERIES C 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 25, 1999,
adopted the following resolution creating a series of preferred stock designated
as Series C 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 C Convertible Preferred Stock (the "Preferred Shares") of the
Company is hereby created and designated. The number of shares of Preferred
Shares shall be 2,000 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 C Convertible Preferred Stock (and shall be referred to
herein as the "Preferred Shares") and the authorized number of Preferred Shares
shall be 2,000.
2. Rank. The Series C Preferred Shares shall rank (i) prior to the Common
Stock; (ii) prior to any class or series of capital stock of the Company
hereafter created other than "Pari Passu Securities" (collectively, with the
Common Stock, "Junior Securities"); (iii) pari passu with the Company's Series A
Preferred Stock and Series B Preferred Stock and (iv) pari passu with any class
or series of capital stock of the Company hereafter created specifically ranking
on parity with the Series C Preferred Shares (collectively with the Series A
Preferred Stock and the Series B Preferred Stock, "Pari Passu Securities").
3. 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.
4. Dividends.
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(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 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
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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.
5. 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.
6. Conversion Rights.
(a) Conversion Limitation. No holder of Preferred Shares shall have the
right to convert any Preferred Shares into Common Stock of the Company if, at
the time of any such conversion, 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 within the meaning of Rule 13d-3 of the
Securities Exchange Act; 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:
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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 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. (i) 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; (ii) If, at any time (a) the Company challenges,
disputes or denies the right of the Holder hereof to effect the conversion of
the Preferred Stock into Common Shares or otherwise dishonors or rejects any
Conversion Notice delivered in accordance with this Section 5(c) or (b) any
third party who is not and has never been an affiliate of the Holder commences
any lawsuit or proceeding or otherwise asserts any claim before any court or
public or governmental authority which seeks to challenge, deny, enjoin, limit,
modify, delay or dispute the right of the Holder hereof to effect the conversion
of the Preferred Stock into Common Shares and the Company dishonors or rejects
any Conversion Notice, then the Holder shall have the right, by written notice
to the Company, to require the Company to promptly redeem the Series C Preferred
Stock for cash at a redemption price equal to one hundred and fifteen percent
(115%) of the Stated Value thereof together with all accrued and unpaid
dividends thereon (the "Mandatory Purchase Amount"). Under any of the
circumstances set forth above, the Company shall be responsible for the payment
of all costs and expenses of the Holder, including reasonable legal fees and
expenses, as and when incurred in disputing any such action or pursuing its
rights hereunder (in addition to any other rights of the Holder); (iii) The
holders of Preferred Shares
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shall be entitled to exercise its conversion privilege notwithstanding the
commencement of any case under 11 U.S.C. ss. 101 et sea, (the "Bankruptcy
Codell"). In the event the Company is a debtor under the Bankruptcy Code, the
Company hereby waives to the fullest extent permitted any rights to relief it
may have under 11 U.S.C. ss. 362 in respect of the holder's conversion
privilege. The Company hereby waives to the fullest extent permitted any rights
to relief it may have under 11 U.S.C. ss. 362 in respect of the conversion of
the Preferred Shares. The Company agrees, without cost or expense the Holder, to
take or consent to any and all action necessary to effectuate relief under 11
U.S.C. ss. 262.
(d) Automatic Conversion. Subject to Section 5(a) hereof, Preferred
Shares, and any accrued but unpaid Dividends, shall be automatically converted
into Common Stock on June 1, 2001 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").
(g) Maximum Common Stock Issuance. The Company may not issue more than
1,331,500 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
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
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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
redeem the unconverted Preferred Shares for cash at a price equal to 115% of the
Liquidation Value of such shares together with all accrued and unpaid dividends
thereon to the date of redemption.
6. Other Terms of Series C Convertible Preferred Shares.
(a) Issuances of Rights, Warrants. If the Company, at any time while
any Preferred Shares are outstanding, shall issue rights or warrants to all
holders of Common Stock entitling them to subscribe for or purchase shares of
Common Stock at a price per share less than the average closing bid price of
Common Stock at the record date mentioned below, the Conversion Price
(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
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applicable to one outstanding share of Common Stock as determined by the Board
of Directors in good faith; provided, however that in the event of a
distribution exceeding fifty percent (50%) of the net assets of the Company,
such fair market value shall be determined by a nationally recognized or major
regional investment banking firm or firm of independent certified public
accountants of recognized standing (which may be the firm that regularly
examines the financial statements of the Company) (an "Appraiser") selected in
good faith by the holders of a majority in interest of the shares of Preferred
Shares; and provided, further that the Company, after receipt of the
determination by such Appraiser shall have the right to select an additional
Appraiser, in which case the fair market value shall be equal to the average of
the determinations by each such Appraiser. In either case the adjustments shall
be described in a statement provided to all holders of Preferred Shares of the
portion of assets or evidences of indebtedness so distributed or such
subscription rights applicable to one share of Common Stock. Such adjustment
shall be made whenever any such distribution is made and shall become effective
immediately after the record date mentioned above.
(c) Notice of Conversion Price Adjustment. Whenever the Conversion
Prices are adjusted, the Company shall promptly mail to each holder of Preferred
Shares, a notice setting forth the Conversion Prices after such adjustment and
setting forth a brief statement of the facts requiring such adjustment.
(d) Merger, Consolidation, Exchange. In case of any reclassification
of the Common Stock, any consolidation or merger of the Company with or into
another person, the sale or transfer of all or substantially all of the assets
of the Company or any compulsory share exchange pursuant to which the Common
Stock is converted into other securities, cash or property, the holders of the
Preferred Shares then outstanding shall have the right thereafter to convert
such shares only into the shares of stock and other securities and property
receivable upon or deemed to be held by holders of Common Stock following such
reclassification, consolidation, merger, 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
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iii. the Company shall authorize the granting to all holders of
the Common Stock rights or warrants to subscribe for or
purchase any shares of capital stock of any class or of any
rights; or
iv. the approval of any shareholders of the Company shall be
required in connection with any reclassification of the
Common Stock of the Company (other than a subdivision or
combination of the outstanding shares of Common Stock), any
consolidation or merger to which the Company is a party, any
sale or transfer of all of substantially all of the assets
of the Company, or any compulsory share exchange whereby the
Common Stock is converted into other securities, cash or
property; or
v. the Company shall authorize the voluntary or involuntary
dissolution, liquidation or winding-up of the affairs of the
Company;
then the Company shall mail to the holders of Preferred Shares at their last
addresses as shall appear upon the stock books of the Company, at least 10
calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken for
the purpose of such dividend, distribution, redemption, rights or warrants, or
if a record is not to be taken, the date as of which the holders of Common Stock
of record to be entitled to such dividend, distributions, redemption, rights or
warrants are to be determined, or (y) the date of which such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding-up is expected to become effective, and the date as of which it is
expected that holders of Common Stock for securities or other property
deliverable upon such reclassification, consolidation, merger, sale, transfer,
share exchange, dissolution, liquidation or winding-up; provided, however, that
the failure to mail such notice or any defect therein or in the 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.
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<PAGE> 9
(iii) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of
the holders of Preferred Shares under Section 305 of the
Internal Revenue Code of 1986, as amended (or any comparable
provision of the Internal Revenue Code as hereafter from
time to time amended); or
(iv) make any change in the foregoing amendment provisions. In
the event holders of at least a majority of the then
outstanding shares of Preferred Shares agree to allow the
Company to alter or change the rights, preferences or
privileges of the Preferred Shares, pursuant to subsection
(a) above, so as to affect the Preferred Shares, then the
Company will deliver notice of such approved change to the
holders of the Preferred Shares that did not agree to such
alteration or change (the "Dissenting Holders") and
Dissenting Holders shall have the right for a period of
thirty (30) days to convert pursuant to the terms of this
Certificate of Designation as they exist prior to such
alteration or change or continue to hold their Preferred
Shares.
(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 together with all accrued and unpaid dividends thereon in cash, to the
date of redemption.
(h) Loss, Theft, Destruction of Preferred Shares. Upon receipt of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of certificates representing Preferred Shares and, in the case of any
such loss, theft or destruction, upon receipt of indemnity or security
reasonably satisfactory to the Company, or, in the case of any such mutilation,
upon surrender and cancellation of the Preferred Shares, the Company shall make,
issue and deliver, in lieu of such lost, stolen, destroyed or mutilated
certificates representing Preferred Shares, new certificates representing
Preferred Shares of like tenor.
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<PAGE> 10
IN WITNESS WHEREOF, Innovative Gaming Corporation of America has caused
this Certificate to be duly executed in its corporate name on this 1st day of
June___, 1999.
INNOVATIVE GAMING CORPORATION OF AMERICA
By: s/ Edward G. Stevenson
---------------------------------------------------------
Edward G. Stevenson
Its: Chairman and Chief Executive Officer
STATE OF MINNESOTA
FILED - DUPLICATE COPY
JUN 01 1999
Secretary of State
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<PAGE> 1
EXHIBIT 10.1
SERIES B CONVERTIBLE PREFERRED
STOCK AMENDMENT AGREEMENT
THIS AGREEMENT is made and entered into effect as of June 1, 1999 by
and between Innovative Gaming Corporation of America, a Minnesota corporation
(the "Company") and KA Investments, LDC, a corporation organized under the laws
of the British Virgin Islands (the "Shareholder").
WHEREAS, the Shareholder beneficially owns all of the issued and
outstanding shares of Series B Convertible Preferred Stock of the Company issued
May 13, 1998 ("Preferred Stock");
WHEREAS, the parties hereto entered into a Letter Agreement dated May
18, 1999, as amended May 28, 1999, pursuant to which the Shareholder agreed to
amend the Certificate of Designation relating to the Preferred Stock (the
"Preferred Stock Terms") as indicated herein in exchange for a warrant to
acquire 350,000 shares on the terms indicated herein; and
WHEREAS, the Shareholder and The Shaar Fund, Ltd. (the "Purchaser")
will enter into a Preferred Stock Purchase Agreement (the "Preferred Stock
Purchase Agreement") pursuant to which the Shareholder will sell to the
Purchaser 2,375 shares of Preferred Stock, all of the issued and outstanding
shares of Preferred Stock.
NOW, THEREFORE, in consideration of the foregoing, and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, it is mutually agreed as follows:
1. Amendment of Preferred Stock Terms. Concurrently with consummation of
the sale contemplated by the Preferred Stock Purchase Agreement, the
holders of Preferred Stock agree to have filed or cause to be filed,
the Amended Preferred Stock Terms in the form attached hereto as
Exhibit 1.
2. Warrant. In consideration for amending the Preferred Stock Terms in the
form attached hereto as Exhibit 1, the Company shall issue a five year
warrant to acquire 350,000 shares of the Company's Common Stock at
$1.50 per share in the form attached hereto as Exhibit 2.
3. Shareholder Covenants. Shareholder hereby agrees and covenants
to the Company that it will not, nor will it cause its affiliates to,
enter into any short sales or other hedging transactions with respect
to the Company's Common Stock at any time for six months after the
execution of this Agreement. After such six month period, the
Shareholder will not, for the subsequent six month period, nor will it
cause its affiliates for such subsequent six month period to, enter
into short sales or other hedging transactions with respect to the
Company's Common Stock in excess of 25,000 shares per month. For
purposes of this Agreement, the term "affiliate" shall mean the
Shareholder, or any successor thereto, Deephaven Capital, Inc.,
("Deephaven") any entity for which Deephaven serves as general partner
or otherwise provides investment advisory services, or of Deephaven's
executive officers or directors.
<PAGE> 2
Shareholder owns as of the date hereof 2,375 shares of Preferred Stock,
constituting 100% of the outstanding Preferred Stock of the Company.
4. General
4.1 Parties and Assignment. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective
successors and assigns, including any subsequent shareholder of the
Preferred Stock; provided, however, that this Agreement may not be
assigned by any party without the consent of the other parties.
4.2 Notices. Any notice that any party hereto is required or may desire
to give to any other party hereto shall be in writing and shall be
deemed to have been properly given only if hand delivered, sent by
personal courier service, telecopied, or mailed by registered,
certified, or express mail, postage prepaid (mailed notices shall be
deemed given upon receipt), to the following persons at the following
addresses (or to such address as may be specified from time to time by
such party by notice given as provided herein):
To the Company: Innovative Gaming Corporation of America.
4750 Turbo Circle
Reno, Nevada 89502
Attention: Chief Financial Officer
To the Shareholder: Bank of Butterfield International (Cayman) Ltd.
Butterfield House
Fort Street, Georgetown
Grand Cayman, Cayman Island
With a Copy to: KA Investments, LDC
c/o Deephaven Capital
1712 Hopkins Cross Road
Minnetonka, Minnesota 55304
Attention: Bruce Lieberman
4.3 Counterparts. For the convenience of the parties and to facilitate
the execution of this Agreement, any number of counterparts hereof may
be executed and each such executed counterpart shall be deemed to be an
original instrument.
4.4 Headings. The headings of paragraphs hereunder are for convenience
and reference only, and shall not be deemed a part of this Agreement.
4.5 Waiver; Remedies. No delay or failure on the part of any party
hereto to exercise any right, power, or privilege hereunder shall
operate as a waiver thereof, nor shall any waiver on the part of any
party hereto of any right, power, or privilege hereunder operate as a
waiver
2
<PAGE> 3
of any other right, power, or privilege hereunder, nor shall any single
or partial exercise of any right, power, or privilege hereunder
preclude any other or further exercise thereof or the exercise of any
other right, power, or privilege hereunder.
4.6 Entire Agreement. This Agreement sets forth the parties' final and
entire agreement with respect to its subject matter and supersedes any
and all prior understandings and agreements. This Agreement shall not
be modified or amended in any fashion except by an instrument in
writing signed by the parties hereto.
4.7 No Third Party Beneficiaries. This Agreement is not intended to
confer upon any person other than the parties hereto any rights or
remedies hereunder.
4.8 Severability. If any provision of this Agreement shall be held by
any court of competent jurisdiction to be illegal, invalid or
unenforceable, such provision shall be construed and enforced as if it
had been more narrowly drawn so as not to be illegal, invalid or
unenforceable, and such illegality, invalidity or unenforceability
shall have no effect upon and shall not impair the enforceability of
any other provision of this Agreement.
4.9 Governing Law. This Agreement shall be construed in accordance with
the laws of the State of Nevada (without regard to principles of
conflicts of laws) applicable to contracts made and to be performed
within such State.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly signed in their respective names all as of the date and year first above
written.
INNOVATIVE GAMING CORPORATION
OF AMERICA
By: s/ Edward G. Stevenson
------------------------
Its: Chairman and CEO
--------------------
KA INVESTMENTS, LDC
By: Gary Jobczak
------------------------
Its: Secretary
------------------------
3
<PAGE> 1
EXHIBIT 10.2
INNOVATIVE GAMING CORPORATION OF AMERICA
4725 Aircenter Circle
Reno, Nevada 89502
SUBSCRIPTION AGREEMENT
Including Investment Representations
Series C Convertible Preferred Stock
Ladies and Gentlemen:
The Shaar Fund, Ltd. ("Buyer") desires to purchase upon the terms and conditions
set forth below from Innovative Gaming Corporation of America, a Minnesota
corporation (the "Company"), Series C 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 C
Convertible Preferred Stock (the "Certificate of Designation"). 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 1,400 Preferred Shares and
agrees to pay to the Company the purchase price of: $1,400,000.
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. In purchasing the Preferred Shares, Buyer has not
relied on any information or representation other than
that which 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), including
the SEC Documents (as defined herein) and has utilized
such access to its satisfaction.
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.
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
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<PAGE> 3
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 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
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<PAGE> 4
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:
"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
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<PAGE> 5
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 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 C Preferred Stock (the
"Deadline"). The Company understands that a delay in the issuance of the
registered Common Shares beyond the Deadline could result in economic loss to
Buyer. The Company agrees to pay liquidated damages to Buyer for late issuance
of registered Common Shares to Buyer upon conversion in the amount of one
percent (1%) of the requested conversion amount, per day, beginning on the 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
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<PAGE> 6
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 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.
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
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<PAGE> 7
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. 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,
the Company's 1997 Director's Stock Option Plan, and
the Company's 1998 Non-Executive Stock Option Plan
and, except for issuances of convertible securities
indicated on Annex A, 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, 1998. The authorized capital stock of
the Company consists of 100,000 shares of Common
Stock, of which 6,690,688 shares are outstanding on
the date hereof and 4,000 shares of Series B
Preferred Stock of which 2,375 are outstanding on the
date hereof. All of the issued and outstanding shares
of Common Stock and Preferred Stock have been duly
authorized and validly issued and are fully paid and
non-assessable. As of the date hereof, the Company
has outstanding stock options and warrants to
purchase shares of Common Stock. There are no
preemptive, subscription, "call" or other similar
rights to acquire the Common Stock that have been
issued or granted to any person.
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 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. The Company has duly and validly
authorized and reserved for issuance 1,331,500 shares
of Common Stock for the conversion of 1,400 Preferred
Shares. The Company understands and acknowledges the
potentially dilutive effect to the Common Stock of
the issuance of the Common Stock and upon conversion
of the Preferred Stock, subject to enforceability in
bankruptcy. The Company further acknowledges that its
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<PAGE> 8
obligation to issue Common Stock upon conversion of
the Preferred Shares, the Certificate of Designations
is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the
ownership interests of other stockholders of the
Company and, subject to enforceability in bankruptcy,
notwithstanding the commencement of any case under 11
U.S.C. ss. 101 et seq. (the "Bankruptcy Code"). In
the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the
fullest extent permitted any rights to relief it may
have under 11 U.S.C. ss. 362 in respect of the
conversion of the Preferred Stock. The Company
agrees, without cost or expense to the Buyer, to take
or consent to any and all action necessary to
effectuate relief under 11 U.S.C. ss. 362.
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
governmental 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
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<PAGE> 9
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 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
-9-
<PAGE> 10
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, the
"Disclosure Materials") on a timely basis or has
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, 1998 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 1998 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
-10-
<PAGE> 11
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.
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.
d. The Company shall have delivered reimbursement of
Buyer's out-of-pocket costs and expenses incurred in
connection with the transactions contemplated by this
Agreement (including the fees and disbursements of
Buyer's legal counsel) in the aggregate amount of
$35,000.
-11-
<PAGE> 12
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 understands the meaning and legal consequences of
the agreements, representations, warranties and
covenants contained herein.
c. 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.
d. 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
1,331,500 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
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<PAGE> 13
additional shares listing application covering at least
a number of shares as the Buyer shall reasonably
request.
e. 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, 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%
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<PAGE> 14
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.
f. The Company shall use $1.1 million of the proceeds from
the sale of the Preferred Shares to redeem such amount
of the Company's Series B Preferred Stock.
g. The Company at all times from and after the date hereof
shall have 1,331,500 shares of Common Stock duly and
validly authorized and reserved for issuance to satisfy
the conversion (pursuant to the Certificate of
Designations), in full, of the 1,400 Preferred Shares.
The Company shall irrevocably instruct its transfer
agent to reserve such number of shares for issuance
upon conversion of the Preferred Stock.
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 losses, claims, damages, judgments,
penalties, liabilities and deficiencies (collectively,
"Losses"), and agrees to reimburse such parties for all
out-of-pocket expenses (including the fees and expenses
of legal counsel, in each case promptly as incurred and
to the extent arising out of or in connection with:
1. any misrepresentation, omission of fact or breach of
any of the Company's representations or warranties
contained in this Agreement, the annexes, schedules or
exhibits hereto or any instrument, agreement or
certificate entered into or delivered by the Company
pursuant to this Agreement, all of which shall survive
the execution hereof; or
2. any failure by the Company to perform in any
material respect any of its covenants, agreements,
undertakings or obligations set forth in this
Agreement, the annexes, schedules or exhibits hereto
or any instrument, agreement or certificate entered
into or delivered by the Company pursuant to this
Agreement.
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.
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<PAGE> 15
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.
-15-
<PAGE> 16
SIGNATURES/SUBSCRIBER INFORMATION
Entity Subscriber:
Dated: June 1, 1999
------------------------------------------
Name of Entity (Typed or Printed)
Samuel Levinson
------------------------------------------
Signature
------------------------------------------
Name (Typed or printed) and Title
------------------------------------------
Contact Person (If different from person signing)
Address for Notices:
The Shaar Fund, Ltd.
c/o Levinson Capital Management
Two World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
Telephone No.: (212) 432-7711
Facsimile No.: (212) 432-7771
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<PAGE> 17
ENTITY SUBSCRIBER TYPE OF OWNERSHIP:
The Shares subscribed for are to be registered in the following form of
ownership (check only one):
[ ] Partnership [ ] Trust or Estate
(Describe and
enclose evidence of signer's authority)
[ ] Corporation
[ ] IRA Trust Account
[ ] Other (Describe) -----------------------------------------
---------------------
ACCEPTANCE
This Subscription Agreement of The Shaar Fund, Ltd. for 1,400 shares of the
Company's Series C Convertible Preferred Stock is hereby accepted by Innovative
Gaming Corporation of America.
Dated: June 1, 1999
INNOVATIVE GAMING CORPORATION OF AMERICA
By s/ Edward G. Stevenson
------------------------------------------------------------------
Edward G. Stevenson, Chairman and Chief Executive Officer
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<PAGE> 1
EXHIBIT 10.3
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT, dated as of June 1, 1999 (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 June 1, 1999, 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 C Convertible Preferred
Stock (such shares, including any additional shares of Series C
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 C Convertible Preferred Stock as
filed with the Minnesota Secretary of State and as amended from time to
time.
(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.
<PAGE> 2
(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 thirty (30) 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 422,500 shares issued upon
exercise of certain Warrants issued to the parties indicated in Annex
A), 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 1,331,500 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, but no later than ten (10)
business days thereafter, file an additional registration statement to
register for resale such additional Registrable Securities as may be
required.
(B) PIGGYBACK OBLIGATIONS. 1. If the Company proposes
to register any of its warrants, Common Stock or any other shares of
common stock of the Company under the Securities Act (other than a
registration (A) on Form S-8 or S-4 or any successor or similar forms,
(B) relating to Common Shares or any other shares of common stock of
the Company issuable upon exercise of employee share options or in
connection with any employee benefit or similar
-2-
<PAGE> 3
plan of the Company or (C) in connection with a direct or indirect
acquisition by the Company of another Person or any transaction with
respect to which Rule 145 (or any successor provision) under the
Securities Act applies), whether or not for sale for its own account,
it will each such time, give prompt written notice at least twenty (20)
days prior to the anticipated filing date of the registration statement
relating to such registration to the Initial Investor, which notice
shall set forth such Initial Investor' rights under this Section 2(b)
and shall offer the Initial investor the opportunity to include in such
registration statement such number of Registrable Securities as the
Initial Investor may request. Upon the written request of an Initial
Investor made within ten (10) days after the receipt of notice from the
Company (which request shall specify the number of Registrable
Securities intended to be disposed of by such Initial Investor), the
Company will use its best efforts to effect the registration under the
Securities Laws of all Registrable Securities that the Company has been
so requested to register by the Initial Investor, to the extent
requisite to permit the disposition of the Registrable Securities so to
be registered; provided, however, that (A) if such registration
involves a public offering, the Initial investor must sell its
Registrable Securities to the underwriters on the same terms and
conditions as apply to the Company and (B) if, at any time after giving
written notice of its intention to register any Registrable Securities
pursuant to this Section 2 and prior to the effective date of the
registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such Registrable
Securities, the Company shall give written notice to the Initial
Investor and, thereupon, shall be relieved of its obligation to
register any Registrable Securities in connection with such
registration. The Company's obligations under this Section 2(b) shall
terminate on the date that the registration statement to be filed in
accordance with Section 2(a) is declared effective by the Commission.
2. If a registration pursuant to this Section 2(b)
involves a public offering and the managing underwriter thereof advises
the Company that, in its view, the number of shares of Common Stock,
Warrants or other shares of Common Stock that the Company and the
Initial Investor and all other prospective sellers holding registration
rights intend to include in such registration exceeds the largest
number of shares of Common Stock (including any other shares of Common
Stock of the Company) that can be sold without having an adverse effect
on such public offering (the "Maximum Offering Size"), the Company will
include in such registration, only that number of shares of Common
Stock, such that the number of securities registered does not exceed
the Maximum Offering Size, with the difference between the number of
shares in the Maximum Offering Size and the number of shares to be
issued by the Company to be allocated (after including all shares to be
issued and sold by the Company) among the Initial Investor and such
other prospective holders pro rata on the basis
-3-
<PAGE> 4
of the relative number of securities offered for sale under such
registration by each of the initial Investor and such other prospective
holders.
If as a result of the proration provisions of this Section
2(b)(ii), any Initial Investor is not entitled to include all such
Registrable Securities in such registration, such Initial Investor may
elect to withdraw its request to include any Registrable Securities in
such registration. With respect to registrations pursuant to this
Section 2(b), the number of securities required to satisfy any
underwriters' over-allotment option shall be allocated pro rata among
the Company and the Initial Investor on the basis of the relative
number of securities otherwise to be included by each of them in the
registration with respect to which such over-allotment option relates.
(C) PAYMENTS BY THE COMPANY. The Company will use its best
efforts to have the Registration Statement become effective with the
SEC no later than 90 days from the closing of the purchase of the
Preferred Shares (the "Closing"). If the Registration Statement
covering the Registrable Securities is not effective within 120 days
after the closing, then the Company will make payments to each holder
of Registrable Securities (each, a "Holder") in such amounts and at
such times as shall be determined pursuant to this Section 2(b). The
amount to be paid by the Company to the Holders shall be determined as
of each Computation Date, and such amount shall be equal to (1) in the
case of the first Computation Date, 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.
-4-
<PAGE> 5
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).
"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 30 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
(which may not exceed 60 days in any twelve (12) month period) (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
-5-
<PAGE> 6
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 methods of disposition by the seller or sellers thereof as
set forth in the Registration Statement or prospectus supplement;
(c) (i) Prior to the filing with the commission of any
Registration Statement (including any amendments thereto) and the
distribution or delivery of any Prospectus (including any supplements
thereto), provide (A) draft copies thereof to the Investors and reflect
in such documents all such comments as the Investors (and their
counsel) reasonably may propose and (B) to the Investors a copy of the
accountant's consent letter to be included in the filing and (ii)
furnish to each Investor whose Registrable Securities are included in
the Registration Statement and its legal counsel identified to the
Company, (A) promptly after the same is prepared and publicly
distributed, filed with the SEC, or received by the Company, one copy
of the Registration Statement, each Prospectus, and each amendment or
supplement thereto, and (E) such number of copies of the 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;
(d) 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.
(e) 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;
-6-
<PAGE> 7
(f) 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;
(g) 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;
(h) 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 and use its best efforts to
take all lawful action to effect the withdrawal, recession or removal
of such stop order or other suspension;
(i) 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;
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<PAGE> 8
(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, within three (3) business days
after a Registration Statement which includes Registrable Securities is
declared effective by the Commission, deliver and cause legal counsel
selected by the Company to deliver to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an appropriate
instruction and, to the extent necessary, an opinion of such counsel;
and
(m) take all other reasonable actions necessary to expedite and
facilitate disposition by the Investor of the Registrable Securities
pursuant to the Registration Statement.
4. OBLIGATIONS OF THE INVESTORS. In connection with the registration
of the Registrable Securities, the Investors shall have the following
obligations:
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<PAGE> 9
(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 two (2) 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.
6. INDEMNIFICATION. In the event any Registrable Securities are
included in a Registration Statement under this Agreement:
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<PAGE> 10
(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 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
-10-
<PAGE> 11
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.
(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
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<PAGE> 12
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.
(e) The obligations of the Company under this Section 6 shall be
in addition to any liability which the Company may otherwise have to
any Indemnified Person and the obligations of any Indemnified Person
under this Section 6 shall be in addition to any liability which such
Indemnified Person may otherwise have to the Company. The remedies
provided in this Section 6 are not exclusive and shall not limit any
rights or remedies which may otherwise be available to an indemnified
party at law or in equity.
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 in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
the Indemnified Party in connection with the
-12-
<PAGE> 13
statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other
relevant equitable considerations- The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact relates to information supplied by such Indemnified Party
or by such Indemnified Party, and the parties, relative intent,
knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not
be just and equitable if contribution pursuant to this Section 7 were
determined by pro rata allocation (even if the Investors or any
underwriters were treated as one entity for such purpose) or by any
other method of allocation which does not take account of the equitable
considerations referred to in this Section 7. The amount paid or
payable by an Indemnified Party as a result of the losses, claims,
damages or liabilities (or actions in respect thereof) referred to
above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim; provided, however,
that (a) no contribution shall be made under circumstances where the
maker would not have been liable for indemnification under the fault
standards set forth in Section 6, (b) no seller of Registrable
Securities guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to
contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation and (c) contribution by any
seller of Registrable Securities shall be limited in amount to the net
amount of proceeds received by such seller from the sale of such
Registrable Securities.
8. REPORTS UNDER EXCHANGE ACT. With a view to making available to the
Investors the benefits of Rule 144 or any other similar rule or
regulation of the SEC that may at any time permit the Investors to sell
securities of the Company to the public without registration, until
such time as the Investors have sold all the Registrable Securities
pursuant to a Registration Statement or Rule 144, the Company agrees
to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144;
(b) file with the SEC all reports and other documents required
of the Company under the Securities Act and the Exchange Act; and
(c) furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement
by the Company that it has complied with the reporting requirements of
Rule 144, the Securities Act and the Exchange Act, (ii) a copy of the
most recent annual or quarterly report of the
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<PAGE> 14
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 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, 4725 Aircenter 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
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<PAGE> 15
personally delivered, upon receipt, and when so sent by certified mail,
four business days after deposit with the United States Postal Service.
(c) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such
right or remedy, shall not operate as a waiver thereof.
(d) This Agreement shall be enforced, governed by and construed
in accordance with the laws of the State of Minnesota applicable to the
agreements made and to be performed entirely within such state, without
giving effect to rules governing the conflict of laws. In the event
that any provision of this Agreement is invalid or unenforceable under
any applicable statute or rule of law, then such provision shall be
deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law.
Any provision hereof which may prove invalid or unenforceable under any
law shall not affect the validity or enforceability of any other
provision hereof.
(e) This Agreement constitutes the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those
set forth or referred to herein. This Agreement supersedes all prior
agreements and understandings among the parties hereto with respect to
the subject matter hereof.
(f) Subject to the requirements of Section 9 hereof, this
Agreement shall inure to the benefit of and be binding upon the
successors and assigns of each of the parties hereto.
(g) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may
require .
(h) The headings in the Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning
hereof.
(i) The Company shall not enter into any agreement with respect
to its securities that is inconsistent with the rights granted to the
holders of Registrable Securities in this Agreement or otherwise
conflicts with the provisions hereof. Without limiting the generality
of the foregoing, without the written consent of the Holders of a
majority in interest of the Registrable Securities, the Company shall
not grant to any person the right to request it to register any of its
securities under the Securities Act unless the rights so granted are
subject in all respect to the prior rights of the holders of
Registrable Securities set forth herein, and are not otherwise in
conflict or inconsistent with the provisions of this Agreement.
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<PAGE> 16
(j) 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.
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: s/ Edward G. Stevenson
--------------------------------------------------
Edward G. Stevenson, Chairman and CEO
INVESTOR:
THE SHAAR FUND, LTD.
By: Samuel Levinson
---------------------------------------------------
Its:
--------------------------------------------------
Address for Notices:
The Shaar Fund, Ltd.
c/o Levinson Capital Management
Two World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
Telephone No.: (212) 432-7711
Facsimile No.: (212) 432-7771
-16-
<PAGE> 1
EXHIBIT 10.4
INNOVATIVE GAMING CORPORATION OF AMERICA
INNOVATIVE GAMING, INC.
SUBSCRIPTION AGREEMENT AND
LETTER OF INVESTMENT INTENT
12% SECURED CONVERTIBLE PROMISSORY NOTE
AND WARRANT OFFERING
Innovative Gaming, Inc.
4725 Aircenter Circle
Reno, Nevada 89502
hereby subscribes for the purchase of
a) $ principal amount of 12% Secured Convertible Promissory Note (the
"Note"), in the form attached to as Annex A, of Innovative Gaming, Inc., a
Nevada corporation, and the Warrant (the "Warrant," and collectively with the
"Note," the "Securities") in the form attached hereto as Annex B to purchase
Common Stock of Innovative Gaming Corporation of America, a Minnesota
corporation and beneficial owner of 100% of IGI's issued and outstanding stock
("IGCA" and collectively with IGI, the "Company") upon the terms and conditions
set forth below. The undersigned acknowledges that this subscription is
contingent upon acceptance in whole or in part by the Company.
(1) Payment of Purchase Price; Delivery of Note and Warrant. The
undersigned subscriber will pay the purchase price in full to the order of
Innovative Gaming, Inc. and deliver a complete and manually signed copy of this
Subscription Agreement with such payment to the Company. THE UNDERSIGNED WILL
SEND 1) A COMPLETED AND EXECUTED SUBSCRIPTION AGREEMENT AND 2) WIRE PURSUANT TO
THE INSTRUCTIONS INDICATED BELOW OR ENCLOSE A CHECK IN THE AMOUNT OF YOUR
SUBSCRIPTION, MADE PAYABLE TO "INNOVATIVE GAMING, INC" TO THE ATTENTION OF SCOTT
H. SHACKELTON, CHIEF FINANCIAL OFFICER, INNOVATIVE GAMING CORPORATION OF
AMERICA, 4725 AIRCENTER CIRCLE, RENO, NEVADA 89502. THE WIRE INSTRUCTIONS FOR
YOUR SUBSCRIPTION ARE AS FOLLOWS:
WELLS FARGO BANK
RENO COMMERCIAL BANKING OFFICE
RENO, NEVADA 89502
ABA ROUTING: 121 000 248
ACCOUNT NUMBER: 443 561 1090
ACCOUNT NAME: INNOVATIVE GAMING, INC.
Upon acceptance of this Subscription Agreement by the Company, a Note
and a Warrant will be registered in the name or names, and will be delivered by
certified mail to the address, specified on page 7 hereof.
<PAGE> 2
(2) Representations of the Investor. In connection with, and in
consideration of, the sale of the Securities to the undersigned, the undersigned
hereby represents and warrants to the Company that the undersigned:
A. Has been given access to full and complete information
regarding the Company (including the opportunity to meet with
Company officers and review all documents as the undersigned
may have requested in writing); has utilized such access to
the undersigned's satisfaction for the purpose of obtaining
information in addition to, or verifying information included
in IGCA's filings with the Securities and Exchange Commission,
including but not limited to, the Company's Form 10-K for the
Fiscal Year ended December 31, 1998 and the Company's Form
10-Q for the first quarter ended March 31, 1999 ("SEC
Filings") thereto; and has been given reasonable opportunity
to ask questions of, and receiving answers from, such
representatives of the Company concerning the terms and
conditions of the offering of the Securities.
B. Realizes that, notwithstanding the fact that the Note is
secured, a purchase of the Securities represents a speculative
investment involving a high degree of risk, including, but not
limited to, the reasons described in the SEC Filings.
C. Understands that the Note is not convertible into IGCA's
Common Stock until one (1) year after the date of issuance.
D. Understands that the Warrant is not exercisable into IGCA's
Common Stock until the earlier of (i) Ninety (90) days from
the date of issuance, or (ii) registration of the Warrant
Shares with the Securities and Exchange Commission.
E. Understands that the Shares of Common Stock of IGCA issuable
upon conversion of the Note or exercise of the Warrant may
only be sold pursuant to a registration statement relating to
such securities or pursuant to an exemption from registration.
F. Can bear the economic risk of an investment in the Note, can
afford to sustain a complete loss of such investment, has no
need for liquidity in connection with an investment in the
Securities, and can afford to hold the Securities
indefinitely.
G. Realizes that there will be no market for the Securities, that
there are significant restrictions on the transferability of
the Securities and that for these and other reasons, the
undersigned may not be able to liquidate an investment in the
Securities for an indefinite period until the undersigned can
convert such security.
H. Realizes that the Securities have not been, and will not be,
registered for sale under the Securities Act of 1933, as
amended (the "Act"), or applicable state securities laws (the
"State Laws") and may be sold only pursuant to registration
under the Act and State Laws, or an opinion of counsel
satisfactory to counsel for the Company that such registration
is not required.
2
<PAGE> 3
I. Believes that the investment in the Securities is suitable for
the undersigned based upon the undersigned's investment
objectives and financial needs, and the undersigned has
adequate means to provide for the undersigned's current
financial needs and personal/business contingencies and has no
need for liquidity of investment with respect to the
Securities.
J. Is experienced and knowledgeable in financial and business
matters, capable of evaluating the merits and risks of
investing in the Securities, and does not need or desire the
assistance of a knowledgeable representative to aid in the
evaluation of such risks (or, in the alternative, has a
knowledgeable representative who such investor intends to use
in connection with a decision as to whether to purchase the
Securities and who together with such investor has such
knowledge and experience in financial and business matters
that they are together capable of evaluating the merits and
risks of investing in the Securities).
(3) Investment Intent. The undersigned has been advised that the
Securities have not been registered under the Act or the relevant State Laws but
are being offered, and will be offered and sold, pursuant to exemptions from the
Act and State Laws, and that the Company's reliance upon such exemptions is
predicated in part on the undersigned's representations contained herein. The
undersigned represents and warrants that the Securities are being purchased for
the undersigned's own account and for long term investment and without the
intention of reselling or redistributing the Securities, that the undersigned
has made no agreement with others regarding any of the Securities, and that the
undersigned's financial condition is such that it is not likely that it will be
necessary for the undersigned to dispose of any of the Securities in the
foreseeable future. The undersigned is aware that (i) in the view of the
Securities and Exchange Commission (the "SEC"), a purchase of securities with an
intent to resell by reason of any foreseeable specific contingency or
anticipated change in market values, or any change in the liquidation or
settlement of any loan obtained for the acquisition of any of the Securities and
for which the Securities were or may be pledged as security would represent an
intent inconsistent with the investment representations set forth above and (ii)
the transferability of the Securities is restricted.
The undersigned understands that the Note will contain the following
legend:
"Neither this note nor the shares of common stock issuable
upon conversion hereunder have been registered under the
securities act of 1933 or under the securities laws of any
state or other jurisdiction (together, the "securities laws")
and may not be offered for sale, sold or otherwise transferred
or encumbered in the absence of compliance with such
securities laws and until the company (as defined herein)
thereof shall have received an opinion from counsel acceptable
to it that the proposed disposition will not violate any
applicable securities laws. This Note is non-negotiable and
non-transferable and no interest shall be paid except to the
payee named herein except as otherwise noted herein. This Note
is secured pursuant to the terms of the security agreement of
even date hereof."
3
<PAGE> 4
The undersigned further represents and agrees that if, contrary to the
undersigned's foregoing intentions, the undersigned should later desire to
dispose of or transfer any of the Securities in any manner, the undersigned
shall not do so without first obtaining (i) an opinion of counsel satisfactory
to the Company that such proposed disposition or transfer may be made lawfully
without the registration of such Securities pursuant to the Act and applicable
State Laws, or (ii) registration of such Securities (it being expressly
understood that the Company shall not have any obligation to register such
Securities except as specifically set forth herein).
(4) Residence. The undersigned represents and warrants that the
undersigned is a bona fide resident of (or, if an entity, is organized or
incorporated under the laws of, and is domiciled in) the State of and that the
Securities are being purchased by the undersigned in the undersigned's name
solely for the undersigned's own beneficial interest and not as nominee for, on
behalf of, for the beneficial interest transfer to, any other person, trust, or
organization (except as specifically set forth in paragraph (9) of this
Agreement).
PARAGRAPH (5) IS REQUIRED IN CONNECTION WITH THE EXEMPTIONS FROM THE
ACT AND STATE LAWS BEING RELIED ON BY THE COMPANY WITH RESPECT TO THE OFFER AND
SALE OF THE SECURITIES. ALL OF SUCH INFORMATION WILL BE KEPT CONFIDENTIAL AND
WILL BE REVIEWED ONLY BY THE COMPANY AND ITS COUNSEL. The undersigned agrees to
furnish any additional information which the Company or its legal counsel deem
necessary in order to verify the responses set forth below.
(5) Accredited Status. The undersigned represents and warrants as
follows (check all that apply):
A. The undersigned is an individual with a net
------ worth, or a joint net worth together with his
or her spouse, in excess of $1,000,000. (In
calculating net worth, you may include equity
in personal property and real estate,
including your principal residence, cash,
short-term investments, stock and securities.
Equity in personal property and real estate
should be based on the fair market value of
such property minus debt secured by such
property.)
B. The undersigned is an individual (not a
------ partnership, corporation, etc.) with income
in excess of $200,000 in each of the prior
two years and reasonably expects an income in
excess of $200,000 in the current year.
C. The undersigned is an individual (not a
------ partnership, corporation, etc.) who, with his
or her spouse, had joint income in excess of
$300,000 in each of the prior two years and
reasonably expects joint income in excess of
$300,000 in the current year.
D. The undersigned, if other than an individual,
------ is an entity all of whose equity owners meet
one of the tests set forth in (a) through (d)
above (if relying on this category alone,
each equity owner must complete a separate
copy of this Agreement).
4
<PAGE> 5
E. The undersigned is an entity, and is an
------ "Accredited Investor" as defined in Rule
501(a) of Regulation D under the Act.
(6) Entities. If the undersigned is not an individual but an entity,
the individual signing on behalf of such entity and the entity jointly and
severally agree and certify that:
A. The undersigned was not organized for the specific
purpose of acquiring the Securities; and
B. This Agreement has been duly authorized by all
necessary action on the part of the undersigned, has
been duly executed by an authorized officer or
representative of the undersigned, and is a legal,
valid and binding obligation of the undersigned
enforceable in accordance with its terms.
(7) Legal Age. If the undersigned is an individual, the undersigned
is of legal age.
(8) Miscellaneous.
A. Manner in which title is to be held: (check one):
_____ Individual Ownership
_____ Joint Tenants with Right of Survivorship*
_____ Partnership*
_____ Tenants in Common*
_____ Corporation
_____ Trust
_____ Other (describe):
--------------------------------------
* Multiple signatures required.
B. The undersigned agrees that the undersigned understands the
meaning and legal consequences of the agreements,
representations and warranties contained herein, agrees that
such agreements, representations and warranties shall survive
and remain in full force and effect after the execution hereof
and payment for the Securities, and further agrees to indemnify
and hold harmless the Company, each current and future officer,
director, employee, agent and shareholder from and against any
and all loss, damage or liability due to, or arising out of, a
breach of any agreement, representation or warranty of the
undersigned contained herein.
C. This Agreement shall be construed and interpreted in accordance
with Nevada law without regard to conflict of law provisions.
D. The undersigned agrees to furnish to the Company, upon request,
such additional information as may be deemed necessary to
determine the undersigned's suitability as an investor.
5
<PAGE> 6
INDIVIDUAL SUBSCRIBERS: ENTITY SUBSCRIBERS:
(including joint tenants and tenants in common)
x x
--------------------------------- ---------------------------------
Signature Signature
- ---------------------------------- -----------------------------------
Name (typed or printed) -----------------------------------
Name (typed or printed)
- ----------------------------------------
- ---------------------------------------- -----------------------------------
Address, city, state and zip code Name of entity
- ---------------------------------------- -----------------------------------
Social security number -----------------------------------
-----------------------------------
Address,city, state and zip code
- ----------------------------------------
Business telephone number
-----------------------------------
Tax identification number
- ----------------------------------------
Fax number
-----------------------------------
Telephone number
x
---------------------------------------
Signature (If more than one individual
subscriber)
- ----------------------------------------
Name (typed or printed)
-----------------------------------
Date signed
- ----------------------------------------
- ----------------------------------------
Address, city, state and zip code
- ----------------------------------------
Social security number
- ----------------------------------------
Date signed
6
<PAGE> 7
ACCEPTANCE
This Subscription Agreement and Letter of Investment Intent is accepted
as of this ____ day of _________, 1999.
INNOVATIVE GAMING, INC.
By:
-------------------------------------
Its:
-------------------------------------
7
<PAGE> 1
EXHIBIT 10.5
ANNEX A
NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
HEREUNDER HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION (TOGETHER, THE "SECURITIES
LAWS") AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED OR
ENCUMBERED IN THE ABSENCE OF COMPLIANCE WITH SUCH SECURITIES LAWS AND UNTIL THE
COMPANY (AS DEFINED HEREIN) THEREOF SHALL HAVE RECEIVED AN OPINION FROM COUNSEL
ACCEPTABLE TO IT THAT THE PROPOSED DISPOSITION WILL NOT VIOLATE ANY APPLICABLE
SECURITIES LAWS. THIS NOTE IS NON-NEGOTIABLE AND NON-TRANSFERABLE AND NO
INTEREST SHALL BE PAID EXCEPT TO THE PAYEE NAMED HEREIN EXCEPT AS OTHERWISE
NOTED HEREIN. THIS NOTE IS SECURED PURSUANT TO THE TERMS OF THE SECURITY
AGREEMENT OF EVEN DATE HEREOF.
INNOVATIVE GAMING, INC.
12% SECURED CONVERTIBLE PROMISSORY NOTE
Reno, Nevada
$[ ] June 1, 1999
FOR VALUE RECEIVED, Innovative Gaming, Inc., a Nevada corporation (the
"Company"), promises to pay to [ ] ("Holder"), in lawful money of the United
States of America, the principal sum of [ ] DOLLARS ($[ ]), together with
interest in arrears on the unpaid principal balance at a rate equal to TWELVE
PERCENT (12%) per annum, in the manner provided below. Interest shall be
calculated on the basis of a 360-day year of twelve 30-day months.
This Note is secured in accordance with and pursuant to that Security Agreement
dated on even date herewith and attached hereto as Annex A (the "Security
Agreement").
1. PAYMENTS.
1.1 PRINCIPAL AND INTEREST. The principal amount of this Note shall be
due and payable on June 1, 2002 (the "Maturity Date"). Interest on the unpaid
principal balance of this Note shall be due and payable quarterly in cash on the
fifteenth (15th) day of March, June, September and December of each year,
commencing September 15,1999 until said principal amount of the Note is paid in
full or upon conversion of the Note in accordance with Section 5 hereof.
1.2 MANNER OF PAYMENT. All payments of principal and interest on this
Note shall be made by check with [ ] or at such other place in the United States
of America as Holder shall designate to the Company in
<PAGE> 2
writing. If any payment of principal or interest on this Note is due on a day
which is not a Business Day, such payment shall be due on the next succeeding
Business Day, and such extension of time shall not be taken into account in
calculating the amount of interest payable under this Note. "Business Day" means
any day other than a Saturday, Sunday or legal holiday in the State of Nevada.
1.3 PREPAYMENT. At any time after June 1, 2000, the Company may, without
premium or penalty, at any time and from time to time, prepay all or any portion
of the outstanding principal balance due under this Note, provided that each
such prepayment is accompanied by the accrued interest on the amount of
principal prepaid calculated to the date of such prepayment. The Company shall
provide Holder with not less than forty-five (45) days written notice prior to
such prepayment. In the event a transaction described in Section 6.3 hereof is
contemplated prior to or contemporaneous with prepayment, said written notice
shall include the information specified in the notice made pursuant to Section
6.3 hereof.
2. DEFAULT.
2.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events with respect to Company shall constitute an event of default
hereunder ("Event of Default"):
(a) If Company shall fail to pay when due any payment of
principal or interest on this Note and such failure continues for
thirty (30) days after the Holder notifies the Company thereof in
writing.
(b) If, pursuant to or within the meaning of the United States
Bankruptcy Code or any other federal or state law relating to
insolvency or relief of debtors (a "Bankruptcy Law"), the Company shall
(i) commence a voluntary case or proceeding; (ii) consent to the entry
of an order for relief against it in an involuntary case; (iii) consent
to the appointment of a trustee, receiver, assignee, liquidator or
similar official; (iv) make an assignment for the benefit of its
creditors; or (v) admit in writing its inability to pay its debts as
they become due.
(c) If a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that (i) is for relief against the
Company in an involuntary case, (ii) appoints a trustee, receiver,
assignee, liquidator or similar official for the Company or
substantially all of the Company's properties, or (iii) orders the
liquidation of the Company, and in each case the order or decree is not
dismissed within 90 days.
2.2 NOTICE BY THE COMPANY. The Company shall notify Holder in writing
within five days after the occurrence of any Event of Default of which the
Company acquires knowledge.
2.3 REMEDIES. Upon the occurrence of an Event of Default hereunder
(unless all Events of Defaults have been cured or waived by Holder), Holder may
(subject to the provisions of Section 3), at its option, (i) by written notice
to the Company, declare the entire unpaid principal
2
<PAGE> 3
balance of this Note, together with all accrued interest thereon, immediately
due and payable regardless of any prior forbearance, and (ii) exercise any and
all rights and remedies available to it under applicable law, including, without
limitation, the right to collect from the Company all sums due under this Note.
The Company shall pay all reasonable costs and expenses incurred by or on behalf
of Holder in connection with Holder's exercise of any or all of its rights and
remedies under this Note, including, without limitation, reasonable attorneys'
fees.
3. TRANSFERABILITY.
3.1 Except as otherwise provided in 7.5 below, Holder is prohibited
from transferring its right, title and interest in this Note.
4. CONVERSION.
4.1 HOLDER CONVERSION. At any time after June 1, 2000 and subject to
Section 4.2, the Holder shall have the right, at the Holder's option, at any
time prior to payment in full of the principal balance of this Note, to convert
this Note, in accordance with the provisions of Section 4.3 hereof, in whole or
in part, into fully paid and nonassessable shares of Common Stock (the "Common
Stock") of Innovative Gaming Corporation of America, a Minnesota corporation and
beneficially owner of 100% of the Company's issued and outstanding capital stock
("IGCA"). The number of shares of Common Stock into which this Note may be
converted ("Conversion Shares") shall be determined by dividing the outstanding
principal amount of the Note to be converted together with all accrued interest
thereon to the date of conversion by $1.50 (the "Conversion Price").
4.2 CONVERSION LIMITATION. No amount of principal or accrued but unpaid
interest under this Note shall be convertible into Common Stock of IGCA if the
sum of 1) the number of Common Stock beneficially owned by the Holder (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 Note); and 2) the number of shares of Common Stock issuable upon
conversion of the Note would result in beneficial ownership by the Holder of
more than 4.9% of IGCA's issued and outstanding Common Stock.
4.3 CONVERSION PROCEDURE.
(a) NOTICE OF CONVERSION PURSUANT TO SECTION 4.1. Before the
Holder shall be entitled to convert this Note into shares of Common
Stock, it shall surrender this Note at the office of the Company and
shall give written notice by mail in the form attached hereto as
Exhibit A (the "Holder Conversion Notice") to the Company at its
principal corporate office, of the election to convert all or a portion
of this Note pursuant to Section 4.1. If this Note is converted in part
only, the Company shall execute and deliver a new note to the Holder
thereof in the principal amount equal to the portion of this Note not
so converted.
3
<PAGE> 4
(b) MECHANICS AND EFFECT OF CONVERSION. No fractional shares
of Common Stock shall be issued upon conversion of this Note. Upon the
conversion of this Note pursuant to Section 4.1 above, the Holder shall
surrender this Note, duly endorsed, at the principal office of the
Company. At its expense, IGCA shall, as soon as practicable thereafter,
issue and deliver to such Holder at such principal office a certificate
or certificates for the number of shares of Common Stock to which the
Holder shall be entitled upon such conversion (bearing such legends as
are required by the Agreement and applicable state and federal
securities laws in the opinion of counsel to IGCA), together with a new
note for the principal amount of the Note that was not converted. Upon
conversion of all or a portion of this Note, the Company shall be
forever released from all its obligations and liabilities under this
Note, to the extent of the principal amount so converted.
5. ANTI-DILUTION ADJUSTMENTS.
5.1 ADJUSTMENTS FOR STOCK SPLITS AND SUBDIVISIONS. In the event IGCA
should at any time or from time to time after the date of issuance hereof fix a
record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without payment of
any consideration by such holder for the additional shares of Common Stock or
the Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the Conversion Price of this Note shall be appropriately decreased so
that the number of shares of Common Stock issuable upon conversion of this Note
shall be increased in proportion to such increase of outstanding shares.
5.2 ADJUSTMENTS FOR REVERSE STOCK SPLITS. If the number of shares of
Common Stock outstanding at any time after the date hereof is decreased by a
combination of the outstanding shares of Common Stock through a reverse stock
split, then, following the record date of such combination, the Conversion Price
for this Note shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion of this Note shall be decreased in
proportion to such decrease in outstanding shares.
5.3 ADJUST FOR REORGANIZATION, RECLASSIFICATION, MERGER AND SALE. If
any capital reorganization or reclassification of the capital stock of IGCA, or
consolidation or merger of IGCA with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be effected in such
a way that holders of IGCA's Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for such common shares,
then, as a condition of such reorganization, reclassification, consolidation,
merger or sale, the Holder shall have the right to convert and receive upon the
basis and upon the terms and conditions specified in this Note and in lieu of
the shares of the Common Stock of IGCA immediately theretofore convertible and
receivable upon the exercise of the rights represented hereby, such shares of
stock, other securities or assets as would have been issued or delivered to the
Holder as if it had exercised
4
<PAGE> 5
this Note and had received such shares of common stock prior to such
reorganization, reclassification, consolidation, merger or sale. IGCA shall not
effect any such consolidation, merger or sale, unless prior to the consummation
thereof the successor corporation (if other than IGCA) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument executed and mailed to the registered Holder of this Note
at the last address of such Holder appearing on the books of IGCA, the
obligation to deliver to such Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such Holder may be entitled to
convert.
5.4 OTHER ADJUSTMENT. If IGCA takes any other action, or if any other
event occurs which does not come within the scope of the provisions of Sections
5.1 through 5.3, but which should result in an adjustment in the Conversion
Price and/or the number of shares subject to this Note in order to fairly
protect the purchase rights of the Holder, an appropriate adjustment in such
purchase rights shall be made by IGCA Company.
5.5 RESERVATION OF STOCK ISSUABLE UPON CONVERSION. IGCA shall at all
times reserve and keep available out of its authorized but unissued shares of
Common solely for the purpose of effecting the conversion of this Note such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of this Note; and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of the entire outstanding principal amount of this Note, in addition
to such other remedies as shall be available to the holder of this Note, IGCA
will use its best efforts to take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares to
such number of shares as shall be sufficient for such purposes.
6. REGISTRATION RIGHTS.
6.1 PIGGY BACK REGISTRATION RIGHTS. If, at any time after June 1, 2000
and prior to the Maturity Date, IGCA shall propose to file any registration
statement under the Securities Act of 1933, as amended, covering a public
offering IGCA's Common Stock and permitting the inclusion of shares of selling
shareholders, it will notify the holder hereof at least thirty (30) days prior
to each such filing and will include in the registration statement (to the
extent permitted by applicable regulation) the Common Stock issued by the Holder
upon conversion of the Note to the extent requested by the Holder hereof.
Notwithstanding the foregoing, the number of shares of the Common Stock proposed
to be registered shall thereby be reduced pro rata (other than IGCA) upon the
request of the managing underwriter of such offering subject to the prior rights
of any other selling shareholders that give it first priority in any such
registration. If the registration statement or offering statement filed pursuant
to such forty-five (45) day notice has not become effective within six months
following the date such notice is given to the holder hereof, IGCA must again
notify such holder in the manner provided above.
6.2 DEMAND REGISTRATION RIGHTS. On a one-time basis only, during the
two- year period commencing one year after the date of this Note, upon request
by the Holder of this Note, and of any Conversion Shares, IGCA will promptly
take all necessary steps to register or qualify, under the 1933 Act and the
securities laws of such states as the holders may reasonably request, such
number
5
<PAGE> 6
of Conversion Shares issued and to be issued upon conversion of the Notes
requested by such holders in their request to IGCA. The Company shall keep
effective and maintain any registration, qualification, notification, or
approval specified in this section for such period as may be reasonably
necessary for such Holder or Holders of such Notes and/or such Conversion Shares
to dispose thereof and from time to time shall amend or supplement the
prospectus used in connection therewith to the extent necessary in order to
comply with applicable law.
6.3 REGISTRATION EXPENSES AND COOPERATION. All expenses of any such
registrations referred to in this Section 7, except the fees of counsel to such
holders and underwriting commissions or discounts, shall be borne by IGCA. The
Holder agrees to cooperate with IGCA in the preparation and filing of any such
registration statement or offering statement, and in the furnishing of
information concerning the holder for inclusion therein, or in any efforts by
IGCA to establish that the proposed sale is exempt under the Act as to any
proposed distribution.
7. MISCELLANEOUS.
7.1 WAIVER. The rights and remedies of Holder under this Note shall be
cumulative and not alternative. No waiver by Holder of any right or remedy under
this Note shall be effective unless in a writing signed by Holder. Neither the
failure nor any delay in exercising any right, power or privilege under this
Note will operate as a waiver of such right, power or privilege and no single or
partial exercise of any such right, power or privilege by Holder will preclude
any other or further exercise of such right, power or privilege or the exercise
of any other right, power or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right of Holder arising out of this Note can be
discharged by Holder, in whole or in part by a waiver or renunciation of the
claim or right unless in a writing, signed by Holder; (b) no waiver that may be
given by Holder will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on the Company will be deemed to be a
waiver of any obligation of the Company or of the right of Holder to take
further action without notice or demand as provided in this Note. The Company
hereby waives presentment, demand, protest and notice of dishonor and protest.
7.2 NOTICES. Any notice required or permitted to be given hereunder
shall be given by the Company to the Holder or the Holder to the Company in
accordance with the Agreement.
7.3 SEVERABILITY. If any provision in this Note is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Note will remain in full force and effect. Any provision of this Note held
invalid or unenforceable only in part or degree will remain in full force and
effect to the extent not held invalid or unenforceable.
7.4 GOVERNING LAW. This Note will be governed by the laws of the
State of Nevada without regard to conflicts of laws principles.
7.5 PARTIES IN INTEREST. This Note shall bind the Company and its
successors and assigns. This Note shall not be assigned by Holder without the
express prior written consent the Company, except as follows:
6
<PAGE> 7
(a) by will or in default thereof by operation of law;
(b) by gift to the Holder's spouse, children, grandchildren or
parents or a trust for the benefit of such persons;
(c) by gift to any other third party but only with the express
written consent of the Company, which consent shall not be unreasonably
withheld; and
(d) to a revocable trust created by the Holder, of which the
Holder is the primary beneficiary during his lifetime.
7.6 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
Note are provided for convenience only and will not affect its construction or
interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Note unless otherwise specified.
All words used in this Note will be construed to be of such gender or number as
the circumstances require. Unless otherwise expressly provided, the words
"hereof" and "hereunder" and similar references refer to this Note in its
entirety and not to any specific section or subsection hereof.
IN WITNESS WHEREOF, the Company has executed and delivered this Note as
of the date first stated above.
INNOVATIVE GAMING, INC.
By:
------------------------------
Title:
----------------------------
7
<PAGE> 8
EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To Be Signed Only Upon Conversion of Note)
TO INNOVATIVE GAMING CORPORATION OF AMERICA
The undersigned, the holder of the foregoing Note, hereby surrenders
such Note for conversion into shares of Common Stock of INNOVATIVE GAMING
CORPORATION OF AMERICA, to the extent of $ of the unpaid principal amount
of such Note, and requests that the certificates for such shares be issued in
the name of, and delivered to, whose address is
. The undersigned, the holder of the foregoing
Note, hereby represents and warrants to INNOVATIVE GAMING CORPORATION OF AMERICA
that it is in compliance with the Conversion Limitation of Section 4.2 of the
Note.
Dated:
----------------------------------
---------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Note)
---------------------------------
(Address)
8
<PAGE> 1
EXHIBIT 10.6
WARRANT TO PURCHASE
COMMON STOCK OF
INNOVATIVE GAMING CORPORATION OF AMERICA
For value received, KA Investments, LDC or its successors or assigns
("Holder"), is entitled to subscribe for and purchase from Innovative Gaming
Corporation of America, a Minnesota corporation (the "Company"), up to THREE
HUNDRED FIFTY THOUSAND (350,000) fully paid and nonassessable shares of the
Company's common stock, $.01 par value ("Common Stock"), at the price of $1.50
per share, subject to adjustments as noted below (the "Warrant Exercise Price").
This Warrant has been executed and delivered pursuant to and in accordance with
the terms and conditions of the Series B Convertible Preferred Stock Amendment
Agreement dated June1, 1999 by and between the Company and the Holder.
This Warrant may be exercised by Holder at any time after June 1, 2000
and prior to June 1, 2004.
This Warrant is subject to the following provisions, terms and
conditions:
1. EXERCISE. The rights represented by this Warrant may be exercised
by the Holder, in whole or in part, by written notice of exercise delivered to
the Company at least twenty (20) days prior to the intended date of exercise and
by the surrender of this Warrant (properly endorsed if required) at the
principal office of the Company and upon payment to it by cash, certified check
or bank draft of the purchase price for such shares. The shares so purchased
shall be deemed to be issued as of the close of business on the date on which
this Warrant has been exercised by payment to the Company of the Warrant
Exercise Price. The Company shall use its best efforts to have certificates for
the shares of stock so purchased be delivered to the Holder within three (3)
business days after the rights represented by this Warrant shall have been so
exercised and, unless this Warrant has expired, a new Warrant representing the
number of shares, if any, with respect to which this Warrant has not been
exercised shall also be delivered to the Holder within such time.
2. COVENANTS OF THE COMPANY. The Company covenants and agrees that
all shares that may be issued upon the exercise of the rights represented by
this Warrant (the "Warrant Shares") shall, upon issuance, be duly authorized and
issued, fully paid and nonassessable shares. The Company further covenants and
agrees that during the period within which the rights represented by this
Warrant may be exercised, the Company will at all times have authorized, and
reserved for the purpose of issue or transfer upon exercise of the subscription
rights evidenced by this Warrant, a sufficient number of shares of its Common
Stock to provide for the exercise of the rights represented by this Warrant.
<PAGE> 2
3. ANTIDILUTION ADJUSTMENTS. The foregoing provisions are, however,
subject to the following:
(1) The Warrant Exercise Price shall be subject to adjustment
from time to time as hereinafter provided. Upon each adjustment of the Warrant
Exercise Price, the Holder shall thereafter be entitled to purchase, at the
Warrant Exercise Price resulting from such adjustment, the number of shares
obtained by multiplying the Warrant Exercise Price in effect immediately prior
to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment and dividing the product thereof by the
Warrant Exercise Price resulting from such adjustment.
(2) In case the Company shall at any time divide the outstanding
shares of its Common Stock into a greater number of shares (whether pursuant to
a stock split, stock dividend or otherwise), and conversely in case the
outstanding shares of its common stock shall be combined into a smaller number
of shares, the Warrant Exercise Price in effect immediately prior to such
division or combination shall be proportionately adjusted to reflect the
reduction or increase in the value of each such common share.
(3) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of the
Company's Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for such common shares, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale, the Holder
shall have the right to purchase and receive upon the basis and upon the terms
and conditions specified in this Warrant and in lieu of the shares of the common
stock of the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, such shares of stock, other
securities or assets as would have been issued or delivered to the Holder as if
it had exercised this Warrant and had received such shares of common stock prior
to such reorganization, reclassification, consolidation, merger or sale. The
Company shall not effect any such consolidation, merger or sale, unless prior to
the consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument executed and mailed to the registered
Holder of this Warrant at the last address of such Holder appearing on the books
of the Company, the obligation to deliver to such Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
Holder may be entitled to purchase.
(4) If the Company takes any other action, or if any other event
occurs which does not come within the scope of the provisions of Sections 3(1)
through 3(3), but which should result in an adjustment in the Warrant Exercise
Price and/or the number of shares subject to this Warrant in order to fairly
protect the purchase rights of the Holder, an appropriate adjustment in such
purchase rights shall be made by the Company.
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<PAGE> 3
(5) Upon any adjustment of the Warrant Exercise Price, the
Company shall give written notice thereof, by first class mail, postage prepaid,
addressed to the registered Holder of this Warrant at the address of such Holder
as shown on the books of the Company, which notice shall state the Warrant
Exercise Price resulting from such adjustment and the increase or decrease, if
any, in the number of shares purchasable at such price upon the exercise of this
Warrant, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based.
4. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any
voting rights or other rights as a stockholder of the Company.
5. EXERCISE LIMITATION. No Warrant Shares shall be issued upon
exercise of this Warrant if the sum of 1) the number of Common Stock
beneficially owned by the Holder (other than shares of Common Stock which may be
deemed beneficially owned through ownership of the unexercised portion of the
Warrant; and 2) the number of Warrant Shares issuable upon exercise of this
Warrant would result in beneficial ownership by the Holder of more than 4.9% of
the Company's issued and outstanding Common Stock.
6. REGISTRATION RIGHTS.
(1) Piggyback Registration Rights. If the Company, at any time
after six months from the issuance of this Warrant and before the fifth
anniversary of the issuance of this Warrant, shall file a registration statement
with the Securities and Exchange Commission ("SEC") under the Securities Act of
1933, as amended, for the purpose of registering shares of Common Stock for sale
to the public, the Company shall give to the Holder of this Warrant or any
successor Warrant and the holders of Warrant Shares at least twenty (20) days
advance written notice of its intention to file such registration statement and
any such holder shall have the right to have included in such registration
statement such number of the Warrant Shares as it shall designate to the Company
within ten (10) days after the date of such notice, provided that the number of
shares to be included in such registration statement, when added to all the
other shares to be included therein, does not exceed the number of shares which
the Company and its underwriters, if any, reasonably fix for inclusion. The
Holder shall furnish the Company with such information as may be required from
such holder in connection with such registration statement and will cooperate to
cause such registration to become effective at the earliest practicable time. If
the shares to which such registration relates are to be sold in an underwritten
offering, the Holder, as a condition to the inclusion of the shares in the
registration statement, shall agree that its Warrant Shares will be sold only as
a part of such underwritten offering and at the price and upon the terms fixed
by the Company and its underwriters, subject to the right of such holder to
withdraw the shares therefrom.
(2) Demand Registration Rights. On a one-time basis only, during
the three year period commencing two years after the date of this Warrant, upon
request by the Holder or Holders of a majority in interest of this Warrant, and
of any Warrant Shares, the Company will promptly take all necessary steps to
register or qualify, under the 1933 Act and the securities laws of such states
as the holders may reasonably request, such number of Warrant Shares issued and
to be issued upon
3
<PAGE> 4
conversion of the Warrants requested by such holders in their request to the
Company. The Company shall keep effective and maintain any registration,
qualification, notification, or approval specified in this section for such
period as may be reasonably necessary for such Holder or Holders of such
Warrants and/or such Warrant Shares to dispose thereof and from time to time
shall amend or supplement the prospectus used in connection therewith to the
extent necessary in order to comply with applicable law.
(3) Expenses. The Company shall pay the total expenses for the
shares being registered for such Holder's account provided that the requesting
Holder shall pay all underwriting or brokerage discounts and commissions
attributable to the sale of shares for its account and any fees and
disbursements of counsel retained by it.
(4) Indemnification. The Company will indemnify each of the
requesting Holder and each underwriter of the shares being so registered and
controlling persons of both such holders and such underwriters against all
claims, losses, damages and liability (or actions in respect thereof) arising
out of or based upon any untrue statement (or alleged untrue statement) of a
material fact contained in any prospectus or other documents incident to any
registration statement filed pursuant to this Section 6, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
each such holder and each such underwriter and controlling person for any legal
or other expenses reasonably incurred by each such holder and each such
underwriter and controlling person in connection with investigating or defending
any such claim, loss, damage, liability or action; provided, that the Company
will not be liable in any such case to the extent that any such claim, loss,
damage or liability arises out of or is based upon any untrue statement or
omission based upon written information furnished to the Company by any such
holder or any such underwriter or controlling persons. The Holder will indemnify
the Company and any controlling persons of the Company against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based upon any untrue statement (or alleged untrue statement) of a material
fact which is contained in the written information furnished by such holder for
use in any prospectus or other documents incident to any such registration
statement, or any omission (or alleged omission) to state in the written
information so provided a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company and each such controlling person of the Company for any legal or other
expenses reasonably incurred by the Company and each such controlling person of
the Company in connection with investigating or defending any such claim, loss,
damage, liability or action.
7. HOLDER COVENANTS. Holder covenants to the Company that it will
not, nor will it cause its affiliates to, enter into any short sales or other
hedging transactions with respect to the Company's Common Stock at any time for
six months after the execution of this Agreement. After such six month period,
the Holder shall not, nor will it cause its affiliates to for the subsequent six
month period, enter into short sales or other hedging transactions with respect
to the Company's Common Stock in excess of 25,000 shares per month.
4
<PAGE> 5
8. AMENDMENT. Neither this Warrant nor any term hereof may be
amended, waived, discharged or terminated orally but only by an instrument in
writing signed by the party against which enforcement of the amendment, waiver,
discharge or termination is sought.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and delivered by a duly authorized officer as of the 1st day of June, 1999.
INNOVATIVE GAMING CORPORATION
OF AMERICA
By:
-------------------------------------
Edward Stevenson
Its: Chief Executive Officer
5
<PAGE> 6
INNOVATIVE GAMING CORPORATION OF AMERICA
WARRANT EXERCISE
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
The undersigned, the holder of the foregoing Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, shares of the Common Stock of
Innovative Gaming Corporation of American to which such Warrant relates and
herewith makes payment of $ therefor in cash or by certified or
cashier's check and requests that the certificates for such shares be issued in
the name of, and be delivered to ,
whose address is set forth below the signature of the undersigned. If said
number of shares shall not be all the shares purchasable under the Warrant, a
new Warrant is to be issued in the name of the undersigned for the balance
remaining of the shares purchasable thereunder. The undersigned, the holder of
the foregoing Warrant, hereby represents and warrants to Innovative Gaming
Corporation of America that it is in compliance with the Exercise Limitation of
Section 5 of the foregoing Warrant.
Name of Warrant Holder:
----------------------------------------
(Please print)
Address of Warrant Holder:
----------------------------------------
----------------------------------------
Tax Identification No. or
Social Security No. of Warrant Holder:
----------------------------------------
Signature
------------------------------
NOTE: The above signature should
correspond exactly with the name of
the Warrant Holder as it appears on
the first page of the Warrant or on
a duly executed Warrant Assignment.
Dated:
----------------------------------
6
<PAGE> 1
EXHIBIT 10.7
INNOVATIVE GAMING, INC.
SECURITY AGREEMENT
THIS SECURITY AGREEMENT, is made as of this 1st day of June, 1999, by Innovative
Gaming, Inc., a Nevada corporation (the "Debtor") in favor of Wayne W. Mills
("Secured Party"), in his capacity as agent under that certain Intercreditor
Agreement of even date herewith by and among WAYNE W. MILLS, RICHARD C.
LOCKWOOD, CRAIG C. AVERY COMPANY MONEY PURCHASE PENSION PLAN. CRAIG C. AVERY AND
HENRY Fong(the "Noteholders").
In order to secure the payment of the Convertible Notes, of even date
herewith executed by the Debtor and payable to the order of Noteholders (the
"Notes") (said Notes herein referred to as the "Secured Obligations"), Debtor
hereby agrees as follows:
1. SECURITY INTEREST AND COLLATERAL. In order to secure the payment and
performance of the Secured Obligations, Debtor hereby grants to Secured Party a
security interest (herein called the "Security Interest") in and to the
following property (hereinafter collectively referred to as the "Collateral"):
any and all goods, machinery, equipment, furniture, fixtures, improvements,
inventory, patents, patent rights, copyrights, trademarks, tradenames, and
royalty rights now owned or hereafter acquired by Debtor;
together with all substitutions and replacements for and products and proceeds
of any of the foregoing property and, in the case of all tangible Collateral,
together with (i) all accessories, attachments, parts, equipment, accessions and
repairs now or hereafter attached or affixed to or, used in connection with any
such goods, and (ii) all warehouse receipts, bills of lading and other documents
of title now or hereafter covering such goods, provided that any security
interest in assets of the Debtor consisting of slot machines or other gaming
devices shall be subject to applicable gaming laws.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Debtor hereby represents
and warrants to, and covenants and agrees with, Secured Party as follows:
(a) The Collateral will be used primarily for business purposes. The
Collateral which constitutes inventory shall be located at its
principal place of business.
(b) Debtor's principal place of business and chief executive office is and
it is anticipated that it will continue to be located in Reno, Nevada.
Debtor's records concerning its accounts are kept at such address.
Since its inception, Debtor has not changed its name or operated or
conducted business under any trade name or "d/b/a" which is different
from its corporate name. Debtor shall promptly notify Secured Party of
any change in such name or if it operates or conducts business under
any trade name or "d/b/a" which is different from such name.
<PAGE> 2
(c) Debtor has (or will have at the time Debtor acquires rights in
Collateral hereafter acquired or arising) and will maintain absolute
title to each item of Collateral free and clear of all security
interests, liens and encumbrances, except the Security Interest, and
such other security interests as are permitted by the Secured Party in
writing pursuant to Exhibit A hereto (the Security Interest and the
security interests listed on Exhibit A are hereinafter collectively
referred to as the "Permitted Interests"), and will defend the
Collateral against all claims or demands of all persons other than
Secured Party and those holding Permitted Interests. Debtor will not
sell or otherwise dispose of the Collateral or any interest therein,
except that, until a Default (as defined in the Notes) occurs, Debtor
may sell any Inventory constituting Collateral to buyers in the
ordinary course of its business, replace worn-out or obsolete equipment
with equipment of equal or greater value and dispose of excess or
obsolete inventory and equipment.
(d) The tangible Collateral is presently located in the state of Nevada,
except for immaterial amounts of inventory that may be located from
time-to-time in other states. Except for such immaterial amounts of
Inventory, Debtor will not permit Collateral to be located in any state
(and, if a county filing is required, in any county) in which a
financing statement covering such Collateral is required to be, but has
not in fact been, filed.
(e) Debtor will (i) keep all tangible Collateral in good repair, working
order and condition, normal wear and tear excepted, and will, from time
to time, replace any worn, broken or defective parts thereof; (ii)
other than taxes and other governmental charges contested in good faith
and by appropriate proceedings, promptly pay all taxes and other
governmental charges levied or assessed upon or against any Collateral
or upon or against the creation, perfection or continuance of the
Security Interest; (iii) keep all Collateral free and clear of all
security interests, liens and encumbrances except the Permitted
Interests; (iv) at all reasonable times, permit Secured Party or its
representatives to examine or inspect any Collateral, wherever located,
and to examine, inspect and copy Debtor's books and records pertaining
to the Collateral and its business and financial condition; (v) keep
accurate and complete records pertaining to the Collateral and
pertaining to Debtor's business and financial condition and will submit
to Secured Party such periodic reports concerning the Collateral and
Debtor's business and financial condition as Secured Party may from
time to time reasonably request; (vi) promptly notify Secured Party of
any material loss of or material damage to any Collateral or of any
adverse change, known to Debtor, in the prospect of payment of any sums
due on or under any instrument, chattel paper or account constituting
Collateral; (vii) at all times keep all tangible Collateral insured
against risks of fire (including so called extended coverage), theft,
collision (in case of collateral consisting of motor vehicles) and such
other risks and in such amounts as Secured Party may reasonably
request, and notify the Bank in writing of any loss or damage to the
Collateral or any part; (viii) from time to time execute such financing
statements as Secured Party may reasonably deem required to be filed in
order to perfect the Security Interest and, if any Collateral is
covered by a certificate of title, execute such documents as may be
required to have the Security Interest properly noted on a certificate
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<PAGE> 3
of title; (ix) pay when due or reimburse Secured Party on demand for
all costs of collection of any of the Secured Obligations and all other
out-of-pocket expenses (including in each case all reasonable
attorneys' fees) incurred by Secured Party in connection with the
creation, perfection, satisfaction or enforcement of the Security
Interest or the execution or creation, continuance or enforcement of
this Agreement or any or all of the Secured Obligations; (x) execute,
deliver or endorse any and all instruments, documents, assignments,
security agreements and other agreements and writings which Secured
Party may at any time reasonably request in order to secure, protect,
perfect or, enforce the Security Interest and Secured Party's rights
under this Agreement; (xi) not use or keep any Collateral, or permit it
to be used or kept, for any unlawful purpose or in violation of any
federal, state or local law, statute or, ordinance; and (xii) not
permit any tangible Collateral to become part of or to be affixed to
any real property, without first assuring to the reasonable
satisfaction of Secured Party that the Security Interest will be prior
and senior to any interest or lien then held or thereafter acquired by
any mortgagee of such real property or the owner or purchaser of any
interest therein. If Debtor at any time falls to perform or observe any
agreement contained in this Section 2(g), and if such failure shall
continue for a period of ten (10) calendar days after Secured Party
gives Debtor written notice thereof (or, in the case of the agreements
contained in clauses (viii) and (ix) of this Section 2(g), immediately
upon the occurrence of such failure, without notice or, lapse of time)
Secured Party may (but need not) perform or observe such agreement on
behalf and in the name, place and stead of Debtor (or, at Secured
Party's option, in Secured Party's own name) and may (but need not)
take any and all other actions which Secured Party may reasonably deem
necessary to cure or correct such failure (including, without
limitation, the payment of taxes, the satisfaction of security
interests, liens or encumbrances (other than Permitted Interests), the
performance of obligations under contracts or agreements with account
debtors or other obligors, the procurement and maintenance of
insurance, the execution of financing statements, the endorsement of
instruments, and the procurement of repairs, transportation or
insurance); and, except to the extent that the effect of such payment
would be to render any loan or forbearance of money usurious or
otherwise illegal under any applicable law, Debtor shall thereupon pay
Secured Party on demand the amount of all moneys expended and all costs
and expenses (including reasonable attorneys' fees) incurred by Secured
Party in connection with or as a result of Secured Party's performing
or observing such agreements or taking such actions, together with
interest thereon from the date expended or incurred by Secured Party at
a rate equal to two percent in excess of the rate provided for in the
Notes. To facilitate the performance or observance by Secured Party of
such agreements of Debtor, Debtor hereby irrevocably appoints (which
appointment is coupled with an interest) Secured Party, or its
delegate, as the attorney-in-fact of Debtor with the right (but not the
duty) from time to time to create, prepare, complete, execute, deliver,
endorse or file, in the name and on behalf of Debtor, any and all
instruments, documents, financing statements, applications for
insurance and other agreements and writings required to be obtained,
executed, delivered or endorsed by Debtor, under this Section 2.
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<PAGE> 4
3. ASSIGNMENT OF INSURANCE. Debtor hereby assigns to Secured Party, as
additional security for the payment of the Secured Obligations, any and all
proceeds derived from, or due or to become due under, any and all policies of
insurance in connection with any loss or damage to any of the Collateral, and
Debtor hereby directs the issuer of any such policy to pay any such moneys to
the Secured Party and Borrower jointly. Provided no Default has occurred and is
then continuing, the Debtor shall have the right to repair or replace any of its
damaged or destroyed Collateral. Secured Party may (but need not), in its own
name or in Debtor's name, execute and deliver proofs of claim, receive all such
moneys (subject to Borrower's rights), endorse checks and other instruments
representing payment of such moneys, and adjust, litigate, compromise or release
any claim against the issuer of any such policy.
4. REMEDIES. Secured Party may exercise any one or more of the following
rights or remedies if any or all of the Secured Obligations are not paid when
due: (i) exercise and enforce any or all rights and remedies available after
default to a secured party under the Uniform Commercial Code, including but not
limited to the right to take possession of any Collateral, proceeding without
judicial process or by judicial process (without a prior hearing or notice
thereof, which Debtor hereby expressly waives), and the right to sell, lease or
otherwise dispose of or use any or all of the Collateral; (ii) Secured Party may
require Debtor to assemble the Collateral and make it available to Secured Party
at a place to be designated by Secured Party which is reasonably convenient to
both parties; and (iii) exercise or enforce any or all other rights or remedies
available to Secured Party by law or agreement against the Collateral, against
Debtor or against any other person or property. If notice to Debtor of any
intended disposition of Collateral or any other intended action is required by
law in a particular instance, such notice shall be deemed commercially
reasonable if given (in the manner specified in Section 6 hereof) at least ten
(10) calendar days prior to the date of intended disposition or other action.
5. MISCELLANEOUS. This Agreement does not contemplate a sale of accounts
or chattel paper, and, as provided by law, Debtor is entitled to any surplus and
shall remain liable for any deficiency. This Agreement can be waived, modified,
amended, terminated or discharged, and the Security Interest can be released,
only explicitly in a writing signed by Secured Party. A waiver signed by Secured
Party shall be effective only in the specific instance and for the purpose
given. Mere delay or failure to act shall not preclude the exercise or
enforcement of any of Secured Party's rights or remedies. All rights and
remedies of Secured Party shall be cumulative and may be exercised singularly or
concurrently, at Secured Party's option, and the exercise or enforcement of any
one such right or remedy shall neither be a condition to nor bar the exercise or
enforcement of any other. All notices to be given to Debtor shall be deemed
sufficiently given if deposited in the United States mails, registered or,
certified, postage prepaid, or personally delivered to Debtor at its address set
forth below. Secured Party's duty of care with respect to Collateral in its
possession (as imposed by law) shall be deemed fulfilled if Secured Party
exercises reasonable care in physically safe keeping such Collateral or, in the
case of Collateral in the custody or possession of a bailee or other third
person, exercises reasonable care in the selection of the bailee or other third
person, and Secured Party need not otherwise preserve, protect, insure or care
for any Collateral. Secured Party shall not be obligated to preserve any rights
Debtor may have against
4-
<PAGE> 5
any other party, to realize on the Collateral at all or in any particular manner
or order, or to apply any cash proceeds of Collateral in any particular order of
application. This Agreement shall be binding upon and inure to the benefit of
Debtor and Secured Party and their respective heirs, representatives, successors
and assigns and shall take effect when signed by Debtor and delivered to Secured
Party, and Debtor waives notice of Secured Party's acceptance hereof. Secured
Party may execute this Agreement if appropriate for the purpose of filing, but
the failure of Secured Party to execute this Agreement shall not affect or
impair the validity or effectiveness of this Agreement. Except to the extent
otherwise required by law, this Agreement shall be governed by the laws of the
State of Nevada and, unless the context otherwise requires, all terms used
herein which are defined in Articles 1 and 9 of the Uniform Commercial Code, as
in effect in said state (including but not limited to the terms "inventory",
"equipment", "instrument", "document" "goods", "chattel paper", "account" and
"account debtor") shall have the meanings therein stated and all capitalized
terms used herein which are defined in the Note shall have the meanings therein
stated. If any provision or application of this Agreement is held unlawful or
unenforceable in any respect, such illegality or unenforceability shall not
affect other, provisions or applications which can be given effect, and this
Agreement shall be construed as if the unlawful or unenforceable provision or
application had never been contained herein or prescribed hereby. All
representations and warranties contained in this Agreement shall survive the
execution, delivery and performance of this Agreement and the creation and
payment of the Secured Obligations.
IN WITNESS WHEREOF, Debtor has executed and delivered to Secured Party this
Security Agreement as of the day and year, first above written.
INNOVATIVE GAMING, INC.
By: s/ Edward G. Stevenson
------------------------
Name and Title: Edward Stevenson, Chairman
----------------------------
Address of Debtor:
4725 Aircenter Circle
Reno, NV 89502
Address of Secured Party:
Wayne W. Mills
The Colonnade, Suite 290
5500 Wayzata Boulevard
Golden Valley, MN 55416
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<PAGE> 6
EXHIBIT A
PERMITTED LIENS
Secured Asset Description Lien Holder
------------------------- -----------
1999 Chevrolet Astro Van GMAC
s/n IGCDM19W6XB138966
IGT Slant Top Slot Machines IGT
Purchased from IGT
6-
<PAGE> 1
EXHIBIT 99.1
INNOVATIVE GAMING CORPORATION OF AMERICA
4725 Aircenter Circle
Reno, NV 89502
INNOVATIVE GAMING
Scott Shackelton (775) 823-3000
FOR IMMEDIATE RELEASE --
THURSDAY, JUNE 3, 1999
INNOVATIVE GAMING
COMPLETES FINANCIAL RESTRUCTURING
RENO, NEVADA, JUNE 3, 1999 -- INNOVATIVE GAMING CORPORATION OF AMERICA (NASDAQ
NM:IGCA) today announced that a new investor has purchased the previously issued
and outstanding preferred convertible stock under renegotiated terms.
Additionally, the Company raised an aggregate of $1.8 million through two
separate private placements. The Company issued $1.5 million of three-year
convertible secured notes to a group of investors led by a current shareholder
of the Company. The Company also received proceeds of $300,000 through the
issuance of convertible preferred stock. Proceeds of the financing will be used
for the development of additional new video single player games and bonus top
box games, their approval and inventory purchases of the new products and for
general corporate purposes.
"With this financing we are now in position to roll out our new products. We
anticipate approval of our new single player video platform in Louisiana,
Arizona, Colorado, New Mexico, South Carolina, Iowa, and Minnesota in the third
quarter of the year and in Nevada by early fourth quarter of the year," said
B.V. Johnson, President and Chief Operating Officer. "These funds will allow us
to purchase the necessary parts and components to build and place our new video
single player games as well as introduce new games in our bonus streak series of
games in our third and fourth quarters including a bonus series top box for IGT
S+ upright slots."
Innovative Gaming Corporation of America, through its wholly owned operating
subsidiary, Innovative Gaming, Inc., develops, manufactures and distributes fast
playing, high-entertainment gaming machines. The Company distributes its
products worldwide both directly to the gaming market and through licensed
distributors.
- --------------------------------------------------------------------------------
Safe Harbor Statement under the Private Securities Litigation Reform Act of
1995: Except for historical information, the forward looking matters discussed
in this news release are subject to certain risks and uncertainties including,
but not limited to, regulatory/technical game approvals, the financing and
development of new products, enacted legislation, pending manufacturing
agreement negotiations and market acceptance of new and existing gaming products
as well as other risks indicated from time to time in the Company's filings with
the Securities and Exchange Commission, such as the Company's Form 10K for the
fiscal year ended December 31, 1998. The Company assumes no obligation to update
or supplement forward-looking statements that become untrue because of
subsequent events.
