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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 3, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
INNOVATIVE GAMING CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
MINNESOTA 41-1713864
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification number)
4725 Aircenter
Reno, Nevada 89502
(775)823-3000
(Address, including zip code, and telephone number, including area code, of
registrant's principal executive offices)
Edward G. Stevenson
Chief Executive Officer
Innovative Gaming Corporation of America
4725 Aircenter
Reno, Nevada 89502
((775)823-3000
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
With copies to:
Douglas T. Holod, Esq.
Alan M. Gilbert, Esq.
Maslon Edelman Borman & Brand, LLP
3300 Norwest Center
Minneapolis, Minnesota 55402-4140
(612) 672-8200
Approximate date of the commencement of proposed sale to the public: From
time to time after the effective date of this Registration Statement. If the
only securities being registered on this form are being offered pursuant to
dividend or interest reinvestment plans, please check the following
box. [ ]
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ] ____________
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ] ____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
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Title of Each Class of Securities to be AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
Registered REGISTERED OFFERING PRICE PER AGGREGATE OFFERING REGISTRATION FEE
SHARE (1) PRICE(1)
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<S> <C> <C> <C> <C>
COMMON STOCK, PAR VALUE $.01 PER
SHARE 1,751,500 $1.94 $3,397,910 $944.62
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</TABLE>
(1) CALCULATED PURSUANT TO RULE 457(C) UNDER THE SECURITIES ACT OF 1933 (THE
"ACT") BASED UPON THE AVERAGE OF THE BID AND ASKED PRICES AS OF JULY 30, 1999.
ALSO INCLUDES AN INDETERMINATE NUMBER OF SHARES OF COMMON STOCK THAT MAY BECOME
ISSUABLE TO PREVENT DILUTION RESULTING FROM STOCK SPLITS, STOCK DIVIDENDS AND
CONVERSION PRICE ADJUSTMENTS, WHICH ARE INCLUDED PURSUANT TO RULE 416 UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES
AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE
A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT
SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE
SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor may
offers to buy be accepted prior to the time the registration statement becomes
effective. This prospectus shall not constitute an offer to sell or the
solicitation of an offer to buy, nor shall there be any sale of these securities
in any State in which such offer, solicitation or sale would be unlawful prior
to registration or qualification under the securities laws of any such State.
SUBJECT TO COMPLETION; DATED AUGUST 3, 1999
PROSPECTUS
INNOVATIVE GAMING CORPORATION OF AMERICA
1,751,500 SHARES OF
COMMON STOCK
This prospectus relates to a maximum of 1,331,500 shares of common
stock of Innovative Gaming Corporation of America issuable upon the conversion
of Series C Convertible Preferred Stock (the "Series C Preferred Shares") and a
maximum of 420,000 shares of common stock issuable upon the exercise of certain
warrants (the "Warrants") granted to the selling shareholders listed on page 13
of this prospectus. Each of the Series C Preferred Shares is convertible into
shares of common stock, at a conversion price equal to 91% of the average of the
lowest three consecutive day closing bid prices of the Company's common stock as
reported on by Bloomberg, L.P. over a period of twenty trading days ending on
the day prior to which the holder of Series C Preferred Shares notifies the
Company of such holder's intent to convert a specified portion of such Series C
Preferred Shares, provided that the maximum conversion price shall not exceed
$1.877 which represents 135% of the ten day average of the closing bid price of
our common stock ending on May 28, 1999. The Series C Preferred Shares are
convertible in 25% increments, at the option of the holder thereof, beginning on
the earlier of (i) August 30, 1999 or (ii) the date common stock issuable upon
conversion of the Series C Preferred Shares is registered and following the end
of each 30 day period thereafter for three months. Series C Preferred Shares not
converted by June 1, 2001 will be automatically converted into common stock. We
will receive no proceeds from the sale of the common stock by selling
shareholders. The total proceeds to us from the exercise of the warrants, if the
warrants are exercised in full, would be a maximum of $517,200.
Our common stock is listed on the Nasdaq National Market under the
symbol "IGCA." On July 30, 1999, the last sale price for the common stock as
reported on the Nasdaq National Market was $1.94.
THE SHARES OFFERED BY THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 7 FOR A DESCRIPTION OF FACTORS WHICH SHOULD
BE CONSIDERED BY INVESTORS BEFORE PURCHASING THE SHARES OFFERED BY THIS
PROSPECTUS.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED THESE SECURITIES OR DETERMINED THAT THIS
PROSPECTUS IS TRUTHFUL OR COMPLETE. A REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NEITHER THE COLORADO GAMING COMMISSION, THE MISSISSIPPI GAMING
COMMISSION, THE NEVADA GAMING CONTROL BOARD, THE NEVADA GAMING COMMISSION,
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NOR ANY OTHER GAMING AUTHORITY HAS PASSED UPON THE ADEQUACY OR ACCURACY OF THIS
PROSPECTUS OR THE INVESTMENT MERITS OF THE SECURITIES OFFERED HEREBY. A
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE, AND MAY BE CHANGED.
THIS PROSPECTUS IS INCLUDED IN THE REGISTRATION STATEMENT THAT WAS FILED BY
INNOVATIVE GAMING CORPORATION OF AMERICA WITH THE SECURITIES AND EXCHANGE
COMMISSION. THE SELLING SHAREHOLDERS CANNOT SELL THEIR SHARES UNTIL THAT
REGISTRATION STATEMENT BECOMES EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO
SELL THE SHARES OR THE SOLICITATION OF AN OFFER TO BUY THE SHARES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
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THE DATE OF THIS PROSPECTUS IS , 1999
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TABLE OF CONTENTS
<TABLE>
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PROSPECTUS SUMMARY.................................................................5
RISK FACTORS.......................................................................7
USE OF PROCEEDS...................................................................12
SELLING SHAREHOLDERS..............................................................13
PLAN OF DISTRIBUTION..............................................................16
WHERE YOU CAN FIND MORE INFORMATION...............................................17
NOTE REGARDING FORWARD-LOOKING STATEMENTS.........................................18
LEGAL MATTERS.....................................................................18
EXPERTS...........................................................................18
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES....................................19
</TABLE>
No dealer, salesman or other person has been authorized to give any
information or to make any representations other than those contained in this
prospectus. You must not rely on any information or representations not
contained in this prospectus, if given or made, as having been authorized by us.
This prospectus is not an offer or solicitation in respect to these securities
in any jurisdiction in which such offer or solicitation would be unlawful. The
delivery of this prospectus shall not under any circumstances, create any
implication that there has been no change in our affairs or that the information
contained in this prospectus is correct as of any time subsequent to the date of
this prospectus. However, in the event of a material change, this prospectus
will be amended or supplemented accordingly.
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PROSPECTUS SUMMARY
As used in this prospectus, the terms "Company","we", "us" and "our"
refer to Innovative Gaming Corporation of America and its consolidated
subsidiary.
THE COMPANY
Innovative Gaming Corporation of America ("IGCA") through its wholly
owned operating subsidiary, Innovative Gaming, Inc. ("IGI", collectively, the
"Company"), develops, manufactures, markets and distributes multi-station and
other specialty gaming machines to regulated gaming markets world-wide. We have
four primary product lines: multi-player/multi-station video table games; bonus
"top box" games that are placed on top of slant top spinning reel slot machines;
single player video slot machines incorporating state of the art graphics and
sound, and unique specialty gaming machines such as "Mythical Reels(TM)", a game
which projects the slot machine's spinning reels out in front of the box as if
spinning in space. We also own the world-wide patent rights to a unique machine
that combines elements of roulette play and pinball in a single player machine.
We believe that our gaming machines will appeal to casinos/clubs, lotteries and
slot route operators seeking to enhance the entertainment experience by
providing new and unique forms of gaming.
We distribute our products directly and through distributors, primarily
on a cash sales basis. In Nevada, we directly place our products under lease,
sales (cash or extended payment terms) or participation agreements where we
retain ownership and share in the net win of the games with the casino.
Our primary target markets have been gaming jurisdictions in North
America, including the states where we are presently licensed: Arizona,
Colorado, Iowa, Louisiana, Mississippi, Minnesota, Nevada, New Mexico, North
Carolina and South Carolina, South Dakota and through distributors in Europe and
Australia. We have submitted and have a pending application in Connecticut and
have submitted games for approval in New Jersey. Previously registered with
Alberta, Manitoba, Saskatchewan, Quebec and the Atlantic Lottery Corporation we
have applications pending in British Columbia and Ontario. The Company has an
agent to market its products in Canada.
Our executive offices are located at 4725 Aircenter, Reno, Nevada 89502
and our telephone number is (775) 823-3000.
RECENT DEVELOPMENTS
On July 22, 1999, Wayne M. Mills became a director, filling a vacancy
created by Lyle Berman who resigned effective such date.
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THE OFFERING
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<S> <C>
Common stock offered (1) ................................... 1,751,500 shares
Common stock outstanding
before the offering....................................... 7,153,817 shares
Common stock outstanding
after the offering (2)................................... 8,905,317 shares
Nasdaq National Market symbol............................... IGCA
</TABLE>
(1) Represents the maximum number of shares issuable upon the conversion of
all Series C Preferred Shares and upon the exercise of Warrants.
(2) Does not include any additional shares issuable upon the conversion of
our Series B Convertible Preferred Stock.
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RISK FACTORS
An investment in our common stock is very risky. You may lose the
entire amount of your investment. Prior to making an investment decision, you
should carefully review this entire prospectus and consider the following risk
factors:
WE HAVE INCURRED LOSSES TO DATE AND IF OUR SALES DO NOT IMPROVE, WE
WILL NEED ADDITIONAL FINANCING IN ORDER TO CONTINUE OPERATIONS.
We have incurred net losses of approximately $5.4 million in 1998, $2.9
million in 1997 and $6.2 million in 1996 and had a net loss of approximately
$1.7 million during the quarter ended March 31, 1999. We have not had a
profitable quarter since the fourth quarter of fiscal 1997. As of July 30, 1999,
we had cash and cash equivalents of approximately $1.1 million. We believe,
assuming we can achieve our sales forecasts which exceed current sales rates,
that we will have sufficient cash to fund operations into the fourth quarter of
1999. In the absence of alternative financing, we may be required to
significantly reduce operations, or liquidate all or a portion of our assets. A
significant reduction in operations would seriously impair our ability to meet
our short-term revenue projections and would negatively impact our ability to
obtain additional financing. We also may be unable to obtain such financing on
terms acceptable to us, if such need arises. In connection with the 1999
refinancing, we issued convertible promissory notes secured by certain of our
assets. Security interests held by the holders of such promissory notes could
hurt our ability to raise additional financing. Any new investors may seek and
obtain substantially better terms than were granted to its present investors and
the issuance of such securities would result in dilution to its existing
shareholders.
OUR OPERATIONS MAY PROVE UNSUCCESSFUL WHICH WOULD RESULT IN CONTINUED
UNPROFITABILITY AND MAY CAUSE OUR STOCK PRICE TO FALL.
To date, we have not generated a profit. Due to a variety of factors,
many of which are discussed in this prospectus, we may never generate
significant revenues or operate profitability. Even if we succeed in our
operations as contemplated, we cannot assure a successful transition to higher
volume operations. We may be unable to control our expenses, attract necessary
additional personnel, or procure the capital required to maintain expanded
operations. If our sales growth is ultimately unsuccessful , the results of our
operations will suffer accordingly, and the market price of our stock may fall.
OUR SUCCESS DEPENDS IN LARGE PART UPON OUR ABILITY TO DESIGN,
MANUFACTURE, MARKET AND SERVICE PRODUCTS THAT WILL BE ACCEPTED IN THE GAMING
MACHINE MARKET.
Our success as a gaming machine manufacturer and supplier is dependent
upon numerous factors, including our ability to design, manufacture, market and
service gaming machines that achieve player and casino acceptance while
maintaining product quality and acceptable margins. In addition, we must compete
against gaming machine suppliers with greater financial resources, name
recognition and established service networks, customer relationships and
licensed in more jurisdictions. To date, the sales of our multi-player games
have been significantly lower than we anticipated. In order to diversify and
expand sales, we have begun licensing, marketing and selling single player games
such as Bonus Streak and Mythical Reels. We have also begun the development of
other single player games such as Revolving Rings. We cannot assure you that
these single player games will be accepted by the market. We will need to
develop gaming machines that offer technological advantages or unique
entertainment features in order for us to be able to compete effectively in the
gaming machine market.
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DUE TO THE RAPIDLY-CHANGING TECHNOLOGIES ASSOCIATED WITH THE GAMING
MACHINE INDUSTRY, AN INABILITY TO IDENTIFY, DEVELOP AND MARKET NEW PRODUCTS, OR
ENHANCE OUR EXISTING PRODUCTS, COULD ADVERSELY AFFECT OUR ABILITY TO ACHIEVE
MARKET ACCEPTANCE.
Our business is characterized by rapidly changing technology and
frequent new product introductions and enhancements. Our success in achieving
and maintaining market acceptance will depend in part on our continuing ability
to enhance our existing products and to introduce in a timely manner new
products that meet existing and future regulatory requirements and evolving
customer requirements. We may be unsuccessful in identifying, developing and
marketing new products or enhancing our existing products. Our business will be
adversely affected if we experience delays in developing new products or
enhancements or if such products or enhancements do not meet and receive all
regulatory approvals and/or gain customer acceptance.
WE MAY BE UNABLE TO COMPETE SUCCESSFULLY IN THE SINGLE PLAYER GAMES
MARKET, FOR WHICH WE ARE CURRENTLY DEVELOPING PRODUCTS, OR WITH COMPETITORS WHO
DEVELOP GAMING MACHINES THAT ARE SIMILAR TO OUR MULTI-STATION PRODUCTS.
Many gaming equipment companies, several of which are large and
well-established, supply the casino and video lottery industries with video
gaming machines and other gaming equipment. Our management believes that
Aristocrat, Alliance Gaming, International Game Technology, Anchor Gaming and
WMS Industries are among the largest and most-established gaming machine
suppliers. Sigma Games distributes a multi-player horserace game, which our
management believes competes for the same casino floor space as our games.
Additionally, Sega Gaming also offers similar games in a multi-player format and
has applied for licensure in certain U.S. markets. Upon licensing, we believe
Sega Gaming will become a direct competitor. However, these competitors, or
another competitor, may develop gaming machines that are similar to our gaming
machines in the future. Furthermore, we cannot assure you that any of the single
player games we are currently developing for the intensely competitive single
player game market will be accepted in such a competitive market.
AS WITH OTHER BUSINESSES IN THE GAMING INDUSTRY, OUR PROFITABILITY AND
OUR POTENTIAL FOR GROWTH ARE HIGHLY DEPENDENT ON MANY FACTORS WHICH ARE OUT OF
OUR CONTROL.
Our revenues are derived from the gaming industry. The growth of our
business is substantially dependent upon factors that are beyond our the
control. Such factors include, among others, the pace of development, changes in
gaming regulation, expansion and renovation of casinos and other forms of casino
gaming in new jurisdictions, and the continued popularity of casino gaming as a
leisure activity. The expansion of the gaming industry has slowed in recent
years and the continued expansion of gaming markets is dependent upon political,
legal and other factors, which are beyond our control. As a result of these and
other factors, we cannot assure you that we will be able achieve planned growth
or profitability.
THE LOSS OF ORDERS OR THE INABILITY TO OBTAIN NEW ORDERS COULD CAUSE
SIGNIFICANT FLUCTUATIONS IN OUR REVENUES AND CASH FLOW AND ADVERSELY AFFECT OUR
OPERATING RESULTS AS A WHOLE.
Our operating results have varied substantially from quarter to
quarter. Revenues in any quarter are substantially dependent on regulatory
approval, receipt of orders, availability of parts and components necessary to
manufacture the products, delivery and installation in that quarter. Our
staffing and operating expenses are based on anticipated revenue levels, and a
high percentage of our costs are fixed, in the short-term. As a result, the loss
of any one order, or the failure to obtain new orders as existing orders are
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completed, could have a material adverse effect on, or cause significant
fluctuations in, our revenues and cash flow from quarter to quarter.
WE CONTINUE TO FACE RISKS, EXPENSES AND DIFFICULTIES ASSOCIATED WITH
NEW AND EXPANDING BUSINESSES.
Although our business was formed in 1991, we continue to face the
risks, expenses and difficulties frequently encountered by new and expanding
businesses. These risks include, but are not limited to, negative cash flow,
initial high development costs of new products without corresponding sales
pending receipt of corporate and product regulatory approvals and market
introduction and acceptance of new products. We cannot guarantee that our
products will be accepted in the marketplace or that we will be able to obtain
the regulatory approvals we require to conduct our business.
OUR OPERATIONS ARE DEPENDENT UPON OUR RELATIONSHIPS WITH OUR VENDORS,
SUPPLIERS AND DISTRIBUTORS.
We are highly dependent upon our relationships with our vendors,
suppliers and distributors. A significant interruption or delay in the delivery
of components from our suppliers, or the loss of a significant distributor,
could materially and adversely affect the results of our operations.
WE ARE SUBJECT TO EXTENSIVE GOVERNMENT REGULATION WHICH COULD
NEGATIVELY IMPACT OUR BUSINESS.
The manufacture and distribution of gaming machines are subject to
numerous federal, state, provincial, tribal, international and local
regulations. These regulations are constantly changing and evolving, and may
permit additional gaming or curtail gaming in various jurisdictions in the
future, which may have a material adverse impact on us. The timing and expense
of obtaining gaming licenses has an affect on our ability to expand our market.
Together with our key personnel, we undergo extensive investigation before each
jurisdictional license is issued. Our gaming machines are subjected to
independent testing and evaluation prior to approval from each jurisdiction in
which we do business. Generally, regulatory authorities have broad discretion
when granting, renewing or revoking such game approvals and licenses. Our
failure, or the failure of any of our key personnel or gaming machines, in
obtaining or retaining a license in any jurisdiction could have a material
adverse effect on our business. Furthermore, the failure to obtain or retain a
required license in one jurisdiction could negatively impact our ability (or the
ability of any of our key personnel or gaming machines) to obtain or retain
required licenses in other jurisdictions. In addition, we may also be subject to
regulation as a gaming operator if we enter into lease participation agreements
under which we share in the revenues generated by gaming machines. Regulatory
authorities may require significant shareholders to submit to background
investigations and respond to questions from regulatory authorities, and may
deny a license or revoke our licenses based upon their findings. For a more
complete description of the gaming regulations impacting us, you should refer to
the Regulation section of our Form 10-K for the fiscal year ended December 31,
1998.
THERE IS A RISK THAT THE VALUE OF OUR PROPRIETARY INTELLECTUAL PROPERTY
RIGHTS COULD BE DIMINISHED BY IMPROPER USE BY OTHERS.
Our products are technology-based and as such, we face several
intellectual property risks. We believe that our proprietary software, hardware
and other intellectual property are important to our success and our competitive
position. We rely on a combination of patent, trade secret, copyright and
trademark law, nondisclosure agreements and technical security measures to
protect our rights pertaining to our products. We currently hold patents for our
blackjack, craps and roulette machines. However, the actions we have taken to
protect our proprietary rights may be inadequate to prevent others from
imitating our products. For instance, we may not be granted patents for products
that we develop in the future. Even if we are granted
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patents for our products, we may still be unable to prevent third parties from
being able to copy or to "reverse engineer" certain portions of our products or
to obtain and use information that we believe is proprietary.
Although we are not aware of any infringement, we may be subject to
claims from third parties alleging that we have infringed their proprietary
intellectual property rights. Such claims could have a material adverse effect
on our business given the costs associated with intellectual property
litigation, the potential diversion of our management's resources to litigation
and the risk of an injunction or other delay in the offering of our products.
OUR COMMON STOCK COULD BE DELISTED FROM THE NASDAQ NATIONAL MARKET,
WHICH DELISTING COULD HINDER YOUR ABILITY TO OBTAIN ACCURATE QUOTATIONS AS TO
THE PRICE OF OUR COMMON STOCK, OR DISPOSE OF OUR COMMON STOCK IN THE SECONDARY
MARKET.
Although our common stock is currently listed on the Nasdaq National
Market, we cannot guarantee that an active public market for our common stock
will continue to exist. The market price of our Common Stock has been highly
volatile. In order to maintain our listing on the NASDAQ National Market, we
must maintain a closing sales price of at least $1.00 per share for a certain
period of time. Since January 2, 1999, our Common Stock has traded in the range
of $0.81 to $2.44 per share. In the event our securities are delisted from the
Nasdaq National Market, trading, in our common stock could thereafter be
conducted in the over-the-counter markets in the so-called "pink sheets" or the
National Association of Securities Dealer's "Electronic Bulletin Board."
Consequently, the liquidity of our common stock would likely be impaired, not
only in the number of shares which could be bought and sold, but also through
delays in the timing of the transactions, reduction in the coverage of
Innovative Gaming Corporation of America by security analysts and the news
media, and lower prices for our securities than might otherwise prevail. In
addition, our common stock would become subject to certain rules of the
Securities and Exchange Commission relating to "penny stocks." These rules
require broker-dealers to make special suitability determinations for purchasers
other than established customers and certain institutional investors and to
receive the purchasers' prior written consent for a purchase transaction prior
to sale. Consequently, these "penny stock rules" may adversely affect the
ability of broker-dealers to sell our common stock and may adversely affect your
ability to sell shares of our common stock in the secondary market.
THE CONVERSION OF PREFERRED SHARES INTO SHARES OF OUR COMMON STOCK MAY
SIGNIFICANTLY DILUTE THE INTERESTS OF OUR OTHER INVESTORS.
We issued $1.4 million in Series C Preferred Shares to an institutional
investor in June 1999. As of July 30, 1999, we have issued and outstanding
approximately $1.3 million in Series B Convertible Preferred Stock (the "Series
B Preferred Shares," and collectively with the Series C Preferred Shares, the
"Preferred Shares"). The Preferred Shares are convertible into our common stock
at a conversion price equal to 91% of the average of the lowest three
consecutive day closing bid price over the 20 day period prior to conversion.
The Series C Preferred Share terms prohibit issuing more than 1,331,500 shares
of common stock upon conversion of the Series C Preferred Shares at a discount
and the Series B Preferred Share terms prohibit issuing more than 1,505,000
shares of common stock upon conversion of Series B Preferred Shares at a
discount and also limit the ability of the holder to convert if, following the
conversion, such holder would own in excess of 4.9% of our common stock. A
decline in the stock price of common stock could result in dilution to investors
if the holders of Preferred Shares convert.
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LIMITATIONS PLACED ON THE CONVERSION OF THE SERIES C PREFERRED SHARES
MAY REQUIRE US TO REDEEM SUCH SERIES C PREFERRED SHARES IN CASH AT A SUBSTANTIAL
PREMIUM TO THEIR STATED VALUE.
The total number of shares of common stock issuable upon conversion of
the Series C Preferred Shares cannot exceed 1,331,500 shares, which amount
represents 20% of our common stock outstanding on June 1, 1999. If a holder of
Series C Preferred Shares is unable to convert those shares into common stock
because these limitations have been reached, we would be required to redeem the
Series C Preferred Shares in cash at 115% of the amount paid those shares plus
any accrued and unpaid dividends. Depending on the number of shares we are
required to redeem, we may lack sufficient cash to accomplish the required
redemption.
PURSUANT TO ITS AUTHORITY TO DESIGNATE AND ISSUE SHARES OF OUR STOCK AS
IT DEEMS APPROPRIATE, OUR BOARD OF DIRECTORS MAY ASSIGN RIGHTS AND PRIVILEGES TO
CURRENTLY UNDESIGNATED SHARES WHICH COULD ADVERSELY AFFECT YOUR RIGHTS AS A
COMMON SHAREHOLDER.
Our authorized capital consists of 100,000,000 shares of capital stock.
Our Board of Directors, without any action by the shareholders, may designate
and issue shares in such classes or series (including classes or series of
preferred stock) as it deems appropriate and establish the rights, preferences
and privileges of such shares, including dividends, liquidation and voting
rights. The rights of holders of preferred shares and other classes of capital
stock that may be issued may be superior to the rights granted to the holders of
our common stock. Our Board's ability to designate and issue such undesignated
shares could impede or deter an unsolicited tender offer or takeover proposal.
Further, the issuance of additional shares having preferential rights could
adversely affect the voting power and other rights of holders of common stock.
WE ARE DEPENDENT ON THE ONGOING SERVICES OF CERTAIN OF OUR EXECUTIVES,
THE LOSS OF WHICH COULD HAVE A DETRIMENTAL EFFECT ON OUR PROFITABILITY AND THE
MARKET PRICE OF OUR STOCK.
Our business and our day-to-day operations rely heavily upon the
experience, personal efforts and abilities of Edward G. Stevenson, our Chairman
of the Board and Chief Executive Officer, Scott Shackelton, our Vice President
of Finance and Chief Financial Officer, and Barrett Johnson, our President and
Chief Operating Officer. Each of these executives has significant experience in
managing and guiding the business affairs of companies in the gaming machine
industry. The loss of any member of management could adversely affect the
success of our operations and strategic plans and, consequently, have a
detrimental effect on the market price of our stock.
WE MAY NOT PAY DIVIDENDS ON OUR COMMON STOCK, IN WHICH EVENT YOUR ONLY
RETURN ON INVESTMENT, IF ANY, WILL OCCUR ON THE SALE OF OUR STOCK.
To date, we have not paid any cash dividends on our common stock, and
we do not intend to do so in the foreseeable future. Rather, we intend to use
any future earnings to fund our operations and the growth of our business.
Accordingly, the only return on an investment in our common stock will occur
upon its sale.
MINNESOTA LAW MAY INHIBIT OR DISCOURAGE TAKEOVERS, WHICH COULD REDUCE
THE MARKET VALUE OF OUR STOCK.
Being a corporation organized under Minnesota law, we are subject to
certain Minnesota statutes which regulate business combinations and restrict the
voting rights of certain persons acquiring shares of our stock. By impeding a
merger, consolidation, takeover or other business combination involving
Innovative
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Gaming Corporation of America or discouraging a potential acquiror from making a
tender offer or otherwise attempting to obtain control of us, these regulations
could adversely affect the market value of our stock.
POTENTIAL ADVERSE MARKET PRICE IMPACT OF SHARES ELIGIBLE FOR FUTURE
SALE.
The sale, or availability for sale, of substantial amounts of our
common stock in the public market subsequent to this offering of common stock
may adversely affect the prevailing market price of common stock and may impair
whether we can raise additional capital by the sale of stock. As of July 30,
1999, we had 7,153,817 shares of common stock outstanding. In addition, as of
July 30, 1999, we had 926,950 shares of common stock subject to outstanding
options granted under its employee and director stock option plans, 667,500
shares of common stock subject to outstanding warrants (other than the Warrants)
and 2,133,332 shares of common stock issuable upon conversion of convertible
promissory notes.
USE OF PROCEEDS
The gross proceeds to us from the exercise of the warrants, if the
warrants are exercised in full, would be a maximum of $517,200. The proceeds
from the exercise of the warrants are intended to be used for working capital
purposes. We will not receive any proceeds from the sale by the selling
shareholders of the common stock issuable upon the conversion of the Series C
Preferred Shares.
12
<PAGE> 13
SELLING SHAREHOLDERS
The following table sets forth the number of shares of the common stock
owned by the selling shareholders as of the date hereof and after giving effect
to this offering. We will not receive any proceeds from the sale of the common
stock by the selling shareholders. The shares of common stock received upon
exercise of the Warrants or the conversion of Series C Preferred Shares may be
offered from time to time by the selling shareholders.
<TABLE>
<CAPTION>
Shares Number of Percentage
Beneficially Shares Offered Beneficial
owned before Hereby by Selling Ownership After
Offering Shareholder Offering
- -------------------------- ------------- ------------------ ----------------
<S> <C> <C> <C>
The Shaar Group, Ltd. 2,288,548(1) 1,331,500 (2)(3) 2.6%(4)
Wayne Mills 475,000(5) 125,000 3.9%
Lakes Gaming, Inc. 412,500(6) 87,500 3.6%
Edward G. Stevenson 308,000(7) 50,000 2.9%
Richard C. Lockwood 145,000(8) 45,000 1.1%
Gulfstream Financial, LLC 75,000(9) 75,000 *
Craig C. Avery 240,000(10) 37,500 2.3%
</TABLE>
- ------------
*Less than 1%.
(1) Includes (i) 233,900 shares of common stock beneficially owned by such
shareholder; (ii) 1,331,500 shares of common stock issuable upon conversion of
the Series C Preferred Shares, and (iii) 723,148 shares of common stock issuable
upon conversion of Series B Preferred Shares. The common stock issuable upon
conversion of the Series B Preferred Shares is at an assumed conversion price of
$1.763 per share based upon the closing bid price $1.9375 per share on July 30,
1999. Because the number of shares of common stock issuable upon conversion of
the Series C Preferred Shares and the Series B Preferred Shares and as payment
of dividends thereon is dependent in part upon the market price of the common
stock prior to a conversion, the actual number of shares of common stock that
will be issued in respect of such conversions or dividend payments, and
consequently the number of shares of common stock that will be beneficially
owned by the selling shareholder, will fluctuate daily and cannot be determined
at this time. However, the selling shareholder has contractually agreed to
restrict its ability to convert Series C Preferred Shares (and receive shares of
Common Stock in payment of dividends thereon) to the extent that the number of
shares of common stock held by it and its affiliates after such conversion
exceeds 4.9% of the then issued and outstanding shares of common stock following
such conversion.
(2) Represents the maximum number of shares of common stock issuable upon
conversion of the Series C Preferred Shares.
(3) The 9% beneficial conversion feature is accounted for as an additional
Series C Preferred Shares dividend, the amount of which is determined on the
date the Series C Preferred Shares were issued. The average closing bid price of
our common stock over the ten day period preceding the issuance of the Series C
Preferred Shares was $1.3906. As such, the holders of Series C Preferred Shares
could convert the Series C Preferred Shares into approximately 1,106,329 shares
of common stock and the value of the beneficial conversion feature therefore was
approximately $138,462. This beneficial conversion feature or dividend reduces
income available for holders of our common stock and therefore reduces earnings
per share on a pro
13
<PAGE> 14
rata basis over the period from issuance of the Series C Preferred Shares to the
earliest conversion date. Income available to holders of common stock will be
reduced by approximately $32,885, $87,115 and $18,462 during the second, third
and fourth quarters of 1999, respectively.
(4) Assumes a maximum of 723,148 shares of common stock issuable upon
conversion of the Series B Preferred Shares offered pursuant to our prospectus
dated September 3, 1998, as supplemented by prospectus supplement dated June 16,
1999, are sold pursuant to such prospectus.
(5) Includes (i) 350,000 shares of common stock beneficially owned by such
shareholder; (ii) 50,000 shares issuable upon exercise of a warrant issued March
5, 1999 in connection with our redemption of 400,000 shares of common stock
owned by such selling shareholder and (iii) 75,000 shares issuable upon exercise
of a warrant issued in connection with the issuance of secured convertible notes
on June 1, 1999. Does not include (i) 400,000 shares of common stock issuable
upon conversion of a promissory note issued to such shareholder in connection
with such redemption and (ii) 333,333 shares of common stock issuable upon
conversion of the secured convertible notes issued June 1, 1999.
(6) Includes (i) 325,000 shares of common stock beneficially owned by such
shareholder, and (ii) 87,500 shares issuable upon exercise of a warrant issued
April 22, 1999 in connection with our redemption of 700,000 shares of common
stock owned by such selling shareholder. Does not include (i) 700,000 shares of
common stock issuable upon conversion of a promissory note issued to such
shareholder in connection with such redemption and (ii) 102,500 shares of common
stock issuable upon exercise of another Warrant issued to such shareholder.
(7) Includes (i) 50,000 shares issuable upon exercise of a warrant issued June
1, 1999 in connection with Mr. Stevenson's guarantee of a portion of the
principal amount of secured convertible promissory notes issued on such date and
(ii) 258,000 shares issuable upon exercise of employee stock options.
Mr. Stevenson is our Chairman and Chief Executive Officer.
(8) Includes 45,000 shares issuable upon exercise of Warrants issued June 1,
1999 in connection with the issuance of secured convertible notes on such date
to such selling shareholder. Does not include 200,000 shares of common stock
issuable upon conversion of the secured convertible notes issued June 1, 1999.
(9) Shares issuable upon exercise of Warrants issued June 1, 1999 in
connection with the issuance of secured convertible notes on such date to such
selling shareholder. Does not include 333,333 shares of common stock issuable
upon conversion of the secured convertible notes issued June 1, 1999.
(10) Includes 37,500 shares issuable upon exercise of Warrants issued June 1,
1999 in connection with the issuance of secured convertible notes on such date
to such selling shareholder. Does not include 166,666 shares of common stock
issuable upon conversion of the secured convertible notes issued June 1, 1999.
On June 1, 1999, we issued 1,400 Series C Preferred Shares with a stated
value of $1,000 per share in a private placement for total proceeds of
$1,400,000, and net proceeds after expenses of approximately $1,345,000. Of such
net proceeds, $1,100,000 was used to redeem 1,100 shares of our Series B
Preferred Shares.
14
<PAGE> 15
The annual dividend of 4% on the Series C Preferred Shares is
cumulative and is payable quarterly in arrears either in cash or in registered
shares of our common stock. Each Series C Preferred Share is convertible into
shares of our common stock, at a conversion price equal to 91% of the average of
the lowest three consecutive day closing bid prices of our common stock as
reported on by Bloomberg, L.P. over a period of twenty trading days ending on
the day prior to which the holder of Series C Preferred Shares notifies us of
such holder's intent to convert a specified portion of such Series C Preferred
Shares, provided that the maximum conversion price shall not exceed $1.877. The
total number of shares of common stock issuable upon conversion of the Series C
Preferred Shares cannot exceed 1,331,500 shares (which represents 20% of the
number of outstanding shares of common stock on June 1, 1999), unless the
Company obtains shareholder approval as required by the Nasdaq National Market.
In the event a holder of Series C Preferred Shares is unable to convert shares
of Series C Preferred Shares into common stock because 1,331,500 shares have
already been issued as described in the preceding sentence, we must redeem any
unconverted Series C Preferred Shares presented for conversion for cash at a
price equal to 115% of their stated value. We have the right to redeem the
Series C Preferred Shares in cash at 115% of their stated value plus accrued and
unpaid dividends at any time after July 31, 1999. All Series C Preferred Shares
which are still outstanding on June 1, 2001 are mandatorily converted at the
conversion price.
We are not required to convert Series C Preferred Shares, whether upon
request for conversion by the holder or upon the June 1, 2001 mandatory
conversion date, if and to the extent that such holder or any affiliate of such
shareholder would then own in excess of 4.9% of our common stock. If,
notwithstanding the foregoing, such holder is deemed by a court to be the
beneficial owner of more than 4.9% of our common stock, we are required to
redeem for cash such number of shares of Series C Preferred Shares as will
reduce such holder's ownership to not more than 4.9% at a redemption price equal
to 115% of the stated value plus accrued and unpaid dividends. In the case of
mandatory conversion, we may elect to pay a redemption price in cash equal to
115% of the stated value plus accrued and unpaid dividends.
15
<PAGE> 16
PLAN OF DISTRIBUTION
We are registering the shares offered by this prospectus in part on
behalf of the selling shareholders. We agreed to file a registration statement
under the Securities Act of 1933, as amended (the "Securities Act") covering
resale by the selling shareholders of the shares and to use our best efforts to
cause such registration statement to be declared effective as soon as possible
thereafter. As used in this section, the term "selling shareholders" includes
donees, pledgees, transferees and other successors in interest selling shares
received from a selling shareholder after the date of this prospectus. We will
pay all costs and expenses in connection with the preparation of this prospectus
and the registration of the shares offered by it. Any brokerage commissions and
similar selling expenses attributable to the sale of shares will be borne by the
selling shareholders. Sales of shares may be effected by the selling
shareholders at various times in one or more types of transactions (which may
include block transactions) on the Nasdaq National Market, in negotiated
transactions, through put or call options transactions relating to the shares,
through short sales of shares, or a combination of such methods of sale at
market prices prevailing at the time of sale or at negotiated prices. Such
transactions may or may not involve brokers or dealers. The selling shareholders
have advised us that they have not entered into any agreements, understandings
or arrangements with any underwriters or broker-dealers regarding the sale of
the shares, nor is there an underwriter or coordinating broker acting in
connection with the proposed sale of shares by the selling shareholders.
We have agreed to indemnify the selling shareholders and their
officers, directors, employees and agents, and each person who controls any
selling shareholder, in certain circumstances against certain liabilities,
including liabilities arising under the Securities Act. Each selling shareholder
has agreed to indemnify us and our directors and officers in certain
circumstances against certain liabilities, including liabilities arising under
the Securities Act.
The selling shareholders and any broker-dealers that act in connection
with the sale of securities might be deemed to be "underwriters" within the
meaning of Section 2(11) of the Securities Act, and any commissions received by
such broker-dealers and any profit on the resale of the securities sold by them
while acting as principals might be deemed to be underwriting discounts or
commissions under the Securities Act.
Because selling shareholders may be deemed to be "underwriters" within
the meaning of Section 2(11) of the Securities Act, the selling shareholders
will be subject to the prospectus delivery requirements of the Securities Act.
We have informed the selling shareholders that the anti-manipulative provisions
of Regulation M promulgated under the Securities Exchange Act of 1934, as
amended, may apply to their sales in the market.
Selling shareholders also may resell all or a portion of the shares in
open market transactions in reliance upon Rule 144 under the Securities Act,
provided they meet the criteria and conform to the requirements of that Rule.
MINNESOTA ANTI-TAKEOVER LAW
We are governed by the provisions of Sections 302A.671 and 302A.673 of
the Minnesota Business Corporation Act. In general, Section 302A.671 provides
that the shares of a corporation acquired in a "control share acquisition" have
no voting rights unless voting rights are approved in a prescribed manner. A
"control share acquisition" is an acquisition, directly or indirectly, of
beneficial ownership of shares that would, when added to all other shares
beneficially owned by the acquiring person, entitle the acquiring person to have
voting power of 20% or more in the election of directors. In general, Section
302A.673 prohibits a publicly-held Minnesota corporation from engaging in a
"business combination" with an
16
<PAGE> 17
"interested shareholder" for a period of four years after the date of
transaction in which the person became an interested shareholder, unless the
business combination is approved in a prescribed manner. "Business combination"
includes mergers, asset sales and other transactions resulting in a financial
benefit to the interested shareholder. An "interested shareholder" is a person
who is the beneficial owner, directly or indirectly, of 10% or more of the
corporation's voting stock or who is an affiliate or associate of the
corporation and at any time within four years prior to the date in question was
the beneficial owner, directly or indirectly, of 10% or more of the
corporation's voting stock.
WHERE YOU CAN FIND MORE INFORMATION
Federal securities law requires Innovative Gaming Corporation of
America to file information with the Securities and Exchange Commission
concerning its business and operations. Accordingly, we file annual, quarterly,
and special reports, proxy statements and other information with the Commission.
You can inspect and copy this information at the Public Reference Facility
maintained by the Commission at Judiciary Plaza, 450 5th Street, N.W., Room
1024, Washington, D.C. 20549. You can also do so at the following regional
offices of the Commission:
(1) New York Regional Office, 7 World Trade Center, Suite 1300, New York,
New York 10048
(2) Chicago Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661.
You can receive additional information about the operation of the
Commission's Public Reference Facilities by calling the Commission at
1-800-SEC-0330. The Commission also maintains a website at http://www.sec.gov
that contains reports, proxy and information statements and other information
regarding companies that, like Innovative Gaming Corporation of America, file
information electronically with the Commission.
The Commission allows us to "incorporate by reference" information that
has been filed with it, which means that we can disclose important information
to you by referring you to the other information we have filed with the
Commission. The information that we incorporate by reference is considered to be
part of this prospectus, and related information that we file with the
Commission will automatically update and supersede information we have included
in this prospectus. We also incorporate by reference any future filings we make
with the Commission under Sections 13(a), 13(c), 14 or 15(d) of the Securities
Exchange Act of 1934, as amended, until the selling shareholders sell all of
their shares or until the registration rights
17
<PAGE> 18
of the selling shareholders expire. This prospectus is part of a registration
statement that we filed with the Commission (Registration No. 333-______). The
following are specifically incorporated herein by reference:
1. Annual Report on Form 10-K for the fiscal year ended December 31,
1998;
2. Amended Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1998 as filed August 3, 1999;
3. Quarterly Report on Form 10-Q filed on May 17, 1999, for the
quarterly period ended March 31, 1999;
4. Current Report on Form 8-K filed on June 7, 1999;
5. The description of common stock included under the caption
"Securities to be Registered" in the Company's registration
statement on Form SB-2 (Registration No. 33-61492C), including
any amendments or reports filed for the purpose of updating
such description.
You can request a free copy of the above filings or any filings
subsequently incorporated by reference into this prospectus by writing or
calling us at the following address:
Innovative Gaming Corporation of America
Attention: Chief Financial Officer
4725 Aircenter Circle
Reno, Nevada 89502
(775) 823-3000
You should rely only on the information incorporated by reference or
provided in this prospectus or any supplement or amendment to this prospectus.
We have not authorized anyone else to provide you with different information or
additional information. Selling shareholders will not make an offer of our
common stock in any state where the offer is not permitted. You should not
assume that the information in this prospectus, or any supplement or amendment
to this prospectus, is accurate at any date other than the date indicated on the
cover page of such documents.
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this prospectus and in the documents
incorporated by reference in this prospectus are "forward-looking statements"
within the meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. These forward-looking statements can be
identified by the use of predictive, future-tense or forward-looking
terminology, such as "believes," "anticipates," "expects," "estimates," "may,"
"will" or similar terms. Forward-looking statements also include projections of
financial performance, statements regarding management's plans and objectives
and statements concerning any assumption relating to the foregoing. Important
factors regarding Innovative Gaming Corporation of America's business,
operations and competitive environment which may cause actual results to vary
materially from these forward-looking statements are discussed under the caption
"Risk Factors."
18
<PAGE> 19
LEGAL MATTERS
Legal matters in connection with the validity of the shares offered by
this Prospectus will be passed upon for the Company by Maslon Edelman Borman &
Brand, LLP, Minneapolis, Minnesota.
EXPERTS
The consolidated financial statements of Innovative Gaming Corporation
of America as of December 31, 1998, December 31, 1997 and December 31, 1996 and
for the years then ended incorporated by reference in the registration statement
of which this prospectus is a part have been audited by Kafoury, Armstrong &
Co., independent public accountants, as indicated in their report with respect
thereto, and are incorporated herein in reliance upon the authority of that firm
as experts in giving said reports.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Minnesota Statutes Section 302A.521 provides that a corporation shall
indemnify any person made or threatened to be made a party to any proceeding by
reason of the former or present official capacity of such person against
judgments, penalties, fines, including, without limitation, excise taxes
assessed against such person with respect to an employee benefit plan,
settlements, and reasonable expenses, including attorney's fees and
disbursements, incurred by such person in connection with the proceeding, if,
with respect to the acts or omissions of such person complained of in the
proceeding, such person has not been indemnified by another organization or
employee benefit plan for the same expenses with respect to the same acts or
omissions; acted in good faith; received no improper personal benefit and
Section 302A.255, if applicable, has been satisfied; in the case of a criminal
proceeding, had no reasonable cause to believe the conduct was unlawful; and in
the case of acts or omissions by persons in their official capacity for the
corporation, reasonably believed that the conduct was in the best interests of
the corporation, or in the case of acts or omissions by persons in their
capacity for other organizations, reasonably believed that the conduct was not
opposed to the best interests of the corporation. Subdivision 4 of Section
302A.521 of the Minnesota Statutes provides that a corporation's articles of
incorporation or bylaws may prohibit such indemnification or place limits upon
the same. Our articles and bylaws do not include any such prohibition or
limitation. As a result, we are bound by the indemnification provisions set
forth in Section 302A.521 of the Minnesota Statutes. As permitted by Section
302A.251 of the Minnesota Statutes, our Articles of Incorporation provide that a
director shall, to the fullest extent permitted by law, have no personal
liability to us and our shareholders for breach of fiduciary duty as a director.
To the extent that indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, we have been informed that in the opinion
of the Commission such indemnification is against public policy as expressed in
the Securities Act and is therefore unenforceable.
19
<PAGE> 20
1,751,500 SHARES
INNOVATIVE GAMING CORPORATION OF AMERICA
COMMON STOCK
---------------------
PROSPECTUS
---------------------
, 1999
20
<PAGE> 21
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The estimated expenses in connection with the issuance and distribution
of the securities registered hereby are set forth in the following table:
<TABLE>
<S> <C>
SEC registration fee........................................ $ 945
Nasdaq National Market additional listing fee............... 7,500
Legal fees and expenses..................................... 55,000
Accounting fees and expenses................................ 50,000
Printing and miscellaneous expenses 6,555
--------
Total....................................................... $120,000
========
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company is governed by Minnesota Statutes Chapter 302A. Minnesota
Statutes Section 302A.521 provides that a corporation shall indemnify any person
made or threatened to be made a party to any proceeding by reason of the former
or present official capacity of such person against judgments, penalties, fines,
including, without limitation, excise taxes assessed against such person with
respect to an employee benefit plan, settlements, and reasonable expenses,
including attorney's fees and disbursements, incurred by such person in
connection with the proceeding, if, with respect to the acts or omissions of
such person complained of in the proceeding, such person has not been
indemnified by another organization or employee benefit plan for the same
expenses with respect to the same acts or omissions; acted in good faith;
received no improper personal benefit and Section 302A.255, if applicable, has
been satisfied; in the case of a criminal proceeding, had no reasonable cause to
believe the conduct was unlawful; and in the case of acts or omissions by
persons in their official capacity for the corporation, reasonably believed that
the conduct was in the best interests of the corporation, or in the case of acts
or omissions by persons in their capacity for other organizations, reasonably
believed that the conduct was not opposed to the best interests of the
corporation. Subdivision 4 of Section 302A.521 of the Minnesota Statutes
provides that a company's articles of incorporation or bylaws may prohibit such
indemnification or place limits upon the same. The Company's articles and bylaws
do not include any such prohibition or limitation. As a result, the Company is
bound by the indemnification provisions set forth in Section 302A.521 of the
Minnesota Statutes.
As permitted by Section 302A.251 of the Minnesota Statutes, the
Articles of Incorporation of the Company provide that a director shall have no
personal liability to the Company and its shareholders for breach of his
fiduciary duty as a director, to the fullest extent permitted by law. The Agency
Agreement contains provisions under which the Company, on the one hand, and the
Placement Agent, on the other hand, have agreed to indemnify each other
(including officers and directors of the Company and the Placement Agent, and
any person who may be deemed to control the Company or the Placement Agent)
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
21
<PAGE> 22
ITEM 16. EXHIBITS.
EXHIBIT DESCRIPTION OF DOCUMENT
------- -----------------------
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)
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)
3.1(c) Articles of Amendment of Certificate of Designation of Series B
Convertible Preferred Stock as filed June 15, 1999 (Incorporated
herein by reference to Exhibit 3.1(c) to the Company's report on
Form 8-K dated June 1, 1999)
3.1(d) Certificate of Designation relating to Series C Convertible
Preferred Stock as filed June 1, 1999 (Incorporated herein by
reference to Exhibit 3.1(d) to the Company's report on Form 8-K
dated June 1, 1999)
5 Opinion of Maslon Edelman Borman & Brand, LLP
10.1 Stock Redemption Agreement by and between the Company and Wayne
M. Mills, dated March 5, 1999
10.2 Warrant issued to Wayne M. Mills, dated March 5, 1999
10.3 Convertible Promissory Note issued to Wayne M. Mills, dated
March 5, 1999
10.4 Stock Redemption Agreement by and between the Company and Lakes
Gaming, Inc., dated April 22, 1999
10.5 Warrant issued to Lakes Gaming, Inc., dated April 22, 1999
10.6 Convertible Promissory Note issued to Lakes Gaming, Inc., dated
April 22, 1999
10.7 Series B Convertible Preferred Stock Amendment Agreement dated
June 1, 1999 by and between the Company and KA Investments, LDC
(Incorporated herein by reference to Exhibit 10.1 to the
Company's report on Form 8-K dated June 1, 1999)
10.8 Subscription Agreement with respect to Series C Convertible
Preferred Stock dated June 1, 1999 by and between the Company and
The Shaar Fund, Ltd (Incorporated herein by reference to Exhibit
10.2 to the Company's report on Form 8-K dated June 1, 1999)
10.9 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 (Incorporated herein by reference
to Exhibit 10.3 to the Company's report on Form 8-K dated June 1,
1999)
10.10 Form of Note Subscription Agreement (Incorporated herein by
reference to Exhibit 10.4 to the Company's report on Form 8-K
dated June 1, 1999)
10.11 Form of 12% Secured Convertible Promissory Note (Incorporated
herein by reference to Exhibit 10.5 to the Company's report on
Form 8-K dated June 1, 1999)
10.12 Form of Warrant (Incorporated herein by reference to Exhibit 10.6
to the Company's report on Form 8-K dated June 1, 1999)
10.13 Security Agreement, dated June 1, 1999, by Innovative Gaming,
Inc. in favor of certain Noteholders (Incorporated herein by
reference to Exhibit 10.7 to the Company's report on Form 8-K
dated June 1, 1999)
23.1 Consent of Kafoury, Armstrong & Co.
23.2 Consent of Maslon Edelman Borman & Brand, LLP (included in
Exhibit 5).
24 Power of Attorney
22
<PAGE> 23
ITEM 17. UNDERTAKINGS.
(a) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions or otherwise, the Registrant has
been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(b) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement: (i) to include
any prospectus required by Section 10(a)(3) of the Securities Act; (ii) to
reflect in the prospectus any facts or events arising after the effective date
of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; and (iii) to include
any material information with respect to the plan of distribution not previously
disclosed in the registration statement or any material change to such
information in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof;
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering; and
(4) That, for purposes of determining any liability under the
Securities Act, each filing of the Registrant's annual report pursuant to
Section 13(a) or 15(d) of the Exchange Act (and, where applicable, each filing
of an employee benefit plan's annual report pursuant to Section 15(d) of the
Exchange Act) that is incorporated by reference in the registration statement
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Reno, State
of Nevada, on August 3, 1999.
Innovative Gaming Corporation of America, Registrant
By /s/ Edward G. Stevenson
------------------------------------------------------
Edward G. Stevenson, Chief Executive Officer
POWER OF ATTORNEY
KNOW ALL BY THESE PRESENTS, that each person whose signature appears below
hereby constitutes and appoints Edward G. Stevenson and Scott H. Shackelton,
each of either of them, his or her true and lawful attorneys-in-fact and agents,
with full power of substitution and resubstitution for him or her and in his or
her name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration Statement
and to file the same with all exhibits thereto, and other documents in
connection therewith with the Securities and Exchange Commission, granting unto
said attorneys-in-fact and agents, and each of them, full power and authority to
do and perform each and every act and thing requisite or necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his or her substitutes,
may lawfully do or cause to be done by virtue thereof.
Pursuant to the requirements of the Securities Exchange Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
/s/ Edward G. Stevenson Chairman of the Board and August 3, 1999
- ------------------------------------ Chief Executive Officer
Edward G. Stevenson (Principal Executive Officer)
/s/ Scott H. Shackelton
- ------------------------------------ Vice President of Finance August 3, 1999
Scott H. Shackelton and Chief Financial Officer
(Principal Financial Officer)
/s/ Barrett V. Johnson
- ------------------------------------ President and Chief Operating August 3, 1999
Barrett V. Johnson Officer
- ------------------------------------ Director August 3, 1999
Wayne M. Mills
</TABLE>
24
<PAGE> 25
/s/ Ronald A. Johnson
- ------------------------------------ Director August 3, 1999
Ronald A. Johnson
/s/ Leo V. Seevers
- ------------------------------------ Director August 3, 1999
Leo V. Seevers
/s/ Ronald R. Zideck
- ------------------------------------ Director August 3, 1999
Ronald R. Zideck
25
<PAGE> 26
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT PAGE NO.
------- ----------------------- --------
<S> <C> <C>
5 Opinion of Maslon Edelman Borman & Brand, LLP
10.1 Stock Redemption Agreement by and between the Company and
Wayne M. Mills, dated March 5, 1999
10.2 Warrant to purchase common stock of the Company issued to
Wayne M. Mills, dated March 5, 1999
10.3 Convertible Promissory Note issued to Wayne M. Mills, dated
March 5, 1999
10.4 Stock Redemption Agreement by and between the Company and
Lakes Gaming, Inc., dated April 22, 1999
10.5 Warrant to purchase common stock of the Company issued to Lakes
Gaming, Inc., dated April 22, 1999
10.6 Convertible Note issued to Lakes Gaming, Inc., dated April 22, 1999
23.1 Consent of Kafoury, Armstrong & Co.
23.2 Consent of Maslon Edelman Borman & Brand, LLP (included in
Exhibit 5)
24 Power of Attorney
</TABLE>
26
<PAGE> 1
EXHIBIT 5
August 3, 1999
Innovative Gaming Corporation of America
4725 Aircenter Circle
Reno, Nevada 89502
Re: Registration Statement on Form S-3
Ladies and Gentlemen:
We have acted on behalf of Innovative Gaming Corporation of America
(the "Company") in connection with a Registration Statement on Form S-3 (the
"Registration Statement") to be filed by the Company with the Securities and
Exchange Commission on August 3, 1999 relating to the registration under the
Securities Act of 1933, as amended, of 1,331,500 shares of common stock, par
value $.01 per share (the "Common Stock"), issuable by the Company upon
conversion of the Series C Convertible Preferred Shares and 420,000 shares of
Common Stock, issuable by the Company upon exercise of certain warrants to
purchase shares of Common Stock.
Upon examination of such corporate documents and records as we have
deemed necessary or advisable for the purposes hereof and including and in
reliance upon certain certificates by the Company, it is our opinion that:
1. The Company is a validly existing corporation in good
standing under the laws of the State of Minnesota.
2. The Common Stock has been duly authorized and, when
issued as described in the registration statement,
will be legally issued, fully paid and
non-assessable.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours,
Maslon Edelman Borman & Brand, LLP
<PAGE> 1
EXHIBIT 10.1
STOCK REDEMPTION AGREEMENT
THIS AGREEMENT is made and entered into as of March 5, 1999 by and
between Innovative Gaming Corporation of American, a Minnesota corporation (the
"Company") and Wayne W. Mills (the "Shareholder").
WHEREAS, the Shareholder beneficially owns Common Stock of the Company,
par value $.01 per share directly and through First Trust National Association
FBO Wayne W. Mills IRA ( the "Shareholder IRA") ;
WHEREAS, the Company's Articles of Incorporation provide that the
Company may redeem under certain circumstances Common Stock of the Company
beneficially owned by its shareholders.
WHEREAS, the Company desires to redeem, and the Shareholder agrees to
cause the Shareholder IRA to sell and convey to the Company, 400,000 shares of
the Company's Common Stock, par value $.01 per share (the "Redemption Shares")
upon the terms and conditions hereto.
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. Redemption of Shares. The parties hereto agree that the Company shall
redeem the Redemption Shares in exchange for the consideration provided
in Section 2 on the Closing Date (as defined below).
2. Consideration. As full payment for the Redemption Shares to be redeemed
pursuant to the terms and conditions hereto by the Company on the
Closing Date, the Company shall issue and the Shareholder shall cause
the Shareholder IRA to accept the aggregate consideration (the
"Purchase Price") as follows:
a. Convertible Note. The Company shall issue to the Shareholder
IRA a convertible promissory note substantially in the form
attached hereto as Annex A (the "Note"). The principal amount
of the Note shall be equal to the product of a) 400,000 (such
amount of shares being redeemed by the Company) and b) the
closing sales price of the Company's Common Stock on the
business day immediately prior to the Closing Date (as
hereinafter used, the "Conversion Price").
b. Warrant The Company shall issue to the Shareholder IRA a
warrant to purchase the Company's Common Stock substantially
in the form attached hereto as Annex B (the "Warrant"). The
number of shares subject to the Warrant shall be 50,000 (one
share of stock for each eight shares of the Company's Common
Stock redeemed). The exercise price of the Warrant shall equal
the Conversion Price.
3. Closing. The closing of the transactions contemplated hereby shall
occur on March 5, 1999 at the offices of Maslon Edelman Borman & Brand,
3300 Norwest Center, 90 South 7th Street, Minneapolis, Minnesota or at
such time, date and place as the parties hereto rper may mutually agree
(the "Closing Date"). On the Closing Date:
<PAGE> 2
a. The Shareholder shall cause the Shareholder IRA to deliver to
the Company duly issued certificates representing the
Redemption Shares, which shall be duly endorsed for transfer;
and
b. The Company shall pay the Shareholder IRA the Purchase Price.
4. Shareholder Representation. The Shareholder represents and warrants to
the Company that following the redemption of the Redemption Shares
pursuant to the terms hereof, the Shareholder, including the
Shareholder IRA, will beneficially own 4.9% or less of the Company's
issued and outstanding Common Stock.
5. Shareholder Covenant. The Shareholder hereby agrees and covenants to
the Company that the Shareholder and the Shareholder IRA will not
acquire shares of Common Stock of the Company, whether upon conversion
of the Note, exercise of the Warrant, purchase in the open market,
purchase in a private transaction, or otherwise, if such acquisition
would result in the direct or indirect beneficial ownership by the
Shareholder and the Shareholder IRA of more than 4.9% of the Company's
issued and outstanding Common Stock.
6. General
6.1 Parties and Assignment. This Agreement shall be binding
upon and shall inure to the benefit of the parties and their
respective successors and assigns; provided, however, that
this Agreement may not be assigned by any party without the
consent of the other parties.
6.2 Expenses. The Company shall pay all expenses incurred by
each party to this Agreement in connection with the
preparation, authorization, execution and performance of this
Agreement.
6.3 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
2
<PAGE> 3
To the Shareholder: Wayne W. Mills
RJ Steichen & Company
The Colonade, Suite 290
5500 Wayzata Boulevard
Golden Valley, Minnesota 55416
6.4 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.
6.5 Headings. The headings of paragraphs hereunder are for
convenience and reference only, and shall not be deemed a part
of this Agreement.
6.6 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 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.
6.7 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.
6.8 No Third Party Beneficiaries. This Agreement is not
intended to confer upon any person other than the parties
hereto any rights or remedies hereunder.
6.9 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.
6.10 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.
3
<PAGE> 4
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/ Scott H. Shackelton
------------------------------
Its: Chief Financial Office
SHAREHOLDER
/s/ Wayne W. Mills
---------------------------------
Wayne W. Mills
4
<PAGE> 1
EXHIBIT 10.2
ANNEX B
WARRANT TO PURCHASE
COMMON STOCK OF
INNOVATIVE GAMING CORPORATION OF AMERICA
For value received, First Trust National Association FBO Wayne W. Mills
IRA 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 FIFTY THOUSAND (50,000) fully paid and nonassessable
shares of the Company's common stock, $.01 par value ("Common Stock"), at the
price of $1.09375 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 Stock Redemption Agreement
dated March 5, 1999 by and between the Company and the Holder.
This Warrant may be exercised by Holder at any time or from time to
time on or prior to March 5, 2002.
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. Certificates for the shares of stock so purchased shall be delivered to
the Holder within fifteen (15) 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.
(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
<PAGE> 3
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 or Wayne W. Mills (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 or Wayne W. Mills 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 on or
before the third anniversary of the date hereof, 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 for cash, 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) Expenses. The Holder shall pay its allocable share of the total
expenses in the proportion to which the number of shares being registered for
such Holder's account bears to the total number of shares being registered. In
all events, 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.
(3) 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
<PAGE> 4
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. 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 5th day of March, 1999.
INNOVATIVE GAMING CORPORATION
OF AMERICA
By: /s/ Edward Stevenson
----------------------------------
Edward Stevenson
Its: Chief Executive Officer
<PAGE> 5
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.
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:
---------------------------------------
<PAGE> 1
EXHIBIT 10.3
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 UNSECURED.
INNOVATIVE GAMING CORPORATION OF AMERICA
CONVERTIBLE NOTE
Reno, Nevada
$437,500 March 5, 1999
FOR VALUE RECEIVED, Innovative Gaming Corporation of America, a Minnesota
corporation (the "Company"), promises to pay to First Trust National Assn. FBO
Wayne W. Mills IRA ("Holder"), in lawful money of the United States of America,
the principal sum of FOUR HUNDRED THIRTY SEVEN THOUSAND FIVE HUNDRED DOLLARS
($437,500), together with interest in arrears on the unpaid principal balance at
a rate equal to FIVE PERCENT (5%) 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 has been executed and delivered pursuant to and in accordance with the
terms and conditions of the Stock Redemption Agreement, dated March 5, 1999 (the
"Agreement"), by and between the Company and Holder, and is subject to the terms
and conditions of the Agreement, which are, by this reference, incorporated
herein and made a part hereof. Capitalized terms used in this Note without
definition shall have the respective meanings set forth in the Agreement.
1. PAYMENTS.
1.1 PRINCIPAL AND INTEREST. The principal amount of this Note shall be
due and payable on March 5, 2004 (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
<PAGE> 2
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 at RJ Steichen & Company, Suite 290, 5500 Wayzata
Boulevard, Golden Valley, Minnesota 55416 or at such other place in the United
States of America as Holder shall designate to the Company in 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. 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
2
<PAGE> 3
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 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. SUBORDINATION.
3.1. SUBORDINATION. The indebtedness evidenced by this Note, including,
without limitation, principal, premium, if any, and interest and any and all
fees, expenses, indemnities and all other monies owing at any time pursuant to
or in connection with this Note (the "Subordinated Debt") shall be subordinated
and junior to all Senior Debt as hereinafter defined.
3.2 SENIOR DEBT. "Senior Debt" shall mean all obligations (whether now
outstanding or hereafter incurred), for the payment of which the Company is
responsible or liable as obligor, guarantor or otherwise including, without
limitation, principal, premium, if any, interest and any and all fees, expenses,
indemnities and all other monies whether now owing or hereafter incurred in
respect of thereof.
4. TRANSFERABILITY.
4.1 Except as otherwise provided in 8.5 below, Holder is prohibited
from transferring its right, title and interest in this Note.
5. CONVERSION.
5.1 HOLDER CONVERSION. At any time after March 5, 2000 and subject to
Section 5.2, 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 5.3 hereof, in whole or
in part, into fully paid and nonassessable shares of Common Stock of the
3
<PAGE> 4
Company (the "Common Stock"). 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 $1.09375 (the "Conversion
Price").
5.2 CONVERSION LIMITATION. No amount of principal or accrued but unpaid
interest under this Note shall be convertible into Common Stock of the Company
if the sum of 1) the number of Common Stock beneficially owned by the Holder or
Wayne W. Mills (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 or Wayne W. Mills of more than 4.9% of the Company's issued and
outstanding Common Stock.
5.3 CONVERSION PROCEDURE.
(A) NOTICE OF CONVERSION PURSUANT TO SECTION 5.1. 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 5.1. 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.
(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 5.1 above, the Holder shall
surrender this Note, duly endorsed, at the principal office of the
Company. At its expense, the Company 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 the Company),
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.
5.4 COMPANY CONVERSION. At any time after March 5, 2000 and subject to
section 5.2, the Company shall have the right at its option, at any time prior
to payment in full of the principal balance of this Note, to convert this Note
in whole or in part into a number of shares of Common Stock determined by
dividing the outstanding principal amount of the Note to be converted together
with all accrued interest by the Conversion Price, provided, however, that the
Company cannot effect such conversion if the closing sales price of the
Company's Common Stock on such date of conversion is less than the Conversion
Price. The Company shall effect such conversion by delivering to the Holder a
written notice in the form attached hereto as Exhibit B (the "Company
4
<PAGE> 5
Conversion Notice"), which Company Conversion Notice, once given, shall be
irrevocable. Each Company Conversion Notice shall specify the principal amount
of Note to be converted. Upon receipt of a Company Conversion Notice, the Holder
shall surrender the Note subject to such notice at the office of the Company. If
the Company is converting less than the aggregate principal amount of the Note,
the Company shall, upon conversion of the principal amount of the Note subject
to such Company Conversion Notice and receipt of the Notes surrendered for
conversion, deliver to the Holder, a replacement for such principal amount of
the Note as have not been converted.
6. ANTI-DILUTION ADJUSTMENTS.
6.1 ADJUSTMENTS FOR STOCK SPLITS AND SUBDIVISIONS. In the event the
Company 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.
6.2 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, 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 hereof shall be decreased in proportion to such decrease in
outstanding shares.
6.3 ADJUST FOR REORGANIZATION, RECLASSIFICATION, MERGER AND SALE. 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 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 the
Company 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 this
Note 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,
5
<PAGE> 6
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
convert.
6.4 OTHER ADJUSTMENT. 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 6.1 through 6.3, 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 the Company.
6.5 RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company 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, the
Company 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.
7. "PIGGY BACK" REGISTRATION RIGHTS.
7.1 If, at any time after March 5 , 2000 and prior to the Maturity
Date, the Company shall propose to file any registration statement under the
Securities Act of 1933, as amended, covering a public offering of the Company'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 the Company) 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, the Company must again
notify such holder in the manner provided above. 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 the
Company. The Holder agrees to cooperate with the Company 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 the Company to establish that the proposed sale is exempt under the
Act as to any proposed distribution.
6
<PAGE> 7
8. MISCELLANEOUS.
8.1 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 Company will be deemed to be a
waiver of any obligation of Company or of the right of Holder to take further
action without notice or demand as provided in this Note. Company hereby waives
presentment, demand, protest and notice of dishonor and protest.
8.2 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.
8.3 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.
8.4 GOVERNING LAW. This Note will be governed by the laws of the State
of Nevada without regard to conflicts of laws principles.
8.5 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 of Company, except as follows:
(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
<PAGE> 8
8.6 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 CORPORATION OF AMERICA
By: /s/ Scott H. Shackelton
-----------------------------------
Title: Chief Financial Officer
-------------------------------
8
<PAGE> 9
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
.
Dated:
----------------------------------
-------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Note)
-------------------------------------------
(Address)
9
<PAGE> 10
EXHIBIT B
NOTICE OF CONVERSION
AT THE ELECTION OF THE COMPANY
(To Be Signed Only Upon Conversion of Note)
The undersigned in the name and on behalf of INNOVATIVE GAMING CORPORATION OF
AMERICA (the "Company") hereby notifies the holder of the foregoing Note that
the Company hereby elects to exercise its right to convert such Note or portion
of such Note into shares of Common Stock, par value $.01 per share (the "Common
Stock"), of the Company according to the conditions hereof, as of the date
written below. No fee will be charged to the Holder for any conversion
hereunder, except for such transfer taxes, if any, which may be incurred by the
Company if shares are to be issued in the name of a person other than the person
to whom this notice is addressed.
Conversion calculations:
----------------------------------------------------
Date to Effect Conversion
----------------------------------------------------
Principal Amount of Notes to be Converted
----------------------------------------------------
Applicable Conversion Price
----------------------------------------------------
Signature
----------------------------------------------------
Name:
----------------------------------------------------
Address:
10
<PAGE> 1
EXHIBIT 10.4
STOCK REDEMPTION AGREEMENT
THIS AGREEMENT is made and entered into as of April 21, 1999 by and
between Innovative Gaming Corporation of American, a Minnesota corporation (the
"Company") and Lakes Gaming, Inc., a Minnesota corporation (the "Shareholder").
WHEREAS, the Shareholder beneficially owns 1,025,000 shares of Common
Stock of the Company, par value $.01 per share;
WHEREAS, the Company's Articles of Incorporation provide that the
Company may redeem under certain circumstances Common Stock of the Company
beneficially owned by its shareholders; and
WHEREAS, the Company desires to redeem, and the Shareholder agrees to
sell and convey to the Company, 700,000 shares of the Company's Common Stock,
par value $.01 per share (the "Redemption Shares") upon the terms and conditions
hereto.
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. Redemption of Shares. The parties hereto agree that the Company shall
redeem the Redemption Shares in exchange for the consideration provided
in Section 2 on the Closing Date (as defined below).
2. Consideration. As full payment for the Redemption Shares to be redeemed
pursuant to the terms and conditions hereto by the Company on the
Closing Date, the Company shall issue and the Shareholder shall accept
the aggregate consideration (the "Purchase Price") as follows:
a. Convertible Note. The Company shall issue to the
Shareholder a convertible promissory note
substantially in the form attached hereto as Annex A
(the "Note"). The principal amount of the Note shall
be equal to the product of a) 700,000 (such amount of
shares being redeemed by the Company) and b) the
closing sales price of the Company's Common Stock on
the business day immediately prior to the Closing
Date (as hereinafter used, the "Conversion Price").
b. Warrant The Company shall issue to the Shareholder a
warrant to purchase the Company's Common Stock
substantially in the form attached hereto as Annex B
(the "Warrant"). The number of shares subject to the
Warrant shall be 87,500 (one share of stock for each
eight shares of the Company's Common Stock redeemed).
The exercise price of the Warrant shall equal the
Conversion Price.
<PAGE> 2
3. Closing. The closing of the transactions contemplated hereby shall
occur at such time, date and place as the parties hereto may mutually
agree (the "Closing Date"). On the Closing Date:
a. The Shareholder shall deliver to the Company duly issued
certificates representing the Redemption Shares, which shall
be duly endorsed for transfer; and
b. The Company shall pay the Shareholder the Purchase Price.
4. Conditions to Closing. The following conditions shall be satisfied at
least two business days prior to the Closing date:
a. The Company shall have filed its Annual Report on Form 10-K
for Fiscal 1998 with the Securities and Exchange Commission;
and
b. The Company shall have issued a press release on its
preliminary financial results for First Quarter 1999.
5. Shareholder Representation. The Shareholder represents and warrants to
the Company that following the redemption of the Redemption Shares
pursuant to the terms hereof, the Shareholder will beneficially own
4.9% or less of the Company's issued and outstanding Common Stock.
6. Shareholder Covenant. The Shareholder hereby agrees and covenants to
the Company that the Shareholder will not acquire shares of Common
Stock of the Company, whether upon conversion of the Note, exercise of
the Warrant, purchase in the open market, purchase in a private
transaction, or otherwise, if such acquisition would result in the
direct or indirect beneficial ownership by the Shareholder of more than
4.9% of the Company's issued and outstanding Common Stock.
7. General
7.1 Parties and Assignment. This Agreement shall be binding upon and
shall inure to the benefit of the parties and their respective
successors and assigns; provided, however, that this Agreement may not
be assigned by any party without the consent of the other parties.
7.2 Expenses. The Company shall pay all expenses incurred by each party
to this Agreement in connection with the preparation, authorization,
execution and performance of this Agreement.
7.3 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
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<PAGE> 3
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: Lakes Gaming, Inc.
130 Cheshire Lane
Minnetonka, Minnesota 55305
Attention: Chief Financial Officer
7.4 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.
7.5 Headings. The headings of paragraphs hereunder are for convenience
and reference only, and shall not be deemed a part of this Agreement.
7.6 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 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.
7.7 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.
7.8 No Third Party Beneficiaries. This Agreement is not intended to
confer upon any person other than the parties hereto any rights or
remedies hereunder.
7.9 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.
3
<PAGE> 4
7.10 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 Stevenson
------------------------------------
Its: Chief Executive Officer
---------------------------
LAKES GAMING, INC.
By: /s/ Timothy J. Cope
------------------------------------
Its: Chief Financial Officer
---------------------------
4
<PAGE> 1
EXHIBIT 10.5
WARRANT TO PURCHASE
COMMON STOCK OF
INNOVATIVE GAMING CORPORATION OF AMERICA
For value received, Lakes Gaming, Inc. ("Holder"), is entitled to
subscribe for and purchase from Innovative Gaming Corporation of America, a
Minnesota corporation (the "Company"), up to EIGHTY-SEVEN THOUSAND FIVE HUNDRED
(87,500) fully paid and nonassessable shares of the Company's common stock, $.01
par value ("Common Stock"), at the price of $1.25 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 Stock Redemption Agreement dated April 21, 1999 by and between
the Company and the Holder.
This Warrant may be exercised by Holder at any time or from time to
time on or prior to April 22, 2002.
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. Certificates for the shares of stock so purchased shall be delivered to
the Holder within fifteen (15) 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.
2
<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 on or
before the third anniversary of the date hereof, 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 for cash, 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) Expenses. The Holder shall pay its allocable share of the total
expenses in the proportion to which the number of shares being registered for
such Holder's account bears to the total number of shares being registered. In
all events, 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.
3
<PAGE> 4
(3) 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. 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 22nd day of April, 1999.
INNOVATIVE GAMING CORPORATION
OF AMERICA
By: /s/ Edward G. Stevenson
---------------------------------------
Edward G. Stevenson
Its: Chief Executive Officer
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<PAGE> 5
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.
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:
-------------------------------------
5
<PAGE> 1
EXHIBIT 10.6
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 UNSECURED.
INNOVATIVE GAMING CORPORATION OF AMERICA
CONVERTIBLE NOTE
Reno, Nevada
$875,000 April 22, 1999
FOR VALUE RECEIVED, Innovative Gaming Corporation of America, a Minnesota
corporation (the "Company"), promises to pay to Lakes Gaming, Inc., a Minnesota
corporation ("Holder"), in lawful money of the United States of America, the
principal sum of Eight Hundred Seventy Five Thousand ($875,000), together with
interest in arrears on the unpaid principal balance at a rate equal to FIVE
PERCENT (5%) 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 has been executed and delivered pursuant to and in accordance with the
terms and conditions of the Stock Redemption Agreement, dated April 21, 1999
(the "Agreement"), by and between the Company and Holder, and is subject to the
terms and conditions of the Agreement, which are, by this reference,
incorporated herein and made a part hereof. Capitalized terms used in this Note
without definition shall have the respective meanings set forth in the
Agreement.
1. PAYMENTS.
1.1 PRINCIPAL AND INTEREST. The principal amount and interest of this
Note shall be due and payable on April 22, 2004 (the "Maturity Date").
<PAGE> 2
1.2 MANNER OF PAYMENT. All payments of principal and interest on this
Note shall be made by check at Lakes Gaming, Inc., 130 Cheshire Lane,
Minnetonka, Minnesota 55305 or at such other place in the United States of
America as Holder shall designate to the Company in writing.
1.3 PREPAYMENT. 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 balance of this Note,
together with all accrued interest thereon, immediately due and payable
regardless of any
2
<PAGE> 3
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. SUBORDINATION.
3.1. SUBORDINATION. The indebtedness evidenced by this Note, including,
without limitation, principal, premium, if any, and interest and any and all
fees, expenses, indemnities and all other monies owing at any time pursuant to
or in connection with this Note (the "Subordinated Debt") shall be subordinated
and junior to all Senior Debt as hereinafter defined.
3.2 SENIOR DEBT. "Senior Debt" shall mean all obligations (whether now
outstanding or hereafter incurred), for the payment of which the Company is
responsible or liable as obligor, guarantor or otherwise including, without
limitation, principal, premium, if any, interest and any and all fees, expenses,
indemnities and all other monies whether now owing or hereafter incurred in
respect of thereof.
3.3 IN EVENT OF COMPANY'S INSOLVENCY. In the event that (i) the Company
shall become "insolvent" within the meaning of the Bankruptcy Law or (ii) if the
Company applies for the benefit of, or files a case under, any provision of the
Bankruptcy Law or any other law relating to insolvency or relief of debtors, or
if (iii) a case or proceeding is brought against the Company under any provision
of the Bankruptcy Law or other law relating to insolvency or relief of debtors,
or if the Company makes an assignment for the benefit of creditors (any of these
occurrences an "Event of Insolvency"), then the Noteholders shall, at all times
thereafter, have the same priority in liquidation as that of holders of the
Company's Common Stock.
4. TRANSFERABILITY.
4.1 Holder is prohibited from transferring its right, title and
interest in this Note without the express prior written consent of the Company.
5. CONVERSION.
5.1 HOLDER CONVERSION. At any time after April 22, 2000 and subject to
Section 5.2, 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 5.3 hereof, in whole or
in part, into fully paid and nonassessable shares of Common Stock of the Company
(the "Common Stock"). 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 $1.25 (the "Conversion
Price").
3
<PAGE> 4
5.2 CONVERSION LIMITATION. No amount of principal or accrued but unpaid
interest under this Note shall be convertible into Common Stock of the Company
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 the Company's issued and outstanding Common Stock.
5.3 CONVERSION PROCEDURE.
(a) NOTICE OF CONVERSION PURSUANT TO SECTION 5.1. 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 5.1. 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.
(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 5.1 above, the Holder shall surrender this Note, duly
endorsed, at the principal office of the Company. At its expense, the Company
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 the Company), 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.
5.4 COMPANY CONVERSION. At any time after April 24, 2000 and subject to
Section 5.2, the Company shall have the right at its option, at any time prior
to payment in full of the principal balance of this Note, to convert this Note
in whole or in part into a number of shares of Common Stock determined by
dividing the outstanding principal amount of the Note to be converted together
with all accrued interest by the Conversion Price, provided, however, that the
Company cannot effect such conversion if the closing sales price of the
Company's Common Stock on such date of conversion is less than the Conversion
Price. The Company shall effect such conversion by delivering to the Holder a
written notice in the form attached hereto as Exhibit B (the "Company Conversion
Notice"), which Company Conversion Notice, once given, shall be irrevocable.
Each Company Conversion Notice shall specify the principal amount of Note to be
converted. Upon receipt of a Company Conversion Notice, the Holder shall
surrender the Note subject to such notice at the office of the Company. If the
Company is converting less than the aggregate principal amount of the Note, the
Company shall, upon conversion of the principal amount of the Note subject to
such Company Conversion Notice and receipt of the Notes surrendered for
conversion, deliver to the
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<PAGE> 5
Holder, a replacement for such principal amount of the Note as have not been
converted.
6. ANTI-DILUTION ADJUSTMENTS.
6.1 ADJUSTMENTS FOR STOCK SPLITS AND SUBDIVISIONS. In the event the
Company 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.
6.2 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, 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 hereof shall be decreased in proportion to such decrease in
outstanding shares.
6.3 ADJUST FOR REORGANIZATION, RECLASSIFICATION, MERGER AND SALE. 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 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 the
Company 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 this
Note 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 convert.
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<PAGE> 6
6.4 OTHER ADJUSTMENT. 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 6.1 through 6.3, 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 the Company.
6.5 RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The Company 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, the
Company 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.
7. "PIGGY BACK" REGISTRATION RIGHTS.
7.1 If, at any time after April 22, 2000 and prior to the Maturity
Date, the Company shall propose to file any registration statement under the
Securities Act of 1933, as amended, covering a public offering of the Company'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. The registration of
the shares of Common Stock issuable upon conversion of the Note is subject to
regulatory approval in gaming jurisdictions as required. Notwithstanding the
foregoing, the number of shares of the Common Stock proposed to be registered
shall thereby be reduced pro rata (other than the Company) 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, the Company must again
notify such holder in the manner provided above. 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 the
Company. The Holder agrees to cooperate with the Company 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 the Company to establish that the proposed sale is exempt under the
Act as to any proposed distribution.
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<PAGE> 7
8. MISCELLANEOUS.
8.1 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 Company will be deemed to be a
waiver of any obligation of Company or of the right of Holder to take further
action without notice or demand as provided in this Note. Company hereby waives
presentment, demand, protest and notice of dishonor and protest.
8.2 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.
8.3 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.
8.4 GOVERNING LAW. This Note will be governed by the laws of the State
of Nevada without regard to conflicts of laws principles.
8.5 PARTIES IN INTEREST. This Note shall bind the Company and its
successors and assigns.
8.6 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.
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<PAGE> 8
IN WITNESS WHEREOF, the Company has executed and delivered this Note as
of the date first stated above.
INNOVATIVE GAMING CORPORATION OF AMERICA
By: /s/ Scott H. Shackelton
------------------------------
Title: Chief Financial Officer
------------------------------
8
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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 .
Dated:
----------------------------------
------------------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Note)
------------------------------------------
(Address)
9
<PAGE> 10
EXHIBIT B
NOTICE OF CONVERSION
AT THE ELECTION OF THE COMPANY
(To Be Signed Only Upon Conversion of Note)
The undersigned in the name and on behalf of INNOVATIVE GAMING CORPORATION OF
AMERICA (the "Company") hereby notifies the holder of the foregoing Note that
the Company hereby elects to exercise its right to convert such Note or portion
of such Note into shares of Common Stock, par value $.01 per share (the "Common
Stock"), of the Company according to the conditions hereof, as of the date
written below. No fee will be charged to the Holder for any conversion
hereunder, except for such transfer taxes, if any, which may be incurred by the
Company if shares are to be issued in the name of a person other than the person
to whom this notice is addressed.
Conversion calculations:
------------------------------------------------
Date to Effect Conversion
------------------------------------------------
Principal Amount of Notes to be Converted
------------------------------------------------
Applicable Conversion Price
------------------------------------------------
Signature
------------------------------------------------
Name
------------------------------------------------
Address
10
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EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference in the Registration Statement (Form S-3, No. 333- )
of our report dated February 26, 1999 (except with respect to the matter
discussed in Note 11, as to which the date is July 16, 1999) included in
Innovative Gaming Corporation of America's Form 10-K/A (as amended by Form
10-K/A) for the year ended December 31, 1998 and of our report dated July 16,
1999 for the years ended December 31, 1997 and December 31, 1996 and to all
references to our firm included in this Registration Statement.
KAFOURY, ARMSTRONG & CO.
Reno, Nevada
August 4, 1999
<PAGE> 1
[EX-24 TO COME]
