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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 23, 2000
REGISTRATION NO. 333-94633
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
AMENDMENT NO. 1 TO
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 Circle
Reno, NV 89502
(775) 823-3000
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Barrett V. Johnson
President and Chief Operating Officer
Innovative Gaming Corporation of America
4725 Aircenter Circle
Reno, NV 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. [ ]
CALCULATION OF REGISTRATION FEE
<TABLE>
==================================== ================ ================== ======================= ====================
PROPOSED
MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED PER SHARE OFFERING PRICE REGISTRATION FEE
- ------------------------------------ ---------------- ------------------ ----------------------- --------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 1,654,500 $ 1.6 $ 2,791,968.75 $ 737.08 (1)
- ------------------------------------ ---------------- ------------------ ----------------------- --------------------
Common Stock, $.01 par value (2) 355,000 $ 1.6 $ 599,062.50 $ 158.15 (1)
- ------------------------------------ ---------------- ------------------ ----------------------- --------------------
Common Stock, $.01 par value (2) 60,000 $ 0.9 $ 58,125.00 $ 15.35 (3)
- ------------------------------------ ---------------- ------------------ ----------------------- --------------------
TOTAL 2,069,500 $ 3,449,156.25 $ 910.58
==================================== ================ ================== ======================= ====================
</TABLE>
(1) Fee calculated pursuant to Rule 457(c), based on the average high and low
closing sales price on January 10, 2000. Fee for such shares previously
paid at the time of the Registrant's original filing on Form S-3 on January
13, 2000.
(2) Shares issuable upon exercise of certain Warrants.
(3) Fee calculated pursuant to Rule 457(c), based on the average high and low
closing sales price on May 10, 2000.
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 MAY 23, 2000
PROSPECTUS
INNOVATIVE GAMING CORPORATION OF AMERICA
2,069,500 SHARES OF
COMMON STOCK
This prospectus relates to a maximum of 2,069,500 shares of common
stock of Innovative Gaming Corporation of America issuable upon the conversion
of Series D 6% Convertible Preferred Stock (the "Series D Preferred Shares"),
certain shares of common stock issuable in lieu of payment of dividends and
exercise of warrants granted to the selling shareholders listed on page 17 of
this prospectus. The total proceeds to us from the exercise of the warrants
issued in connection with the sale of the Series D Preferred Shares (the "Series
D Warrants") and certain other warrants issued to certain selling shareholders
(collectively with the Series D warrants, the "Warrants"), if the Warrants are
exercised in full, would be a maximum of $1,047,475. We will receive no proceeds
from the sale of the common stock by selling shareholders.
Our common stock is listed on the Nasdaq National Market under the
symbol "IGCA." On May 10, 2000, the last sale price for the Common Stock as
reported on the Nasdaq National Market was $1.00.
THE SHARES OFFERED BY THIS PROSPECTUS INVOLVE A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6 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, 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 IGCA 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.
The date of this Prospectus is ___________, 2000.
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TABLE OF CONTENTS
<TABLE>
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PROSPECTUS SUMMARY.................................................................4
RISK FACTORS.......................................................................7
USE OF PROCEEDS...................................................................16
SELLING SHAREHOLDERS..............................................................17
PLAN OF DISTRIBUTION..............................................................18
MATERIAL CHANGES..................................................................19
DESCRIPTION OF THE NMORTGAGE BUSINESS.............................................21
WHERE YOU CAN FIND MORE INFORMATION...............................................24
NOTE REGARDING FORWARD-LOOKING STATEMENTS.........................................25
LEGAL MATTERS.....................................................................26
EXPERTS...........................................................................26
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES....................................26
</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 two primary product lines: multi-player/multi-station video table games and
single player video slot machines incorporating state of the art graphics and
sound. 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.
October 8, 1999, we entered into a non-binding letter of intent with
Equitex, Inc. which outlined the terms of a contemplated merger between the
Company and Equitex's subsidiary, nMortgage, Inc. ("nMortgage") in a tax-free
exchange of stock (the "Merger"). On December 31, 1999, we executed a definitive
merger agreement with Equitex and nMortgage governing the Merger. Pursuant to
the merger agreement, our shareholders will retain approximately 25% of the
surviving corporation to the Merger calculated on a fully-diluted basis. Upon
the closing of the merger, the Company would be renamed "nMortgage.com, Inc."
The closing of the Merger is subject to, among other things, obtaining the
approval of our shareholders and of the certain governmental authorities, as
well as other customary pre-closing conditions.
As a condition to the Merger, we must divest substantially all of our
gaming-related assets. Accordingly, on February 1, 2000, we entered into a
definitive asset purchase agreement with Xertain, Inc., pursuant to which
Xertain will purchase substantially all of our gaming-related assets and assume
certain of our liabilities in exchange for an aggregate purchase price of
$4,000,000 and an accounts receivable promissory note. In addition to various
standard conditions of closing, the closing of the above referenced gaming asset
divestiture is subject to the simultaneous closing of the Merger, shareholder
approval, and the termination of various employment contracts of certain key
employees of IGCA.
nMortgage is a direct lender headquartered in Fort Lauderdale, Florida
and offers both retail and wholesale mortgage financing through its subsidiary
First Bankers Mortgage Services, Inc. nMortgage recently announced the debut of
its online mortgage system, known as "nMortgage.com". Xertain is a private
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Delaware corporation located in Las Vegas, Nevada, with its primary business
predicated on gaming-related technologies and international manufacturing.
Our executive offices are located at 4725 Aircenter, Reno, Nevada 89502
and our telephone number is (775) 823-3000.
RECENT DEVELOPMENTS
On May 12, 2000, IGCA entered into termination agreements with the five
executive officers, pursuant to which each executive officer would terminate,
prior or at the closing of the Merger, his employment agreement in exchange for
severance to be paid at or following the closing of the Merger. Each of the
employment agreements that would be terminated provided for the payment of
severance upon termination of such executive's employment without cause. The
termination agreements also provide that the confidentiality and non-competition
provisions contained in each executive officer's employment agreement shall
survive the termination of thereof.
Mr. Stevenson's employment agreement terminated May 12, 2000. Pursuant
to the terms of his termination agreement, IGCA is required to pay Mr. Stevenson
an aggregate of $300,000 in severance contingent upon the consummation of the
Merger. The $300,000 in severance payments is approximately $100,000 less than
the severance that would have been owed pursuant to Mr. Stevenson's employment
agreement by IGCA had Mr. Stevenson been terminated in May 2000. $200,000 of
such severance will be payable at the closing of the Merger, with the remaining
$100,000 to be payable upon the earlier of (i) IGCA's receipt of the proceeds
from the unsecured promissory note of Xertain to be issued to IGCA in connection
with the Gaming Divestiture or (ii) September 15, 2000.
The termination agreements covering IGCA's other four executive
officers, including Barrett V. Johnson, IGCA's President and Chief Operating
Officer, terminate such executive officers' employment agreements as of the
Closing of the Merger. These termination agreements require IGCA to make
severance payments, in twelve equal monthly installments commencing on the one
month anniversary of the Closing or the Merger, to each such executive officer
in an aggregate amount equal to such executive officer's annual base salary. The
aggregate severance payments required to be made by IGCA to its executive
officers, other than Mr. Stevenson, is approximately $485,000. Of such amount,
Xertain, pursuant to the Asset Purchase Agreement, has agreed to reimburse IGCA
for the severance payments to be made to all of IGCA's executive officers with
the exception of Mr. Stevenson.
THE OFFERING
<TABLE>
<S> <C>
Common stock offered (1) ................................... 2,069,500 shares
Common stock outstanding
before the offering....................................... 9,526,319 shares
</TABLE>
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<TABLE>
<S> <C>
Common stock outstanding
after the offering (2)................................... 11,595,819 shares
Nasdaq National Market symbol............................... IGCA
</TABLE>
(1) Represents the maximum number of shares that can be issued under the
Securities Purchase Agreement upon conversion of the Series D Preferred
Shares, payment of dividends in connection with the Series D Preferred
Shares and shares issuable upon exercise of the Warrants.
(2) Does not include (a) 885,054 shares of common stock that are reserved
for issuance upon the conversion of outstanding Series C Convertible
Preferred Stock; (b) 1,333,000 shares of common stock that are issuable
upon exercise of outstanding options pursuant to the employee and
director stock option plans; (c) 1,145,000 shares of common stock that
are issuable upon the exercise of the outstanding warrants (other than
the Warrants); and (d) 2,133,332 shares of common stock that are
issuable upon the conversion of certain convertible promissory notes.
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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:
OUR CONTEMPLATED ACQUISITION OF NMORTGAGE, INC. MAY NOT COME TO
FRUITION.
Although we have executed a definitive agreement to acquire nMortgage,
Inc., we can give no assurance that the acquisition of nMortgage will come to
fruition. Closing of the proposed transaction is subject to, among other things,
obtaining corporate and any necessary regulatory approvals, approval by the IGCA
stockholders, and other customary pre-closing conditions. The failure to
successfully complete any of these conditions could prevent the consummation of
the nMortgage transaction.
Regardless of whether we complete the nMortgage transaction, there are
certain general risks relating to the Company as indicated below. If we
successfully complete the nMortgage transaction, then the factors identified
below under "Risks Associated with the Internet Mortgage Business" will apply to
our business. On the other hand, if we are unable to complete the nMortgage
transaction, then we will continue to operate our gaming business and the
factors listed below under "Risks Associated with the Gaming Machine Business"
will continue to apply to our business.
GENERAL RISKS
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 $14.1 million in 1999,
$4.7 million in 1998, $2.9 million in 1997 and $6.9 million in 1996. We have not
had a profitable quarter since the fourth quarter of fiscal 1997. Given the
relatively large fluctuations in the frequency and size of the Company's
receivables, the Company continues to experience significant fluctuations in its
cash position. For the first eight days of May 2000, the Company's average cash
on hand was approximately $242,000. We believe that our cash and anticipated
funds from operations will be adequate to fund cash requirements until the
completion of the merger with nMortgage, which is planned to occur in July 2000.
If the merger is not completed as planned or if our sales forecasts do not
materialize, we will require additional financing to fund further production,
marketing and distribution of our products. There can be no assurance that we
will be successful on obtaining such additional financing on terms acceptable to
us, which may require us to consider liquidating all or a part of our assets and
possibly discontinuing operations. Security interests held by the holders of
convertible promissory notes issued by us could restrict 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.
THERE IS THE RISK THAT DUE TO THE LIMITATIONS PLACED ON THE CONVERSION
OF THE PREFERRED SHARES, THE PREFERRED SHAREHOLDER'S INVESTMENT MAY NOT BE
CONVERTED INTO COMMON STOCK AND WOULD HAVE TO BE REDEEMED IN CASH.
The total number of shares of Common Stock issuable (1) upon conversion
of the Series D Preferred Stock, (2) as a dividend on the Series D Preferred
Shares, and (3) upon exercise of the Warrants cannot exceed 20% of the number of
shares of Common Stock of the Company issued and outstanding on September 1,
1999. In the event the holders of Preferred Shares are unable to convert shares
of the Preferred Shares into
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common stock because these limitations have been reached, the Company would be
required to redeem the Preferred Shares in cash at 135% of the stated value plus
any accrued and unpaid dividends. It is possible that in such case the Company
may not possess sufficient cash and cash equivalents necessary to redeem the
Series D Preferred Shares in cash. A similar but separate risk exists with the
Company's Series C Preferred Shares.
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 for 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.
OUR OPERATIONS MAY PROVE UNSUCCESSFUL WHICH WOULD RESULT IN CONTINUED
UNPROFITABILITY AND MAY CAUSE OUR STOCK PRICE TO FALL.
We have not generated a profitable year since the fiscal year ended
July 31, 1994. 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.
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 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. We recently received a notice from the Nasdaq National Market
indicating that we no longer meet the net tangible assets requirement of at
least $4,000,000 and that Nasdaq is reviewing our eligibility for continued
listing. Although the Company believes that it appropriately responded to this
notice, there can be no assurance that Nasdaq would not delist our common stock
for failure to meet the net tangible assets requirement. Additionally, 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 $0.875 to
$2.75 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
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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 IGCA 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, of which $900,000 was still issued and outstanding as of
March 2, 2000 (the Series C Preferred Shares and the Series D Preferred Shares,
the "Preferred Shares"). In October 1999, we issued $2,450,000 in Series D
Preferred Shares, of which $1,337,500 were issued and outstanding as of May 1,
2000. The Series C 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. Series D Preferred
Shares are convertible into common stock at the lesser of $3.00 or 75% of the
average closing bid price for the five consecutive days immediately preceding
the conversion date. 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 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.
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 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.
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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 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 May 1, 2000,
we had 9,526,319 shares of common stock outstanding. In addition, as of May 1,
2000, we had 1,353,775 shares of common stock subject to outstanding options
granted under its employee and director stock option plans, 1,333,000 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.
RISKS ASSOCIATED WITH THE INTERNET MORTGAGE BUSINESS
WE MAY BE ENTERING INTO A NEW BUSINESS VENTURE IN AN EVOLVING INDUSTRY
IN WHICH WE HAVE NO EXPERIENCE.
The lending business, and the Internet mortgage business, in
particular, represent a significant change in our business operations from the
gaming machine business. We and our present management also have no experience
with the business of providing such lending services. Furthermore, the Internet
industry is rapidly evolving, extremely competitive, and the market place for
Internet-related shares has been very volatile.
INTERNET MORTGAGE BUSINESSES ARE SUBJECT TO INTEREST RATE FLUCTUATIONS,
WHICH COULD HAVE AN ADVERSE IMPACT ON THE BUSINESS.
If our proposed transaction with nMortgage is consummated, a high
percentage of our customers would use our services to refinance existing
mortgages and would be motivated to do so primarily when interest rates fall
below the rates of their existing mortgages. In the event interest rates
significantly increase, consumers' incentive to refinance will be greatly
reduced and the number of loans that we would originate could significantly
decline. Our failure to successfully reduce this dependence on refinancings and
increase the volume of our business derived from home purchases could have an
adverse effect on our business.
Our ability to engage in profitable secondary sales of loans could also
be adversely affected by increases in interest rates. The mortgage loan purchase
commitments we would obtain are contingent upon delivery of the relevant loans
to the purchasers within specified periods. To the extent that we would be
unable to deliver the loans within the specified periods and interest rates
increase, we may experience no gain or even a loss on the sale of these loans.
In addition, any increase in interest rates will increase the cost of
maintaining our warehouse and repurchase lines of credit which we depend on to
fund the loans we originate. To the extent we do not use derivative financial
instruments to hedge these risks, we would be exposed to losses caused by
fluctuations in interest rates.
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UNCERTAINTY WITH RESPECT TO THE TIME IT TAKES TO CLOSE LOANS CAN LEAD
TO UNPREDICTABLE REVENUE AND PROFITABILITY.
In the Internet mortgage business, the time between the date an
application is received from a customer, via the Internet, and the date the loan
closes has typically been lengthy and unpredictable. The loan application and
approval process can often be delayed due to factors over which we would have
little or no control, including the timing of the customer's decision to commit
to an available interest rate, the close of escrow date for purchase loans, the
timeliness of appraisals and the adequacy of the customer's own disclosure
documentation. This uncertain timetable could have a direct impact on our
revenue and profitability for any given period. We may expend substantial funds
and management resources supporting the loan completion process and never
generate revenue from closed loans. Therefore, our results of operations for a
particular period may be adversely affected if the loans applied for during that
period do not close in a timely manner or at all. Purchase loan applications
generally take longer to close than refinancing applications as they are tied to
the close of escrow date.
OUR BUSINESS MAY EXPERIENCE SUBSTANTIAL GROWTH IN THE INTERNET MORTGAGE
INDUSTRY, AND IF WE ARE UNABLE TO MANAGE THIS GROWTH, OUR BUSINESS WILL BE
ADVERSELY AFFECTED.
Assuming the proposed transaction with nMortgage is consummated, we may
experience periods of significant growth, which may place a strain on our
resources. If we do not manage this potential growth effectively, it could
adversely affect our business. We may not be successful in managing or expanding
our operations or maintaining adequate management, financial and operating
systems and controls.
IF ONLINE MORTGAGE SERVICES DO NOT ACHIEVE WIDESPREAD CUSTOMER
ACCEPTANCE, OUR BUSINESS WOULD BE ADVERSELY AFFECTED.
Assuming the consummation of the transaction with nMortgage, our
success in the Internet mortgage business will depend, in large part, on
widespread consumer acceptance of purchasing mortgages online. The development
of an online market for mortgage loans has only recently begun, is rapidly
evolving and likely will be characterized by an increasing number of market
entrants. Our future growth, if any, will depend on the following critical
factors:
- the growth of the Internet as a commerce medium generally, and
as a market for consumer financial products and services
specifically;
- our ability to successfully and cost-effectively market our
services to a sufficiently large number of customers; and
- our ability to overcome a perception among many real estate
market participants that obtaining mortgages online is risky
for consumers.
There can be no assurance that the market for our services will
develop, that our services will be adopted or that consumers will significantly
increase their use of the Internet for obtaining mortgage loans. If the online
market for mortgage loans fails to develop, or develops more slowly than
expected, or if our services do not achieve widespread market acceptance, our
business, results of operations and financial condition would be adversely
affected.
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WE WILL BE RELYING ON THE TIMELY AND COMPETENT SERVICES OF VARIOUS
COMPANIES INVOLVED IN THE MORTGAGE PROCESS; IF THESE COMPANIES FAIL TO TIMELY
AND COMPETENTLY DELIVER THESE SERVICES, OUR BUSINESS REPUTATION WOULD BE
DIRECTLY AND ADVERSELY AFFECTED.
We will rely on other companies to perform services related to the loan
underwriting process, including appraisals, credit reporting and title searches.
Any interruptions or delays in the provision of these services may cause delays
in the processing and closing of loans for our customers. If we are unsuccessful
in managing the timely delivery of these services we will likely experience
increased customer dissatisfaction and our business could be adversely affected.
WE MAY INCUR LOSSES ON LOANS IF WE BREACH REPRESENTATIONS OR WARRANTIES
TO MORTGAGE LOAN PURCHASERS.
In connection with the sale and exchange of loans, we will be making
customary representations and warranties to mortgage loan purchasers relating
to, among other things, compliance with laws and origination practices. In the
event we were to breach any of these representations and warranties, we could be
required to repurchase or substitute these mortgage loans and bear any
subsequent losses on the repurchased loans. We could also be required to
indemnify mortgage loan purchasers for these losses and claims with respect to
mortgage loans for which there was a breach of representations and warranties.
THE MORTGAGE LENDING INDUSTRY IS INTENSELY COMPETITIVE, AND IF WE FAIL
TO SUCCESSFULLY COMPETE IN THIS INDUSTRY, OUR BUSINESS WOULD BE ADVERSELY
AFFECTED.
To compete successfully in the mortgage lending industry, and in
particular in the Internet mortgage business, we must respond promptly and
effectively to the challenges of technological change, evolving standards and
our competitors' innovations by continuing to enhance and expand our services,
as well as our sales and marketing channels. Increased competition, particularly
online competition, could result in price reductions, reduced margins or loss of
market share, any of which could adversely affect our business. We may not be
able to compete successfully in this market environment and our failure to do so
could have an adverse effect on our business, results of operations and
financial condition.
IF WE FAIL TO COMPLY WITH THE NUMEROUS LAWS AND REGULATIONS THAT GOVERN
THE MORTGAGE LENDING INDUSTRY, OUR BUSINESS COULD BE ADVERSELY AFFECTED.
Assuming the transaction with nMortgage is consummated, our business
must comply with extensive and complex rules and regulations of, and licensing
and examination by, various federal, state and local government authorities.
These rules impose obligations and restrictions on our residential loan
brokering and lending activities. In particular, these rules limit the broker
fees, interest rates, finance charges and other fees we may assess, require
extensive disclosure to our customers, prohibit discrimination and impose on us
multiple qualification and licensing obligations. We may not always be in
compliance with these requirements. Failure to comply with these requirements
may result in, among other things, revocation of required licenses or
registrations, loss of approved status, voiding of loan contracts or security
interests, indemnification liability or the obligation to repurchase mortgage
loans sold to mortgage loan purchasers, rescission of mortgage loans, class
action lawsuits, administrative enforcement actions and civil and criminal
liability.
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ANY ACQUISITIONS THAT WE WOULD UNDERTAKE COULD BE DIFFICULT TO
INTEGRATE, DISRUPT OUR BUSINESS, DILUTE STOCKHOLDER VALUE AND ADVERSELY AFFECT
OUR OPERATING RESULTS
We may acquire or make investments in businesses, technologies,
services or products that are complimentary to the Internet mortgage business.
These acquisitions and investments could disrupt our ongoing business, distract
our management and employees and increase our expenses. If we acquire a company,
we could have difficulty in assimilating that company's personnel, operations,
technology and software. In addition, the key personnel of the acquired company
may decide not to work for us. We could also have difficulty in integrating the
acquired products, services or technologies into our operations and we may incur
indebtedness or issue equity securities to pay for any future acquisitions.
WE MAY NOT BE ABLE TO RECRUIT AND RETAIN THE PERSONNEL WE NEED TO
SUCCEED
Competition for personnel throughout the Internet mortgage industry,
and the mortgage lending industry in general, is intense. We may be unable to
retain key employees or attract, assimilate or retain other highly qualified
employees in the future. Our future success will depend on our continuing to
attract, retain and motivate highly skilled employees, particularly with respect
to our loan processing functions.
OUR BUSINESS WOULD BE IMPAIRED IF CONSUMERS DO NOT CONTINUE TO USE THE
INTERNET.
Our business would be adversely affected if Internet usage does not
continue to grow, particularly by homebuyers. A number of factors may inhibit
Internet usage by consumers, including inadequate network infrastructure,
security concerns, inconsistent quality of service, and lack of availability of
cost-effective, high-speed service. If Internet usage grows, the Internet
infrastructure may not be able to support the demands placed on it by this
growth and its performance and reliability may decline. In addition, many
websites have experienced service interruptions as a result of outages and other
delays occurring throughout the Internet infrastructure. If these outages or
delays frequently occur in the future, Internet usage, as well as the usage of
our website, could grow more slowly or decline.
OUR BUSINESS WILL SUFFER IF WE ARE UNABLE TO EXPAND AND PROMOTE OUR
BRAND RECOGNITION
Establishing and maintaining our brand will be critical to attracting
and expanding a customer base, solidifying business relationships and
successfully implementing our proposed business strategy. We cannot assure you
that our brand will be positively accepted by the market or that our reputation
will be strong.
Promotion and enhancement of our brand will also depend, in part, on
our success in providing a high-quality customer experience. We cannot assure
you that we will be successful in achieving this goal. If potential visitors to
our website do not perceive our proposed services to be of high quality or if we
alter or modify our brand image, introduce new services or enter into new
business ventures that are not favorably received, the value of our brand could
be diluted, thereby decreasing the attractiveness of our service to potential
customers.
IF WE ARE UNABLE TO ADAPT TO THE RAPID TECHNOLOGICAL CHANGE THAT
CHARACTERIZES THE INTERNET MORTGAGE INDUSTRY, OUR BUSINESS WILL SUFFER.
Our future success will depend on our ability to adapt to rapidly
changing technologies by continually improving the performance features and
reliability of our services. We may be relying on third party software products
and services and if we are unable to integrate this software in a fully
functional manner, we may experience difficulties that could delay or prevent
the successful development, introduction or marketing of
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<PAGE> 14
new products and services. In addition, enhancements of our products and
services must meet the requirements of our prospective customers and must
achieve significant market acceptance. We could also incur substantial costs if
we need to modify our services or infrastructure to adapt to these changes.
ANY OUTAGES, DELAYS OR OTHER DIFFICULTIES EXPERIENCED BY THE INTERNET
SERVICE PROVIDERS, ONLINE SERVICE PROVIDERS OR OTHER WEBSITE OPERATORS ON WHICH
OUR USERS DEPEND COULD ADVERSELY AFFECT OR BUSINESS.
Our website may be subject to occasionally experiencing slower response
times or decreased traffic for a variety of reasons. In addition, our users will
be dependent on Internet service providers, online service providers and other
website operators for access to our websites. Many of them have experienced
significant outages in the past, and could experience outages, delays and other
difficulties due to system failures unrelated to our systems. Additionally, the
Internet infrastructure may not be able to support continued growth in its use.
Any of these problems could adversely affect our business.
OUR BUSINESS WILL BE ADVERSELY AFFECTED IF WE ARE UNABLE TO SAFEGUARD
THE SECURITY AND PRIVACY OF OUR CUSTOMERS' FINANCIAL DATA.
Internet usage could decline if any well-publicized compromise of
security occurred. We may incur significant costs to protect against the threat
of security breaches or to alleviate problems caused by any breaches that occur.
We also plan to retain on our premises personal financial documents that we will
receive from prospective borrowers in connection with their loan applications.
These documents are highly sensitive and if a third party were to misappropriate
our customers' personal information, customers could possibly bring legal claims
against us. We cannot assure you that our privacy policy will be deemed
sufficient by our prospective customers or any federal or state laws governing
privacy which may be adopted in the future.
THERE IS SIGNIFICANT POTENTIAL FOR DILUTION OF INVESTORS INTERESTS DUE
TO THE NMORTGAGE, INC.
TRANSACTION.
If the acquisition nMortgage, Inc. is completed, our current
shareholders could experience significant ownership dilution. Furthermore, this
new business could require additional financing which could dilute shareholdings
even further.
RISKS ASSOCIATED WITH THE GAMING MACHINE INDUSTRY
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. We cannot assure you that single player games developed by the Company
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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<PAGE> 15
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
completed, could have a material adverse effect on, or cause significant
fluctuations in, our revenues and cash flow from quarter to quarter.
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
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<PAGE> 16
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, 1999.
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 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.
USE OF PROCEEDS
The Company received gross proceeds of $2,450,000 from the sale of the
Series D Preferred Shares. The gross proceeds to the Company from the exercise
of the warrants, if the warrants are exercised in full, would be a maximum of
$1,047,475. The proceeds from the exercise of the warrants are intended to be
used for working capital purposes. The Company will not receive any proceeds
from the sale of the common stock by the selling shareholders.
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SELLING SHAREHOLDERS
The following table sets forth the number of shares of the common stock
owned by the selling shareholders as of May 1, 2000 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 may be offered from time to time by the selling
shareholders.
<TABLE>
<CAPTION>
Shares Percentage Number of Percentage
Beneficially Beneficial Shares Offered by Beneficial
owned before Ownership Selling Ownership After
Name Offering Before Offering Shareholder Offering
- ----------------------------------------- ---------- --------------- ------------- ---------
<S> <C> <C> <C> <C>
The Shaar Fund, Ltd. _________(1) ______% __________(2) ______%
World Capital Funding 40,252 * 40,252 0%
Brad Blumenthal 40,252 * 40,252 0%
C. Jesse Reggio 40,252 * 40,252 0%
Levanna Fund N.V. 201,258 2.2% 201,258 0%
Barry Seidman 161,006 1.8% 161,006 0%
Blakely Trading, Ltd. 80,503 * 80,503 0%
Cynthia Frank 10,063 * 10,063 0%
Four Corp. Employees * 0%
Defined Contribution Plan &
Trust 10,063 10,063
Taurus Enterprises, LLC 10,063 * 10,063 0%
Dale Steen DDS IRA 80,503 * 80,503 0%
Fong Charitable Foundation 25,000 * 25,000 0%
Wyncrest Capital 25,000 * 25,000 0%
Vista Gaming 50,000 * 50,000 0%
Grogen Financial 10,000 * 10,000 0%
Don Stephan 60,000 0 60,000 0%
</TABLE>
- ------------
*Less than 1%.
(1) Includes 303,964 shares of common stock issuable upon conversion of the
Series D Preferred Shares. Also includes (i) a maximum of 885,054 shares
remaining to be issued upon conversion of the Series C Preferred Shares and
upon payment of dividends in connection with the Series C Preferred Shares
and (ii) 245,000 shares issuable upon the exercise of warrants.
(2) Represents the maximum number of shares to be issued pursuant to the
Securities Purchase Agreement. Includes shares issuable upon conversion of
the Series D Preferred Shares, shares issuable upon payment of dividends in
connection with the Series D Preferred Shares, and 50,000 shares issuable
upon exercise of warrants. Does not include shares issuable upon conversion
of Series C Preferred Shares.
During October 1999, we issued a total of 2,450 shares of Series D
Convertible Preferred Stock at a price of $1,000 per share in a private
placement for total proceeds of $2,450,000, prior to any offering expenses, and
warrants to acquire 245,000 shares of our common stock at $2.75 per share. An
annual dividend of 6 percent shall be paid quarterly in arrears either in common
stock or cash at our discretion. Each share of Series D Preferred Stock is
convertible into shares of our common stock at a conversion price of the lesser
of $3.00 or 75 percent of the closing average bid price of our common stock for
the five
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consecutive trading days immediately preceding the conversion date. We have
reserved 1,750,000 shares of common stock for issuance upon conversion of the
Series D Preferred Stock and 245,000 shares of common stock to be issued upon
the exercise of the warrants. We have the right to redeem the Series D Preferred
Stock at 135 percent of par in cash if the market price is lower than the market
price on the date that the Series D Preferred Stock was issued. All outstanding
shares of Series D Preferred Stock will be automatically converted into common
stock in October 2004. A holder of Series D Preferred Stock may not convert such
stock into common stock if, following such conversion, the holder beneficially
owns greater than 4.9 percent of our common stock. If, notwithstanding the
foregoing, such holder is deemed by a court to be the beneficial owner of more
than 5% of the Company's common stock, the Company is required to redeem for
cash such number of shares of Series D Preferred Shares as will reduce such
holder's ownership to not more than 5% at a redemption price equal to 125% of
the stated value plus accrued and unpaid dividends. In the case of mandatory
conversion, the Company may elect to pay a redemption price in cash equal to
135% of the stated value plus accrued and unpaid dividends or may extend the
mandatory conversion date for one year.
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 the Company and its 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
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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
The Company is 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 "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, or 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.
MATERIAL CHANGES
THE MERGER
On October 8, 1999, we entered into a non-binding letter of intent with
Equitex, Inc. which outlined the terms of a contemplated merger between the
Company and Equitex's subsidiary, nMortgage, Inc. ("nMortgage") in a tax-free
exchange of stock (the "Merger"). On December 31, 1999, we executed a definitive
merger agreement with Equitex and nMortgage governing the Merger. Pursuant to
the merger agreement, nMortgage will be merged with and into IGCA Merger
Subsidiary, a Minnesota corporation and wholly-owned subsidiary of the Company,
and upon the closing of the Merger, with IGCA Merger Subsidiary being the
surviving corporation in the Merger. At the effective time of the Merger, each
outstanding share of nMortgage capital stock will be automatically converted
into the right to receive a pro rata share of the greater of (i) an aggregate of
Forty Six Million (46,000,000) shares of common stock of IGCA, or (ii) 75% of
the then outstanding shares of common stock of IGCA on a fully-diluted basis.
The IGCA shareholders will retain approximately 25% of the surviving corporation
to the Merger calculated on a fully-diluted basis. Upon the closing of the
merger, the Company would be renamed "nMortgage, Inc." and will continue to be a
wholly-owned subsidiary of the IGCA.
The closing of the merger is subject to the satisfaction or waiver of
certain conditions, including (among other things) that: (i) the Merger has been
approved by the requisite vote of the IGCA shareholders and, if required by
applicable law, the requisite vote of the stockholders of Equitex, (ii) delivery
of certain schedules to the merger agreement on or prior to February 29, 2000,
(iii) completion by each of IGCA and nMortgage of due diligence to their
respective satisfaction on or prior to February 29, 2000, (vi) IGCA has
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<PAGE> 20
net tangible assets in an amount equal to $2,000,000 at the effective time of
the merger, and (v) the execution and delivery by IGCA and nMortgage of certain
certificates and other documents which are customary in merger transactions of
this nature.
nMortgage is a direct lender headquartered in Fort Lauderdale, Florida
and offers both retail and wholesale mortgage financing through its subsidiary
First Bankers Mortgage Services, Inc. nMortgage recently announced the debut of
its online mortgage system, known as "nMortgage". See "Description of the
nMortgage Business" below.
THE GAMING ASSET DIVESTITURE
As an additional condition to the Merger, we must divest substantially
all of our gaming-related assets. Accordingly, on February 1, 2000, we entered
into a definitive asset purchase agreement with Xertain, Inc. ("Xertain"),
pursuant to which Xertain will purchase substantially all of our gaming-related
assets and assume certain of our liabilities (the "Gaming Asset Divestiture") in
exchange for an aggregate purchase price of $4,000,000 and a promissory note
made by Xertain and payable to IGCA in an amount equal to the accounts
receivable of IGCA as of the closing date of the Asset Gaming Divestiture, as
adjusted for certain payments to be made by Xertain and IGCA as provided in the
note. The accounts receivable promissory note will be secured by the accounts
receivables of IGCA which are being acquired by Xertain pursuant to the Gaming
Divestiture.
Of the $4,000,000 referenced above as part of the purchase price,
$1,000,000 will be payable in cash at the closing of the Gaming Asset
Divestiture, provided that prior to such time Xertain has obtained interim
approval to manufacture gaming machines from the Nevada gaming regulatory
authorities. If Xertain has not obtained such interim approval prior to the
closing, Xertain will deliver either (i) a $1,000,000 unsecured promissory note
due upon Xertain's obtaining approval from the Nevada gaming regulatory
authorities (but in no event later then September 1, 2000), or (ii) an
irrevocable letter of credit in the amount of $750,000.
The remaining $3,000,000 of the purchase price will be paid in the form
of an unsecured convertible promissory note which will have a 36-month term,
bear interest at 8.5% per annum, and have interest and principle payable upon
the due date. At the holder's option, such promissory note will be convertible
into Xertain common stock at $4.50 per share upon the earlier of (a) twelve
months from the closing date of the Gaming Asset Divestiture or (b) upon initial
public offering of Xertain common stock. Following consummation of the Gaming
Asset Divestiture, IGCA will not own or have any interest in its gaming related
assets.
In addition to various standard conditions of closing, the Gaming Asset
Divestiture is subject to the simultaneous closing of the Merger, shareholder
approval, and the termination of various employment contracts of certain key
employees of IGCA.
Xertain is a private Delaware corporation located in Las Vegas, Nevada,
with its primary business predicated on gaming-related technologies and
international manufacturing.
20
<PAGE> 21
DESCRIPTION OF THE NMORTGAGE BUSINESS
GENERAL.
nMortgage, through its subsidiary, First Bankers Mortgage Services,
Inc. ("FBMS"), is a retail and wholesale mortgage banking company engaged in the
business of originating, selling and brokering residential mortgage loans. FBMS
sells in the secondary market all of its mortgage loans and all of the servicing
rights associated with those mortgage loans. In connection with the mortgages it
originates, FBMS offers its clients ancillary services including insurance,
flood certification and property appraisal.
LOAN GENERATION.
FBMS is an approved lender for Federal National Mortgage Associate
(FNMA), Federal Home Loan Mortgage Corporation (FHLMC), Federal Housing
Authority (FHA), Veterans Administration (VA) and Government National Mortgage
Association (GNMA) and is licensed to do business in 27 states, with 2
additional states pending.
FBMS offers mortgages on both a retail and wholesale level, with the
wholesale business representing approximately 80% of the company's loan
originations. FBMS's retail division was established in 1990 and currently has
four retail branch offices located in the states of Florida, New Jersey, New
York and Pennsylvania. The retail division completes and processes mortgage loan
applications directly from borrowers and prepares and organizes necessary
mortgage loan documents. The retail division then underwrites these mortgage
loans to conform to either agency or private investor guidelines and collects
origination fees and closing costs from the borrower.
FBMS's wholesale division was established in 1995. The wholesale
division closes and funds loans originated by mortgage brokers and correspondent
lenders and then sells the same mortgage loans to investors. FBMS obtains
wholesale mortgage loans through a network of more than 1,000 mortgage brokers,
correspondents and other financial intermediaries who are screened and approved
by FBMS.
FBMS also offers subprime loans ("B/C mortgages") to applicants whose
credit review does not qualify them for the best rates offered to those
applicants with "A" credit ratings.
Administration of Loans.
All mortgage loan applications must be underwritten and approved in
accordance with FBMS's underwriting standards and criteria which, for conforming
loans, is promulgated by FNMA. Non-conforming loans are underwritten subject to
credit and appraisal standards established by specific investors. In
underwriting mortgage loans, FBMS analyzes the borrower's credit standing,
financial resources and repayment ability, as well as the risk of the underlying
collateral.
FBMS originates and purchases all of its mortgage loans with the intent
to sell the mortgage loans and the related servicing rights into the secondary
market. The mortgage loans are sold primarily to institutional investors,
national banks and mortgage lenders. FBMS holds the originated or purchased
mortgage loan from the time that the mortgage loan application is submitted by
the borrower until the time the mortgage loan is sold to an investor. During
such time, the interest rate on the mortgage loan might be higher or lower than
the market rate at which FBMS can sell the mortgage loan to an investor.
Therefore, this market rate determines whether a market gain or loss results on
the mortgage loan. To protect against interest rate changes on mortgage loan
that are in the warehouse (mortgage loans that have closed but not
21
<PAGE> 22
been sold) and pipeline loans (loans which are not yet closed but on which the
interest rate has been set), FBMS often commits to deliver mortgage loans at a
specific price for future delivery to investors through the use of commitments
on a "best efforts" basis.
FBMS Objectives.
FBMS's objective is to capture an early market share of mortgage
products through the Internet. To support its growth, FBMS has five principal
business strategy elements. First, FBMS focuses primarily on the retail channel.
This channel allows FBMS to control the loan origination process and provides it
with direct access to the consumer. Second, FBMS leverages out banker/broker
structure in order to offer consumers low rates on a broad array of mortgage
products on a consistent basis. Third, FBMS provides consumers a "one-step"
source of mortgage-related products. These mortgage-related product sales allow
FBMS to increase revenues without significant capital investment. Fourth, FBMS
employs a commission and incentive system for its loan originators and an
incentive compensation system for its operation employees that is designed to
motivate such loan originators and employees to maximize loan volume and
profitability while simultaneously creating a variable cost structure for FBMS
which is adaptable to changes in origination volume. Last, FBMS recruits
highly-skilled employees with mortgage industry experience and seeks
technologies and process improvements that streamline the origination process to
ensure the continuous delivery of superior customer service.
Internet Strategy.
FBMS has implemented an online mortgage services system called
nMortgage. The strategy that FBMS intends to pursue is two-fold: (1) to offer an
interactive instant approval retail page, and (2) to private label its
technology to third party originators.
Interactive Instant Approval Retail Page. When using the nMortgage
website, consumers will be afforded the opportunity to inspect rates, identify
how much they can afford and pre-qualify themselves for a loan. Once they
understand the product and how much they want or need, they can submit a loan
application online. Telephone support to answer questions or guide them through
the application process will be available as well. Once the loan is in process,
the customer can lock in the interest rate over the Internet and get real time
status updates on the loan. Conceivably, a loan can be processed in its entirety
without the need for a telephone call to the borrower.
FBMS has recently completed the development and the debut of its
Internet web site. FBMS's Phase I system enables consumers to access mortgage
loan rates and programs, and to apply online for mortgage loans. nMortgage is
currently testing its Phase II online mortgage system, which will enable
customers to track the status of their loans online as well as offer interactive
online customer service. FBMS anticipates that retail loan volume in the next
twenty-four months will shift from retail originators to Internet based
originators.
Private Label Strategy.
FBMS intends to implement a system by which it will manage
electronically the mortgage loan process. The goal of the private label strategy
is to deliver a customized Internet program to third parties that will enable
such third parties to receive a home page at a nominal price and "back office"
support by FBMS for all loans originated. The mortgage will be handled entirely
by FBMS, but the mortgage loan documents will bear the originating company's
name. FBMS will not only earn fees from the mortgage loans, but will become a
fee based Internet Service Provider to third parties. Through this private label
strategy, FBMS
22
<PAGE> 23
hopes to capture an under-served market in a significant way, and is currently
negotiating the terms of contracts to implement this program. In addition, the
private label strategy will leverage FBMS's experience with brokers, community
banks and credit unions.
INTELLECTUAL PROPERTY.
nMortgage believes that its copyrights, trademarks, trade dress, trade
secrets, and similar intellectual property are critical to its success. By
attempting to protect its intellectual property against infringement, nMortgage
believes that it decreases the risk that such infringement could damage the
company's reputation or create brand confusion in the market.
In an attempt to protect its intellectual property, nMortgage has
applied for registration of the mark "nMORTGAGE" In addition, nMortgage protects
its internally-developed technology through a combination of copyright, trade
secret and trademark law. However, nMortgage has no patents issued or applied
for on its technology.
COMPETITION.
nMortgage, through FBMS, competes with other mortgage banking
companies, commercial banks, savings associations, credit unions, insurance
companies and other financial institutions in every aspect of our business. Many
of these companies and financial institutions are larger, more experienced and
have greater financial resources than nMortgage. Accordingly, nMortgage may not
be able to successfully compete in the mortgage banking market. Its competitors
may be able to respond more quickly to take advantage of new or changing
opportunities, technologies and customer requirements. They also may be able to
undertake more extensive promotional activities, offer more attractive terms to
borrowers and adopt more aggressive pricing policies.
CAPITAL STOCK OF NMORTGAGE.
No established trading market exists for the shares of capital stock of
nMortgage.
LITIGATION.
The following are descriptions of material pending legal proceedings to
which nMortgage is a party:
- GN Mortgage Corporation v. Raymond Fraser and First Bankers
Mortgages Services, Inc., Case No. 99-01435-CA (Circuit Court,
4th Judicial Circuit, Duval County, Florida). On or about
September 24, 1999, GN Mortgage commenced this action
alleging, among other things, that (i) FBMS conspired with
Raymond Fraser, the Executive Vice President of FBMS'
Wholesale Markets division, in connection with the termination
of Fraser's employment with GN Mortgage, the corporation at
which Fraser was employed prior to accepting employment from
FBMS, and (ii) that FBMS intentionally interfered with GN
Mortgages's business relationship with certain mortgage
brokers who formerly did business with GN Mortgage. FBMS has
denied all material allegations and believes that the claims
are without merit. No trial date has been set.
- Zuck, et al. v. First Bankers Mortgage Services, Inc., et al.
Case No 99-018815 (09) (Circuit Court, 17th Judicial Circuit,
Broward County, Florida). On or about November 3, 1999, the
Zucks commenced this action seeking to recover on a $200,000
investment in preferred
23
<PAGE> 24
stock of FBMS. The Zucks claim that FBMS had previously agreed
to repurchase the preferred stock. A settlement of this matter
has been negotiated and the settlement documentation is in the
process of being finalized.
In addition, four additional complaints have been filed naming
nMortgage or FBMS as parties. However, these actions are routine litigation
incidental to the mortgage lending business in which nMortgage operates.
24
<PAGE> 25
WHERE YOU CAN FIND MORE INFORMATION
Federal securities law requires IGCA 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 IGCA, 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 of the selling shareholders
expire. This prospectus is part of a registration statement that we filed with
the Commission (Registration No. 333-94633). The following are specifically
incorporated herein by reference:
1. Annual Report on Form 10-K for the fiscal year ended December
31, 1999;
2. Amended Annual Report on Form 10-K/A for the fiscal year ended
December 31, 1999 as filed May 1, 2000;
3. Current Report on Form 8-K filed May 12, 2000;
4. Amended Current Report on Form 8-K/A filed May 19, 2000;
5. Preliminary Proxy Statement filed May 12, 2000;
6. Quarterly Report on Form 10-Q filed for the quarterly period
ended March 31, 2000; and
7. 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.
25
<PAGE> 26
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 Executive Officer
4275 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 IGCA'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."
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 IGCA as of December 31, 1999,
December 31, 1998, and December 31, 1997 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 report.
The consolidated financial statements of (A) nMortgage, Inc. and
subsidiaries as of December 31, 1999, and for the period from August 23, 1999
(date of inception) through December 31, 1999, and (B) First Bankers Mortgage
Services, Inc. and subsidiary ("FBMS") as of December 31, 1999, and for the year
then ended, each of which is incorporated into the registration statement to
which this prospectus is a part, have been so incorporated in reliance upon the
reports of Gelfond Hochstadt Pangburn, P.C., independent certified public
accountants, (of which the FBMS report discusses a prior period adjustment),
given upon their authority as experts in accounting and auditing.
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
26
<PAGE> 27
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. 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, to the
fullest extent permitted by law, have no personal liability to the Company and
its 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
the Company pursuant to the foregoing provisions, the Company has 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.
27
<PAGE> 28
2,069,000 SHARES
INNOVATIVE GAMING CORPORATION OF AMERICA
COMMON STOCK
---------------------
PROSPECTUS
---------------------
[__________] , 2000
28
<PAGE> 29
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........................................ $ 938
Nasdaq National Market additional listing fee............... 17,500
Legal fees and expenses..................................... 10,000
Accounting fees and expenses...................... 1,000
Miscellaneous.................................................... 562
----------
Total $ 30 ,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.
II-1
<PAGE> 30
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT
------- -----------------------
<S> <C>
3.1 Series D Convertible Preferred Certificate of Designation*
5 Opinion of Maslon Edelman Borman & Brand, LLP
10.1 Form of Securities Purchase Agreement*
10.2 Form of Registration Rights Agreement*
10.3 Form of Common Stock Purchase Warrant*
10.4 Form of Amendment to Registration Rights Agreement
23.1 Consent of Kafoury, Armstrong & Co.
23.2 Consent of Maslon Edelman Borman & Brand, LLP (included in Exhibit 5)
23.3 Consent of Gelfond Hochstadt Pangburn, P.C.
24 Power of Attorney (included on page II-3).
</TABLE>
--------------------
* Previously filed
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
II-2
<PAGE> 31
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.
II-3
<PAGE> 32
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 May 12, 2000.
Innovative Gaming Corporation
of America, Registrant
By s/ Barrett V. Johnson
---------------------------------
Barrett V. Johnson, President
and Chief Operating Officer
<TABLE>
<CAPTION>
NAME TITLE DATE
- ---- ----- ----
<S> <C> <C>
* Director, May 19, 2000.
- ------------------- Chairman of the Board,
Ronald A. Johnson Chief Executive Officer and
Chief Financial Officer
(Principal Executive Officer)
(Principal Accounting Officer)
* Director May 19, 2000.
- -------------------
Leo V. Seevers
* Director May 19, 2000.
- -------------------
Ronald R. Zideck
</TABLE>
*By Barrett V. Johnson as Attorney-In-Fact, pursuant to Power of Attorney.
II-4
<PAGE> 33
EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION OF DOCUMENT PAGE NO.
------- ----------------------- --------
<S> <C> <C>
3.1 Series D Convertible Preferred Certificate of Designation*
5 Opinion of Maslon Edelman Borman & Brand, LLP**
10.1 Form of Securities Purchase Agreement*
10.2 Form of Registration Rights Agreement*
10.3 Form of Common Stock Purchase Warrant*
10.4 Form of Amendment to Registration Rights Agreement
23.1 Consent of Kafoury, Armstrong & Co.
23.2 Consent of Maslon Edelman Borman & Brand, LLP (included in Exhibit 5)
23.3 Consent of Gelfond Hochstadt Pangburn, P.C.
24 Power of Attorney (included on page II-3)
</TABLE>
--------------------
*Previously filed
**Incorporated by reference to the Company's Form 10-Q for the fiscal
quarter ended March 31, 2000
II-5
<PAGE> 1
AMENDMENT TO REGISTRATION RIGHTS AGREEMENT
THIS AMENDMENT TO REGISTRATION RIGHTS AGREEMENT, effective as April 13,
2000 (this "AGREEMENT"), between Innovative Gaming Corporation of America (the
"COMPANY") and __________________________ (the "INVESTOR").
WHEREAS, the Investor has previously executed a Registration Rights
Agreement (the "INITIAL AGREEMENT") dated as of October 13, 1999, pursuant to
which the Company has agreed to provide certain registration rights to Investor;
WHEREAS, pursuant to the Section 9 of the Initial Agreement, any
provision contained therein may be amended in writing by the Company and
investors holding a majority of the Registrable Securities and the parties
hereto have agreed to amend certain of the provisions of the Initial Agreement
in accordance with Section 9 thereof.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, and other good and valuable consideration, the receipt and sufficiency
of which is hereby acknowledged, the parties hereto, intending to be legally
bound, hereby amend the Agreement as follows:
1. AMENDMENT TO SECTION 2(B) OF THE INITIAL AGREEMENT. Section 2(b) of
the Agreement is hereby amended in its entirety and replaced with the provision
set forth below:
"2. REGISTRATION
(b) REGISTRATION DEFAULT. If the Registration Statement
covering the Registrable Securities required to be filed by the Company
pursuant to Section 2(a) is not (i) filed with the Commission within 90
days after the Closing Date or (ii) declared effective by the
Commission within 180 days after the Closing Date (either of which,
without duplication, an "INITIAL DATE"), then the Company shall make
the payments to the Initial Investor as provided in the next sentence
as liquidated damages and not as a penalty. The amount to be paid by
the Company to the Initial Investor shall be determined as of each
Computation Date (as defined below), and such amount shall be equal to
2% (the "LIQUIDATED DAMAGE RATE") of the Purchase Price (as defined in
the Securities Purchase Agreement) from the Initial Date to the first
Computation Date and 3.5% for each Computation Date thereafter,
calculated on a pro rata basis to the date on which the Registration
Statement is filed with (in the event of an Initial Date pursuant to
clause (i) above) or declared effective by (in the event of an Initial
Date pursuant to clause (ii) above) the Commission (the "PERIODIC
AMOUNT").
At the option of the Company, the full Periodic Amount shall
be paid by the Company to the Initial Investor within three days after
each Computation Date either (x) by wire transfer of immediately
available funds within three days after each Computation Date, or (y)
through the issuance of duly and validly authorized and issued, fully
paid and nonassessable shares of Common Stock valued at the Market
Price (as such term is defined in the Company's Certificate of
Designation of Series D 6% Convertible Preferred Stock), provided,
however, that to the extent that funds are not available for the
payment of the Periodic Amount by wire transfer of immediately
available funds, the Periodic Amount shall be paid as provided in
clause (y) above. The Common Stock to be issued in lieu of cash
payments shall be registered for resale in the Registration Statement.
<PAGE> 2
As used in this Section 2(b), "COMPUTATION DATE" means the
date which is 30 days after the Initial Date and, if the Registration
Statement required to be filed by the Company pursuant to Section 2(a)
has not theretofore been declared effective by the Commission, each
date which is 30 days after the previous Computation Date until such
Registration Statement is so declared effective.
Notwithstanding the above, if the Registration Statement
covering the Registrable Securities required to be filed by the Company
pursuant to Section 2(a) is not filed with the Commission by the 90th
day after the Closing Date, the Company shall be in default of this
Registration Rights Agreement."
2. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Amendment and the Initial
Agreement embody the entire agreement and understanding of the
parties hereto in respect of the subject matter contained
herein and therein.
(b) DEFINED TERMS. Except as otherwise expressly
provided, or unless the context otherwise requires, all
capitalized terms used herein have the meanings ascribed to
them in the Initial Agreement.
(c) COUNTERPARTS. This Amendment may be executed in
any number of counterparts, each of which shall be deemed an
original, but all of which shall constitute but one and the
same document.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
<TABLE>
<S> <C>
INNOVATIVE GAMING CORPORATION OF AMERICA
By:
-------------------------------------
Name: Edward G. Stevenson
Title: Chief Executive Officer
Investor:
By:
-------------------------------------
Name:
------------------------------
</TABLE>
2
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this Registration Statement of our report dated March 21, 2000
included in Innovative Gaming Corporation of America's Annual Report on Form
10-K (as amended by Form 10-K/A) for the three years ended December 31, 1999,
and to all references to our firm included in the Registration Statement.
KAFOURY, ARMSTRONG & CO.
Reno, Nevada
May 15, 2000.
<PAGE> 1
EXHIBIT 23.3
CONSENT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference into this Registration Statement on
Form S-3 (Amendment No. 1) of our report on First Bankers Mortgage Services,
Inc. and subsidiary dated March 16, 2000 (which discusses a prior period
adjustment), which appears on page 15 of Form 8-K/A of Innovative Gaming
Corporation of America, and our report on nMortgage, Inc. and subsidiaries dated
March 16, 2000, which appears on page 33 of the same Form 8-K/A of Innovative
Gaming Corporation of America, and to the reference to our Firm under the
caption "Experts" in the Prospectus.
GELFOND HOCHSTADT PANGBURN, P.C.
Denver, Colorado
May 22, 2000
