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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-K/A NO. 1
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO .
------------- ------------
COMMISSION FILE NO. 0-22482
INNOVATIVE GAMING CORPORATION OF AMERICA
(Exact name of registrant as specified in its charter)
MINNESOTA
(State or other jurisdiction
of incorporation or organization)
41-1713864
(I.R.S. Employer
Identification No.)
4725 AIRCENTER CIRCLE, RENO, NEVADA 89502
(Address of principal executive offices)
(775) 823-3000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
NONE.
Securities registered pursuant to Section 12(g) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
---------------------------------- -----------------------------
Common Stock, $0.01 par value NASDAQ National Market
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of April 21, 2000, 9,128,477 shares of the Registrant's Common Stock were
outstanding. The aggregate market value of the Common Stock held by
non-affiliates of the Registrant on such date, based upon the last sale price of
the Common Stock as reported on the Nasdaq National Market on April 20, 2000,
was $9,667,132. For purposes of this computation, affiliates of the Registrant
are the Registrant's executive officers and directors.
DOCUMENTS INCORPORATED BY REFERENCE
NONE.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following persons currently serve the Company as executive officers
and/or members of its Board of Directors.
<TABLE>
<CAPTION>
Name Position with the Company Age
- - - - - - - ---- ------------------------- ---
<S> <C> <C>
Edward G. Stevenson Chairman, Chief Executive Officer and Chief Financial Officer 53
Barrett V. Johnson President and Chief Operating Officer 67
Ronald R. Zideck Director 62
Ronald A. Johnson Director 59
Leo V. Seevers Director 60
</TABLE>
EDWARD G. STEVENSON, age 53, has been Chairman of the Board since June
1998, Chief Financial Officer since September 1999, Chief Executive Officer and
a director of the Company since February 1996, and served as President from
February 1996 to October 1998. Prior to joining the Company, Mr. Stevenson
served as President and Chief Operating Officer of Little Six, Inc. d/b/a Mystic
Lake Casino in Prior Lake, Minnesota from January 1995 to March 1996. From
1988-1991 and from October 1992 to January 1995, Mr. Stevenson was President of
CMS International/Summit Casinos of Reno, Nevada. From June 1991 to October
1992, Mr. Stevenson served as President of the Gaming Operations Division for
International Game Technology.
BARRETT V. JOHNSON, age 67, has been President and Chief Operating
Officer of the Company since October, 1998. Mr. Johnson served as the Company's
Vice President of Operations from March 1998 until October 1998, and as the
Company's Vice President of Engineering from January 1998 until March 1998.
Prior to joining the Company, Mr. Johnson served as President and a Director of
Aristocrat, Incorporated from April 1993 until April 1997. Mr. Johnson was
self-employed from April 1997 until he commenced his employment with the
Company.
RONALD R. ZIDECK, age 62, served as a director of the Company from
September 1997 to May 1998 and has been a director of the Company since April
1999. Mr. Zideck was the managing partner of the Nevada office of Grant Thornton
LLP from 1981 to 1997, and specializes in audit and regulatory reporting for the
gaming industry. He served on Grant Thornton LLP's National Executive Committee
from 1991 to 1997. Mr. Zideck has also served on the Board of Directors of
Harveys Casino Resorts, which owned and operated casino resorts in Nevada,
Colorado and Iowa, and joined the Board of Directors of Comstock Bancorp in
December 1997.
<PAGE> 4
RONALD A. JOHNSON, age 59, has been a director of the Company since
April 1999. Mr. Johnson has been a CPA for 35 years, licensed in California and
Nevada. He was the Managing Partner of Chanslor, Barbieri, & DeWhitt and a
Partner in the national firm of McGladrey & Pullen LLP. Formerly, Mr. Johnson
was President of Jazz Enterprises, and Chief Financial Officer and director of
Lodging & Gaming Systems. Mr. Johnson is currently on the Board of Directors of
Sierra West Bank, a Director of Burgarello Alarm, Trustee Emeritus of the
University of Nevada, Reno Foundation, and a self-employed CPA and financial
advisor.
LEO V. SEEVERS, age 60, has been a director of the Company since April
1999. Mr. Seevers most recently was an Executive Vice President for Pioneer
Citizens Bank of Nevada from 1989 through 1998. Formerly, Mr. Seevers was a
Senior Vice President of First Interstate Bank of Nevada. Mr. Seevers presently
serves on the Board of Directors of several non-profit organizations.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires the Company's officers and directors, and persons who own more than ten
percent of a registered class of the Company's equity securities, to file
reports of ownership and changes in ownership of such securities with the
Securities and Exchange Commission and NASDAQ. Officers, directors and greater
than ten percent shareholders are required by SEC regulations to furnish the
Company with copies of all Section 16(a) forms they file.
Edward G. Stevenson reported certain voluntary transactions on an
amended Form 4 for August 1999 in April 2000. Based solely on review of the
copies of such forms furnished to the Company, or written representations that
no Forms 5 were required, the Company believes that during the fiscal year ended
December 31, 1999, all other Section 16(a) filing requirements applicable to its
officers, directors and greater than ten percent beneficial owners were complied
with.
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth the cash and noncash compensation for
each of the last three fiscal years awarded to or earned by the Chief Executive
Officer of the Company and each other executive officer of the Company whose
total annual salary and bonus compensation for the most recent fiscal year
exceeded $100,000 (the "Named Executive Officers").
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
---------------------------------------------------- Awards
Annual Compensation --------------------
---------------------------------------------------- Securities
Fiscal Other Annual Underlying
Name and Principal Position Year Salary($) Bonus($) Compensation($) Options
- - - - - - - ----------------------------------- --------- ----------- ----------- --------------- --------------------
<S> <C> <C> <C> <C> <C>
Edward G. Stevenson, 1999 250,962 -0- 6,000 200,000
Chairman of the Board, Chief 1998 250,962 70,000 6,000 300,000 (1)
Executive Officer and Chief 1997 251,000 70,000 6,000 -0-
Financial Officer
Barrett V. Johnson, President and 1999 180,692 -0- 6,000 50,000
Chief Operating Officer (2) 1998 137,192 15,000 5,300 100,000 (1)
</TABLE>
(1) Includes options granted in exchange for previously granted options
which were canceled in connection with the issuance of replacement
grants in fiscal 1998.
(2) Mr. Johnson began his employment with the Company in January 1998 and
became President and Chief Operating Officer in October 1998.
STOCK OPTIONS GRANTS IN FISCAL 1999
The following tables provide certain information with respect to stock
options granted and stock options exercised during the last fiscal year by the
Named Executive Officers and the value of such officers' unexercised options at
December 31, 1999.
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value of Assumed
---------------------------------------------------------- Annual Rates
Number of Percentage of of Stock Price
Securities Total Options Appreciation for
Underlying Granted to Exercise or Option Term(3)
Option Employees Base Price Expiration -----------------------------
Name Granted(1) in Fiscal Year ($/Share)(2) Date 5%($) 10%($)
- - - - - - - ----------------------------- ------------- ---------------- ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Edward G. Stevenson 200,000 51.2% 2.0625 09/15/09 $259,419 $657,419
Barrett V. Johnson 50,000 12.8% 2.0625 09/15/09 $64,855 $164,355
</TABLE>
- - - - - - - -----------
(1) Options vest upon the consummation of the Merger with nMortgage, Inc.
(2) Options are granted at 100 percent of the fair market value of the
Company's common stock on the date of grant.
(3) Amounts shown in these columns have been derived by multiplying the
exercise price by the annual appreciation rate shown (compounded for
the term of the options), multiplying the result by the number of
shares covered by the options, and subtracting the aggregate exercise
price of the options. The dollar amounts set forth under this heading
are the result of calculations at the 5%
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<PAGE> 6
and 10% rates set by the Securities and Exchange Commission, and
therefore are not intended to forecast possible future appreciation, if
any, of the Company's stock price.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUES
The following table summarizes information with respect to options held
by the Named Executive Officers and the value of the options held by such
persons as of December 31, 1999.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised In-The
Shares Options at FY-End (#) Money Options at FY-End ($)
Acquired on Value ----------------------------------------------------------------
Name Exercise (#) Realized ($) Exerciseable Unexercisable Exercisable Unexercisable
- - - - - - - ---------------------------- -------------- -------------- -------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
Edward G. Stevenson -0- -0- 258,000 242,000 $104,800 $17,060
Barrett V. Johnson -0- -0- 30,000 120,000 $8,286 $19,334
</TABLE>
EMPLOYMENT CONTRACTS
In January 1999, the Company entered into a three year employment
agreement with Edward G. Stevenson pursuant to which Mr. Stevenson will continue
to serve the Company as Chief Executive Officer. Pursuant to such agreement, Mr.
Stevenson receives an annual base salary of $250,000 and is eligible for an
annual bonus of up to 25% of his base salary as determined by the Company's
Board of Directors. In addition, Mr. Stevenson is eligible for an annual bonus
of up to 25% of his base salary, the exact amount to be determined pursuant to a
profit formula to be determined by the Compensation Committee of the Company's
Board of Directors. Pursuant to such agreement, the Company paid Mr. Stevenson
no bonus in Fiscal 1999. Upon either a termination of Mr. Stevenson's employment
"without cause," Mr. Stevenson is entitled to receive the greater of his base
salary for 12 months or the base salary for the balance of the remaining term of
such employment agreement. Mr. Stevenson agreed not to compete with the Company
while employed by the Company and the period during which severance is paid, if
any. As presently contemplated by the parties to the Merger, Mr. Stevenson will
not continue as an employee of nMortgage following the consummation of the
Gaming Asset Divestiture and the Merger.
Pursuant to his previous employment agreement with the Company, dated
February 1996, Mr. Stevenson was granted 300,000 options to purchase shares of
the Company's Common Stock at $7.50 per share. Fifty thousand (50,000) of such
options vested on February 15, 1996 and the balance vested over three years on a
pro-rata basis beginning February 15, 1997. The exercise price of such stock
options were repriced in October 1996 to $4.75 per share and were repriced in
December 1998 to $1.00 per share. In September 1999, Mr. Stevenson was also
granted, contingent upon the consummation of the Merger with nMortgage, Inc.,
options to purchase up to 200,000 shares of the Company's Common Stock at
$2.0625 per share.
In October 1998, the Company and Barrett V. Johnson entered into a two
year employment agreement pursuant to which Mr. Johnson serves the Company as
President
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<PAGE> 7
and Chief Operating Officer. Pursuant to the employment agreement, Mr. Johnson
receives an annual base salary of $180,000 and is eligible to receive an annual
bonus as determined by the Compensation Committee of the Company's Board of
Directors. Mr. Johnson received no bonus in Fiscal 1999. Upon termination
"without cause" Mr. Johnson is entitled to payment of his base salary for a
period of twelve months. Mr. Johnson has agreed not to compete with the Company
while employed by the Company and for a period of twelve months following
termination of such employment.
Mr. Johnson was also granted 50,000 options pursuant to such agreement
to purchase shares of the Company's Common Stock at $2.00 per share. These
options were repriced in December 1998 to $1.125 per share. Ten thousand
(10,000) of such options vested October 1, 1998, and the balance of such options
vest over five years on a pro-rata basis beginning October 1, 1999. In September
1999, Mr. Johnson was also granted, contingent upon the consummation of the
Merger with nMortgage, Inc., options to purchase up to 50,000 shares of the
Company's Common Stock at $2.0625 per share.
DIRECTOR COMPENSATION
Directors who are not employees of the Company are paid an annual fee
of $10,000, $1,000 for each Board meeting and $500 for each committee meeting
they attend, provided that the maximum paid to such director per day will be the
greater amount due for any single meeting in the case of multiple meetings
attended. In 1997, the Company's Shareholders approved the 1997 Director Stock
Option Plan pursuant to which 100,000 shares were reserved for issuance.
Pursuant to the 1997 Director Stock Option Plan, the Company has issued in April
1999, 20,000 options to each of Ronald M. Zideck, Ronald A. Johnson and Leo V.
Seevers at an exercise price of $1.00 per share. Five thousand of such options
vested immediately and the balance vest on a pro-rata basis on the first, second
and third anniversaries of the date of grant. An additional 5,000 options to
purchase shares of the Company's Common Stock will be granted annually to each
Director beginning in the fourth year that they serve as a director of the
Company. Directors who are employees of the Company are not paid fees or
additional remuneration for service as members of the Board or its Committees.
Options to purchase up to 50,000 shares of the Company's Common Stock were also
granted to each of the Non-Employee directors in September, 1999, contingent
upon consummation of the Merger with nMortgage, Inc. at $2.0625 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee presently consists of Messrs.
Zideck and Seevers, who have served in such capacity since the 1999 Annual
Shareholders Meeting. Lyle Berman, who resigned as a Director of the Company in
June, 1999, served on the Compensation Committee through June, 1999. Mr. Berman
is Chairman of the Board of Lakes Gaming, Inc.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
5
<PAGE> 8
Decisions on compensation of the Company's executives generally have
been made by the Compensation Committee of the Board of Directors. Each member
of the Compensation Committee is a non-employee director. All decisions by the
Compensation Committee relating to the compensation of the Company's executive
officers are reviewed by the full Board of Directors. Pursuant to rules designed
to enhance disclosure of the Company's policies toward executive compensation,
set forth below is a report prepared by the Compensation Committee addressing
the compensation policies for the Company for the year ended December 31, 1999,
as they affected the Company's executive officers.
COMPENSATION COMMITTEE
The Compensation Committee's executive compensation policies are
designed to provide competitive levels of compensation that integrate pay with
the Company's annual objectives and long-term goals, reward above-average
corporate performance, recognize individual achievements, and assist the Company
in attracting and retaining qualified executives. Executive compensation is set
at levels that the Compensation Committee believes to be consistent with others
in the Company's industry.
EXECUTIVE OFFICER COMPENSATION
There are three elements in the Company's executive compensation
program, all determined by individual and corporate performance.
* Base salary compensation
* Annual incentive compensation
* Stock options
Total compensation opportunities are competitive with those offered by
employers of comparable size, growth and profitability in the Company's
industry.
CASH COMPENSATION
Base salary compensation is determined by the potential impact the
individual has on the Company, the skills and experiences required by the job,
and the performance and potential of the incumbent in the job. In the case of
each of Edward G. Stevenson, the Chief Executive Officer and Chief Financial
Officer, and Barrett V. Johnson, the President and Chief Operating Officer, the
base compensation is governed pursuant to such executive's employment agreement
with the Company.
Annual incentive compensation for executives of the Company is based
primarily on corporate operating earnings and revenue growth and the Company's
positioning for future results, but also includes an overall assessment by the
Compensation Committee of executive management's performance, as well as market
conditions. No cash bonuses were paid to the Company's executive officers in
Fiscal 1999.
6
<PAGE> 9
STOCK OPTIONS
Awards of stock grants under the Company's 1992 Stock Option and
Compensation Plan (the "1992 Plan") are designed to promote the identity of
long-term interests between the Company's executives and its shareholders and
assist in the retention of executives. The Plan also permits the Committee to
grant stock options to key personnel. Options become exercisable based upon
criteria established by the Company. In October 1998, the Board also adopted the
1998 Non-Executive Stock Option Plan (the "1998 Plan") pursuant to which 200,000
shares of Common Stock were reserved for issuance for grants to Company
employees who are not executive officers of the Company. In 1999, the Board
approved an increase in the number of shares reserved for issuance under the
1998 Plan to an aggregate of 492,950.
In September 1999, the Company issued options to purchase 200,000 and
50,000 shares of the Company's Common Stock to Messrs. Stevenson and Johnson,
respectively, at a price of $2.0625, subject to the consummation of the Merger.
The Compensation Committee believes that the issuance of such options is
appropriate for the additional services provided by such executives in
connection with the Merger and Gaming Asset Divestiture.
The Compensation Committee surveys employee stock option programs of
companies with similar capitalization to the Company prior to recommending the
grant of options to executives. While the value realizable from exercisable
options is dependent upon the extent to which the Company's performance is
reflected in the market price of the Company's Common Stock at any particular
point in time, the decision as to whether such value will be realized in any
particular year is determined by each individual executive and not by the
Compensation Committee.
The Compensation Committee believes that stock options are a critical
component of the compensation offered by the Company to promote long-term
retention of key employees, motivate high levels of performance and recognize
employee contributions to the success of the Company.
CEO COMPENSATION
Pursuant to an employment agreement with the Company, the Company pays
Mr. Stevenson a base salary of $250,000
To date, no executive officer of the Company has received compensation
that exceeds $1 million per year.
Ronald R. Zideck
Leo V. Seevers
STOCK PERFORMANCE GRAPH
7
<PAGE> 10
The Securities and Exchange Commission requires that the Company
include in this Report a line-graph presentation comparing cumulative, five-year
return to the Company's shareholders (based on appreciation of the market price
of the Company's Common Stock) on an indexed basis with (i) a broad equity
market index and (ii) an appropriate published industry or line-of-business
index, or peer group index constructed by the Company. The following
presentation compares the Company's Common Stock price in the period from
December 31, 1994 to December 31, 1999, to the S&P 500 Stock Index and to a
"peer group" index created by the Company over the same period. The "peer group"
index consisted of the common stock of: Acres Gaming, Inc., Alliance Gaming,
Casino Data Systems, International Game Technology, Mikohn Gaming Corp., Shuffle
Master, Inc. and WMS Industries. The presentation assumes that the value of an
investment in each of the Company's Common Stock, the S&P 500 Index, and the
peer group index was $100 on December 31, 1994, and that any dividends paid were
reinvested in the same security.
[GRAPH]
<TABLE>
<CAPTION>
- - - - - - - -------------------------------------------------------------------------------------------------------------------
TOTAL RETURN ANALYSIS
12/30/1994 12/29/1995 12/31/1996 12/31/1997 12/31/1998 12/31/1999
- - - - - - - -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INNOVATIVE GAMING $ 100.00 $ 180.95 $ 149.21 $ 57.14 $ 25.40 $ 35.71
- - - - - - - -------------------------------------------------------------------------------------------------------------------
PEER GROUP $ 100.00 $ 104.76 $ 127.51 $ 170.72 $ 177.07 $ 179.28
- - - - - - - -------------------------------------------------------------------------------------------------------------------
S&P 500 $ 100.00 $ 137.54 $ 169.09 $ 225.49 $ 289.93 $ 350.93
- - - - - - - -------------------------------------------------------------------------------------------------------------------
</TABLE>
Source: Carl Thompson Associates www.ctaonline.com (800) 959-9677. Data from
Bloomberg Financial
8
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Markets.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
The Company has outstanding one class of voting securities, Common Stock, $0.01
par value, of which 9,128,477 shares were outstanding as of the close of
business on April 21, 2000.
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of April 21, 1999, by (i) each person
known by the Company to be the beneficial owner of more than 5% of the
outstanding Common Stock, (ii) each director, (iii) each executive officer named
in the Summary Compensation Table, and (iv) all executive officers and directors
as a group. Unless otherwise indicated, each of the following persons has sole
voting and investment power with respect to the shares of Common Stock set forth
opposite their respective names.
<TABLE>
<CAPTION>
SHARES PERCENTAGE
BENEFICIALLY OF
NAME AND ADDRESS OF BENEFICIAL OWNER (1) OWNED TOTAL
- - - - - - - ---------------------------------------------------------------------- -------------------------- ----------------
<S> <C> <C>
Edward G. Stevenson................................................... 575,000 (2) 5.93%
Barrett V. Johnson.................................................... 150,000 (3) 1.62%
Ronald R. Zideck...................................................... 75,000 (4)(5) *
Ronald A. Johnson..................................................... 70,000 (4) *
Leo V. Seevers ....................................................... 70,000 (4) *
Wayne Mills........................................................... 1,383,333 (6) 13.74%
All Directors and Officers as a group (5 people) 940,000 (7)(8) 9.34%
</TABLE>
- - - - - - - ----------------------------
* Less than 1%.
(1) Unless otherwise indicated, the address of each person is 4725
Aircenter Circle, Reno, Nevada 89502.
(2) Includes 350,000 shares that such person has the right to acquire
within 60 days and an additional 200,000 shares that such person will
have the right to acquire contingent upon the closing of the Merger.
(3) Includes 40,000 shares that such person has the right to acquire within
60 days and an additional 50,000 shares that such person will have the
right to acquire contingent upon the closing of the Merger.
(4) Includes 10,000 shares that such person has the right to acquire within
60 days and an additional 50,000 shares that such person will have the
right to acquire contingent upon the closing of the Merger.
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<PAGE> 12
(5) Includes 5,000 shares that such person owns indirectly in his capacity
as co-trustee of the Ronald A. Zideck Family Trust dated September 19,
1984. Mr. Zideck has shared voting rights with his spouse.
(6) Includes 938,333 shares that such person has the right to acquire
within 60 days.
(7) Includes 420,000 shares that such persons have the right to acquire
within 60 days.
(8) Includes 490,000 shares that such person will have the right to acquire
contingent upon the closing of the Merger.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On March 5, 1999, the Company and Wayne Mills ("Mills"), who was a
director of the Company from July 22, 1999 until September 15, 1999, entered
into a Stock Redemption Agreement pursuant to which the Company agreed to redeem
400,000 shares of the Company's Common Stock beneficially owned by Mills (the
"Mills Redemption") in exchange for a convertible note (the "Mills Note") and a
warrant to acquire 50,000 shares of Common Stock (the "Warrant"). Prior to the
Mills Redemption, Mills beneficially owned in excess of 5% of the Company's
outstanding Common Stock. The Company's Board of Directors believed it would
improve the Company's ability to obtain timely licensing in certain key gaming
jurisdictions if Mills beneficially owned 4.9% or less of the Company's
outstanding Common Stock.
Pursuant to the Mills Redemption, the Company issued the Mills Note
with a principal amount of $437,500, convertible into Common Stock at $1.09375
per share, the closing sales price of the Company's Common Stock on the day
immediately prior to the date of the consummation of the Mills Redemption. The
Mills Note became convertible on March 5, 2000 and is unsecured. The Company may
require conversion of all or a portion of the principal amount of the Mills Note
after March 5, 2000. Principal and interest on the Mills Note, which is five
percent (5%) per annum, is due March 5, 2004.
The Warrant has a term of three years and an exercise price of $1.09375
per share, the closing sales price of the Company's Common Stock on the date of
the consummation of the Mills Redemption. Neither the Mills Note may be
converted nor the Warrant exercised if, immediately following such conversion or
exercise, as the case may be, Mills would beneficially own in excess of 4.9% of
the Company's outstanding Common Stock. The Mills Note has "piggyback"
registration rights that require the Company to register the shares issuable
upon conversion of the Mills Note in the event that the Company files certain
types of registration statements with the Securities and Exchange Commission.
Pursuant to similar "piggy-back" registration rights, the shares issuable upon
exercise of the Warrant were registered on Registration Statement on Form S-3
(Registration No. 333-84413) filed with the Securities and Exchange Commission
on August 1, 1999, and amended by Amendment No. 1 to Form S-3 filed on September
23, 1999.
On April 21, 1999, the Company and Lakes Gaming, Inc. ("Lakes") entered
into a Stock Redemption Agreement pursuant to which the Company agreed to redeem
700,000
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<PAGE> 13
shares of the Company's Common Stock beneficially owned by Lakes (the "Lakes
Redemption") in exchange for a convertible note (the "Lakes Note") and a warrant
to acquire 87,500 shares of Common Stock (the "Lakes Warrant"). Lyle Berman,
then a director and shareholder of the Company, is Chairman of the Board and a
significant shareholder of Lakes. Prior to the Lakes Redemption, Lakes
beneficially owned 15.2% of the Company's outstanding Common Stock. The
Company's Board of Directors believed it would improve the Company's ability to
obtain timely licensing in certain key gaming jurisdictions if Lakes
beneficially owned 4.9% or less of the Company's outstanding Common Stock. Mr.
Berman resigned as director of the Company in June 1999.
Pursuant to the Lakes Redemption, which was consummated April 22, 1999,
the Company issued the Lakes Note with a principal amount of $875,000,
convertible into Common Stock at $1.25 per share, the closing sales price of the
Company's Common Stock on the day immediately prior to the date of the
consummation of the Lakes Redemption. The Lakes Note became convertible on April
22, 2000 and is unsecured. The Company may require conversion of all or a
portion of the principal amount of the Lakes Note after April 22, 2000.
Principal and interest on the Lakes Note, which is five percent (5%) per annum,
is due April 22, 2004. The Note also provides that Lakes has the same status as
a Common Stock shareholder in liquidation in the event of bankruptcy of the
Company.
The Lakes Warrant has a term of three years and an exercise price of
$1.25 per share, the closing sales price of the Company's Common Stock on the
date of the consummation of the Lakes Redemption. Neither the Lakes Note may be
converted nor the Lakes Warrant exercised if, immediately following such
conversion or exercise, as the case may be, Lakes would beneficially own in
excess of 4.9% of the Company's outstanding Common Stock. The Lakes Note has
"piggyback" registration rights that require the Company to register the shares
issuable upon conversion of the Lakes Note in the event that the Company files
certain types of registration statements with the Securities and Exchange
Commission. Pursuant to similar "piggy-back" registration rights, the shares
issuable upon exercise of the Lakes Warrant were registered on Registration
Statement on Form S-3 (Registration No. 333-84413) filed with the Securities and
Exchange Commission on August 1, 1999, and amended by Amendment No. 1 to Form
S-3 filed on September 23, 1999.
On June 1, 1999, the Company issued an aggregate of $1,550,000 in
convertible notes to a group of investors including Wayne Mills. Edward G.
Stevenson, the Chairman, Chief Executive Officer and Chief Financial Officer of
the Company, personally guaranteed the repayment of $155,000 of the convertibles
notes. In exchange for such personal guarantee, the Company issued Mr. Stevenson
two 3-year warrants, each to purchase 25,000 shares of the Company's common
stock at $1.25 per share and $1.75 per share, respectively. The shares issuable
upon exercise of the warrants were registered on Registration Statement on Form
S-3 (Registration No. 333-84413) filed with the Securities and Exchange
Commission on August 1, 1999, and amended by Amendment No. 1 to Form S-3 filed
on September 23, 1999.
11
<PAGE> 14
In January 2000, a group of investors including Wayne Mills, acquired the
Lakes Note. Mr. Mills beneficially owns $125,000 principal amount of the Lakes
Note.
PART IV
<TABLE>
<CAPTION>
<S> <C>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(3) Exhibits.
3.1(a) Articles of Incorporation, as amended (Incorporated herein by
reference to Exhibit 3.1 to the Company's Registration Statement on
Form SB-2 (File No. 33-61492C) (the "SB-2").
3.1(b) Certificate of Designation relating to Series B Convertible Preferred
Stock (Incorporated herein by reference to Exhibit 4 to the Company's
report on Form 10-Q for the quarter ended March 31, 1998) (the "March
31, 1998 10-Q").
3.1(c) Certificate of Designation relating to Series C Convertible Preferred
Stock (Incorporated herein by reference to Exhibit 3.1(d) to the
Company's Registration Statement on Form S-3 filed August 3, 1999).
3.1(d) Certificate of Designation relating to Series D Convertible Preferred
Stock (Incorporated herein by reference to Exhibit 3.1 to the
Company's Registration Statement on Form S-3 filed January 13, 2000).
3.2 Bylaws (Incorporated herein by reference to Exhibit 3.2 to the SB-2).
10.1 1992 Stock Option and Compensation Plan, as amended (Incorporated
herein by reference to Annex B to the Company's Schedule 14A filed
April 24, 1997).+
10.2 Exclusive Distributorship Agreement between the Company and Aristocrat
Leisure Industries PTY LTD dated February 7, 1996 (Incorporated herein
by reference to Exhibit 10.18 to the Company's Report on Form 10-K for
the fiscal year ended December 31, 1995)(the "December 31,1995 10-K").
10.3 Assignment between the Company, NANAO and IREM dated February 2, 1996
(Incorporated herein by reference to Exhibit 10.19 to the Company's
December 31, 1995 10-K).
10.4 Exclusive Distributorship Agreement between the Company and Ludi
S.F.M. dated March 5, 1996 (Incorporated herein by reference to
Exhibit 10.24 to the Company's December 31, 1995 10-K).
10.5 Exclusive Distributorship Agreement between the Company and S.A.M.
EURUSA dated March 5, 1996 (Incorporated herein by reference to
Exhibit 10.25 to the Company's December 31, 1995 10-K).
10.6 Product Development and Revenue Sharing Agreement between the Company
and IGT, dated November 18, 1996 (Incorporated herein by reference to
Exhibit 10.18 to
</TABLE>
12
<PAGE> 15
<TABLE>
<S> <C>
the Company's report on Form 10-K for the fiscal year ended December
31, 1996) (the "December 31, 1996 10-K").
10.7 Lease agreement between the Company and Dermody Properties, dated July
9, 1996 (Incorporated herein by reference to Exhibit 10.20 to the
Company's December 31, 1996 10-K).
10.8 Loan Agreement between the Company and Finova Capital Management dated
as of April 13, 1998 (Incorporated herein by reference to Exhibit 10.1
to the Company's March 31, 1998 10-Q).
10.9 Stock Redemption Agreement by and between the Company and Wayne M.
Mills, dated March 5, 1999. (Incorporated herein by reference to
Exhibit 10.1 to the Company's Registration Statement on Form S-3 filed
August 3, 1999).
10.10 Warrant issued to Wayne M. Mills, dated March 5, 1999. (Incorporated
herein by reference to Exhibit 10.2 to the Company's Registration
Statement on Form S-3 filed August 3, 1999).
10.11 Convertible Promissory Note issued to Wayne M. Mills, dated March 5,
1999. (Incorporated herein by reference to Exhibit 10.3 to the
Company's Registration Statement on Form S-3 filed August 3, 1999).
10.12 Stock Redemption Agreement by and between the Company and Lakes
Gaming, Inc., dated April 22, 1999. (Incorporated herein by reference
to Exhibit 10.4 to the Company's Registration Statement on Form S-3
filed August 3, 1999).
10.13 Warrant issued to Lakes Gaming, Inc., dated April 22, 1999.
(Incorporated herein by reference to Exhibit 10.5 to the Company's
Registration Statement on Form S-3 filed August 3, 1999).
10.14 Convertible Promissory Note issued to Lakes Gaming, Inc., dated April
22, 1999. (Incorporated herein by reference to Exhibit 10.6 to the
Company's Registration Statement on Form S-3 filed August 3, 1999).
10.15 Form of Subscription Agreement dated June 1, 1999 (Incorporated herein
by reference to Exhibit 10.8 to the Company's Registration Statement
on Form S-3 filed August 3, 1999).
10.16 Securities Purchase Agreement dated October 13, 1999 (Incorporated
herein by reference to Exhibit 10.1 to the Company's Registration
Statement on Form S-3 filed January 13, 2000).
10.17 Form of Registration Rights Agreement dated June 1, 1999 (Incorporated
herein by reference to Exhibit 10.9 to the Company's Registration
Statement on Form S-3 filed August 3, 1999).
10.18 Form of Registration Rights Agreement dated October 13, 1999
(Incorporated herein by reference to Exhibit 10.2 to the Company's
Registration Statement on Form S-3 filed January 13, 2000).
10.19 1997 Director Stock Option Plan (Incorporated herein by reference to
Annex A to the Company's Schedule 14A filed April 24, 1997).
10.20 1998 Non-Executive Employee Stock Option Plan (Incorporated herein by
reference to Exhibit 10.17 to the Company's report on Form 10-K for
the fiscal year ended December 31,1998) (the "December 31, 1998
10-K").
10.21 Agreement between the Company and Edward G. Stevenson dated January 1,
1999 (Incorporated herein by reference to Exhibit 10.18 to the
Company's December 31, 1998 10-K).
10.22 Agreement and Plan of Merger dated December 31, 1999, by and among
nMortgage Inc., Equitex Inc., Innovative Gaming Corporation of America
and IGCA Acquisition Corp, (Incorporated herein by reference to Annex
B to the Company's Schedule 14A filed March 1, 2000).
10.23 Warrant to Purchase Common Stock dated June 1, 1999 (Warrant No. G-1).
10.24 Warrant to Purchase Common Stock dated June 1, 1999 (Warrant No. G-2).
21 List of Subsidiaries (Incorporated herein by reference to Exhibit 21
to the Company's December 31, 1998 10-K).
23 Consent of Kafoury, Armstrong & Co.*
27 Financial Data Schedule.*
</TABLE>
- - - - - - - --------------------------------------------
+ Agreement relates to Executive Compensation
* previously filed
13
<PAGE> 16
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this amendment to be signed
on its behalf by the undersigned, thereunto duly authorized.
INNOVATIVE GAMING CORPORATION OF AMERICA
(Registrant)
By: /s/ Edward G. Stevenson
------------------------------------------------
Name: Edward G. Stevenson
Title: Chief Executive Officer, Chief Financial
Officer and Chairman
Date: April 28, 2000
<PAGE> 1
EXHIBIT 10.23
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREUNDER HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION (TOGETHER, THE "SECURITIES
LAWS") AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED OR
ENCUMBERED IN THE ABSENCE OF COMPLIANCE WITH SUCH SECURITIES LAWS AND UNTIL THE
COMPANY (AS DEFINED HEREIN) THEREOF SHALL HAVE RECEIVED AN OPINION FROM COUNSEL
ACCEPTABLE TO IT THAT THE PROPOSED DISPOSITION WILL NOT VIOLATE ANY APPLICABLE
SECURITIES LAWS.
Warrant G-1
INNOVATIVE GAMING CORPORATION OF AMERICA
WARRANT TO PURCHASE
COMMON STOCK
This Warrant and Warrant No. G-2 of even date herewith replaces that
certain Warrant issued June 1, 1999 to Holder.
For value received, Edward G. Stevenson or his successors or assigns
("Holder"), is entitled to subscribe for and purchase from Innovative Gaming
Corporation of America, a Minnesota corporation (the "Company"), up to
TWENTY-FIVE THOUSAND (25,000) fully paid and nonassessable shares of the
Company's common stock, $.01 par value ("Common Stock"), at the price of $1.25
per share, subject to adjustments as noted below (the "Warrant Exercise Price").
This Warrant may be exercised by Holder at any time after the earlier
of (i) registration of the Warrant Shares pursuant to Section 6(i)
hereof or (ii) September 1, 1999 and prior to June 1, 2002.
This Warrant is subject to the following provisions, terms and
conditions:
1. EXERCISE. The rights represented by this Warrant may be exercised by
the Holder, in whole or in part, by written notice of exercise delivered to the
Company at least twenty (20) days prior to the intended date of exercise and by
the surrender of this Warrant (properly endorsed if required) at the principal
office of the Company and upon payment to it by cash, certified check or bank
draft of the purchase price for such shares. The shares so purchased shall be
deemed to be issued as of the close of business on the date on which this
Warrant has been exercised by payment to the Company of the Warrant Exercise
Price. Certificates for the shares of stock so purchased shall be delivered to
the Holder within fifteen (15) days after the rights represented by this Warrant
shall have been so exercised and, unless this Warrant has expired, a new Warrant
representing the number of shares, if any, with respect to which this Warrant
has not been exercised shall also be delivered to the Holder within such time.
2. COVENANTS OF THE COMPANY. The Company covenants and agrees that all
shares that may be issued upon the exercise of the rights represented by this
Warrant (the "Warrant Shares") shall, upon issuance, be duly authorized and
issued, fully paid and nonassessable shares. The Company further covenants and
agrees that during the period within which the rights
<PAGE> 2
represented by this Warrant may be exercised, the Company will at all times have
authorized, and reserved for the purpose of issue or transfer upon exercise of
the subscription rights evidenced by this Warrant, a sufficient number of shares
of its Common Stock to provide for the exercise of the rights represented by
this Warrant.
3. ANTIDILUTION ADJUSTMENTS. The foregoing provisions are, however,
subject to the following:
(1) The Warrant Exercise Price shall be subject to adjustment
from time to time as hereinafter provided. Upon each adjustment of the Warrant
Exercise Price, the Holder shall thereafter be entitled to purchase, at the
Warrant Exercise Price resulting from such adjustment, the number of shares
obtained by multiplying the Warrant Exercise Price in effect immediately prior
to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment and dividing the product thereof by the
Warrant Exercise Price resulting from such adjustment.
(2) In case the Company shall at any time divide the
outstanding shares of its Common Stock into a greater number of shares (whether
pursuant to a stock split, stock dividend or otherwise), and conversely in case
the outstanding shares of its common stock shall be combined into a smaller
number of shares, the Warrant Exercise Price in effect immediately prior to such
division or combination shall be proportionately adjusted to reflect the
reduction or increase in the value of each such common share.
(3) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of the
Company's Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for such common shares, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale, the Holder
shall have the right to purchase and receive upon the basis and upon the terms
and conditions specified in this Warrant and in lieu of the shares of the common
stock of the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, such shares of stock, other
securities or assets as would have been issued or delivered to the Holder as if
it had exercised this Warrant and had received such shares of common stock prior
to such reorganization, reclassification, consolidation, merger or sale. The
Company shall not effect any such consolidation, merger or sale, unless prior to
the consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument executed and mailed to the registered
Holder of this Warrant at the last address of such Holder appearing on the books
of the Company, the obligation to deliver to such Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
Holder may be entitled to purchase.
(4) If the Company takes any other action, or if any other
event occurs which does not come within the scope of the provisions of Sections
3(1) through 3(3), but which should result in an adjustment in the Warrant
Exercise Price and/or the number of shares subject to this Warrant in order to
fairly protect the purchase rights of the Holder, an appropriate adjustment in
such purchase rights shall be made by the Company.
(5) Upon any adjustment of the Warrant Exercise Price, the
Company shall give written notice thereof, by first class mail, postage prepaid,
addressed to the registered Holder of this Warrant at the address of such Holder
as shown on the books of the Company, which
2
<PAGE> 3
notice shall state the Warrant Exercise Price resulting from such adjustment and
the increase or decrease, if any, in the number of shares purchasable at such
price upon the exercise of this Warrant, setting forth in reasonable detail the
method of calculation and the facts upon which such calculation is based.
4. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any
voting rights or other rights as a stockholder of the Company.
5. EXERCISE LIMITATION. No Warrant Shares shall be issued upon exercise
of this Warrant if the sum of 1) the number of Common Stock beneficially owned
by the Holder (other than shares of Common Stock which may be deemed
beneficially owned through ownership of the unexercised portion of the Warrant;
and 2) the number of Warrant Shares issuable upon exercise of this Warrant would
result in beneficial ownership by the Holder of more than 4.9% of the Company's
issued and outstanding Common Stock.
6. REGISTRATION RIGHTS.
(1) Registration of Warrant Shares. Within thirty (30) days
from the date hereof, the Company shall file a registration statement with the
Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as
amended, for the purpose of registering the Warrant Shares. The Holder shall
furnish the Company with such information as may be required from such holder in
connection with such registration statement and will cooperate to cause such
registration to become effective at the earliest practicable time. The Holder
understands that such registration is also subject to gaming regulatory approval
from certain gaming jurisdictions. The Company shall keep effective and maintain
any registration, qualification, notification, or approval specified in this
section for such period as may be reasonably necessary for such Holder or
Holders of such Warrants and/or such Warrant Shares to dispose thereof and from
time to time shall amend or supplement the prospectus used in connection
therewith to the extent necessary in order to comply with applicable law.
(2) Expenses. The Company shall pay the total expenses for the
shares being registered for such Holder's account provided that the Holder shall
pay all underwriting or brokerage discounts and commissions attributable to the
sale of shares for its account and any fees and disbursements of counsel
retained by it.
(3) Indemnification. The Company will indemnify each of the
Holder and each underwriter of the shares being so registered and controlling
persons of both such holders and such underwriters against all claims, losses,
damages and liability (or actions in respect thereof) arising out of or based
upon any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus or other documents incident to any registration
statement filed pursuant to this Section 6, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
such holder and each such underwriter and controlling person for any legal or
other expenses reasonably incurred by each such holder and each such underwriter
and controlling person in connection with investigating or defending any such
claim, loss, damage, liability or action; provided, that the Company will not be
liable in any such case to the extent that any such claim, loss, damage or
liability arises out of or is based upon any untrue statement or omission based
upon written information furnished to the Company by any such holder or any such
underwriter or controlling persons. The Holder will indemnify the Company and
any controlling persons of the Company against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based upon any
untrue statement (or alleged untrue
3
<PAGE> 4
statement) of a material fact which is contained in the written information
furnished by such holder for use in any prospectus or other documents incident
to any such registration statement, or any omission (or alleged omission) to
state in the written information so provided a material fact required to be
stated therein or necessary to make the statements therein not misleading, and
will reimburse the Company and each such controlling person of the Company for
any legal or other expenses reasonably incurred by the Company and each such
controlling person of the Company in connection with investigating or defending
any such claim, loss, damage, liability or action.
7. AMENDMENT. Neither this Warrant nor any term hereof may be amended,
waived, discharged or terminated orally but only by an instrument in writing
signed by the party against which enforcement of the amendment, waiver,
discharge or termination is sought.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and delivered by a duly authorized officer as of the 1st day of June, 1999.
INNOVATIVE GAMING CORPORATION
OF AMERICA
By: /s/ Ronald A. Johnson
------------------------------
Name: Ronald A. Johnson
------------------------------
Its: Director
------------------------------
4
<PAGE> 5
INNOVATIVE GAMING CORPORATION OF AMERICA
WARRANT EXERCISE
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
The undersigned, the holder of the foregoing Warrant, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder, shares of the Common Stock of
Innovative Gaming Corporation of America to which such Warrant relates and
herewith makes payment of $ therefor in cash or by certified or
cashier's check and requests that the certificates for such shares be issued in
the name of, and be delivered to , whose
address is set forth below the signature of the undersigned. If said number of
shares shall not be all the shares purchasable under the Warrant, a new Warrant
is to be issued in the name of the undersigned for the balance remaining of the
shares purchasable thereunder. The undersigned, the holder of the foregoing
Warrant, hereby represents and warrants to Innovative Gaming Corporation of
America that it is in compliance with the Exercise Limitation of Section 5 of
the foregoing Warrant.
Name of Warrant Holder:
-----------------------------------------------
(Please print)
Address of Warrant Holder:
-----------------------------------------------
-----------------------------------------------
Tax Identification No. or
Social Security No. of Warrant Holder:
-----------------------------------------------
Signature
--------------------------------------
NOTE: The above signature should correspond
exactly with the name of the Warrant Holder as
it appears on the first page of the Warrant or
on a duly executed Warrant Assignment.
Dated:
-----------------------------------------
5
<PAGE> 1
EXHIBIT 10.24
NEITHER THIS WARRANT NOR THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE
HEREUNDER HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION (TOGETHER, THE "SECURITIES
LAWS") AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED OR
ENCUMBERED IN THE ABSENCE OF COMPLIANCE WITH SUCH SECURITIES LAWS AND UNTIL THE
COMPANY (AS DEFINED HEREIN) THEREOF SHALL HAVE RECEIVED AN OPINION FROM COUNSEL
ACCEPTABLE TO IT THAT THE PROPOSED DISPOSITION WILL NOT VIOLATE ANY APPLICABLE
SECURITIES LAWS.
Warrant G-2
INNOVATIVE GAMING CORPORATION OF AMERICA
WARRANT TO PURCHASE
COMMON STOCK
This Warrant and Warrant No. G-1 of even date herewith replaces that
certain Warrant issued June 1, 1999 to Holder.
For value received, Edward G. Stevenson or his successors or assigns
("Holder"), is entitled to subscribe for and purchase from Innovative Gaming
Corporation of America, a Minnesota corporation (the "Company"), up to
TWENTY-FIVE THOUSAND (25,000) fully paid and nonassessable shares of the
Company's common stock, $.01 par value ("Common Stock"), at the price of $1.75
per share, subject to adjustments as noted below (the "Warrant Exercise Price").
This Warrant may be exercised by Holder at any time after the earlier
of (i) registration of the Warrant Shares pursuant to Section 6(i)
hereof or (ii) September 1, 1999 and prior to June 1, 2002.
This Warrant is subject to the following provisions, terms and
conditions:
1. EXERCISE. The rights represented by this Warrant may be exercised by
the Holder, in whole or in part, by written notice of exercise delivered to the
Company at least twenty (20) days prior to the intended date of exercise and by
the surrender of this Warrant (properly endorsed if required) at the principal
office of the Company and upon payment to it by cash, certified check or bank
draft of the purchase price for such shares. The shares so purchased shall be
deemed to be issued as of the close of business on the date on which this
Warrant has been exercised by payment to the Company of the Warrant Exercise
Price. Certificates for the shares of stock so purchased shall be delivered to
the Holder within fifteen (15) days after the rights represented by this Warrant
shall have been so exercised and, unless this Warrant has expired, a new Warrant
representing the number of shares, if any, with respect to which this Warrant
has not been exercised shall also be delivered to the Holder within such time.
2. COVENANTS OF THE COMPANY. The Company covenants and agrees that all
shares that may be issued upon the exercise of the rights represented by this
Warrant (the "Warrant Shares") shall, upon issuance, be duly authorized and
issued, fully paid and nonassessable shares.
<PAGE> 2
The Company further covenants and agrees that during the period within which the
rights represented by this Warrant may be exercised, the Company will at all
times have authorized, and reserved for the purpose of issue or transfer upon
exercise of the subscription rights evidenced by this Warrant, a sufficient
number of shares of its Common Stock to provide for the exercise of the rights
represented by this Warrant.
3. ANTIDILUTION ADJUSTMENTS. The foregoing provisions are, however,
subject to the following:
(1) The Warrant Exercise Price shall be subject to adjustment
from time to time as hereinafter provided. Upon each adjustment of the Warrant
Exercise Price, the Holder shall thereafter be entitled to purchase, at the
Warrant Exercise Price resulting from such adjustment, the number of shares
obtained by multiplying the Warrant Exercise Price in effect immediately prior
to such adjustment by the number of shares purchasable pursuant hereto
immediately prior to such adjustment and dividing the product thereof by the
Warrant Exercise Price resulting from such adjustment.
(2) In case the Company shall at any time divide the
outstanding shares of its Common Stock into a greater number of shares (whether
pursuant to a stock split, stock dividend or otherwise), and conversely in case
the outstanding shares of its common stock shall be combined into a smaller
number of shares, the Warrant Exercise Price in effect immediately prior to such
division or combination shall be proportionately adjusted to reflect the
reduction or increase in the value of each such common share.
(3) If any capital reorganization or reclassification of the
capital stock of the Company, or consolidation or merger of the Company with
another corporation, or the sale of all or substantially all of its assets to
another corporation shall be effected in such a way that holders of the
Company's Common Stock shall be entitled to receive stock, securities or assets
with respect to or in exchange for such common shares, then, as a condition of
such reorganization, reclassification, consolidation, merger or sale, the Holder
shall have the right to purchase and receive upon the basis and upon the terms
and conditions specified in this Warrant and in lieu of the shares of the common
stock of the Company immediately theretofore purchasable and receivable upon the
exercise of the rights represented hereby, such shares of stock, other
securities or assets as would have been issued or delivered to the Holder as if
it had exercised this Warrant and had received such shares of common stock prior
to such reorganization, reclassification, consolidation, merger or sale. The
Company shall not effect any such consolidation, merger or sale, unless prior to
the consummation thereof the successor corporation (if other than the Company)
resulting from such consolidation or merger or the corporation purchasing such
assets shall assume by written instrument executed and mailed to the registered
Holder of this Warrant at the last address of such Holder appearing on the books
of the Company, the obligation to deliver to such Holder such shares of stock,
securities or assets as, in accordance with the foregoing provisions, such
Holder may be entitled to purchase.
(4) If the Company takes any other action, or if any other
event occurs which does not come within the scope of the provisions of Sections
3(1) through 3(3), but which should result in an adjustment in the Warrant
Exercise Price and/or the number of shares subject to this Warrant in order to
fairly protect the purchase rights of the Holder, an appropriate adjustment in
such purchase rights shall be made by the Company.
(5) Upon any adjustment of the Warrant Exercise Price, the
Company shall give written notice thereof, by first class mail, postage prepaid,
addressed to the registered Holder
2
<PAGE> 3
of this Warrant at the address of such Holder as shown on the books of the
Company, which notice shall state the Warrant Exercise Price resulting from such
adjustment and the increase or decrease, if any, in the number of shares
purchasable at such price upon the exercise of this Warrant, setting forth in
reasonable detail the method of calculation and the facts upon which such
calculation is based.
4. NO VOTING RIGHTS. This Warrant shall not entitle the Holder to any
voting rights or other rights as a stockholder of the Company.
5. EXERCISE LIMITATION. No Warrant Shares shall be issued upon exercise
of this Warrant if the sum of 1) the number of Common Stock beneficially owned
by the Holder (other than shares of Common Stock which may be deemed
beneficially owned through ownership of the unexercised portion of the Warrant;
and 2) the number of Warrant Shares issuable upon exercise of this Warrant would
result in beneficial ownership by the Holder of more than 4.9% of the Company's
issued and outstanding Common Stock.
6. REGISTRATION RIGHTS.
(1) Registration of Warrant Shares. Within thirty (30) days
from the date hereof, the Company shall file a registration statement with the
Securities and Exchange Commission ("SEC") under the Securities Act of 1933, as
amended, for the purpose of registering the Warrant Shares. The Holder shall
furnish the Company with such information as may be required from such holder in
connection with such registration statement and will cooperate to cause such
registration to become effective at the earliest practicable time. The Holder
understands that such registration is also subject to gaming regulatory approval
from certain gaming jurisdictions. The Company shall keep effective and maintain
any registration, qualification, notification, or approval specified in this
section for such period as may be reasonably necessary for such Holder or
Holders of such Warrants and/or such Warrant Shares to dispose thereof and from
time to time shall amend or supplement the prospectus used in connection
therewith to the extent necessary in order to comply with applicable law.
(2) Expenses. The Company shall pay the total expenses for the
shares being registered for such Holder's account provided that the Holder shall
pay all underwriting or brokerage discounts and commissions attributable to the
sale of shares for its account and any fees and disbursements of counsel
retained by it.
(3) Indemnification. The Company will indemnify each of the
Holder and each underwriter of the shares being so registered and controlling
persons of both such holders and such underwriters against all claims, losses,
damages and liability (or actions in respect thereof) arising out of or based
upon any untrue statement (or alleged untrue statement) of a material fact
contained in any prospectus or other documents incident to any registration
statement filed pursuant to this Section 6, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse each
such holder and each such underwriter and controlling person for any legal or
other expenses reasonably incurred by each such holder and each such underwriter
and controlling person in connection with investigating or defending any such
claim, loss, damage, liability or action; provided, that the Company will not be
liable in any such case to the extent that any such claim, loss, damage or
liability arises out of or is based upon any untrue statement or omission based
upon written information furnished to the Company by any such holder or any such
underwriter or controlling persons. The Holder will indemnify the Company and
any controlling persons of the Company against all claims, losses, damages and
liabilities (or
3
<PAGE> 4
actions in respect thereof) arising out of or based upon any untrue statement
(or alleged untrue statement) of a material fact which is contained in the
written information furnished by such holder for use in any prospectus or other
documents incident to any such registration statement, or any omission (or
alleged omission) to state in the written information so provided a material
fact required to be stated therein or necessary to make the statements therein
not misleading, and will reimburse the Company and each such controlling person
of the Company for any legal or other expenses reasonably incurred by the
Company and each such controlling person of the Company in connection with
investigating or defending any such claim, loss, damage, liability or action.
7. AMENDMENT. Neither this Warrant nor any term hereof may be amended,
waived, discharged or terminated orally but only by an instrument in writing
signed by the party against which enforcement of the amendment, waiver,
discharge or termination is sought.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed
and delivered by a duly authorized officer as of the 1st day of June, 1999.
INNOVATIVE GAMING CORPORATION
OF AMERICA
By: /s/ Ronald A. Johnson
-------------------------------
Name: Ronald A. Johnson
--------------------------
Its: Director
--------------------------
4
<PAGE> 5
INNOVATIVE GAMING CORPORATION OF AMERICA
WARRANT EXERCISE
(TO BE SIGNED ONLY UPON EXERCISE OF WARRANT)
The undersigned, the holder of the foregoing Warrant, hereby irrevocably
elects to exercise the purchase right represented by such Warrant for, and
to purchase thereunder, shares of the Common Stock of
Innovative Gaming Corporation of America to which such Warrant relates and
herewith makes payment of $ therefor in cash or by
certified or cashier's check and requests that the certificates for such
shares be issued in the name of, and be delivered to ,whose
address is set forth below the signature of the undersigned. If said number
of shares shall not be all the shares purchasable under the Warrant, a new
Warrant is to be issued in the name of the undersigned for the balance
remaining of the shares purchasable thereunder. The undersigned, the holder
of the foregoing Warrant, hereby represents and warrants to Innovative
Gaming Corporation of America that it is in compliance with the Exercise
Limitation of Section 5 of the foregoing Warrant.
Name of Warrant Holder:
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(Please print)
Address of Warrant Holder:
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Tax Identification No. or
Social Security No. of Warrant Holder:
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Signature
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NOTE: The above signature should
correspond exactly with the name of the
Warrant Holder as it appears on the
first page of the Warrant or on a duly
executed Warrant Assignment.
Dated:
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5
