<PAGE> 1
SCHEDULE 14A
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary proxy statement [ ] Confidential, for Use of
the Commission Only
(as permitted by Rule
14a-6(e)(2))
[X] Definitive proxy statement
[ ] Definitive additional materials
[ ] Soliciting material pursuant to
Rule 14a-11(c) or Rule 14a-12
--------------------------------------------------------------------------------
INNOVATIVE GAMING CORPORATION OF AMERICA
--------------------------------------------------------------------------------
Payment of filing fee (Check the appropriate box):
[X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
--------------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction applies:
--------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
--------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
--------------------------------------------------------------------------------
(5) Total fee paid:
--------------------------------------------------------------------------------
[ ] Fee paid previously with preliminary materials:
--------------------------------------------------------------------------------
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
--------------------------------------------------------------------------------
(2) Form, Schedule, or Registration Statement No.:
--------------------------------------------------------------------------------
(3) Filing Party:
--------------------------------------------------------------------------------
(4) Date Filed:
--------------------------------------------------------------------------------
<PAGE> 2
INNOVATIVE GAMING CORPORATION OF AMERICA
4725 AIRCENTER CIRCLE
RENO, NEVADA 89502
---------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
JANUARY 19, 2001
---------------------
TO THE SHAREHOLDERS OF INNOVATIVE GAMING CORPORATION OF AMERICA:
Please take notice that the Annual Meeting of Shareholders of Innovative
Gaming Corporation of America will be held, pursuant to due call by the Board of
Directors of the Company at the Company's Las Vegas headquarters at 333 Orville
Wright Court, Las Vegas, Nevada 89119 on Friday, January 19, 2001, at 4:00 p.m.,
or at any adjournment or adjournments thereof, for the purpose of considering
and taking appropriate action with respect to the following:
1. To elect five (5) directors;
2. To approve an amendment to the Company's 1997 Director's Stock
Option Plan to increase the number of shares of Common Stock reserved for
issuance thereunder by 250,000 shares;
3. To approve an amendment to the 1992 Stock Option and Compensation
Plan to increase the number of shares of Common Stock reserved for issuance
thereunder by 1,150,000 shares; and
4. To transact any other business as may properly come before the
meeting or any adjournments thereof.
Pursuant to due action of the Board of Directors, shareholders of record on
December 13, 2000, will be entitled to vote at the meeting or any adjournments
thereof.
A PROXY FOR THE MEETING IS ENCLOSED. YOU ARE REQUESTED TO FILL IN AND SIGN
THE PROXY, WHICH IS SOLICITED BY THE BOARD OF DIRECTORS, AND MAIL IT PROMPTLY IN
THE ENCLOSED ENVELOPE.
By Order of the Board of Directors
INNOVATIVE GAMING CORPORATION OF
AMERICA
/s/ ROLAND THOMAS
------------------------------------
Roland Thomas
Chief Executive Officer
December 20, 2000
1
<PAGE> 3
INNOVATIVE GAMING CORPORATION OF AMERICA
4725 AIRCENTER CIRCLE
RENO, NEVADA 89502
---------------------
PROXY STATEMENT
---------------------
ANNUAL MEETING OF SHAREHOLDERS TO BE HELD
JANUARY 19, 2001
This Proxy Statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Innovative Gaming Corporation of America
(the "Company") to be used at the Annual Meeting of Shareholders of the Company
to be held on January 19, 2001. The approximate date on which this Proxy
Statement and the accompanying proxy were first sent or given to shareholders
was December 20, 2000. Each shareholder who signs and returns a proxy in the
form enclosed with this Proxy Statement may revoke the same at any time prior to
its use by giving notice of such revocation to the Company in writing, in open
meeting, or by executing and delivering a new proxy to the Secretary of the
Company. Unless so revoked, the shares represented by each proxy will be voted
at the meeting and at any adjournments thereof. Presence at the meeting of a
shareholder who has signed a proxy does not alone revoke that proxy. Only
shareholders of record at the close of business on December 13, 2000 (the
"Record Date") will be entitled to vote at the meeting or any adjournments
thereof.
2
<PAGE> 4
VOTING SECURITIES AND
PRINCIPAL HOLDERS THEREOF
The Company has outstanding one class of voting securities, Common Stock,
$0.01 par value, of which 10,362,296 were outstanding as of the close of
business on December 1, 2000. Each share of Common Stock is entitled to one vote
on all matters put to a vote of shareholders.
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of December 1, 2000, 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>
NAME OF BENEFICIAL OWNER NUMBER PERCENT OF CLASS
------------------------ ------ ----------------
<S> <C> <C>
Roland Thomas(1)............................................ 1,491,820 14.9%
Ronald Johnson(2)........................................... 210,000 2.0%
Andrew Tottenham............................................ 0 *
Thomas Foley(3)............................................. 0 *
Steven Peterson(3).......................................... 0 *
Barrett V. Johnson(4)....................................... 300,000 *
Edward G. Stevenson(5)...................................... 525,000 4.8%
All executive officers and directors as a group (4
persons)(6)(1)............................................ 1,561,820 15.5%
</TABLE>
---------------
* Less than 1%.
(1) Includes 1,091,820 shares owned by Xertain, Inc. ("Xertain") Mr. Thomas is a
Chairman of the Board, Chief Executive Officer and a significant shareholder
of Xertain.
(2) Options to purchase 210,000 shares which are exercisable within 60 days.
(3) Director-nominee
(4) Options to purchase 300,000 shares which are exercisable within 60 days.
(5) Includes options to purchase 500,000 shares which are exercisable within 60
days. Mr. Stevenson resigned from the Company as Chairman of the Board and
Chief Executive Officer in May 2000.
(6) Includes options to purchase 275,000 shares which are exercisable within 60
days.
ELECTION OF DIRECTORS
Five directors are to be elected at the meeting, each director to hold
office until the next Annual Meeting of Shareholders, or until his successor is
elected and qualified. The persons listed below are now serving as directors of
the Company and have consented to serve as a director, if elected. The Board of
Directors proposes for election the following nominees:
Roland Thomas, age 50, joined the Company as Chief Executive Officer and
Chairman of the Board in September 2000. Mr. Thomas has been Chief Executive
Officer of Xertain, Inc. since its inception in November 1999. Previously and
since 1997, Mr. Thomas was Chief Executive Officer of Fortune Entertainment,
Inc. Mr. Thomas has also been President of ERT Technology, Inc. since 1993.
Ronald A. Johnson, age 59, has been a director of the Company since April
1999. Mr. Johnson served as the Company's Chairman of the Board and Chief
Executive Officer from May 2000 through September 2000. 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
3
<PAGE> 5
Burgarello Alarm, Trustee Emeritus of the University of Nevada, Reno Foundation,
and a self-employed CPA and financial advisor.
Andrew Tottenham, age 47, joined the Board of Directors in November 2000.
Mr. Tottenham has been Managing Director of Tottenham Consulting. Prior to that
time he was President and Chief Operating Officer of Trans World Gaming.
Thomas Foley, age 53, is a Director-nominee. Mr. Foley's currently a
partner with the St. Paul, Minnesota based firm, Johnson, Hamilton, Quigley,
Twit & Foley where he focuses on administrative and Indian gaming law.
Previously, Mr. Foley served, from September 1995 through 1998, as a
Commissioner to the National Indian Gaming Commission. Mr. Foley served as the
District Attorney for Ramsey County, Minnesota from 1979 through 1995.
Steve Peterson, age 46, is a Director-nominee. Mr. Peterson has been
President and a director of Xertain since its inception in 1999. Previously, Mr.
Peterson was involved with the founding and development of Intelligent Casino
Solutions, a company that develops surface systems to provide video signs with
advertising capabilities to the casino industry.
PROXIES AND VOTING
The affirmative vote of the holders of the greater of: (a) a majority of
the outstanding shares of Common Stock of the Company present and entitled to
vote on the election of directors; or (b) a majority of the voting power of the
minimum number of shares entitled to vote that would constitute a quorum for
transaction of business at the meeting, is required for election to the Board of
each of the nominees named above. A shareholder who abstains with respect to the
election of directors is considered to be present and entitled to vote on the
election of directors at the meeting, and is in effect casting a negative vote,
but a shareholder (including a broker) who does not give authority to a Proxy to
vote, or withholds authority to vote, on the election of directors, shall not be
considered present and entitled to vote on the election of directors.
All shares represented by proxies will be voted for the election of the
foregoing nominees unless a contrary choice is specified. If any nominee should
withdraw or otherwise become unavailable for reasons not presently known, the
proxies which would have otherwise been voted for such nominee will be voted for
such substitute nominee as may be selected by the Board of Directors.
4
<PAGE> 6
EXECUTIVE COMPENSATION
The following table sets forth the cash and noncash compensation for each
of the last three fiscal years through December 31, 1999 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").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------------------------ ------------
SECURITIES
FISCAL SALARY OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR COMPENSATION BONUS COMPENSATION OPTIONS
--------------------------- ------ ------------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Edward G. Stevenson(1)................. 1999 250,962 -0- 6,000 200,000
1998 250,962 70,000 6,000 300,000(2)
1997 251,000 70,000 6,000 -0-
Barrett V. Johnson..................... 1999 180,692 -0- 6,000 50,000
President and Chief Operating Officer 1998 137,192 15,000 5,300 100,000(1)
</TABLE>
---------------
(1) Edward G. Stevenson resigned from the Company on May 12, 2000. Following Mr.
Stevenson's resignation, Ronald Johnson served as the Company's interim
Chairman and Chief Executive Officer until September 14, 2000. Mr. Johnson
received $5,000 per month for his services as interim Chief Executive
Officer and was granted an additional 200,000 options with an exercise price
of $1.00 per share. On September 14, 2000 Mr. Johnson was replaced by Roland
Thomas as Chairman and Chief Executive Officer. Mr. Thomas currently
receives no cash compensation and has not yet been granted any stock
options.
(2) Includes options granted in exchange for previously granted options which
were canceled in connection with the issuance of replacement grants in
fiscal 1998.
OPTION GRANTS IN FISCAL 1999
The following tables provide certain information with respect to stock
options granted and stock options exercised during the last fiscal year by the
Named Executive Officers and the value of such officers' unexercised options at
December 31, 1999.
<TABLE>
<CAPTION>
PERCENT OF POTENTIAL REALIZABLE
NUMBER OF TOTAL VALUE AT ASSUMED ANNUAL
TOTAL OPTIONS RATES OF STOCK PRICE
SECURITIES GRANTED TO APPRECIATION FOR OPTION
UNDERLYING EMPLOYEES IN EXERCISE OR TERM($)(2)
OPTIONS FISCAL YEAR BASE PRICE EXPIRATION -----------------------
NAME GRANTED (%) ($/SH)(1) DATE 5% 10%
---- ---------- ------------ -------------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Edward G. Stevenson..... 200,000 51.2% 2.0625(3) 9/15/09 $259,419 $657,419
Barrett V. Johnson...... 50,000(4) 12.8% 2.0625(5) 9/15/09 $ 64,855 $164,355
</TABLE>
---------------
(1) Options are granted at 100 percent of the fair market value of the Company's
common stock on the date of grant.
(2) 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% 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.
(3) Mr. Stevenson's stock options were repriced to $1.00 per share on November
1, 2000.
5
<PAGE> 7
(4) An additional 200,000 options to purchase Common Stock were issued October
1, 2000 to Mr. Barrett V. Johnson at $1.00 per share.
(5) Mr. Barrett V. Johnson's stock options were repriced to $1.00 per share on
October 1, 2000.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR-END OPTION VALUES
The following table summarizes information with respect to options held by
the Named Executive Officers named in the Summary Compensation Table and the
value of the options held by such persons as of December 31, 1999.
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
NUMBER OF UNEXERCISED IN-THE-MONEY OPTIONS
SHARES OPTIONS AT FY-END (#) FY-END ($)
ACQUIRED ON VALUE --------------------------- ---------------------------
NAME EXERCISE (#) REALIZED ($) EXERCISABLE 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 AGREEMENTS
WITH DIRECTORS AND NAMED EXECUTIVE OFFICERS
In January 1999, the Company entered into a three-year employment agreement
with Edward G. Stevenson pursuant to which Mr. Stevenson was to serve the
Company as Chief Executive Officer. Pursuant to the agreement, Mr. Stevenson
received an annual base salary of $250,000 and was eligible for annual bonuses
of up to 50% of his base salary as determined by the Company's Board of
Directors. Mr. Stevenson received no bonus in Fiscal 1999.
In May 2000, Mr. Stevenson resigned as Chairman of the Board and Chief
Executive Officer of the Company. Pursuant to his Termination Agreement with the
Company, as amended, Mr. Stevenson was paid $25,000 in December 2000 and is
entitled to an additional $75,000 in the first quarter of 2001. All of Mr.
Stevenson's 200,000 options granted in Fiscal 1999 subject to the closing of the
merger with nMortgage, Inc. became vested pursuant to such Termination Agreement
and the exercise price of such options was repriced to $1.00 per share.
In October 1998, the Company and Barrett V. Johnson entered into a two-year
employment agreement pursuant to which Mr. Johnson served the Company as
President and Chief Operating Officer. Pursuant to the employment agreement, Mr.
Johnson received an annual base salary of $180,000 and was 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.
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.
In October 2000, Mr. Johnson's employment contract was not renewed. Mr.
Johnson's annual base salary was reduced to $90,000 and Mr. Johnson received an
aggregate of 200,000 additional stock options to serve as the Company's
President. When combined with options previously granted to Mr. Johnson, Mr.
Johnson has an aggregate of 300,000 stock options that are fully vested and
exercisable at $1.00 per share.
Roland Thomas was appointed the Company's Chairman of the Board and Chief
Executive Officer and Michael MacKenzie was appointed the Company's Chief
Operating Officer in September 2000. Neither Mr. Thomas nor Mr. MacKenzie have
employment agreements with the Company.
6
<PAGE> 8
DIRECTOR COMPENSATION
Directors who are not employees of the Company were 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 was 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 thus far issued 100,000 shares.
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. Such options had an exercise
price of $2.0625 per share. In September 2000, the Company amended the option
grants to Ronald Zideck and Leo Seevers to make such options vested and repriced
the $2.0625 exercise price to $1.00 per share. Mr. Ronald Johnson's options to
serve as a non-employee director were terminated in September 2000 and Mr.
Ronald Johnson, in connection with his services as interim Chairman of the Board
and Chief Executive Officer, was then granted options to purchase 200,000 shares
of the Company's Common Stock with an exercise price of $1.00 per share pursuant
to the Company's 1992 Stock Option Plan.
Mr. Ronald Johnson served as the Company's Chairman of the Board and Chief
Executive Officer for a period of time from May 12, 2000, the date of the
resignation of Edward G. Stevenson, through September 14, 2000, the date Mr.
Roland Thomas became the Company's Chairman of the Board and Chief Executive
Officer. For his services as interim Chief Executive Officer, Mr. Thomas was
compensated $5,000 per month and was issued 200,000 stock options with an
exercise price of $1.00 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee presently consists of Messrs. Johnson
and Tottenham.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
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
7
<PAGE> 9
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 Stevenson, the Chief Executive Officer during 1999, and Barrett
V. Johnson, the President and Chief Operating Officer during 1999, the base
compensation was 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. Given the Company's performance, no cash bonuses were paid to the
Company's executive officers in Fiscal 1999.
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
with nMortgage. Such options were repriced to $1.00 per share in October and
November 2000 were immediately vested and were not made contingent upon the
consummation of the merger with nMortgage. Additionally, in September 2000 the
Company issued an additional 200,000 stock options with an exercise price of
$1.00 per share to Ron Johnson for his services as interim Chief Executive
Officer and Chairman of the Board. The Compensation Committee believes that the
issuance of such options is appropriate for the additional services provided by
such executives in connection with the time spent with the proposed merger with
nMortgage and now with Xertain.
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
Currently, there is no employment agreement between the Company and Mr.
Roland Thomas, for the services Mr. Thomas provides as Chief Executive Officer.
To date, no executive officer of the Company has received compensation that
exceeds $1 million per year.
8
<PAGE> 10
AUDIT COMMITTEE REPORT
The Company has established an audit committee within the Board of
Directors which currently consists of Messrs. Ronald Johnson and Andrew
Tottenham. The Board of Directors has nominated Thomas Foley to serve on the
Audit Committee assuming Mr. Foley is elected to the Company's Board. The
primary functions of the Audit Committee are (i) to serve an as independent and
objective party to monitor the Company's financial reporting process and
internal control system, (ii) to review and appraise the audit efforts of the
Company's independent accountants and internal audit department, and (iii) to
provide an open avenue of communication among the independent accountants,
financial and senior management, the internal audit department, and the Board of
Directors.
The Board of Directors has determined that each of the audit committee
members is an "independent director," as such term is defined by Section
4200(a)(13) of the National Association of Securities Dealers' listing
standards. The Board of Directors has also determined that each of the audit
committee members is able to read and understand fundamental financial
statements and that at least one member of the audit committee has past
employment experience in finance or accounting. The Board of Directors has
reviewed, assessed the adequacy of, and approved a written audit committee
charter, which charter is set forth on Annex A to this Proxy Statement.
The Audit Committee has reviewed the Company's audited financial statements
for the last fiscal year and discussed them with management.
The Audit Committee will discuss with the independent auditors the matters
required to be discussed by Statement on Auditing Standards No. 61,
COMMUNICATION WITH AUDIT COMMITTEES, as amended, by the Auditing Standards Board
of the American Institute of Certified Public Accountants.
We will receive and review the written disclosures and the letter from the
independent auditors required by independence Standard No. 1, INDEPENDENCE
DISCUSSIONS WITH AUDIT COMMITTEES, as amended, by the Independence Standards
Board, and will discuss with the auditors the auditors' independence.
RONALD JOHNSON
ANDREW TOTTENHAM
9
<PAGE> 11
STOCK PERFORMANCE GRAPH
The Securities and Exchange Commission requires that the Company include in
this Proxy Statement 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 July
30, 1993 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 July 30, 1993, and that any dividends paid were
reinvested in the same security.
[PERFORMANCE CHART]
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------
TOTAL RETURN ANALYSIS
-------------------------------------------------------------------------------------------------
12/30/94 12/29/95 12/31/96 12/31/97 12/31/98 12/31/99
-------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
IGCA $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 Markets.
10
<PAGE> 12
RELATED-PARTY TRANSACTIONS
Xertain serves as a distributor for the Company's products in California
and internationally. During the third quarter of fiscal 2000, Company revenues
derived from Xertain's distributorship were $573,000 which accounted for 26% of
IGCA's sales during such quarter. Roland Thomas, Chief Executive Officer of the
Company is also Chief Executive Officer of Xertain. The Company and Xertain
entered into a Merger Agreement dated as of October 12, 2000, as amended
December 20, 2000, pursuant to which the Company, subject to shareholder
approval, would acquire Xertain in exchange for newly issued shares of the
Company's Common Stock equal to 45% of the Company's outstanding Common Stock.
PROPOSAL TO INCREASE THE NUMBER OF SHARES
OF COMMON STOCK RESERVED FOR ISSUANCE
UNDER THE COMPANY'S
DIRECTOR'S STOCK OPTION PLAN
In 1997, the Board of Directors adopted, subject to shareholder approval,
the Innovative Gaming Corporation of America 1997 Director Stock Option Plan
(the "Director Plan"). Subsequently, the shareholders approved the plan as
submitted and adopted by the Board of Directors, at the 1997 annual shareholders
meeting.
On December 18, 2000, the Board of Directors approved an amendment to the
Director Plan to increase the number of shares reserved for issuance thereunder
by 250,000 shares subject to approval by the Company's shareholders. A complete
text of the Director Plan is set forth in Annex B to this Proxy Statement. The
brief summary of the Director Plan that follows is qualified in its entirety by
reference to the complete text.
GENERAL
The Board of Directors believes that the grant of stock options is a
desirable and useful means to strengthen further the non-employee directors'
linkage with shareholder interests. The Director Plan provides that each
director who is not an employee of the Company or one of its subsidiaries (a
"Non-Employee Director") is entitled to receive a non-qualified stock option to
purchase shares of the Company's Common Stock at an option exercise price equal
to the fair market value of the shares on such grant date. The amount of shares
granted pursuant to the option and the vesting schedule of such option will be
determined by the Company's Board of Directors. Each option under the Director
Plan will have a ten-year term and will generally vest in equal annual
installments as determined by the Board of Directors.
The total number of shares of Common Stock that may be subject to options
issued pursuant to the Director Plan is 350,000. The number and the terms of
outstanding options are subject to automatic adjustment in the event of
reorganization, merger, consolidation, recapitalization, stock splits,
combination or exchange of shares, stock dividends or other similar events. The
Director Plan will have a ten-year term and will be administered by the Board of
Directors.
The Company will receive no consideration upon the grant of options under
the Director Plan. The exercise price of an option must be paid in full upon
exercise. Payment may be made in cash, check or, in whole or in part, in the
Common Stock of the Company already owned by the person exercising the option,
valued at fair market value.
FEDERAL INCOME-TAX CONSEQUENCES
Under current law, the federal income-tax consequences to Non-Employee
Directors and the Company under the proposed Director Plan should generally be
as follows: A director to whom a non-qualified stock option is granted will not
recognize income at the time of grant of such option. When a director exercises
the stock option, the director will recognize ordinary compensation income equal
to the difference, if any, between the exercise price paid and the fair market
value, as of the date of option exercise, of the shares the director receives.
The tax basis of such shares to the director will equal the exercise price paid
plus the amount includible in the director's gross income as compensation, and
the director's holding period for such shares will
11
<PAGE> 13
commence on the day on which the director recognizes taxable income in respect
of such shares. Subject to applicable provisions of the Internal Revenue Code of
1986, as amended, and regulations thereunder (the "Code"), the Company will
generally be entitled to a federal income-tax deduction in respect of
non-qualified stock options in an amount equal to the ordinary compensation
income recognized by the director as described above.
PROXIES AND VOTING
The affirmative vote of the holders of the greater of: (a) a majority of
the outstanding shares of Common Stock of the Company present and entitled to
vote on the amendment to the Director Plan; or (b) a majority of the voting
power of the minimum number of shares entitled to vote that would constitute a
quorum for transaction of business at the meeting, is required for approval of
the amendment to the Director Plan. A shareholder who abstains with respect to
the amendment of the Director Plan is considered to be present and entitled to
vote on the Plan at the meeting, and is in effect casting a negative vote, but a
shareholder (including a broker) who does not give authority to a Proxy to vote,
or withholds authority to vote, on the amendment to the Director Plan shall not
be considered present and entitled to vote.
Unless instructed to the contrary, all proxies will be voted FOR the
approval of the amendment to the Director Plan.
PROPOSAL TO INCREASE THE NUMBER OF SHARES OF COMMON
STOCK RESERVED FOR ISSUANCE UNDER THE COMPANY'S 1992 STOCK
OPTION AND COMPENSATION PLAN
On December 18, 2000, the Board of Directors approved an amendment to the
Plan to increase the number of shares reserved for issuance thereunder by
1,150,000 shares subject to approval by the Company's shareholders. A complete
text of the Plan is set forth as Annex C to this Proxy Statement. The brief
summary of the Plan which follows is qualified in its entirety by reference to
the complete text.
GENERAL
The purpose of the Plan is to increase shareholder value and to advance the
interests of the Company by furnishing a variety of economic incentives
("Incentives") designed to attract, retain and motivate employees of and
consultants to the Company.
The Plan provides that a committee (the "Committee") composed of at least
two members of the board of directors of the Company who have not received
Incentives under the Plan or any other plan of the Company for at least one year
may grant Incentives in the following forms: (a) stock options; (b) stock
appreciation rights; (c) stock awards; (d) restricted stock; (e) performance
shares; and (f) cash awards. Incentives may be granted to participants who are
employees of or consultants to the Company (including officers and directors of
the Company who are also employees of or consultants to the Company) selected
from time to time by the Committee.
The number of shares of Common Stock which may be issued under the Plan if
this amendment is approved may not exceed 2,500,000, subject to adjustment in
the event of a merger, recapitalization or other corporate restructuring. This
represents approximately 25% of the outstanding shares of Common Stock on the
Record Date.
STOCK OPTIONS
Under the Plan, the Committee may grant non-qualified and incentive stock
options to eligible employees to purchase shares of Common Stock from the
Company. The Plan confers discretion on the Committee, with respect to any such
stock option, to determine the number and purchase price of the shares subject
to the option, the term of each option and the time or times during its term
when the option becomes exercisable. The purchase price for incentive stock
options may not be less than the fair market value of the shares subject to the
option on the date of grant. The number of shares subject to an option will be
reduced proportionately to
12
<PAGE> 14
the extent that the optionee exercises a related stock appreciation right
("SAR"). The term of a non-qualified option may not exceed 10 years and one day
from the date of grant and the term of an incentive stock option may not exceed
10 years from the date of grant. Any option shall become immediately exercisable
in the event of specified changes in corporate ownership or control. The
Committee may accelerate the exercisability of any option or may determine to
cancel stock options in order to make a participant eligible for the grant of an
option at a lower price. The Committee may approve the purchase by the Company
of an unexercised stock option for the difference between the exercise price and
the fair market value of the shares covered by such option.
The option price may be paid in cash, check, bank draft or by delivery of
shares of Common Stock valued at their fair market value at the time of purchase
or by withholding from the shares issuable upon exercise of the option shares of
Common Stock valued at their fair market value or as otherwise authorized by the
Committee.
In the event that an optionee ceases to be an employee of or consultant to
the Company for any reason, including death, any stock option or unexercised
portion thereof which was otherwise exercisable on the date of termination of
employment shall expire at the time or times established by the Committee.
STOCK APPRECIATION RIGHTS
A stock appreciation right or a "SAR" is a right to receive, without
payment to the Company, a number of shares, cash or any combination thereof, the
amount of which is determined pursuant to the formula described below. An SAR
may be granted with respect to any stock option granted under the Plan, or
alone, without reference to any stock option. An SAR granted with respect to any
stock option may be granted concurrently with the grant of such option or at
such later time as determined by the Committee and as to all or any portion of
the shares subject to the option.
The Plan confers on the Committee discretion to determine the number of
shares as to which an SAR will relate as well as the duration and exercisability
of an SAR. In the case of an SAR granted with respect to a stock option, the
number of shares of Common Stock to which the SAR pertains will be reduced in
the same proportion that the holder exercises the related option. The term of an
SAR may not exceed ten years and one day from the date of grant. Unless
otherwise provided by the Committee, an SAR will be exercisable for the same
time period as the stock option to which it relates is exercisable. Any SAR
shall become immediately exercisable in the event of specified changes in
corporate ownership or control. The Committee may accelerate the exercisability
of any SAR.
Upon exercise of an SAR, the holder is entitled to receive an amount which
is equal to the aggregate amount of the appreciation in the shares of Common
Stock as to which the SAR is exercised. For this purpose, the "appreciation" in
the shares consists of the amount by which the fair market value of the shares
of Common Stock on the exercise date exceeds (a) in the case of an SAR related
to a stock option, the purchase price of the shares under the option or (b) in
the case of an SAR granted alone, without reference to a related stock option,
an amount determined by the Committee at the time of grant. The Committee may
pay the amount of this appreciation to the holder of the SAR by the delivery of
Common Stock, cash, or any combination of Common Stock and cash.
RESTRICTED STOCK
Restricted stock consists of the sale or transfer by the Company to an
eligible participant of one or more shares of Common Stock which are subject to
restrictions on their sale or other transfer by the employee. The price at which
restricted stock will be sold will be determined by the Committee, and it may
vary from time to time and among employees and may be less than the fair market
value of the shares at the date of sale. All shares of restricted stock will be
subject to such restrictions as the Committee may determine. Subject to these
restrictions and the other requirements of the Plan, a participant receiving
restricted stock shall have all of the rights of a shareholder as to those
shares.
13
<PAGE> 15
STOCK AWARD
Stock awards consist of the transfer by the Company to an eligible
participant of shares of Common Stock, without payment, as additional
compensation for services to the Company. The number of shares transferred
pursuant to any stock award will be determined by the Committee.
PERFORMANCE SHARES
Performance shares consist of the grant by the Company to an eligible
participant of a contingent right to receive cash or payment of shares of Common
Stock. The performance shares shall be paid in shares of Common Stock to the
extent performance objectives set forth in the grant are achieved. The number of
shares granted and the performance criteria will be determined by the Committee.
CASH AWARDS
A cash award consists of a monetary payment made by the Company to an
eligible participant as additional compensation for his services to the Company.
Payment may depend on the achievement of specified performance objectives. The
amount of any monetary payment constituting a cash award shall be determined by
the Committee.
NON-TRANSFERABILITY OF MOST INCENTIVES
No stock option, an SAR, performance share or restricted stock granted
under the Plan will be transferable by its holder, except in the event of the
holder's death, by will or the laws of descent and distribution. During an
employee's lifetime, an Incentive may be exercised only by him or her or by his
or her guardian or legal representative.
AMENDMENT OF THE PLAN
The Board of Directors may amend or discontinue the Plan at any time.
However, no such amendment or discontinuance may, subject to adjustment in the
event of a merger, recapitalization, or other corporate restructuring, (a)
change or impair, without the consent of the recipient thereof, an Incentive
previously granted, (b) materially increase the maximum number of shares of
Common Stock which may be issued to all employees under the Plan, (c) materially
change or expand the types of Incentives that may be granted under the Plan, (d)
materially modify the requirements as to eligibility for participation in the
Plan, or (e) materially increase the benefits accruing to participants. Certain
Plan amendments require shareholder approval, including amendments which would
materially increase benefits accruing to participants, increase the number of
securities issuable under the Plan, or change the requirements for eligibility
under the Plan.
FEDERAL INCOME-TAX CONSEQUENCES
The following discussion sets forth certain United States income-tax
considerations in connection with the ownership of Common Stock. These tax
considerations are stated in general terms and are based on the Internal Revenue
Code of 1986, as amended, regulations thereunder and judicial and administrative
interpretations thereof. This discussion does not address state or local tax
considerations with respect to the ownership of Common Stock. Moreover, the tax
considerations relevant to ownership of the Common Stock may vary depending on a
holder's particular status.
Under existing Federal income tax provisions, a participant who receives a
stock option or performance shares or an SAR under the Plan or who purchases or
receives shares of restricted stock under the Plan which are subject to
restrictions which create a "substantial risk of forfeiture" (within the meaning
of section 83 of the Internal Revenue Code) will not normally realize any
income, nor will the Company normally receive any deduction for federal income
tax purposes in the year such Incentive is granted. A participant who receives a
stock award under the Plan consisting of shares of Common Stock will realize
ordinary income in the year of the award in an amount equal to the fair market
value of the shares of Common Stock covered by the award on the date it is made,
and the Company will be entitled to a deduction equal to the amount the
participant is
14
<PAGE> 16
required to treat as ordinary income. A participant who receives a cash award
will realize ordinary income in the year the award is paid equal to the amount
thereof, and the amount of the cash will be deductible by the Company.
When a non-qualified stock option granted pursuant to the Plan is
exercised, the participant will realize ordinary income measured by the
difference between the aggregate purchase price of the shares of Common Stock as
to which the option is exercised and the aggregate fair market value of shares
of the Common Stock on the exercise date, and the Company will be entitled to a
deduction in the year the option is exercised equal to the amount the
participant is required to treat as ordinary income.
Options which qualify as incentive stock options are entitled to special
tax treatment. Under existing federal income tax law, if shares purchased
pursuant to the exercise of such an option are not disposed of by the optionee
within two years from the date of granting of the option or within one year
after the transfer of the shares to the optionee, whichever is longer, then: (i)
no income will be recognized to the optionee upon the exercise of the option;
(ii) any gain or loss will be recognized to the optionee only upon ultimate
disposition of the shares and, assuming the shares constitute capital assets in
the optionee's hands, will be treated as long-term capital gain or loss; (iii)
the optionee's basis in the shares purchased will be equal to the amount of cash
paid for such shares; and (iv) the Company will not be entitled to a federal
income tax deduction in connection with the exercise of the option. The Company
understands that the difference between the option price and the fair market
value of the shares acquired upon exercise of an incentive stock option will be
treated as an "item of tax preference" for purposes of the alternative minimum
tax. In addition, incentive stock options exercised more than three months after
retirement are treated as non-qualified options.
The Company further understands that if the optionee disposes of the shares
acquired by exercise of an incentive stock option before the expiration of the
holding period described above, the optionee must treat as ordinary income in
the year of that disposition an amount equal to the difference between the
optionee's basis in the shares and the lesser of the fair market value of the
shares on the date of exercise or the selling price. In addition, the Company
will be entitled to a deduction equal to the amount the participant is required
to treat as ordinary income.
If the exercise price of an option is paid by surrender of previously owned
shares, the basis of the shares received in replacement of the previously owned
shares is carried over. If the option is a nonstatutory option, the gain
recognized on exercise is added to the basis. If the option is an incentive
stock option, the optionee will recognize gain if the shares surrendered were
acquired through the exercise of an incentive stock option and have not been
held for the applicable holding period. This gain will be added to the basis of
the shares received in replacement of the previously owned shares.
When a stock appreciation right granted pursuant to the Plan is exercised,
the participant will realize ordinary income in the year the right is exercised
equal to the value of the appreciation which he is entitled to receive pursuant
to the formula described above, and the Company will be entitled to a deduction
in the same year and in the same amount.
A participant who receives restricted stock or performance shares subject
to restrictions which create a "substantial risk of forfeiture" (within the
meaning of section 83 of the Internal Revenue Code) will normally realize
taxable income on the date the shares become transferable or no longer subject
to substantial risk of forfeiture or on the date of their earlier disposition.
The amount of such taxable income will be equal to the amount by which the fair
market value of the shares of Common Stock on the date such restrictions lapse
(or any earlier date on which the shares are disposed of) exceeds their purchase
price, if any. A participant may elect, however, to include in income in the
year of purchase or grant the excess of the fair market value of the shares of
Common Stock (without regard to any restrictions) on the date of purchase or
grant over its purchase price. The Company will be entitled to a deduction for
compensation paid in the same year and in the same amount as income is realized
by the employee.
15
<PAGE> 17
PROXIES AND VOTING
The affirmative vote of the holders of the greater of: (a) a majority of
the outstanding shares of Common Stock of the Company present and entitled to
vote on the proposed Plan amendment; or (b) a majority of the voting power of
the minimum number of shares entitled to vote that would constitute a quorum for
transaction of business at the meeting, is required to approve the proposal to
increase the number of shares of common stock reserved for issuance under the
Plan. A shareholder who abstains with respect to the proposed Plan amendment is
considered to be present and entitled to vote at the meeting, and is in effect
casting a negative vote, but a shareholder (including a broker) who does not
give authority to a Proxy to vote on the proposed Plan amendment shall not be
considered present and entitled to vote on the proposed amendment.
All shares represented by proxies will be voted FOR approval of the
proposed Plan amendment unless a contrary choice is specified.
OTHER MATTERS
BOARD OF DIRECTORS AND COMMITTEES
The Board of Directors held seven meetings during Fiscal 1999 and took
action pursuant to written actions. No director attended fewer than
three-fourths of the aggregate number of meetings of the Board of Directors and
the Committees of the Board of Directors described below. The Company's
Compensation Committee presently consists of Messrs. Johnson, Tottenham and an
Audit Committee presently consisting of Messrs. Johnson and Tottenham, but does
not have a nominating committee of the Board of Directors. Messrs. Johnson,
Tottenham and Foley have agreed to serve on the Audit Committee, and Messrs.
Johnson and Tottenham have agreed to serve on the Compensation Committee if
elected to the Board of Directors at the 2000 Annual Meeting of Shareholders.
The Company's Compensation Committee did not meet during 1999, but did take
action pursuant to written actions during 1999. The Compensation Committee
administers the 1992 Stock Option and Compensation Plan and the 1998
Non-Executive Employee Stock Option Plan. The Company's Audit Committee did not
meet during 1999, but did take action pursuant to written actions during 1999.
INDEPENDENT ACCOUNTANTS
During October 1999, Arthur Andersen LLP resigned as independent public
accountants for the Company and the Company retained Kafoury & Armstrong & Co.
in their place. Representatives of Kafoury & Armstrong & Co. are expected to be
present at the 2000 Annual Meeting of Shareholders, will have the opportunity to
make a statement if they desire to do so, and are expected to be available to
respond to appropriate questions.
COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 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 with the Securities and Exchange Commission
and NASDAQ. Officers, directors, and greater-than-ten-percent shareholders are
required by SEC regulation to furnish the Company with copies of all Section
16(a) forms they file. 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 year ended December 31, 1999 all
Section 16(a) filing requirements applicable to its officers, directors, and
greater-than-ten-percent beneficial owners were complied with.
PROPOSALS OF SHAREHOLDERS
Pursuant to Rule 14a-8 promulgated under the Securities Exchange Act of
1934, all proposals of shareholders intended to be presented at the 2001 Annual
Meeting of Shareholders must be received by the
16
<PAGE> 18
Company at its executive offices on or before 120 days prior to the day
corresponding to the date that proxy materials were sent for this year's annual
meeting. The Company presently intends to hold its next annual meeting in May
2001. Given that the 2001 Annual Meeting of Shareholders is held on a date that
is more than 30 days from the January 19, 2001, then all proposals of
shareholder must be received within a reasonable time before the Company begins
to mail its proxy materials for the 2001 Annual Meeting of Shareholder.
On May 21, 1998, the Securities and Exchange Commission amended Rule 14a-4
of the Securities Exchange Act of 1934. The amendment governs the Company's use
of its discretionary proxy voting authority with respect to a shareholder
proposal which the shareholder has not sought to include in the Company's proxy
statement. The new amendment provides that if a proponent of a proposal fails to
notify the Company at least 45 days prior to the month and day of mailing of the
prior year's proxy statement of a shareholder proposal, then the management
proxies will be allowed to use their discretionary voting authority when the
proposal is raised at the meeting, without any discussion of the matter in the
proxy statement.
With respect to the Company's 2001 Annual Meeting of Shareholders, if the
Company is not provided notice of a stockholder proposal which the stockholder
has not previously sought to include in the Company's proxy statement by March
30, 2001, the management proxies will be allowed to use their discretionary
authority as outlined above.
SOLICITATION
The Company will bear the cost of preparing, assembling and mailing the
proxy, Proxy Statement, Annual Report and other material which may be sent to
the shareholders in connection with this solicitation. Brokerage houses and
other custodians, nominees, and fiduciaries may be requested to forward
soliciting material to the beneficial owners of stock, in which case they will
be reimbursed by the Company for their expenses in doing so. Proxies are being
solicited primarily by mail, but, in addition officers and regular employees of
the Company may solicit proxies personally, by telephone, by telegram or by
special letter.
The Board of Directors does not intend to present to the meeting any other
matter not referred to above and does not presently know of any matters that may
be presented to the meeting by others. However, if other matters come before the
meeting, it is the intent of the persons named in the enclosed proxy to vote the
proxy in accordance with their best judgment.
By Order of the Board of Directors
INNOVATIVE GAMING CORPORATION OF
AMERICA
/s/ ROLAND THOMAS
------------------------------------
Roland Thomas
Chief Executive Officer
17
<PAGE> 19
ANNEX A
INNOVATIVE GAMING CORPORATION OF AMERICA
AUDIT COMMITTEE CHARTER
BOARD OF DIRECTORS
There shall be a Committee of the Innovative Gaming Corporation of America
("IGCA") Board of Directors to be known as the Audit Committee (the
"Committee"). The Committee shall be composed of outside directors who are
independent of management of IGCA and are free of any relationship that in the
opinion of the Board of Directors would interfere with their exercise of
independent judgment as a Committee member ("Independent Directors"). Prior to
June 14, 2001, the Committee shall consist of at least two Independent Directors
and on/and after June 14, 2001, the Committee shall consist of at least three
Independent Directors.
The Committee shall provide assistance to the Board of Directors in
fulfilling their responsibility to shareholders, potential shareholders and the
Investment community relating to the quality and integrity of IGCA'S accounting
and financial reporting practices. In so doing, it is the responsibility of the
Committee to maintain free and open means of communications between the
directors, the independent auditors, and the financial management of IGCA.
In carrying out these responsibilities, the Committee will:
1. Review and recommend to the Board of Directors, the engagement or
termination of IGCA'S independent auditors.
2. Meet with the independent auditors and financial management of IGCA
to review the scope of the proposed audit for each year and the audit
procedures to be utilized and, at the conclusion thereof, review such audit
including any comments or recommendations of the independent auditors.
3. Review the independence of IGCA'S independent auditors.
4. Review with the independent auditors and with IGCA'S financial
accounting personnel, the adequacy and effectiveness of accounting and
financial controls of IGCA and consider any recommendations for improvement
of such internal controls.
5. Prior to the release of the annual report to shareholders, the
Committee should review the financial statements with the independent
auditors to ensure satisfactory disclosure and content. Any changes in
accounting principles should be reviewed.
6. Examine and consider such other matters in relation to the internal
and external audit of IGCA'S accounts and in relation to the financial
affairs of and its accounts as the Committee may, in its own discretion,
determine to be desirable.
7. Consult directly with IGCA'S independent auditors with respect to
the above matters, to the extent the Committee may, in its own discretion,
determine to be advisable.
8. Within the scope of its duties, the Committee has the right and the
responsibility to investigate or have investigated any variance or matter
of concern brought to its attention. It specifically has the power to
consult with legal counsel or retain outside counsel for this purpose if,
in its judgment, that is appropriate.
9. Review and approve (with the concurrence of a majority of the
disinterested directors of IGCA) any transactions with affiliated parties.
10. At all meetings of the Committee, sufficient opportunity should be
made available for the independent auditors to meet with members of the
Committee without members of the management present. Among items for
potential discussion in these meetings are the independent auditors
evaluation
18
<PAGE> 20
of IGCA'S financial and accounting personnel, and the cooperation which the
independent auditors received during the course of their audit.
11. Minutes and Reports of all meetings of the Committee shall be
given to the Board of Directors.
In carrying out their responsibilities, the Committee should remain
operationally flexible in order that it can best react to changing conditions
and environment and to assure the directors and shareholders that the corporate
accounting and financial reporting practices of IGCA are in accordance with all
requirements and are of the highest quality.
It is acknowledged that the scope of activity being undertaken by the
Committee is evolving actively at this time. Therefore, the Board may choose to
alter or amend this charter at any time.
19
<PAGE> 21
ANNEX B
INNOVATIVE GAMING CORPORATION OF AMERICA
1997 DIRECTORS STOCK OPTION PLAN
1. Purpose. The purpose of the Innovative Gaming Corporation of America
1997 Director Stock Option Plan (the "Plan") is to advance the interests of
Innovative Gaming Corporation of America (the "Company") and its shareholders by
encouraging share ownership by members of the Board of Directors of the Company
(the "Board") who are not employees of the Company or any of its subsidiaries,
in order to promote long-term shareholder value through continuing ownership of
the Company's common stock.
2. Administration. The plan shall be administered by the Board. The Board
shall have all the powers vested in it by the terms of the Plan, such powers to
include authority (within the limitations described herein) to prescribe the
form of the agreement embodying awards of nonqualified stock options made under
the Plan ("Options"). The Board shall, subject to the provisions of the Plan,
grant Options under the Plan and shall have the power to construe the Plan, to
determine all questions arising thereunder and to adopt and amend such rules and
regulations for the administration of the Plan as it may deem desirable. Any
decisions of the Board in the administration of the Plan, as described herein,
shall be final and conclusive. The Board may act only by a majority of its
members in office, except that the members thereof may authorize any one or more
of their number or any other officer of the Company to execute and deliver
documents on behalf of the Board. No member of the Board shall be liable for
anything done or omitted to be done by him or by any other member of the Board
in connection with the Plan, except for his own willful misconduct or as
expressly provided by statute.
3. Participation. Each member of the Board who is not an employee of the
Company or any of its subsidiaries (a "Non-Employee Director") shall be eligible
to receive an Option in accordance with Paragraph 5 below.
4. Awards Under the Plan.
(a) Awards under the Plan shall include only Options, which are rights
to purchase common stock of the Company having a par value of $0.01 per
share (the "Common Stock"). Such Options are subject to the terms,
conditions and restrictions specified in Paragraph 5 below.
(b) There may be issued under the Plan pursuant to the exercise of
Options an aggregate of not more than 350,000 shares of Common Stock,
subject to adjustment as provided in Paragraph 6 below. If any Option is
canceled, terminates or expires unexercised, in whole or in part, any
shares of Common Stock that would otherwise have been issuable pursuant
thereto will be available for issuance under new Options.
(c) A Non-Employee Director to whom an Option is granted (and any
person succeeding to such a Non-Employee Director's rights pursuant to the
Plan) shall have no rights as a shareholder with respect to any Common
Stock issuable pursuant to any such Option until the date of the issuance
of a stock certificate to him for such shares. Except as provided in
Paragraph 6 below, no adjustment shall be made for dividends, distributions
or other rights (whether ordinary or extraordinary, and whether in cash,
securities or other property) for which the record date is prior to the
date such stock certificate is issued.
5. Nonqualified Stock Options. Each Option granted under the Plan shall be
evidenced by an agreement in such form as the Board shall prescribe from time to
time in accordance with the Plan and shall comply with the following terms and
conditions:
(a) The Option exercise price shall be the "Fair Market Value" (as
herein defined) of the Common Stock subject to such Option on the date the
Option is granted. Fair Market Value shall be the closing sales price of a
share of Common Stock on the date of grant as reported on the Nasdaq
National Market or, if the Nasdaq National Market is closed on that date,
on the last preceding date on which the Nasdaq
20
<PAGE> 22
National Market was open for trading, but in no event will such Option
exercise price be less than the par value of the Common Stock.
(b) The Board shall determine the number of shares of Common Stock
subject to each Option granted to Non-Employee Directors and, subject to
Section 5(d) hereof, the vesting schedule of each such Option.
Notwithstanding the foregoing, once such Options become outstanding, a
Non-Employee Director will still be entitled to the anti-dilution
adjustments provided for in Section 6 hereof.
(c) The Option shall not be transferable by the optionee otherwise
than by will or the laws of descent and distribution, and shall be
exercisable during his lifetime only by him.
(d) Options shall not be exercisable:
(i) Except pursuant to the vesting schedule established by the
Board of Directors. Notwithstanding anything to the contrary herein, an
Option shall automatically become immediately exercisable in full; (i)
upon the removal of the Non-Employee Director from the Board without
cause; or (ii) in the event of a "change in control" of the Company, as
defined in any existing agreements between the Company and its senior
officers;
(ii) unless payment in full is made for the shares of Common Stock
being acquired thereunder at the time of exercise, such payment shall be
made in United States dollars by cash or check, or in lieu thereof, by
tendering to the Company Common Stock owned by the person exercising the
Option and having a Fair Market Value equal to the cash exercise price
applicable to such Option, or by a combination of United States dollars
and Common Stock as aforesaid; and
(iii) unless the person exercising the Option has been at all times
during the period beginning with the date of grant of the Option and
ending on the date of such exercise, a Non-Employee Director of the
Company, except that
(A) if such person shall cease to be such a Non-Employee
Director for reasons other than death, while holding an Option that
has not expired and has not been fully exercised, such person may, at
any time within three years of the date he ceased to be a
Non-Employee Director (but in no event after the Option has expired
under the provisions of subparagraph 5(d)(i) above), exercise the
Option with respect to any Common Stock as to which he could have
exercised on the date he ceased to be such a Non-Employee Director;
or
(B) if any person to whom an Option has been granted shall die
holding an Option that has not expired and has not been fully
exercised, his executors, administrators, heirs or distributees, as
the case may be, may, at any time within one year after the date of
such death (but in no event after the Option has expired under the
provisions of subparagraph 5(d)(i) above), exercise the Option with
respect to any shares subject to the Option.
6. Dilution and Other Adjustments. In the event of any change in the
outstanding Common Stock of the Company by reason of any stock split, stock
dividend, split-up, split-off, spin-off, recapitalization, merger,
consolidation, rights offering, reorganization, combination or exchange of
shares, a sale by the Company of a significant portion of its assets, any
distribution to shareholders other than a normal cash dividend, or other
extraordinary or unusual event, the number or kind of shares that may be issued
under the Plan pursuant to subparagraph 4(b) above, and the number or kind of
shares subject to, and the Option price per share under, all outstanding Options
shall be automatically adjusted so that the proportionate interest of the
participant shall be maintained as before the occurrence of such event; such
adjustment in outstanding Options shall be made without change in the total
Option exercise price applicable to the unexercised portion of such Options and
with a corresponding adjustment in the Option exercise price per share, and such
adjustment shall be conclusive and binding for all purposes of the Plan.
7. Miscellaneous Provisions.
(a) Except as expressly provided for in the Plan, no Non-Employee
Director or other person shall have any claim or right to be granted an
Option under the Plan. Neither the Plan nor any action taken
21
<PAGE> 23
hereunder shall be construed as giving any Non-Employee Director any right
to be retained in the service of the Company.
(b) A participant's rights and interest under the Plan may not be
assigned or transferred, hypothecated or encumbered in whole or in part
either directly or by operation of law or otherwise (except in the event of
a participant's death, by will or the laws of descent and distribution),
including, but not by way of limitation, execution, levy, garnishment,
attachment, pledge, bankruptcy or in any other manner, and no such right or
interest of any participant in the Plan shall be subject to any obligation
or liability of such participant.
(c) Common Stock shall not be issued hereunder unless counsel for the
Company shall be satisfied that such issuance will be in compliance with
applicable federal, state, local and foreign securities, securities
exchange and other applicable laws and requirements.
(d) It shall be a condition to the obligation of the Company to issue
Common Stock upon exercise of an Option, that the participant (or any
beneficiary or person entitled to act under subparagraph 5(d)(iii)(B)
above) pay to the Company, upon its demand, such amount as may be requested
by the Company for the purpose of satisfying any liability to withhold
federal, state, local or foreign income or other taxes. If the amount
requested is not paid, the Company may refuse to issue such Common Stock.
(e) The expenses of the Plan shall be borne by the Company.
(f) By accepting any Option or other benefit under the Plan, each
participant and each person claiming under or through him shall be
conclusively deemed to have indicated his acceptance and ratification of,
and consent to, any action taken under the Plan by the Company or the
Board.
(g) The appropriate officers of the Company shall cause to be filed
any reports, returns or other information regarding Options hereunder or
any Common Stock issued pursuant hereto as may be required by Section 13 or
15(d) of the Securities Exchange Act of 1934, as amended, or any other
applicable statute, rule or regulation.
8. Amendment or Discontinuance. The Plan may be amended at any time and
from time to time by the Board as the Board shall deem advisable; provided,
however, that no amendment shall become effective without shareholder approval
if such shareholder approval is required by law, rule or regulation, and in no
event shall the Plan be amended more than once every six months, other than to
comport with changes in the Internal Revenue Code of 1986, as amended, the
Employee Retirement Income Security Act or the rules thereunder. No amendment of
the Plan shall materially and adversely affect any right of any participant with
respect to any Option theretofore granted without such participant's written
consent.
9. Termination. This Plan shall terminate upon the earlier of the
following dates or events to occur upon the adoption of a resolution of the
Board terminating the Plan or ten years from the date the Plan is initially
approved and adopted by the shareholders of the Company. No termination of the
Plan shall materially and adversely affect any of the rights or obligations of
any person, without his consent, under any Option theretofore granted under the
Plan.
10. Effective Date of Plan. The Plan will become effective on the date
that it is approved by the affirmative vote of the holders of the greater of (a)
a majority of the outstanding shares of Common Stock of the Company present and
entitled to vote or (b) a majority of the voting power of the minimum number of
shares entitled to vote that would constitute a quorum for transaction of
business at the Company's 1997 Annual Meeting of Shareholders.
22
<PAGE> 24
ANNEX C
INNOVATIVE GAMING CORPORATION OF AMERICA
1992 STOCK OPTION AND
COMPENSATION PLAN, AS AMENDED
1. Purpose. The purpose of the 1992 Stock Option and Compensation Plan
(the "Plan") of Innovative Gaming Corporation of America (the "Company") is to
increase stockholder value and to advance the interests of the Company by
furnishing a variety of economic incentives ("Incentives") designed to attract,
retain and motivate employees and certain key consultants. Incentives may
consist of opportunities to purchase or receive shares of Common Stock, $0.01
par value, of the Company ("Common Stock"), monetary payments or both on terms
determined under this Plan.
2. Administration. The Plan shall be administered by the stock option
committee (the "Committee") of the board of directors of the Company. The
Committee shall consist of not less than two directors of the Company and shall
be appointed from time to time by the board of directors of the Company. Each
member of the Committee shall be a "disinterested person" within the meaning of
Rule 16b-3 of the Securities Exchange Act of 1934, and the regulations
promulgated thereunder (the "1934 Act"). The board of directors of the Company
may from time to time appoint members of the Committee in substitution for, or
in addition to, members previously appointed, and may fill vacancies, however
caused, in the Committee. The Committee shall select one of its members as its
chairman and shall hold its meetings at such times and places as it shall deem
advisable. A majority of the Committee's members shall constitute a quorum. All
action of the Committee shall be taken by the majority of its members. Any
action may be taken by a written instrument signed by majority of the members
and actions so taken shall be fully effective as if it had been made by a
majority vote at a meeting duly called and held. The Committee may appoint a
secretary, shall keep minutes of its meetings and shall make such rules and
regulations for the conduct of its business as it shall deem advisable. The
Committee shall have complete authority to award Incentives under the Plan, to
interpret the Plan, and to make any other determination which it believes
necessary and advisable for the proper administration of the Plan. The
Committee's decisions and matters relating to the Plan shall be final and
conclusive on the Company and its participants.
3. Eligible Participants. Employees of or consultants to the Company or
its subsidiaries or affiliates (including officers and directors who are
employees of or consultants to the Company or its subsidiaries or affiliates),
shall become eligible to receive Incentives under the Plan when designated by
the Committee. Participants may be designated individually or by groups or
categories (for example, by pay grade) as the Committee deems appropriate.
Participation by officers of the Company or its subsidiaries or affiliates and
any performance objectives relating to such officers must be approved by the
Committee. Participation by others and any performance objectives relating to
others may be approved by groups or categories (for example, by pay grade) and
authority to designate participants who are not officers and to set or modify
such targets may be delegated.
4. Types of Incentives. Incentives under the Plan may be granted in any
one or a combination of the following forms: (a) incentive stock options and
non-statutory stock options (section 6); (b) stock appreciation rights ("SARs")
(section 7); (c) stock awards (section 8); (d) restricted stock (section 8); (e)
performance shares (section 9); and (f) cash awards (section 10).
5. Shares Subject to the Plan.
5.1. Number of Shares. Subject to adjustment as provided in Section
11.6, the number of shares of Common Stock which may be issued under the
Plan shall not exceed 2,500,000 shares of Common Stock, subject to approval
by the shareholders of the Company at the next annual meeting of
shareholders.
5.2. Cancellation. To the extent that cash in lieu of shares of
Common Stock is delivered upon the exercise of a SAR pursuant to Section
7.4, the Company shall be deemed, for purposes of applying the
23
<PAGE> 25
limitation on the number of shares, to have issued the greater of the
number of shares of Common Stock which it was entitled to issue upon such
exercise or on the exercise of any related option. In the event that a
stock option or SAR granted hereunder expires or is terminated or canceled
unexercised as to any shares of Common Stock, such shares may again be
issued under the Plan either pursuant to stock options, SARs or otherwise.
In the event that shares of Common Stock are issued as restricted stock or
pursuant to a stock award and thereafter are forfeited or reacquired by the
Company pursuant to rights reserved upon issuance thereof, such forfeited
and reacquired shares may again be issued under the Plan, either as
restricted stock, pursuant to stock awards or otherwise. The Committee may
also determine to cancel, and agree to the cancellation of, stock options
in order to make a participant eligible for the grant of a stock option at
a lower price than the option to be canceled.
5.3. Type of Common Stock. Common Stock issued under the Plan in
connection with stock options, SARs, performance shares, restricted stock
or stock awards, may be authorized and unissued shares.
6. Stock Options. A stock option is a right to purchase shares of Common
Stock from the Company. Each stock option granted by the Committee under this
Plan shall be subject to the following terms and conditions:
6.1. Price. The option price per share shall be determined by the
Committee, subject to adjustment under Section 11.6.
6.2. Number. The number of shares of Common Stock subject to the
option shall be determined by the Committee, subject to adjustment as
provided in Section 11.6. The number of shares of Common Stock subject to a
stock option shall be reduced in the same proportion that the holder
thereof exercises a SAR if any SAR is granted in conjunction with or
related to the stock option.
6.3. Duration and Time for Exercise. Subject to earlier termination
as provided in Section 11.4, the term of each stock option shall be
determined by the Committee but shall not exceed ten years and one day from
the date of grant. Each stock option shall become exercisable at such time
or times during its term as shall be determined by the Committee at the
time of grant. The Committee may accelerate the exercisability of any stock
option. Subject to the foregoing and with the approval of the Committee,
all or any part of the shares of Common Stock with respect to which the
right to purchase has accrued may be purchased by the Company at the time
of such accrual or at any time or times thereafter during the term of the
option.
6.4. Manner of Exercise. A stock option may be exercised, in whole or
in part, by giving written notice to the Company, specifying the number of
shares of Common Stock to be purchased and accompanied by the full purchase
price for such shares. The option price shall be payable in United States
dollars upon exercise of the option and may be paid by cash; uncertified or
certified check; bank draft; by delivery of shares of Common Stock in
payment of all or any part of the option price, which shares shall be
valued for this purpose at the Fair Market Value on the date such option is
exercised; by instructing the Company to withhold from the shares of Common
Stock issuable upon exercise of the stock option shares of Common Stock in
payment of all or any part of the option price, which shares shall be
valued for this purpose at the Fair Market Value or in such other manner as
may be authorized from time to time by the Committee. Prior to the issuance
of shares of Common Stock upon the exercise of a stock option, a
participant shall have no rights as a stockholder.
6.5. Incentive Stock Options. Notwithstanding anything in the Plan to
the contrary, the following additional provisions shall apply to the grant
of stock options which are intended to qualify as Incentive Stock Options
(as such term is defined in Section 422A of the Internal Revenue Code of
1986, as amended):
(a) The aggregate Fair Market Value (determined as of the time the
option is granted) of the shares of Common Stock with respect to which
Incentive Stock Options are exercisable for the first time by any
participant during any calendar year (under all of the Company's plans)
shall not exceed $100,000.
24
<PAGE> 26
(b) Any Incentive Stock Option certificate authorized under the
Plan shall contain such other provisions as the Committee shall deem
advisable, but shall in all events be consistent with and contain all
provisions required in order to qualify the options as Incentive Stock
Options.
(c) All Incentive Stock Options must be granted within ten years
from the earlier of the date on which this Plan was adopted by board of
directors or the date this Plan was approved by the stockholders.
(d) Unless sooner exercised, all Incentive Stock Options shall
expire no later than 10 years after the date of grant.
(e) The option price for Incentive Stock Options shall be not less
than the Fair Market Value of the Common Stock subject to the option on
the date of grant.
(f) No Incentive Stock Options shall be granted to any participant
who, at the time such option is granted, would own (within the meaning
of Section 422A of the Code) stock possessing more than 10% of the total
combined voting power of all classes of stock of the employer
corporation or of its parent or subsidiary corporation.
7. Stock Appreciation Rights. A SAR is a right to receive, without payment
to the Company, a number of shares of Common Stock, cash or any combination
thereof, the amount of which is determined pursuant to the formula set forth in
Section 7.4. A SAR may be granted (a) with respect to any stock option granted
under this Plan, either concurrently with the grant of such stock option or at
such later time as determined by the Committee (as to all or any portion of the
shares of Common Stock subject to the stock option), or (b) alone, without
reference to any related stock option. Each SAR granted by the Committee under
this Plan shall be subject to the following terms and conditions:
7.1. Number. Each SAR granted to any participant shall relate to such
number of shares of Common Stock as shall be determined by the Committee,
subject to adjustment as provided in Section 11.6. In the case of a SAR
granted with respect to a stock option, the number of shares of Common
Stock to which the SAR pertains shall be reduced in the same proportion
that the holder of the option exercises the related stock option.
7.2. Duration. Subject to earlier termination as provided in Section
11.4, the term of each SAR shall be determined by the Committee but shall
not exceed ten years and one day from the date of grant. Unless otherwise
provided by the Committee, each SAR shall become exercisable at such time
or times, to such extent and upon such conditions as the stock option, if
any, to which it relates is exercisable. The Committee may in its
discretion accelerate the exercisability of any SAR.
7.3. Exercise. A SAR may be exercised, in whole or in part, by giving
written notice to the Company, specifying the number of SARs which the
holder wishes to exercise. Upon receipt of such written notice, the Company
shall, within 90 days thereafter, deliver to the exercising holder
certificates for the shares of Common Stock or cash or both, as determined
by the Committee, to which the holder is entitled pursuant to Section 7.4.
7.4. Payment. Subject to the right of the Committee to deliver cash
in lieu of shares of Common Stock (which, as it pertains to officers and
directors of the Company, shall comply with all requirements of the 1934
Act), the number of shares of Common Stock which shall be issuable upon the
exercise of a SAR shall be determined by dividing:
(a) the number of shares of Common Stock as to which the SAR is
exercised multiplied by the amount of the appreciation in such shares
(for this purpose, the "appreciation" shall be the amount by which the
Fair Market Value of the shares of Common Stock subject to the SAR on
the exercise date exceeds (1) in the case of a SAR related to a stock
option, the purchase price of the shares of Common Stock under the stock
option or (2) in the case of a SAR granted alone, without reference to a
related stock option, an amount which shall be determined by the
Committee at the time of grant, subject to adjustment under Section
11.6); by
25
<PAGE> 27
(b) the Fair Market Value of a share of Common Stock on the
exercise date.
In lieu of issuing shares of Common Stock upon the exercise of a SAR,
the Committee may elect to pay the holder of the SAR cash equal to the Fair
Market Value on the exercise date of any or all of the shares which would
otherwise be issuable. No fractional shares of Common Stock shall be issued
upon the exercise of a SAR; instead, the holder of the SAR shall be
entitled to receive a cash adjustment equal to the same fraction of the
Fair Market Value of a share of Common Stock on the exercise date or to
purchase the portion necessary to make a whole share at its Fair Market
Value on the date of exercise.
8. Stock Awards and Restricted Stock. A stock award consists of the
transfer by the Company to a participant of shares of Common Stock, without
other payment therefor, as additional compensation for services to the Company.
A share of restricted stock consists of shares of Common Stock which are sold or
transferred by the Company to a participant at a price determined by the
Committee (which price shall be at least equal to the minimum price required by
applicable law for the issuance of a share of Common Stock) and subject to
restrictions on their sale or other transfer by the participant. The transfer of
Common Stock pursuant to stock awards and the transfer and sale of restricted
stock shall be subject to the following terms and conditions:
8.1. Number of Shares. The number of shares to be transferred or sold
by the Company to a participant pursuant to a stock award or as restricted
stock shall be determined by the Committee.
8.2. Sale Price. The Committee shall determine the price, if any, at
which shares of restricted stock shall be sold to a participant, which may
vary from time to time and among participants and which may be below the
Fair Market Value of such shares of Common Stock at the date of sale.
8.3. Restrictions. All shares of restricted stock transferred or sold
hereunder shall be subject to such restrictions as the Committee may
determine, including, without limitation any or all of the following:
(a) a prohibition against the sale, transfer, pledge or other
encumbrance of the shares of restricted stock, such prohibition to lapse
at such time or times as the Committee shall determine (whether in
annual or more frequent installments, at the time of the death,
disability or retirement of the holder of such shares, or otherwise);
(b) a requirement that the holder of shares of restricted stock
forfeit, or (in the case of shares sold to a participant) resell back to
the Company at his or her cost, all or a part of such shares in the
event of termination of his or her employment or consulting engagement
during any period in which such shares are subject to restrictions;
(c) such other conditions or restrictions as the Committee may deem
advisable.
8.4. Escrow. In order to enforce the restrictions imposed by the
Committee pursuant to Section 8.3, the participant receiving restricted
stock shall enter into an agreement with the Company setting forth the
conditions of the grant. Shares of restricted stock shall be registered in
the name of the participant and deposited, together with a stock power
endorsed in blank, with the Company. Each such certificate shall bear a
legend in substantially the following form:
The transferability of this certificate and the shares of Common
Stock represented by it are subject to the terms and conditions
(including conditions of forfeiture) contained in the 1992 Stock Option
and Compensation Plan of Innovative Gaming Corporation of America,
Inc.(the "Company"), and an agreement entered into between the
registered owner and the Company. A copy of the Plan and the agreement
is on file in the office of the secretary of the Company.
8.5. End of Restrictions. Subject to Section 11.5, at the end of any
time period during which the shares of restricted stock are subject to
forfeiture and restrictions on transfer, such shares will be delivered free
of all restrictions to the participant or to the participant's legal
representative, beneficiary or heir.
26
<PAGE> 28
8.6. Stockholder. Subject to the terms and conditions of the Plan,
each participant receiving restricted stock shall have all the rights of a
stockholder with respect to shares of stock during any period in which such
shares are subject to forfeiture and restrictions on transfer, including
without limitation, the right to vote such shares. Dividends paid in cash
or property other than Common Stock with respect to shares of restricted
stock shall be paid to the participant currently.
9. Performance Shares. A performance share consists of an award which
shall be paid in shares of Common Stock, as described below. The grant of
performance share shall be subject to such terms and conditions as the Committee
deems appropriate, including the following:
9.1. Performance Objectives. Each performance share will be subject
to performance objectives for the Company or one of its operating units to
be achieved by the end of a specified period. The number of performance
shares granted shall be determined by the Committee and may be subject to
such terms and conditions, as the Committee shall determine. If the
performance objectives are achieved, each participant will be paid in
shares of Common Stock or cash. If such objectives are not met, each grant
of performance shares may provide for lesser payments in accordance with
formulas established in the award.
9.2. Not Stockholder. The grant of performance shares to a
participant shall not create any rights in such participant as a
stockholder of the Company, until the payment of shares of Common Stock
with respect to an award.
9.3. No Adjustments. No adjustment shall be made in performance
shares granted on account of cash dividends which may be paid or other
rights which may be issued to the holders of Common Stock prior to the end
of any period for which performance objectives were established.
9.4. Expiration of Performance Share. If any participant's employment
or consulting engagement with the Company is terminated for any reason
other than normal retirement, death or disability prior to the achievement
of the participant's stated performance objectives, all the participant's
rights on the performance shares shall expire and terminate unless
otherwise determined by the Committee. In the event of termination by
reason of death, disability, or normal retirement, the Committee, in its
own discretion may determine what portions, if any, of the performance
shares should be paid to the participant.
10. Cash Awards. A cash award consists of a monetary payment made by the
Company to a participant as additional compensation for his or her services to
the Company. Payment of a cash award will normally depend on achievement of
performance objectives by the Company or by individuals. The amount of any
monetary payment constituting a cash award shall be determined by the Committee
in its sole discretion. Cash awards may be subject to other terms and
conditions, which may vary from time to time and among participants, as the
Committee determines to be appropriate.
11. General.
11.1. Effective Date. The Plan will become effective upon its
adoption by unanimous written action by all holders of shares of Common
Stock. Unless approved within one year after the date of the Plan's
adoption by the board of directors, the Plan shall not be effective for any
purpose.
11.2. Duration. The Plan shall remain in effect until all Incentives
granted under the Plan have either been satisfied by the issuance of shares
of Common Stock or the payment of cash or been terminated under the terms
of the Plan and all restrictions imposed on shares of Common Stock in
connection with their issuance under the Plan have lapsed. No Incentives
may be granted under the Plan after the tenth anniversary of the date the
Plan is approved by the stockholders of the Company.
11.3. Non-transferability of Incentives. No stock option, SAR,
restricted stock or performance award may be transferred, pledged or
assigned by the holder thereof except, in the event of the holder's death,
by will or the laws of descent and distribution or pursuant to a qualified
domestic relations order as defined by the Internal Revenue Code of 1986,
as amended, or Title I of the Employee Retirement
27
<PAGE> 29
Income Security Act, or the rules thereunder, and the Company shall not be
required to recognize any attempted assignment of such rights by any
participant. During a participant's lifetime, an Incentive may be exercised
only by him or her or by his or her guardian or legal representative.
11.4. Effect of Termination or Death. In the event that a participant
ceases to be an employee of or consultant to the Company for any reason,
including death, any Incentives may be exercised or shall expire at such
times as may be determined by the Committee.
11.5. Additional Condition. Notwithstanding anything in this Plan to
the contrary: (a) the Company may, if it shall determine it necessary or
desirable for any reason, at the time of award of any Incentive or the
issuance of any shares of Common Stock pursuant to any Incentive, require
the recipient of the Incentive, as a condition to the receipt thereof or to
the receipt of shares of Common Stock issued pursuant thereto, to deliver
to the Company a written representation of present intention to acquire the
Incentive or the shares of Common Stock issued pursuant thereto for his or
her own account for investment and not for distribution; and (b) if at any
time the Company further determines, in its sole discretion, that the
listing, registration or qualification (or any updating of any such
document) of any Incentive or the shares of Common Stock issuable pursuant
thereto is necessary on any securities exchange or under any federal or
state securities or blue sky law, or that the consent or approval of any
governmental regulatory body is necessary or desirable as a condition of,
or in connection with the award of any Incentive, the issuance of shares of
Common Stock pursuant thereto, or the removal of any restrictions imposed
on such shares, such Incentive shall not be awarded or such shares of
Common Stock shall not be issued or such restrictions shall not be removed,
as the case may be, in whole or in part, unless such listing, registration,
qualification, consent or approval shall have been effected or obtained
free of any conditions not acceptable to the Company.
11.6. Adjustment. In the event of any merger, consolidation or
reorganization of the Company with any other corporation or corporations,
there shall be substituted for each of the shares of Common Stock then
subject to the Plan, including shares subject to restrictions, options, or
achievement of performance share objectives, the number and kind of shares
of stock or other securities to which the holders of the shares of Common
Stock will be entitled pursuant to the transaction. In the event of any
recapitalization, stock dividend, stock split, combination of shares or
other change in the Common Stock, the number of shares of Common Stock then
subject to the Plan, including shares subject to restrictions, options or
achievements of performance shares, shall be adjusted in proportion to the
change in outstanding shares of Common Stock. In the event of any such
adjustments, the purchase price of any option, the performance objectives
of any Incentive, and the shares of Common Stock issuable pursuant to any
Incentive shall be adjusted as and to the extent appropriate, in the
discretion of the Committee, to provide participants with the same relative
rights before and after such adjustment.
11.7. Incentive Plans and Agreements. Except in the case of stock
awards or cash awards, the terms of each Incentive shall be stated in a
plan or agreement approved by the Committee. The Committee may also
determine to enter into agreements with holders of options to reclassify or
convert certain outstanding options, within the terms of the Plan, as
Incentive Stock Options or as non-statutory stock options and in order to
eliminate SARs with respect to all or part of such options and any other
previously issued options.
11.8. Withholding.
(a) The Company shall have the right to withhold from any payments
made under the Plan or to collect as a condition of payment, any taxes
required by law to be withheld. At any time when a participant is
required to pay to the Company an amount required to be withheld under
applicable income tax laws in connection with a distribution of Common
Stock or upon exercise of an option or SAR, the participant may satisfy
this obligation in whole or in part by electing (the "Election") to have
the Company withhold from the distribution shares of Common Stock having
a value up to the amount required to be withheld. The value of the
shares to be withheld shall be based on the Fair Market Value of the
Common Stock on the date that the amount of tax to be withheld shall be
determined ("Tax Date").
28
<PAGE> 30
(b) Each Election must be made prior to the Tax Date. The Committee
may disapprove of any Election, may suspend or terminate the right to
make Elections, or may provide with respect to any Incentive that the
right to make Elections shall not apply to such Incentive. An Election
is irrevocable.
(c) If a participant is an officer or director of the Company
within the meaning of Section 16 of the 1934 Act, then an Election must
comply with all of the requirements of the 1934 Act.
11.9. No Continued Employment, Engagement or Right to Corporate
Assets. No participant under the Plan shall have any right, because of his
or her participation, to continue in the employ of, or to continue his or
her consulting engagement for, the Company for any period of time or to any
right to continue his or her present or any other rate of compensation.
Nothing contained in the Plan shall be construed as giving an employee, a
consultant, such persons' beneficiaries or any other person any equity or
interests of any kind in the assets of the Company or creating a trust of
any kind or a fiduciary relationship of any kind between the Company and
any such person.
11.10. Deferral Permitted. Payment of cash or distribution of any
shares of Common Stock to which a participant is entitled under any
Incentive shall be made as provided in the Incentive. Payment may be
deferred at the option of the participant if provided in the Incentive.
11.11. Amendment of the Plan. The Board may amend or discontinue the
Plan at any time. However, no such amendment or discontinuance shall,
subject to adjustment under Section 11.6, (a) change or impair, without the
consent of the recipient, an Incentive previously granted, (b) materially
increase the maximum number of shares of Common Stock which may be issued
to all participants under the Plan, (c) materially increase the benefits
that may be granted under the Plan, (d) materially modify the requirements
as to eligibility for participation in the Plan, or (e) materially increase
the benefits accruing to participants under the Plan.
11.12. Immediate Acceleration of Incentives. Notwithstanding any
provision in this Plan or in any Incentive to the contrary, (a) the
restrictions on all shares of restricted stock award shall lapse
immediately, (b) all outstanding options and SARs will become exercisable
immediately, and (c) all performance shares shall be deemed to be met and
payment made immediately, if subsequent to the date that the Plan is
approved by the Board of Directors of the Company, any of the following
events occur unless otherwise determined by the board of directors and a
majority of the Continuing Directors (as defined below):
(1) any person or group of persons becomes the beneficial owner of
30% or more of any equity security of the Company entitled to vote for
the election of directors;
(2) a majority of the members of the board of directors of the
Company is replaced within the period of less than two years by
directors not nominated and approved by the board of directors; or
(3) the stockholders of the Company approve an agreement to merge
or consolidate with or into another corporation or an agreement to sell
or otherwise dispose of all or substantially all of the Company's assets
(including a plan of liquidation).
For purposes of this Section 11.12, beneficial ownership by a person or
group of persons shall be determined in accordance with Regulation 13D (or any
similar successor regulation) promulgated by the Securities and Exchange
Commission pursuant to the 1934 Act. Beneficial ownership of more than 30% of an
equity security may be established by any reasonable method, but shall be
presumed conclusively as to any person who files a Schedule 13D report with the
Securities and Exchange Commission reporting such ownership. If the restrictions
and forfeitability periods are eliminated by reason of provision (1), the
limitations of this Plan shall not become applicable again should the person
cease to own 30% or more of any equity security of the Company.
For purposes of this Section 11.12, "Continuing Directors" are directors
(a) who were in office prior to the time any of provisions (1), (2) or (3)
occurred or any person publicly announced an intention to acquire
29
<PAGE> 31
20% or more of any equity security of the Company, (b) directors in office for a
period of more than two years, and (c) directors nominated and approved by the
Continuing Directors.
11.13. Definition of Fair Market Value. Whenever "Fair Market Value"
of Common Stock shall be determined for purposes of this Plan, it shall be
determined by reference to the last sale price of a share of Common Stock
on the principal United States Securities Exchange registered under the
1934 Act on which the Common Stock is listed (the "Exchange"), or, on the
National Association of Securities Dealers, Inc. Automatic Quotation System
(including the National Market System) ("NASDAQ") on the applicable date.
If the Exchange or NASDAQ is closed for trading on such date, or if the
Common Stock does not trade on such date, then the last sale price used
shall be the one on the date the Common Stock last traded on the Exchange
or NASDAQ.
30
<PAGE> 32
INNOVATIVE GAMING CORPORATION OF AMERICA
ANNUAL MEETING OF SHAREHOLDERS
FRIDAY, JANUARY 19, 2001
4:00 PM
COMPANY HEADQUARTERS
333 ORVILLE WRIGHT COURT
LAS VEGAS, NEVADA 89119
INNOVATIVE GAMING CORPORATION OF AMERICA
333 ORVILLE WRIGHT COURT, LAS VEGAS, NEVADA, 89119 PROXY
--------------------------------------------------------------------------------
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS FOR USE AT THE ANNUAL MEETING
ON JANUARY 19, 2001.
The shares of stock you hold in your account or in a dividend reinvestment
account will be voted as you specify below.
IF NO CHOICE IS SPECIFIED, THE PROXY WILL BE VOTED "FOR" ITEMS 1, 2 AND 3.
By signing the proxy, you revoke all prior proxies and appoint Roland Thomas
with full power of substitution, to vote your shares on the matters shown on the
reverse side and any other matters which may come before the Annual Meeting and
all adjournments.
See reverse for voting instructions.
<PAGE> 33
-- Please detach here --
SHARE AMOUNTS
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ITEMS 1, 2 AND 3.
1. ELECTION OF DIRECTORS: 01 Ronald A. Johnson
02 Roland Thomas
03 Andrew Tottenham
04 Thomas Foley
05 Steven Peterson
[ ] Vote For [ ] Vote Withheld
all nominees from all nominees
(except as marked)
(INSTRUCTIONS: TO WITHHOLD AUTHORITY
TO VOTE FOR ANY INDICATED NOMINEE, _________________________________________
WRITE THE NUMBER(S) OF THE NOMINEE(S)
IN THE BOX PROVIDED TO THE RIGHT.) _________________________________________
2. AMENDMENT OF 1997 DIRECTOR STOCK OPTION PLAN:
[ ] For [ ] Against [ ] Abstain
3. AMENDMENT OF 1992 EMPLOYEE STOCK OPTION PLAN:
[ ] For [ ] Against [ ] Abstain
4. UPON SUCH OTHER BUSINESS AS MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENTS THEREOF:
THIS PROXY WHEN PROPERLY EXECUTED WILL BE VOTED AS DIRECTED OR, IF NO DIRECTION
IS GIVEN, WILL BE VOTED FOR EACH PROPOSAL.
Address Change? Mark Box [ ] Date_________________________________
Indicate changes below:
_________________________________________
_________________________________________
Signature(s) in Box
Please sign exactly as your name(s)
appear on Proxy. If held in joint
tenancy, all persons must sign. Trustees,
administrators, etc., should include
title and authority. Corporations should
provide full name of corporation and
title of authorized officer signing the
proxy.
