-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HJrX4apd0qZzPW5O+j9h2vtW6al08JnazDi+gd/ijcsdxUSp5ws7DfaBipGHuQ9m WyRYbMXnhrMJw/YwtqdqwA== 0001096906-02-000697.txt : 20020912 0001096906-02-000697.hdr.sgml : 20020912 20020912163419 ACCESSION NUMBER: 0001096906-02-000697 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20020910 ITEM INFORMATION: Other events ITEM INFORMATION: Financial statements and exhibits FILED AS OF DATE: 20020912 FILER: COMPANY DATA: COMPANY CONFORMED NAME: INNOVATIVE GAMING CORP OF AMERICA CENTRAL INDEX KEY: 0000897795 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS MANUFACTURING INDUSTRIES [3990] IRS NUMBER: 411713864 STATE OF INCORPORATION: MN FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-22482 FILM NUMBER: 02762722 BUSINESS ADDRESS: STREET 1: 333 ORVILLE WRIGHT COURT CITY: LAS VEGAS STATE: NV ZIP: 89119 BUSINESS PHONE: 7758233000 MAIL ADDRESS: STREET 1: 333 ORVILLE WRIGHT COURT CITY: LAS VEGAS STATE: NV ZIP: 89119 8-K 1 inngam8k_sept102002.txt CURRENT REPORT FOR SEPTEMBER 10, 2002 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported): September 10, 2002 Innovative Gaming Corporation of America (Exact name of registrant as specified in its charter) Minnesota 22482 41-1713864 (State or other jurisdiction (Commission File Number) (IRS Employer of incorporation) Identification No.) 333 Orville Wright Court, Las Vegas, Nevada 89119 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (702) 614-7199 Not Applicable (Former name or former address, if changed since last report) Exhibit Index Appears on Page 4 Item 5. Other Events. The Registrant's Press Release dated September 10, 2002 which is filed as Exhibit 99.1 to this Form 8-K, is incorporated herein by reference. The Certificates of Designation setting forth the rights and preferences of the Registrant's Series A-1 5.5% Convertible Preferred Stock is filed herewith as Exhibit 3.1 and incorporated by reference. Also attached to this Form 8-K and incorporated herein by reference are the agreements entered into by the Registrant in connection with the Registrant's private placement of promissory notes that are convertible into shares of Series A-1 5.5% Convertible Preferred Stock. Item 7. Financial Statement, Pro Forma Financial Information and Exhibits. (c) Exhibits. Please see Exhibit Index on page 4 of this Form 8-K. -------- 2 SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. INNOVATIVE GAMING CORPORATION OF AMERICA (Registrant) Date: September 11, 2002 By: /s/ Laus M. Abdo ------------------------------------------- Name: Laus M. Abdo ------------------------------------------ Title: President, CEO & Chief Financial Officer ---------------------------------------- 3 EXHIBIT INDEX Exhibit No. Description Page - ----------- ----------- ---- 3.1 Certificate of Designation of Series A-1 5.5% Convertible Preferred Stock 5 10.1 Form of Securities Purchase Agreement 24 10.2 Form of Convertible Notes 57 10.3 Form of Registration Rights Agreement 66 10.4 Table Identifying Material Details 85 99.1 Press Release dated September 10, 2002 86 EX-3.1 3 inngam8ksept02ex3-1.txt CERTIFICATE OF DESIGNATION OF SERIES A-1 ... EXHIBIT 3.1 CERTIFICATE OF DESIGNATION OF SERIES A-1 5.5% CONVERTIBLE PREFERRED STOCK OF INNOVATIVE GAMING CORPORATION OF AMERICA _____________________________ Pursuant to Section 302A.401 of the Business Corporation Act of the State of Minnesota _____________________________ Innovative Gaming Corporation of America, a corporation organized and existing under the Business Corporation Act of the State of Minnesota (the "Corporation"), hereby certifies that the following resolutions were adopted by the Board of Directors of the Corporation, effective August 20, 2002, pursuant to authority of the Board of Directors as required by Section 302A.401, Subdivision 3 of the Minnesota Business Corporation Act: RESOLVED, that pursuant to the authority granted to and vested in the Board of Directors of this Corporation (the "Board"), and in accordance with the provisions of the Corporation's articles of incorporation, the Board hereby authorizes a series of the Corporation's preferred stock, and hereby states the designation and number of shares, and fixes the relative rights, preferences, privileges, powers and restrictions thereof as follows: Series A-1 5.5% Convertible Preferred Stock: ARTICLE 1 DEFINITIONS The terms defined in this Article whenever used in this Certificate of Designation have the following respective meanings: (a) "Additional Shares" shall mean any Common Shares issued (or deemed to have been issued pursuant to Section 6.4(d)) by the Corporation after the date of this Certificate of Designation, other than Common Shares issued (or deemed to have been issued) in an Excluded Issuance. (b) "Bankruptcy Code" means 11 U.S.C. Section 101 et seq. (c) "Business Day" means a day other than Saturday, Sunday, or any day on which banks located in the State of Nevada are authorized or obligated to close. (d) "Capital Shares" means the Common Shares and any other shares of any other class or series of common stock, whether now or hereafter authorized and however designated, which have the right to participate in the distribution of earnings and assets (upon dissolution, liquidation, or winding up) of the Corporation. (e) "Common Shares" or "Common Stock" means shares of common stock, par value $0.01 per share, of the Corporation. (f) "Conversion Shares" means the Common Shares issuable upon conversion of the Series A-1 Preferred Stock or securities of any other class or series issuable upon conversion of the Series A-1 Preferred Stock as provided in this Certificate of Designation, whether now or hereafter created and however designated. (g) "Conversion Date" means any day on which all or any portion of shares of the Series A-1 Preferred Stock is converted in accordance with the provisions hereof. (h) "Conversion Notice" means a written notice of conversion substantially in the form annexed hereto as Annex A. (i) "Conversion Price" shall have the meaning set forth in Section 6.1. (j) "Convertible Notes" means up to $5,000,000 aggregate principal amount of Convertible Promissory Notes that may be issued by the Corporation and that are convertible by their terms into an aggregate of up to 5,000 shares of Series A-1 Preferred Stock. (k) "Corporation" means Innovative Gaming Corporation of America, a Minnesota corporation, and any successor or resulting corporation by way of merger, consolidation, sale or exchange of all or substantially all of the Corporation's assets, or otherwise. (l) "Dissenting Holders" shall have the meaning set forth in Article 8. (m) "Dividend Period" means the quarterly period commencing on and including the Issue Date or, if a dividend has previously been paid, the day after the immediately preceding Dividend Payment Due Date and ending on and including the immediately subsequent Dividend Payment Due Date. (n) "Dividend Payment Due Date" means March 31, June 30, September 30 and December 31 of each calendar year. (o) "Dividend Rate" means five and one-half percent (5.5%) per annum, computed on the basis of a 360-day year. (p) "Excluded Issuance" means (i) the issuance of shares of Series A-1 5.5% Convertible Preferred Stock, (ii) the issuance of Conversion Shares on conversion of the Preferred Shares, (iii) the issuance of up to 17,367,652 shares of Common Stock (appropriately adjusted for any subdivision, split, combination or reverse split with respect to the Common Stock or declaration of any dividend payable in Common Stock) upon the exercise of options and warrants outstanding on the date hereof, (iv) the grant of options to purchase up to 59,690,722 shares of Common Stock (appropriately adjusted for any subdivision, split, combination or reverse split with respect to the Common Stock or declaration of any dividend payable in Common Stock) under the Corporation's 2002 stock option plan and the issuance of shares of Common Stock on the exercise of such options and (v) the issuance of: (A) 1,428,571 shares of Common Stock upon the conversion of the shares of Series E Convertible Preferred Stock outstanding as of the date of this Certificate of Designation, (B) 9,523,810 shares of Common Stock upon the conversion of the shares of Series F Convertible 2 Preferred Stock outstanding as of the date of this Certificate of Designation, (C) 13,540,000 shares of Common Stock upon the conversion of the shares of Series K Convertible Preferred Stock outstanding as of the date of this Certificate of Designation and (D) 4,062,500 shares of Common Stock upon the conversion of convertible debt securities outstanding as of the date of this Certificate of Designation. (q) "Fundamental Corporate Change" shall have the meaning set forth in Section 5(b). (r) "Holder" means the holder of the Series A-1 Preferred Stock, any successor thereto, or any Person or Persons to whom the Series A-1 Preferred Stock is subsequently transferred in accordance with the provisions hereof. (s) "Issue Date" means, as to any share of Series A-1 Preferred Stock, the date of issuance of such share. With respect to the calculation described under Section 6.5(c), "Issue Date" shall mean the date of the first issuance of shares of Series A-1 Preferred Stock. (t) "Junior Securities" means the Common Stock and any other class or series of capital stock of the Corporation whether now existing or hereafter created, except for Series E Preferred Stock, Series F Preferred Stock, and Series K Preferred Stock. (u) "Liquidation Event" shall have the meaning set forth in Article 5. (v) "Liquidation Preference" shall mean, with respect to each share of the Series A-1 Preferred Stock, an amount equal to the sum of (i) the Stated Value thereof, plus (ii) the aggregate of all accrued and unpaid dividends (whether or not earned or declared, whether or not there were funds legally available for the payment of dividends and whether or not a Dividend Payment Due Date has occurred since the last dividend payment) on such share of Series A-1 Preferred Stock. (w) "Outstanding" when used with reference to Common Shares or Capital Shares (collectively, "Shares"), means, on any date of determination, all issued and outstanding Shares, and includes all such Shares issuable in respect of outstanding scrip or any certificates representing fractional interests in such Shares; provided, however, that any such Shares directly or indirectly owned or held by or for the account of the Corporation or any Subsidiary of the Corporation shall not be deemed "Outstanding" for purposes hereof. (x) "Person" means an individual, a corporation, a partnership, an association, a limited liability company, an unincorporated business organization, a trust or other entity or organization, and any government or political subdivision or any agency or instrumentality thereof. (y) "SEC" means the United States Securities and Exchange Commission. (z) "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the SEC promulgated thereunder, all as in effect at the time. (aa) "Senior Securities" shall have the meaning set forth in Article 3. 3 (bb) "Series E Preferred Shares" or "Series E Preferred Stock" means the shares of the Series E 6% Convertible Preferred Stock, par value $0.01 per share, of the Corporation. (cc) "Series F Preferred Shares" or "Series F Preferred Stock" means the shares of the Series F 6% Convertible Preferred Stock, par value $0.01 per share, of the Corporation. (dd) "Series K Preferred Shares" or "Series K Preferred Stock" means the shares of the Series K 7% Convertible Preferred Stock, par value $0.01 per share, of the Corporation. (ee) "Stated Value" has the meaning set forth in Article 2. (ff) "Subsidiary" means any entity of which securities or other ownership interests having ordinary voting power to elect a majority of the board of directors or other persons performing similar functions are owned directly or indirectly by the Corporation. All references to "cash" or "$" herein means currency of the United States of America. ARTICLE 2 DESIGNATION AND AMOUNT The designation of this series, which consists of 5,000 shares of Preferred Stock, is Series A-1 5.5% Convertible Preferred Stock (the "Series A-1 Preferred Stock"), with a par value of $0.01 per share, and with a stated value of $1,000.00 per share (the "Stated Value"). ARTICLE 3 RANK The Series A-1 Preferred Stock shall rank (i) junior to the Series E Preferred Stock, Series F Preferred Stock and Series K Preferred Stock (collectively, the "Senior Securities"), and (ii) senior to the Junior Securities. ARTICLE 4 DIVIDENDS (a) (i) The Holder shall be entitled to receive dividends when, as, and if declared by the Board, out of funds legally available for the payment of dividends, at the Dividend Rate on the Stated Value of each share of Series A-1 Preferred Stock on and as of each Dividend Payment Due Date with respect to each Dividend Period. Dividends on the Series A-1 Preferred Stock shall be cumulative from the date of issue, whether or not declared for any reason, including if such declaration is prohibited under any outstanding indebtedness or borrowings of the Corporation or any of its Subsidiaries, or any other contractual provision binding on the Corporation 4 or any of its Subsidiaries, and whether or not there shall be funds legally available for the payment thereof. (ii) Each dividend shall be payable in equal quarterly amounts on each Dividend Payment Due Date, commencing March 31, 2003, to the Holders of record of shares of the Series A-1 Preferred Stock, as they appear on the stock records of the Corporation at the close of business on the record date, which shall be the date 15 days prior to the Dividend Payment Due Date. Accrued and unpaid dividends for any past Dividend Period may be declared and paid at any time, without reference to any Dividend Payment Due Date, to Holders of record on the date, not more than 15 days preceding the payment date thereof, as may be fixed by the Board. (b) Except as provided in Section 4(e), the Holder shall not be entitled to any dividends in excess of the cumulative dividends, as herein provided, on the Series A-1 Preferred Stock. (c) So long as any shares of the Senior Securities are outstanding, no dividends shall be declared or paid or set apart for payment on the Series A-1 Preferred Stock for any period unless full cumulative dividends required to be paid have been or contemporaneously are declared and paid or declared and a sum sufficient for the payment thereof set apart for such payment on the Senior Securities for all Dividend Periods ending on or prior to the date of payment of the dividend on such class or series of Series A-1 Preferred Stock. (d) So long as any shares of the Series A-1 Preferred Stock are outstanding, no dividends shall be declared or paid or set apart for payment or other distribution declared or made upon Junior Securities, nor shall any Junior Securities be redeemed, purchased, or otherwise acquired (other than a redemption, purchase, or other acquisition of shares of Common Stock approved in good faith by the Corporation's Board of Directors in advance of such redemption, purchase or other acquisition for purposes of an employee incentive or benefit plan (including a stock option plan) of the Corporation or any subsidiary) (all such dividends, distributions, redemptions, or purchases being hereinafter referred to as a "Junior Securities Distribution"), for any consideration (or any monies to be paid to or made available for a sinking fund for the redemption of any shares of any such stock) by the Corporation, directly or indirectly, unless in each case (i) the full cumulative dividends required to be paid in cash on all outstanding shares of the Senior Securities and Series A-1 Preferred Stock shall have been paid or set apart for payment for all past Dividend Periods with respect to the Series A-1 Preferred Stock and all past dividend periods with respect to the Senior Securities and (ii) sufficient funds shall have been paid or set apart for the payment of the dividend for the current Dividend Period with respect to the Series A-1 Preferred Stock and the current dividend period with respect to the Senior Securities. (e) If the Corporation shall at any time or from time to time after the Issue Date declare, order, pay, or make a dividend or other distribution (including without limitation any distribution of stock or other securities or property or rights or warrants to subscribe for securities of the Corporation or any of its Subsidiaries by way of dividend or spin-off) on shares of its Common Stock, then, and in each such case, in addition to the dividend obligation of 5 the Corporation specified in paragraph (a) of this Article 4, the Corporation shall declare, order, pay, and make the same dividend or distribution to each Holder of Series A-1 Preferred Stock as would have been made with respect to the number of Common Shares the Holder would have received had it converted all of its Series A-1 Preferred Shares immediately prior to such dividend or distribution. ARTICLE 5 LIQUIDATION PREFERENCE; MERGERS, CONSOLIDATIONS, ETC. (a) If the Corporation shall commence a voluntary case under the federal bankruptcy laws or any other applicable federal or state bankruptcy, insolvency, or similar law, or consent to the entry of an order for relief in an involuntary case under any law or to the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or make an assignment for the benefit of its creditors, or admit in writing its inability to pay its debts generally as they become due, or if a decree or order for relief in respect of the Corporation shall be entered by a court having jurisdiction in the premises in an involuntary case under the federal bankruptcy laws or any other applicable federal or state bankruptcy, insolvency, or similar law resulting in the appointment of a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other similar official) of the Corporation or of any substantial part of its property, or ordering the winding up or liquidation of its affairs, and any such decree or order shall be unstayed and in effect for a period of 30 consecutive days and, on account of any such event, the Corporation shall liquidate, dissolve, or wind up, or if the Corporation shall otherwise liquidate, dissolve or wind up (each such event being considered a "Liquidation Event"), no distribution shall be made to the holders of any shares of capital stock of the Corporation except the Senior Securities upon liquidation, dissolution, or winding up unless prior thereto, the holders of shares of Series A-1 Preferred Stock, subject to this Article 5, shall have received the Liquidation Preference with respect to each share. If upon the occurrence of a Liquidation Event, the assets and funds available for distribution among the Holders shall be insufficient to permit the payment to such Holders of the preferential amounts payable thereon, then the entire assets and funds of the Corporation legally available for distribution to the Holders of Series A-1 Preferred Stock shall be distributed ratably among such shares in proportion to the ratio that the Liquidation Preference payable on each such share bears to the aggregate Liquidation Preference payable on all such shares. (b) In case the Corporation shall reclassify its capital stock, consolidate or merge with or into another Person, sell, convey, transfer or otherwise dispose of all or substantially all its property, assets or business to another Person, or effectuate a transaction or series of related transactions in which more than 50% of the voting power of the Corporation is disposed of (each, a "Fundamental Corporate Change"), then such Fundamental Corporate Change shall be deemed to be a liquidation, dissolution, or winding up of the Corporation pursuant to which the Corporation shall be required to distribute, upon consummation of and as a condition to, such Fundamental Corporate Change an amount equal to the Liquidation Preference with respect to each outstanding share of Series A-1 Preferred Stock; provided that the Holders of the Series A-1 Preferred Stock may, by a vote of 75% of the shares of Series A-1 Preferred Stock Outstanding, elect in lieu of such treatment either (x) to receive for each share of Series A-1 Preferred Stock that number of shares of common stock 6 of the successor or acquiring corporation or of the Corporation, if it is the surviving corporation, and other property as is receivable upon or as a result of such Fundamental Corporate Change by a holder of the number of shares of Common Stock into which such Series A-1 Preferred Stock may be converted immediately prior to such Fundamental Corporate Change or (y) to require the Corporation, or such successor, resulting or purchasing corporation, as the case may be, to, without benefit of any additional consideration therefor, execute and deliver to each Holder of Series A-1 Preferred Stock shares of its preferred stock with substantially identical rights, preferences, privileges, powers, restrictions and other terms as the Series A-1 Preferred Stock equal to the number of shares of Series A-1 Preferred Stock held by each such Holder immediately prior to such Fundamental Corporate Change. The foregoing provisions of this Section 5(b) shall similarly apply to successive Fundamental Corporate Changes. ARTICLE 6 CONVERSION OF PREFERRED STOCK Section 6.1 Conversion Right At the option of the Holder, the shares of Series A-1 Preferred Stock may be converted, either in whole or in part, into fully paid and nonassessable Common Shares at any time and from time to time following the Issue Date. The number of Common Shares issuable upon conversion of a share of Series A-1 Preferred Stock shall be equal to $1,000 divided by the conversion price then in effect (the "Conversion Price"). The Conversion Price shall initially be $.0295, but shall be subject to adjustment from time to time as hereinafter provided. Section 6.2 Exercise of Conversion Privilege (a) Conversion rights with respect to the Series A-1 Preferred Stock may be exercised, in whole or in part, by the Holder by faxing or electronically transmitting an executed and completed Conversion Notice to the Corporation. The Conversion Notice shall state the name or names (with addresses) of the Person(s) who are to become the holders of the Conversion Shares in connection with such conversion. Each date on which a Conversion Notice is transmitted to the Corporation in accordance with the provisions of this Section 6.2 shall constitute a Conversion Date. Each conversion shall be deemed to have been effected at the time at which the Conversion Notice is received by the Corporation and from and after such time the rights of the Holder of the shares of Series A-1 Preferred Stock subject to the Conversion Notice, as such, shall cease (subject to such Holder's right to receive payment for accrued and unpaid dividends as described below and any fractional share) and the Person(s) in whose name(s) the Conversion Shares shall be issuable shall be deemed to have become the holder(s) of record of such Common Shares and all voting and other rights associated with the beneficial ownership of such Common Shares shall vest with such Person(s). The Holder shall deliver the shares of Series A-1 Preferred Stock to the Corporation by overnight courier within 15 days following the date on which the Conversion Notice has been transmitted to the Corporation. Upon surrender for conversion, the Series A-1 Preferred Stock shall be accompanied by a proper assignment thereof to the Corporation or be endorsed in blank. As 7 promptly as practicable after the receipt of the Conversion Notice as aforesaid, but in any event not more than 15 days after the Corporation's receipt of the certificates representing the Series A-1 Preferred Stock to be converted, the Corporation shall (i) issue the Conversion Shares in accordance with the provisions of this Article 6 and (ii) cause to be delivered by overnight courier to the Holder (x) a certificate or certificates representing the number of Common Shares to which the Holder is entitled by virtue of such conversion, (y) a certificate or certificates representing any shares of Series A-1 Preferred Stock surrendered that were not converted and (z) cash in the amount of accrued and unpaid dividends on the shares of Series A-1 Preferred Stock so converted as of the Conversion Date. The Conversion Notice shall constitute a contract between the Holder and the Corporation, whereby the Holder shall be deemed to subscribe for the number of Common Shares which it will be entitled to receive upon such conversion. (b) The Holder shall be entitled to exercise its conversion privilege notwithstanding the commencement of any case under the Bankruptcy Code. In the event the Corporation is a debtor under the Bankruptcy Code, the Corporation hereby waives to the fullest extent permitted any rights to relief it may have under 11 U.S.C. ss. 362 in respect of the Holder's conversion privilege and in respect of the conversion of the Series A-1 Preferred Stock. The Corporation agrees, without cost or expense to the Holder, to take or consent to any and all action necessary to effectuate relief under 11 U.S.C. ss. 362. Section 6.3 Fractional Shares No fractional Common Shares or scrip representing fractional Common Shares shall be issued upon conversion of the Series A-1 Preferred Stock. Instead of any fractional Common Shares which otherwise would be issuable upon conversion of the Series A-1 Preferred Stock (after aggregating all shares of Series A-1 Preferred Stock to be converted at that time by the Holder), the Corporation shall pay a cash adjustment in respect of such fraction in an amount equal to the same fraction of the amount computed by dividing 1,000 by the number of Common Shares then issuable upon conversion of a single share of Series A-1 Preferred Stock. Whether or not fractional shares are issuable upon conversion shall be determined on the basis of the total number of shares of Series A-1 Preferred Stock the Holder is at the time converting into Common Shares and the number of Common Shares issuable upon such aggregate conversion. No cash payment aggregating less than $1.00 shall be required to be given unless specifically requested by the Holder. Section 6.4 Adjustments to Conversion Price (a) If the Corporation issues any Additional Shares for a consideration per share less than the Conversion Price in effect immediately prior to the issuance of such Additional Shares, then the Conversion Price shall be reduced, concurrently with such issuance, to an adjusted Conversion Price equal to the consideration received by the Corporation per Additional Share in such issuance. (b) In the case of the issuance of Additional Shares for cash, the consideration shall be deemed to be the amount of cash paid to purchase such Additional Shares before deducting any discounts, commissions or other expenses allowed, paid or incurred by the corporation for any underwriting or otherwise in connection with its issuance and sale. 8 (c) In the case of the issuance of Additional Shares for consideration in whole or in part other than cash, the consideration other than cash shall be deemed to be its fair value as reasonably determined by the Board of Directors in good faith irrespective of any accounting treatment. (d) In the case of the issuance of options to purchase or rights to subscribe for Common Shares, securities by their terms convertible into or exchangeable for Common Shares, or options to purchase or rights to subscribe for such convertible or exchangeable securities (which options, rights, convertible or exchangeable securities are not excluded from the definition of Additional Shares), the following provisions shall apply: (i) the aggregate maximum number of Common Shares deliverable upon exercise of such options to purchase or rights to subscribe for Common Shares shall be deemed to have been issued at the time such options or rights were issued for a consideration equal to the consideration (determined in the manner provided in subsections (b) and (c) above) received by the Corporation upon the issuance of such options or rights plus the minimum purchase price provided in such options or rights for the Common Shares covered thereby, but no further adjustment to the Conversion Price shall be made for the actual issuance of Common Shares upon the exercise of such options or rights in accordance with their terms; (ii) the aggregate maximum number of shares of Common Shares deliverable upon conversion of or in exchange for any such convertible or exchangeable securities or upon the exercise of options to purchase or rights to subscribe for such convertible or exchangeable securities and subsequent conversion or exchange thereof shall be deemed to have been issued at the time such securities were issued or such options or rights were issued for a consideration equal to the consideration received by the corporation for any such securities and related options or rights, plus the additional consideration, if any, to be received by the corporation upon the conversion or exchange of such securities or the exercise of any related options or rights (the consideration in each case to be determined in the manner provided in subsections (b) and (c) above), but no further adjustment to the Conversion Price shall be made for the actual issuance of Common Shares upon the conversion or exchange of such securities in accordance with their terms; (iii) if such options, rights or convertible or exchangeable securities by their terms provide, with the passage of time or otherwise, for any increase in the consideration payable to the Corporation, or decrease in the number of Common Shares issuable, upon the exercise, conversion or exchange thereof, the Conversion Price computed upon the original issue thereof, and any subsequent adjustments based thereon, shall, upon such increase or decrease becoming effective, be recomputed to reflect such increase or decrease with respect to such options, rights and securities not already exercised, converted or exchanged prior to such increase or decrease becoming effective, but no further adjustment to the Conversion Price shall be made for the actual issuance of Common Shares upon the exercise of any such options or rights or the conversion or exchange of such securities in accordance with their terms; 9 (iv) upon the expiration of any such options or rights, the termination of any such rights to convert or exchange or the expiration of any options or rights related to such convertible or exchangeable securities, the Conversion Price shall promptly be readjusted to such Conversion Price as would have resulted had the adjustment which was made upon the issuance of such options, rights or securities or options or rights related to such securities been made upon the basis of the issuance of only the number of shares of Common Shares actually issued upon the exercise of such options or rights, upon the conversion or exchange of such securities or upon the exercise of the options or rights related to such securities; and (v) if any such options or rights shall be issued in connection with the issue and sale of other securities of the Corporation, together comprising one integral transaction in which no specific consideration is allocated to such options or rights by the parties thereto, such options or rights shall be deemed to have been issued for such consideration as is determined in good faith by the Board of Directors. (e) In case the Corporation shall at any time subdivide, split, combine or reverse split its outstanding Common Stock into a greater or lesser number of shares, or declare any dividend payable in Common Stock, the Conversion Price in effect immediately prior to such subdivision, split, combination or reverse split, or dividend, shall be proportionately adjusted. (f) Upon any adjustment of the Conversion Price, then and in each such case the Corporation shall give notice thereof, to the Holders, which notice shall state the Conversion Price resulting from such adjustment and the increase or decrease, as applicable, in the number of shares receivable upon the conversion of Series A-1 Preferred Stock, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Section 6.5 Certain Conversion Limitations The Holder shall not have the right, and the Corporation shall not have the obligation, to convert all or any portion of the Series A-1 Preferred Stock if and to the extent that the issuance to the Holder of shares of Common Stock upon such conversion would result in the Holder being deemed the "beneficial owner" of more than 4.9% of the then Outstanding shares of Common Stock within the meaning of Section 13(d) of the Securities Exchange Act of 1934, as amended, and the rules promulgated thereunder. If any court of competent jurisdiction shall determine that the foregoing limitation is ineffective to prevent a Holder from being deemed the beneficial owner of more than 4.9% of the then Outstanding shares of Common Stock, then the Corporation shall redeem so many of such Holder's shares (the "Redemption Shares") of Series A-1 Preferred Stock as are necessary to cause such Holder to be deemed the beneficial owner of not more than 4.9% of the then Outstanding shares of Common Stock. Upon such determination by a court of competent jurisdiction, the Redemption Shares shall immediately and without further action be deemed returned to the status of authorized and unissued shares of the Corporation without designation as to class or series, and the Holder shall have no interest in or rights under such Redemption Shares other than the right to receive the redemption price therefor. Any and all dividends paid on or prior to the date of such determination shall be deemed dividends paid on the remaining shares of Series A-1 Preferred Stock held by the Holder. Promptly following the effective date of such determination, 10 and in no event more than 15 days thereafter, the Corporation shall cause to be delivered by overnight courier to the Holder the redemption price for the Redemption Shares. The redemption price for the Redemption Shares shall be cash equal to the greater of (i) the sum of (A) the Stated Value of the Redemption Shares plus (B) any accrued and unpaid dividends (whether or not earned or declared, whether or not there were funds legally available for the payment of dividends and whether or not a Dividend Payment Due Date has occurred since the last dividend payment) to the date of such redemption and (ii) the amount that the corporation would pay to redeem the number of shares of Common Stock into which the Redemption Shares are convertible on the date of the redemption if the redemption were a redemption of shares of Common Stock pursuant to Article 8 of the corporation's Articles of Incorporation (or any successor to such Article). ARTICLE 7 VOTING RIGHTS AND RIGHTS TO ELECT DIRECTORS The Holders of the Series A-1 Preferred Stock shall have no voting power, except as otherwise provided by the Business Corporation Act of the State of Minnesota (the "MBCA"), in this Article 7, and in Article 8 below. Notwithstanding the above, the Corporation shall provide each Holder of Series A-1 Preferred Stock with prior notification of any meeting of the shareholders (and copies of proxy materials and other information sent to shareholders). In the event of any taking by the Corporation of a record of its shareholders for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase, or otherwise acquire (including by way of merger, consolidation, or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed liquidation, dissolution, or winding up of the Corporation, the Corporation shall mail a notice to each Holder, at least 30 days prior to the record date or the date of the consummation of the transaction or event (whichever is earlier) on which any such action is to be taken for the purpose of such dividend, distribution, right, or other event, and a brief statement regarding the amount and character of such dividend, distribution, right, or other event to the extent known at such time. To the extent that under the MBCA the vote of the Holders of the Series A-1 Preferred Stock, voting separately as a class or series, is required to authorize a given action of the Corporation, the affirmative vote or written consent of at least 75% of the Outstanding shares of Series A-1 Preferred Stock, shall constitute the approval of such action by the class. To the extent that under the MBCA holders of the Series A-1 Preferred Stock are entitled to vote on a matter with holders of Common Stock, voting together as one class, each share of Series A-1 Preferred Stock shall be entitled to a number of votes equal to the number of shares of Common Stock into which it is then convertible using the record date for the taking of such vote of shareholders as the date as of which the Conversion Price is calculated. Holders of the Series A-1 Preferred Stock shall be entitled to notice of all shareholder meetings or written consents (and copies of proxy materials and other information sent to shareholders) with respect to which they would be entitled to vote, which notice would be provided pursuant to the Corporation's bylaws and the MBCA. 11 ARTICLE 8 PROTECTIVE PROVISIONS From the date on which any shares of Series A-1 Preferred Stock are issued until such time as 75% of the shares of Series A-1 Preferred Stock issued and issuable with respect to all Convertible Notes issued by the Corporation through the date of such determination (assuming conversion into shares of Series A-1 Preferred Stock of all then outstanding principal under all then outstanding Convertible Notes) have been converted into Common Stock, the Corporation shall not, without first obtaining the approval (by vote or written consent) of the Holders of at least 75% of the then Outstanding shares of Series A-1 Preferred Stock: (a) alter or change the rights, preferences, or privileges of the Series A-1 Preferred Stock; (b) alter or change the rights, preferences, or privileges of any class or series of capital stock so as to adversely affect the Series A-1 Preferred Stock; (c) create any new class or series of capital stock ranking on parity with or having a preference over the Series A-1 Preferred Stock with respect to the payment of dividends and distributions or the distribution of assets upon liquidation, dissolution, or winding up of the Corporation; (d) amend the Corporation's Articles of Incorporation or Bylaws; (e) (i) sell, lease, license (on an exclusive basis) or otherwise dispose, in one or a series of related transactions, of all or substantially all of the assets of the Corporation, (ii) consolidate with or merge into any other corporation or entity, (iii) permit any other corporation or entity to consolidate or merge into the Corporation or (iv) enter into any other transaction that results (in the case of (ii), (iii) or (iv)) in the stockholders of the Corporation immediately prior to the transaction owning less than 50% of the voting power of the surviving entity immediately after the transaction; (f) take any action that constitutes or results in the liquidation, dissolution or winding up of the Corporation; (g) reincorporate or recapitalize the Corporation; (h) issue any equity or debt securities of the Corporation or rights to acquire any equity or debt securities of the Corporation (other than (x) securities issued in an Excluded Issuance, (y) the issuance, to the holders of shares of the Corporation's Series E Convertible Preferred Stock, Series F Convertible Preferred Stock and Series K Convertible Preferred Stock outstanding as of the date of this Certificate of Designation, of shares of Common Stock in lieu of the payment of cash dividends that have become due and payable and (z) securities issued as contemplated by subsection (i) below); (i) create any indebtedness for borrowed money (other than (i) borrowings in the ordinary course of business under the Corporation's relationships with New Horizon Capital and/or PDS Gaming Corporation as in existence on August 1, 12 2002 and (ii) additional borrowings not to exceed $500,000 in the aggregate at any given time); provided that notwithstanding anything to the contrary in subsection (h) or this subsection (i), the Corporation shall not be required to obtain the approval of the Holders pursuant to this Article 8 prior to borrowing money or issuing any equity securities or securities exchangeable for, exercisable for or convertible into equity securities of the Corporation if the Corporation's Board unanimously determines in good faith, following consultation with outside counsel for the Corporation, that either (x) any delay in acquiring such approval or (y) abiding by the withholding of such approval would constitute a breach of its fiduciary duties to the Corporation's shareholders under applicable law; provided, however, that in such case the Corporation shall comply with any then-applicable contractual rights of first offer in connection with such borrowing or security sale; (j) increase the authorized number of shares of Series A-1 Preferred Stock; or (k) do any act or thing not authorized or contemplated by this Certificate of Designation which would result in taxation of the Holders of shares of the Series A-1 Preferred Stock under Section 305 of the Internal Revenue Code of 1986, as amended (or any comparable provision of the Internal Revenue Code as hereafter from time to time amended). In the event Holders of at least 75% of the then outstanding shares of Series A-1 Preferred Stock agree to allow the Corporation to take any action covered by one or more of subsections (a), (b) or (c) above, then the Corporation will deliver notice of such action to the Holders of the Series A-1 Preferred Stock that did not agree to such action (the "Dissenting Holders") and Dissenting Holders shall have the right, until the later of (i) the date 30 days after the date of the Holder's receipt of such notice or (ii) the date on which such action is effective, to convert, pursuant to the terms of this Certificate of Designation as in effect prior to such action, after which time they shall hold their shares of Series A-1 Preferred Stock subject to the effect of such action. ARTICLE 9 MISCELLANEOUS Section 9.1 Loss, Theft, Destruction of Preferred Stock Upon receipt of evidence satisfactory to the Corporation of the loss, theft, destruction, or mutilation of shares of Series A-1 Preferred Stock and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security reasonably satisfactory to the Corporation, or, in the case of any such mutilation, upon surrender and cancellation of the Series A-1 Preferred Stock, the Corporation shall make, issue, and deliver, in lieu of such lost, stolen, destroyed or mutilated shares of Series A-1 Preferred Stock, new shares of Series A-1 Preferred Stock of like tenor. The Series A-1 Preferred Stock shall be held and owned upon the express condition that the provisions of this Section 9.1 are exclusive with respect to the replacement of mutilated, destroyed, lost or stolen shares of Series A-1 Preferred Stock and shall preclude any and all other rights and remedies notwithstanding any law or statute existing or hereafter enacted to the contrary with respect to the replacement of negotiable instruments or other securities without the surrender thereof. 13 Section 9.2 Who Deemed Absolute Owner The Corporation may deem the Person in whose name the Series A-1 Preferred Stock shall be registered upon the registry books of the Corporation to be, and may treat it as, the absolute owner of the Series A-1 Preferred Stock for the purpose of receiving payment of dividends on the Series A-1 Preferred Stock, for the conversion of the Series A-1 Preferred Stock, and for all other purposes, and the Corporation shall not be affected by any notice to the contrary. All such payments and such conversion shall be valid and effectual to satisfy and discharge the liability upon the Series A-1 Preferred Stock to the extent of the sum or sums so paid or the conversion so made. Section 9.3 Notice of Fundamental Corporate Change In the case of the occurrence of any Fundamental Corporate Change described in Section 5(b), the Corporation shall cause to be mailed to the Holder of the Series A-1 Preferred Stock at its last address as it appears in the Corporation's security registry, at least 20 days prior to the applicable record, effective or expiration date specified in connection therewith (or, if such 20 days notice is not possible, at the earliest possible date prior to any such record, effective or expiration date), a notice stating (x) the date on which a record is to be taken for the purpose of such corporate action, or if a record is not to be taken, the date as of which the Holders of record of Series A-1 Preferred Stock to be entitled to any dividend, distribution, issuance, or granting of rights, options, or warrants are to be determined or the date on which such Fundamental Corporate Change is expected to become effective, and (y) the date as of which it is expected that Holders of record of Series A-1 Preferred Stock will be entitled to exchange their shares for securities, cash or other property deliverable upon such Fundamental Corporate Change. Section 9.4 Stock-Transfer Register The Corporation shall keep at its principal office a register in which the Corporation shall provide for the registration of the Series A-1 Preferred Stock. Upon any transfer of the Series A-1 Preferred Stock in accordance with the provisions hereof, the Corporation shall register such transfer on the Series A-1 Preferred Stock register. Section 9.5 Withholding To the extent required by applicable law, the Corporation may withhold amounts for or on account of any taxes imposed or levied by or on behalf of any taxing authority in the United States having jurisdiction over the Corporation from any payments made pursuant to the Series A-1 Preferred Stock. Section 9.6 Headings The headings of the Articles and Sections of this Certificate of Designation are inserted for convenience only and shall not affect the interpretation of the terms and provisions of this Certificate of Designation. 14 Section 9.7 Severability If any provision of this Certificate of Designation, or the application thereof to any person or entity or any circumstance, is invalid or unenforceable, (i) a suitable and equitable provision shall be substituted therefor in order to carry out, so far as may be valid and enforceable, the intent and purpose of such invalid or unenforceable provision, and (ii) the remainder of this Certificate of Designation and the application of such provision to other persons, entities or circumstances shall not be affected by such invalidity or unenforceability, nor shall such invalidity or unenforceability affect the validity or enforceability of such provision, or the application thereof, in any other jurisdiction. Section 9.8 Status of Shares Upon Retirement Shares of Series A-1 Preferred Stock that are acquired or redeemed by the corporation or converted into Common Shares shall return to the status of authorized and unissued shares of the corporation without designation as to class or series. Upon the acquisition or redemption by the corporation or the conversion of all Outstanding shares of Series A-1 Preferred Stock, all provisions of this Certificate of Designation shall cease to be of further effect. Section 9.9 No Impairment The Corporation will not, by amendment of this Certificate of Designation or its Articles of Incorporation, or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the corporation but will at all times in good faith assist in the carrying out of all the provisions of this Certificate of Designation and in the taking of all such action as may be necessary or appropriate in order to protect the rights of the holders of the Series A-1 Preferred Stock against impairment. Section 9.10 Reservation of Conversion Shares The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of capital stock, solely for the purpose of effecting the conversion of the Series A-1 Preferred Stock, such number of its shares as shall from time to time be sufficient to effect the conversion of all Outstanding shares of Series A-1 Preferred Stock; and if at any time the number of authorized but unissued shares of capital stock shall not be sufficient to effect the conversion of all then Outstanding shares of Series A-1 Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of capital stock to such number of shares as shall be sufficient for such purpose, including, without limitation, engaging its best efforts to obtain the requisite shareholder approval of any necessary amendment to this Certificate of Designation or the Corporation's Articles of Incorporation. 15 Section 9.11 Payment of Taxes The Corporation will pay all taxes (other than taxes based upon income) and other governmental charges that may be imposed with respect to the issue or delivery of Conversion Shares upon conversion of shares of Series A-1 Preferred Stock, other than any tax or other charge imposed in connection with any transfer involved in the issue and delivery of Conversion Shares in a name other than that in which the shares of Series A-1 Preferred Stock so converted were registered. Signature Page Follows 16 IN WITNESS WHEREOF, the Corporation has caused this Certificate of Designation to be signed by a duly authorized officer on August 21, 2002. INNOVATIVE GAMING CORPORATION OF AMERICA By: ________________________________ Name: Laus M. Abdo Title: President, Chief Executive Officer and Chief Financial Officer 17 ANNEX A FORM OF CONVERSION NOTICE TO: Innovative Gaming Corporation of America 333 Orville Wright Court Las Vegas, NV 89119 The undersigned owner of this Series A-1 5.5% Convertible Preferred Stock (the "Series A-1 Preferred Stock") issued by Innovative Gaming Corporation of America (the "Corporation") hereby irrevocably exercises its option to convert __________ shares of the Series A-1 Preferred Stock into shares of the common stock, par value $0.01 per share (the "Common Stock"), of the Corporation in accordance with the terms of the Certificate of Designation. The undersigned hereby represents that after giving effect to the conversion requested hereby, the undersigned will not be the beneficial holder of more than 4.9% of the voting securities of the Corporation. The undersigned hereby instructs the Corporation to convert the number of shares of the Series A-1 Preferred Stock specified above into Conversion Shares in accordance with the provisions of Article 6 of the Certificate of Designation. The undersigned directs that the Common Stock issuable and certificates therefor deliverable upon conversion, the Series A-1 Preferred Stock recertificated, if any, not being surrendered for conversion hereby, together with any check in payment for accrued but unpaid dividends as required by the Certificate of Designation and fractional shares of Common Stock, be issued in the name of and delivered to the undersigned unless a different name has been indicated below. All capitalized terms used and not defined herein have the respective meanings assigned to them in the Certificate of Designation. So long as the Series A-1 Preferred Stock shall have been surrendered for conversion hereby, the conversion pursuant hereto shall be deemed to have been effected on the date the Corporation receives this Conversion Notice and from and after such time the rights of the Holder of the shares of Series A-1 Preferred Stock subject to this Conversion Notice, as such, shall cease (subject to such Holder's right to receive payment for accrued and unpaid dividends and any fractional share) and the Person(s) in whose name(s) the Conversion Shares shall be issuable shall be deemed to have become the holder(s) of record of such Common Shares and all voting and other rights associated with the beneficial ownership of such Common Shares shall vest with such Person or Persons. Date and Time: __________________________ ______________________________________ Signature Fill in for registration of Series A-1 Preferred Stock: ________________________________________________________________________________ ________________________________________________________________________________ ________________________________________________________________________________ Please print name and address (including zip code number) EX-10.1 4 inngam8ksept02ex10-1.txt FORM OF SECURITIES PURCHASE AGREEMENT SECURITIES PURCHASE AGREEMENT THIS SECURITIES PURCHASE AGREEMENT, dated as of August 20, 2002 (the "Agreement") is entered into by and between Innovative Gaming Corporation of America, a Minnesota corporation with its principal executive office located at 333 Orville Wright Court, Las Vegas, Nevada 89119 (the "Company"), and the party named on the signature page below (the "Buyer"). INTRODUCTION A. The Company has authorized its officers to execute and deliver to one or more parties, including the Buyer, one or more convertible secured promissory notes in the form attached hereto as Exhibit A in an aggregate principal amount not to exceed Five Million and No/Dollars ($5,000,000.00) (the "Notes") and the Company desires to sell the Notes in a series of transactions exempt from registration under the Securities Act of 1933, as amended (the "Securities Act") (such transactions, collectively, the "Private Placement"). B. The Notes are convertible into the Company's Series A-1 5.5% Convertible Preferred Stock, par value $0.01 per share (the "Preferred Shares"), upon the terms and conditions set forth in the Note. The Preferred Shares are convertible into shares of the Company's common stock, par value $0.01 per share (the "Common Stock"), upon the terms and conditions set forth in the Company's Certificate of Designation of Series A-1 Convertible Preferred Stock in the form attached hereto as Exhibit B (the "Certificate of Designation"). The Preferred Shares to be issued upon conversion of the Notes and the Common Stock to be issued upon conversion of the Preferred Shares are referred to herein as the "Conversion Shares." C. The Buyer and the Company wish to set forth their mutual understandings with respect to the terms and conditions of the Notes, the Preferred Shares and the Buyer's participation in the Private Placement. AGREEMENT NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: ARTICLE I PRIVATE PLACEMENT OF SECURITIES A. Initial Issuance of Notes. On the terms and conditions contained in this Agreement, the Buyer hereby agrees to purchase from the Company at the Initial Closing (as defined below) that principal amount of Notes indicated on Schedule A and the Company hereby agrees to issue to the Buyer, in a transaction exempt from the registration and prospectus-delivery requirements of the Securities Act, a Note for such principal amount substantially in the form attached hereto as Exhibit A. B. Second Issuance of Notes. On the terms and conditions contained in this Agreement, the Buyer hereby agrees to purchase from the Company at the Second Closing (as defined below) that principal amount of Notes indicated on Schedule A and the Company hereby agrees to issue to the Buyer, in a transaction exempt from the registration and prospectus-delivery requirements of the Securities Act, a Note for such principal amount substantially in the form attached hereto as Exhibit A. C. Third Issuance of Notes. On the terms and conditions contained in this Agreement, the Buyer hereby agrees to purchase from the Company at the Final Closing (as defined below) that principal amount of Notes indicated on Schedule A and the Company hereby agrees to issue to the Buyer, in a transaction exempt from the registration and prospectus-delivery requirements of the Securities Act, a Note for such principal amount substantially in the form attached hereto as Exhibit A. D. Purchase Price; Manner of Payment. The purchase price for each Note shall be the original principal amount thereof (the "Purchase Price"). Except as otherwise indicated on Schedule A, the Purchase Price shall be ---------- paid by means of funds wired as follows: Wire to: Wells Fargo Bank 3800 Howard Hughes Pkwy #400 Las Vegas, NV 89109 Account Name: Innovative Gaming, Inc. ABA Routing: 121000248 Account No: 4435611090 ARTICLE II BUYER'S REPRESENTATIONS AND WARRANTIES The Buyer represents and warrants to and covenants and agrees with the Company as follows: A. Buyer is purchasing the Notes for Buyer's own account, for investment purposes only, and not with a view towards or in connection with the public sale or distribution thereof in violation of the Securities Act. B. Buyer is (i) an "accredited investor" within the meaning of Rule 501 of Regulation D under the Securities Act, (ii) experienced in making investments of the kind contemplated by this Agreement, (iii) capable, by reason of Buyer's business and financial experience, of evaluating the relative merits and risks of an investment in the Notes and (iv) able to afford the loss of Buyer's investment in the Notes. C. Buyer understands that the Notes are being offered and sold by the Company in reliance on an exemption from the registration requirements of the Securities Act and equivalent state securities and "blue sky" laws, and that the Company is relying upon the accuracy of, and Buyer's compliance with, Buyer's representations, warranties and covenants set forth in this Agreement to determine the availability of such exemption and the eligibility of Buyer to purchase the Notes. D. Buyer understands that the Notes have not been approved or disapproved by the Securities and Exchange Commission (the "Commission") or any state securities commission. E. This Agreement has been duly and validly authorized, executed and delivered by Buyer, and is a valid and binding agreement of Buyer enforceable against Buyer in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and except as rights to indemnity and contribution may be limited by federal or state securities laws or the public policy underlying such laws. F. Neither Buyer nor Buyer's affiliates, nor any other person acting on their behalf, has the intention of entering, or prior to the Initial Closing Date (as defined below) will enter into, any put option, short position or other similar instrument or position with respect to the Common Stock, and neither Buyer nor any of Buyer's affiliates nor any person acting on their behalf will at any time use shares of Common Stock acquired pursuant to this Agreement to settle any put option, short position or other similar instrument or position that may have been entered into prior to the execution of this Agreement. G. Buyer understands that there will be no market for the Notes, that there are significant restrictions on the transferability of the Notes, and that, for these and other reasons, Buyer may not be able to liquidate an investment in the Notes for an indefinite period of time. H. Buyer acknowledges that the Company's articles of incorporation provide that no person or entity may become the beneficial owner of 5% or more of the Company's shares of capital stock of every series and class unless such person or entity agrees to provide personal background and financial information to gaming authorities, consents to a background investigation, and responds to questions from gaming authorities. Buyer further acknowledges that the Company may, pursuant to the terms of its articles of incorporation, repurchase shares held by any person or entity whose status as a shareholder jeopardizes the approval, continued existence, or renewal by any gaming authority of a tribal, federal or state license or franchise held by the Company or any of its subsidiaries. The foregoing restrictions will be contained in a legend on each certificate of Common Stock. ARTICLE III COMPANY'S REPRESENTATIONS AND WARRANTIES The Company represents and warrants to the Buyer that: A. Capitalization. 1. As of the date of this Agreement, the Company's authorized capital stock consisted solely of 100,000,000 shares of capital stock, of which (i) 32,327,566 shares are issued and outstanding as shares of Common Stock, (ii) 6,523,559 shares have been reserved for issuance as shares of Common Stock in pending transactions (which shares are reflected as outstanding on Schedule III.A.1) (iii) 400,000 shares have been designated Series E Convertible Preferred Stock, par value $0.01 per share, of which 30,000 shares are issued and outstanding, (iv) 400,000 shares have been designated Series F Convertible Preferred Stock, par value $0.01 per share, of which 200,000 shares are issued and outstanding, (v) 5,000 shares have been designated Series K Convertible Preferred Stock, $0.01 par value, of which 4,062 shares are issued and outstanding and (vi) 5,000 shares have been designated Series A-1 5.5% Convertible Preferred Stock, $0.01 par value, of which no shares are issued and outstanding. All of the issued and outstanding shares of Common Stock and preferred stock have been duly authorized and validly issued and are fully paid and nonassessable. Schedule III.A.1 hereto sets forth a complete and accurate capitalization table of the Company reflecting, both prior to and after the transactions contemplated by the Private Placement, the fully-diluted ownership of the Company. 2. Except as disclosed on Schedule III.A.2 hereto, there are no options, warrants, conversion, preemptive, subscription, "call," rights of first refusal or other similar rights to acquire any capital stock of the Company or any of its Subsidiaries or other voting securities of the Company that have been issued or granted to any person and no other obligations of the Company or any of its Subsidiaries to issue, grant, extend or enter into any security, option, warrant, "call," right, commitment, agreement, arrangement or undertaking with respect to any of their respective capital stock. With respect to the Company's convertible preferred stock outstanding as of the date hereof, each holder has agreed to conversion into Common Stock on the terms (including the conversion prices) set forth on Schedule III.A.2. 3. Schedule III.A.3 hereto lists all the subsidiaries of the Company (the "Subsidiaries"). Attached to Schedule III.A.3 hereto is an organizational chart of the Company and the Subsidiaries. No Person other than the Company owns any interest in the Subsidiaries. Except as disclosed on Schedule III.A.3 hereto, the Company does not own or control, directly or indirectly, any interest in any other corporation, partnership, limited liability company, unincorporated business organization, association, trust or other business entity. 4. The Company has delivered or made available to each Buyer complete and correct copies of the Certificate of Incorporation and the By-Laws of the Company as amended to the date of this Agreement. Except as set forth on Schedule III.A.4 hereto, the Company has delivered or made available to Buyer true and complete copies of all minutes of the Board of Directors of the Company (the "Board of Directors") since September 1, 1997. 5. Schedule III.A.5 hereto sets forth (a) all issuances and sales by the Company since December 31, 2001 of its capital stock, and other securities convertible, exercisable or exchangeable for capital stock of the Company, (b) the amount of such securities sold, including any underlying shares of capital stock, (c) the purchaser thereof, (d) the amount paid therefor, and (e) the material terms of all outstanding capital stock of the Company (other than the Common Stock). B. Organization; Reporting Company Status. 1. Except as indicated on Schedule III.B.1, each of the Company and the Subsidiaries is a corporation duly organized, validly existing, and in good standing under the laws of the state or jurisdiction in which it is incorporated and is duly qualified as a foreign corporation in all jurisdictions in which the failure to so qualify would reasonably be expected to have a material adverse effect on the business, properties, prospects, condition (financial or otherwise) or results of operations of the Company and the Subsidiaries taken as a whole or on the consummation of any of the transactions contemplated by this Agreement (a "Material Adverse Effect"). 2. The Company has registered its Common Stock pursuant to Section 12 of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). The Common Stock is listed and traded on the Nasdaq SmallCap Market ("Nasdaq") and except as indicated on Schedule III.B.2, the Company has not received any notice regarding, and to its knowledge there is no threat of, the termination or discontinuance of the eligibility of the Common Stock for such listing. C. Authority; Validity and Enforceability. 1. For all purposes of this Agreement, the term "Documents" means (i) this Agreement, (ii) the Certificate of Designation, (iii) the Notes, (iv) the Security Agreement by and among the Company, the Buyer and certain other parties of even date herewith, a form of which is attached hereto as Exhibit C (the "Security Agreement") and (v) the Registration Rights Agreement by and between the Company and the Buyer of even date herewith, a form of which is attached hereto as Exhibit D (the "Registration Rights Agreement"). 2. The Company has the requisite corporate power and authority to file and perform its obligations under the Certificate of Designation, to enter into the Documents (as defined above), and to perform all of its obligations thereunder (including the issuance, sale and delivery to Buyer of the Notes) (with respect to the Initial Closing, the preceding shall be qualified insofar as the Company has not yet received shareholder approval to amend its Articles of Incorporation to increase the number of authorized shares of capital stock to be able to reserve a sufficient number of shares of Common Stock to be issued upon conversion of the Preferred Shares). 3. The Company's execution, delivery and performance of the Documents, and the Company's consummation of the transactions contemplated thereby (including without limitation the filing of the Certificate of Designation with the Minnesota Secretary of State's office, the reservation for issuance and issuance of the Conversion Shares), have been duly authorized by all necessary action on the part of the Company (with respect to the Initial Closing, the preceding shall be qualified insofar as the Company has not yet received shareholder approval to amend its Articles of Incorporation to increase the number of authorized shares of capital stock to be able to reserve a sufficient number of shares of Common Stock to be issued upon conversion of the Preferred Shares). 4. Each of the Documents (other than the Notes) has been duly and validly executed and delivered by the Company, the Certificate of Designation has been duly filed with the Minnesota Secretary of State's office, and each Document (other than the Notes) constitutes a valid and binding obligation of the Company enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally and except as rights to indemnity and contribution may be limited by federal or state securities laws or the public policy underlying such laws (with respect to the Initial Closing, the preceding shall be qualified insofar as the Company has not yet received shareholder approval to amend its Articles of Incorporation to increase the number of authorized shares of capital stock to be able to reserve a sufficient number of shares of Common Stock to be issued upon conversion of the Preferred Shares). 5. The Notes have been duly and validly authorized for issuance by the Company and each Note, when executed and delivered by the Company, will be a valid and binding obligation of the Company enforceable against it in accordance with its terms, subject to applicable bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and similar laws affecting creditors' rights and remedies generally. D. Validity of Issuance of the Securities. 1. The Company has duly and validly authorized and reserved for issuance a sufficient number of Preferred Shares for issuance upon initial conversion of all Notes that may be issued hereunder. Such Preferred Shares, when issued by the Company upon conversion of the Notes, will be duly and validly issued, fully paid and nonassessable, not subject to any preemptive rights, rights of first refusal, tag-along rights, drag-along rights or other similar rights, will not subject the holder thereof to personal liability by reason of being such holder and will be free and clear of all pledges, liens, encumbrances and restrictions other than restrictions on transfer under applicable state and federal securities laws. 2. On or prior to October 15, 2002, the Company will have duly and validly authorized and reserved for issuance a sufficient number of shares of Common Stock for issuance upon conversion of the Preferred Shares. Such Common Stock, when issued by the Company upon conversion of the Preferred Shares, will be duly and validly issued, fully paid and nonassessable, not subject to any preemptive rights, rights of first refusal, tag-along rights, drag-along rights or other similar rights, will not subject the holder thereof to personal liability by reason of being such holder and will be free and clear of all pledges, liens, encumbrances and restrictions other than restrictions on transfer under applicable state and federal securities laws. E. Commission Filings. The Company has properly and timely filed with the Commission all reports, proxy statements, forms and other documents required to be filed with the Commission under the Securities Act and the Exchange Act since February 1, 1998 (the "Commission Filings"). As of their respective dates, (i) the Commission Filings complied in all material respects with the requirements of the Securities Act or the Exchange Act, as applicable, and the rules and regulations of the Commission promulgated thereunder applicable to such Commission Filings, and (ii) none of the Commission Filings contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. The Company's financial statements included in the Commission Filings, as of the dates of such documents, were true and complete in all material respects and complied with applicable accounting requirements and the published rules and regulations of the Commission with respect thereto, were prepared in accordance with generally accepted accounting principles in the United States ("GAAP") (except in the case of unaudited statements, as permitted by Form 10-Q under the Exchange Act) applied on a consistent basis during the periods involved (except as may be indicated in the notes thereto) and fairly presented the consolidated financial position of the Company and its Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments that in the aggregate are not material and to any other adjustment described therein). F. Non-Contravention. The execution and delivery by the Company of the Documents, the issuance of the Notes, and the consummation by the Company of the other transactions contemplated thereby, including, without limitation, the filing of the Certificate of Designation with the Minnesota Secretary of State's office, do not, and compliance with the provisions of this Agreement and other Documents will not, conflict with, or result in any violation of, or default (with or without notice or lapse of time, or both) under, or give rise to a right of termination, cancellation or acceleration of any obligation or loss of a material benefit under, or result in the creation of any Lien (as defined below) upon any of the properties or assets of the Company or any of its Subsidiaries under, or result in the termination of, or require that any consent be obtained or any notice be given with respect to, (i) the Articles of Incorporation or By-Laws of the Company or the comparable charter or organizational documents of any of its Subsidiaries, (ii) except as indicated in Schedule III.F, any loan or credit agreement, note, bond, mortgage, indenture, lease, contract or other agreement, instrument or permit applicable to the Company or any of its Subsidiaries or their respective properties or assets, or (iii) other than the gaming regulatory approvals described on Schedule III.F, any Law (as defined below) applicable to the Company or any of its Subsidiaries or their respective properties or assets. G. Approvals. Except as set forth on Schedule III.G hereto, no authorization, approval or consent of any court or public or governmental authority is required to be obtained by the Company for the issuance and sale of the Notes or the Conversion Shares to Buyer as contemplated by this Agreement and the other Documents, except such authorizations, approvals and consents as have been obtained by the Company prior to the date hereof. H. Absence of Certain Changes. Except as set forth on Schedule III.H hereto, since the Balance Sheet Date (as defined in Section III.K), there has not occurred any change, event or development in the business, financial condition, prospects or results of operations of the Company or any of the Subsidiaries, there has not existed any condition having or reasonably likely to have a Material Adverse Effect, and the Company and the Subsidiaries have conducted their respective businesses only in the ordinary course. I. Absence of Litigation. Except as set forth on Schedule III.I, there are (i) no suits, actions or proceedings pending or, to the knowledge of the Company, threatened against the Company or any of its Subsidiaries, (ii) no complaints, lawsuits, charges or other proceedings pending or, to the knowledge of the Company, threatened in any forum by or on behalf of any present or former employee of the Company or any of its Subsidiaries, any applicant for employment or classes of the foregoing alleging breach of any express or implied contract of employment, any applicable law governing employment or the termination thereof or other discriminatory, wrongful or tortious conduct in connection with the employment relationship, and (iii) no judgments, decrees, injunctions or orders of any governmental entity or arbitrator outstanding against the Company or any Subsidiary. J. Absence of Events of Default. Except as set forth on Schedule III.J, no "Event of Default" (as defined in any agreement or instrument to which the Company is a party) and no event which, with notice, lapse of time or both, would constitute an Event of Default (as so defined), has occurred and is continuing which could have a Material Adverse Effect on the Company. K. Financial Statements; No Undisclosed Liabilties. The Company has delivered to each Buyer true and complete copies of the (i) audited balance sheet of the Company and the Subsidiaries as at December 31, 2001, 2000 and 1999, respectively, and the related audited statements of income, changes in stockholders' equity and cash flows for the three fiscal years ended December 31, 2001, including the related notes and schedules thereto, (ii) unaudited balance sheets of the Company and the Subsidiaries and the statements of income, changes in stockholders' equity and cash flows for each fiscal quarter ended since December 31, 2001 and (iii) unaudited balance sheets of the Company and the Subsidiaries and the statements of income, changes in stockholders' equity and cash flows for the month ended July 31, 2002 and the seven month period then ended, including in each case the related notes and schedules, all certified by the chief financial officer of the Company (collectively, the "Financial Statements"), and all management letters, if any, from the Company's independent auditors relating to the dates and periods covered by the Financial Statements. The Financial Statements at and for the period ended July 31, 2002 are attached as Schedule III.K. Each of the Financial Statements is complete and correct in all material respects, has been prepared in accordance with GAAP (subject, in the case of the interim Financial Statements, to normal year end adjustments and the absence of footnotes), and fairly presents the financial position, results of operations and cash flows of the Company as at the dates and for the periods indicated. For purposes hereof, the audited balance sheet of the Company as at December 31, 2001 is hereinafter referred to as the "Balance Sheet" and December 31, 2001 is hereinafter referred to as the "Balance Sheet Date." The Company has no indebtedness, obligations or liabilities of any kind (whether accrued, absolute, contingent or otherwise, and whether due or to become due), which was not fully reflected in, reserved against or otherwise described in the Balance Sheet or the notes thereto or incurred in the ordinary course of business consistent with the Company's past practices since the Balance Sheet Date. L. Compliance with Laws; Permits. Each of the Company and its Subsidiaries is in compliance with all laws, rules, regulations, codes, ordinances and statutes (collectively, "Laws") applicable to it or to the conduct of its business except for such violations of Laws as would not, individually or in the aggregate, have a Material Adverse Effect. Schedule III.L lists all instances of noncompliance with Laws known to the Company, whether or not such noncompliance would have a Material Adverse Effect. Each of the Company and its Subsidiaries possesses all material permits, approvals, authorizations, licenses, certificates and consents from all public and governmental authorities which are necessary to conduct its business except for such permits, approval, authorizations, licenses, certificates and consents as would not, individually or in the aggregate, have a Material Adverse Effect. Set forth on Schedule III.L hereto is a list of each jurisdiction in which the Company holds a gaming license. M. Related Party Transactions. Except as set forth on Schedule III.M hereto, neither the Company nor any of its officers, directors or "Affiliates" (as such term is defined in Rule 12b-2 under the Exchange Act) nor any family member of any officer, director or Affiliate of the Company has borrowed any money from or has outstanding any indebtedness or other similar obligations to the Company or any of the Subsidiaries. Except as set forth on Schedule III.M hereto, neither the Company nor any of its officers, directors or Affiliates nor any family member of any officer, director or Affiliate of the Company (i) owns any direct or indirect interest constituting more than a 1% equity (or similar profit participation) interest in, or controls or is a director, officer, partner, member or employee of, or consultant to or lender to or borrower from, or has the right to participate in the profits of, any person or entity which is (x) a competitor, supplier, customer, landlord, tenant, creditor or debtor of the Company or any Subsidiary, (y) engaged in a business related to the business of the Company or any Subsidiary, or (z) a participant in any transaction to which the Company or any Subsidiary is a party or (ii) is a party to any contract, agreement, commitment or other arrangement with the Company or any Subsidiary. N. Insurance. Each of the Company and the Subsidiaries maintains property and casualty, general liability, workers' compensation, environmental hazard, personal injury and other similar types of insurance with financially sound and reputable insurers that is adequate and consistent with industry standards and the Company's historical claims experience, all of which policies are set forth on Schedule III.N hereto. Except as set forth on Schedule III.N hereto, none of the Company and the Subsidiaries has received notice from, and none of them has knowledge of any threat by, any insurer (that has issued any insurance policy to the Company or any Subsidiary) that such insurer intends to deny coverage under or cancel, discontinue or not renew any insurance policy presently in force. O. Securities Law Matters. Assuming the accuracy of the representations and warranties of the Buyer set forth in Article II hereof, the offer and sale by the Company of the Notes and the Conversion Shares is exempt from (i) the registration and prospectus delivery requirements of the Securities Act and the rules and regulations of the Commission thereunder as in effect on the date of this Agreement and (ii) the registration and/or qualification provisions of all applicable state securities and "blue sky" laws as in effect on the date of this Agreement. Other than pursuant to an effective registration statement under the Securities Act, the Company has not issued, offered or sold any Notes, Preferred Shares or shares of Common Stock (including for this purpose any securities of the same or a similar class as the Notes, Preferred Shares or Common Stock, or any securities convertible into or exchangeable or exercisable for Notes, Preferred Shares or Common Stock or any such other securities) since December 31, 2001, except as disclosed on Schedule III.O hereto, and the Company shall not directly or indirectly take, and shall not permit any of its directors, officers or Affiliates directly or indirectly to take, any action (including, without limitation, any offering or sale to any person or entity of Notes, Preferred Shares or shares of Common Stock or any securities convertible into or exchangeable or exercisable for Notes, Preferred Shares or Common Stock or any such other securities), which will make unavailable the exemption from Securities Act registration being relied upon by the Company for the offer and sale to the Buyer of the Notes and the Conversion Shares as contemplated by this Agreement and the other Documents. No form of general solicitation or advertising has been used or authorized by the Company or any of its officers, directors or Affiliates in connection with the offer or sale of the Notes or the Conversion Shares. P. Environmental Matters. Except as set forth on Schedule III.P hereto: 1. The Company, the Subsidiaries and their respective operations are in compliance with all applicable Environmental Laws and all permits (including terms, conditions, and limitations therein) issued pursuant to Environmental Laws or otherwise; 2. Each of the Company and the Subsidiaries has all permits, licenses, waivers, exceptions, and exemptions required under all applicable Environmental Laws necessary to operate its business; 3. None of the Company or the Subsidiaries is the subject of any outstanding written order of or agreement with any governmental authority or person respecting (i) Environmental Laws or permits, (ii) Remedial Action or (iii) any Release or threatened Release of Hazardous Materials; 4. None of the Company or the Subsidiaries has received any written communication alleging that it may be in violation of any Environmental Law or any permit issued pursuant to any Environmental Law, or may have any liability under any Environmental Law; 5. None of the Company or the Subsidiaries has any liability, contingent or otherwise, in connection with any presence, treatment, storage, disposal or Release of any Hazardous Materials whether on property owned or operated by the Company or any Subsidiary or property of third parties, and none of the Company or the Subsidiaries has transported, or arranged for transportation of, any Hazardous Materials for treatment or disposal on any property; 6. There are no investigations of the business, operations, or currently or previously owned, operated or leased property of the Company or any Subsidiary pending or threatened which could lead to the imposition of any case or liability pursuant to any Environmental Law; 7. There is not located at any of the properties owned or operated by the Company or any Subsidiary any (A) underground storage tanks, (B) asbestos-containing material or (C) equipment containing polychlorinated biphenyls; 8. Each of the Company and the Subsidiaries has provided to each Buyer all environmentally related assessments, audits, studies, reports, analyses, and results of investigations that have been performed with respect to the currently or previously owned, leased or operated properties or activities of the Company and such Subsidiaries; 9. There are no liens arising under or pursuant to any Environmental Law on any real property owned, operated, or leased by the Company or any Subsidiary, and no action of any governmental authority has been taken or, to the knowledge of the Company, is in process of being taken which could subject any of such properties to such liens, and none of the Company or the Subsidiaries has been or is expected to be required to place any notice or restriction relating to the presence of Hazardous Material at any real property owned, operated, or leased by it in any deed to such property; 10. Neither the Company nor any of the Subsidiaries owns, operates, or leases any hazardous waste generation, treatment, storage, or disposal facility, as such terms are used pursuant to the RCRA and related or analogous state, local, or foreign law. None of the properties owned, operated, or leased by the Company, any of the Subsidiaries or any predecessor thereof are now, or were in the past, used in any part as a dump, landfill, or disposal site, and neither the Company, any of the Subsidiaries nor any predecessor of any of them has filled any wetlands; 11. The purchase that is the subject of this Agreement will not require any governmental approvals under Environmental Laws, including those that are triggered by sales or transfers of businesses or real property, including, as examples and without limitation, the New Jersey Industrial Site Recovery Act, N.J. Stat. 13:1K-7 et seq., and the Connecticut Transfer of Establishments Act, Conn. Gen. Stat.. 22a-134 et seq.; 12. There is no currently existing requirement or requirement to be imposed in the future by any Environmental Law or Environmental Permit which could result in the incurrence of a cost that could be reasonably expected to have a Material Adverse Effect; and 13. Each of the Company and each of the Subsidiaries has disclosed to Buyer all other acts or conditions that could result in any costs or liabilities under Environmental Laws. For purposes of this Section III.P "Environmental Law" means any foreign, federal, state or local statute, regulation, ordinance, or common law as now or hereafter in effect in any way relating to the protection of human health, safety or welfare, or the environment including, without limitation, the Comprehensive Environmental Response, Compensation and Liability Act, the Hazardous Materials Transportation Act, the Resource Conservation and Recovery Act ("RCRA"), the Clean Water Act, the Clean Air Act, the Toxic Substances Control Act, the Federal Insecticide, Fungicide, and Rodenticide Act, and the Occupational Safety and Health Act, and the regulations promulgated pursuant to any of them. "Hazardous Material" means any substance that is listed, classified or regulated pursuant to any Environmental Law, including petroleum, gasoline, and any other petroleum product, by-product, fraction or derivative, asbestos or asbestos-containing material, lead-containing paint, water, or plumbing, polychlorinated biphenyls, radioactive materials and radon; "Release" means any placement, release, spill, filtration, emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal, migration, or leaching to, through, or under the indoor or outdoor environment, or into, through, under, or out of any property; and "Remedial Action" means any action to (x) clean up, remove, remediate, treat or in any other way address any Hazardous Material; (y) prevent or contain the Release of any Hazardous Material; or (z) perform studies and investigations or post-remedial monitoring and care in relation to (x) or (y) above. Q. Labor Matters. Neither the Company nor any of the Subsidiaries is party to any labor or collective bargaining agreement, and there are no labor or collective bargaining agreements which pertain to any employees of the Company or any Subsidiary. No employees of the Company or any of the Subsidiaries are represented by any labor organization and none of such employees has made a pending demand for recognition, and there are no representation proceedings or petitions seeking a representation proceeding presently pending or, to the Company's knowledge, threatened to be brought or filed, with the National Labor Relations Board or other labor relations tribunal. There is no organizing activity involving the Company or any Subsidiary pending or to the Company's knowledge, threatened by any labor organization or group of employees of the Company or any of the Subsidiaries. There are no (i) strikes, work stoppages, slowdowns, lockouts or arbitrations or (ii) material grievances or other labor disputes pending or, to the knowledge of the Company, threatened against or involving the Company or any of the Subsidiaries. There are no unfair labor practice charges, grievances or complaints pending or, to the knowledge of the Company, threatened by or on behalf of any employee or group of employees of the Company or any of the Subsidiaries. R. ERISA Matters. All Plans maintained by the Company or any of its Subsidiaries and ERISA Affiliates are listed in Schedule III.R and copies of all documentation relating to such Plans (including, but not limited to, copies of written Plans, written descriptions of oral Plans, summary plan descriptions, trust agreements, the three most recent annual returns, employee communications and IRS determination letters) have been delivered to or made available for review by the Buyer. Except as indicated in Schedule III.R, each Plan has at all times been maintained and administered in all material respects in accordance with its terms and the requirements of applicable law, including ERISA and the Code, and each Plan intended to qualify under section 401(a) of the Code has at all times since its adoption been so qualified, and each trust which forms a part of any such plan has at all times since its adoption been tax-exempt under section 501(a) of the Code. The Company and each of its Subsidiaries and ERISA Affiliates are in compliance in all material respects with all provisions of ERISA applicable to it. No Reportable Event has occurred, been waived or exists as to which the Company or any of its Subsidiaries and ERISA Affiliates was required to file a report with the PBGC, and the present value of all liabilities under each Pension Plan (based on those assumptions used to fund such Plans) listed in Schedule III.R did not, as of the most recent annual valuation date applicable thereto, exceed the value of the assets of such Pension Plan. None of the Company, its Subsidiaries and ERISA Affiliates has incurred, or reasonably expects to incur, any Withdrawal Liability with respect to any Multi-employer Plan that could result in a Material Adverse Effect. None of the Company, its Subsidiaries and ERISA Affiliates has received any notification that any Multi-employer Plan is in reorganization or has been terminated within the meaning of Title IV of ERISA, and no Multi-employer Plan is reasonably expected to be in reorganization or termination where such reorganization or termination has resulted or could reasonably be expected to result in increases to the contributions required to be made to such Plan or otherwise. No direct, contingent or secondary liability has been incurred or is expected to be incurred by the Company or any of its Subsidiaries under Title IV of ERISA to any party with respect to any Plan, or with respect to any other Plan presently or heretofore maintained or contributed to by any ERISA Affiliate. Neither the Company nor any of its Subsidiaries and ERISA Affiliates has incurred any liability for any tax imposed under sections 4971 through 4980B of the Code or civil liability under section 502(i) or (l) of ERISA. No suit, action or other litigation or any other claim which could reasonably be expected to result in a material liability or expense to the Company or any of its Subsidiaries or ERISA Affiliates (excluding claims for benefits incurred in the ordinary course of plan activities) has been brought or, to the knowledge of the Company, threatened against or with respect to any Plan and there are no facts or circumstances known to the Company or any of its Subsidiaries or ERISA Affiliates that could reasonably be expected to give rise to any such suit, action or other litigation. All contributions to Plans that were required to be made under such Plans have been made, and all benefits accrued under any unfunded Plan have been paid, accrued or otherwise adequately reserved in accordance with GAAP, all of which accruals under unfunded Plans are as disclosed in Schedule III.R, and the Company, its Subsidiaries and ERISA Affiliates have each performed all material obligations required to be performed under all Plans. The execution, delivery and performance of this Agreement and the other Documents and the consummation of the transactions contemplated hereby and thereby (including, without limitation, the offer, issue and sale by the Company, and the purchase by the Buyer, of the Notes, the Preferred Shares and the Conversion Shares) will not involve any "prohibited transaction" within the meaning of ERISA or the Code with respect to any Plan. As used in this Agreement: "Code" means the Internal Revenue Code of 1986, as amended. "ERISA" means the Employee Retirement Income Security Act of 1974, or any successor statute, together with the regulations thereunder, as the same may be amended from time to time. "ERISA Affiliate" means any trade or business (whether or not incorporated) that was, is or hereafter may become, a member of a group of which the Company is a member and which is treated as a single employer under section 414 of the Code. "Multi-employer Plan" means a multi-employer plan as defined in section 4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of section 414 of the Code) is making or accruing an obligation to make contributions, or has within any of the preceding six plan years made or accrued an obligation to make contributions. "PBGC" means the Pension Benefit Guaranty Corporation referred to and defined in ERISA or any successor thereto. "Pension Plan" means any pension plan (other than a Multi-employer Plan) subject to the provision of Title IV of ERISA or section 412 of the Code that is maintained for employees of the Company or any of its Subsidiaries, or any ERISA Affiliate. "Plan" means any bonus, incentive compensation, deferred compensation, pension, profit sharing, retirement, stock purchase, stock option, stock ownership, stock appreciation rights, phantom stock, leave of absence, layoff, vacation, day or dependent care, legal services, cafeteria, life, health, accident, disability, workmen's compensation or other insurance, severance, separation or other employee benefit plan, practice, policy or arrangement of any kind, whether written or oral, or whether for the benefit of a single individual or more than one individual including, but not limited to, any "employee benefit plan" within the meaning of section 3(3) of ERISA, including any Pension Plan. "Reportable Event" means any reportable event as defined in section 4043(b) of ERISA or the regulations issued thereunder with respect to a Plan. "Withdrawal Liability" means liability to a Multi-employer Plan as a result of a complete or partial withdrawal from such Multi-employer Plan, as such terms are defined in Part I of Subtitle E of Title IV of ERISA. S. Tax Matters. 1. Except as indicated on Schedule III.S, the Company has filed all Tax Returns which it is required to file under applicable Laws; all such Tax Returns are true and accurate in all material respects and have been prepared in compliance with all applicable Laws; the Company has paid all Taxes due and owing by it (whether or not such Taxes are required to be shown on a Tax Return) and has withheld and paid over to the appropriate taxing authorities all Taxes which it is required to withhold from amounts paid or owing to any employee, stockholder, creditor or other third parties; and since the Balance Sheet Date, the charges, accruals and reserves for Taxes with respect to the Company (including any provisions for deferred income taxes) reflected on the books of the Company are adequate to cover any Tax liabilities of the Company if its current tax year were treated as ending on the date hereof. 2. No claim has been made by a Taxing authority in a jurisdiction where the Company does not file Tax Returns that the Company is or may be subject to taxation by such jurisdiction. There are no foreign, federal, state or local tax audits or administrative or judicial proceedings pending or being conducted with respect to the Company; no information related to Tax matters has been requested by any foreign, federal, state or local Taxing authority; and, except as disclosed above, no written notice indicating an intent to open an audit or other review has been received by the Company from any foreign, federal, state or local Taxing authority. There are no material unresolved questions or claims concerning the Company's Tax liability. The Company (A) has not executed or entered into a closing agreement pursuant to section 7121 of the Code or any predecessor provision thereof or any similar provision of state, local or foreign law; or (B) has not agreed to or is required to make any adjustments pursuant to section 481(a) of the Code or any similar provision of state, local or foreign law by reason of a change in accounting method initiated by the Company or any of its Subsidiaries or has any knowledge that the IRS has proposed any such adjustment or change in accounting method, or has any application pending with any taxing authority requesting permission for any changes in accounting methods that relate to the business or operations of the Company. The Company has not been a United States real property holding corporation within the meaning of section 897(c)(2) of the Code during the applicable period specified in section 897(c)(1)(A)(ii) of the Code. 3. The Company has not made an election under section 341(f) of the Code. The Company is not liable for the Taxes of another person that is not a subsidiary of the Company under (A) Treas. Reg. Section 1.1502-6 (or comparable provisions of state, local or foreign law), (B) as a transferee or successor, (C) by contract or indemnity or (D) otherwise. The Company is not a party to any Tax sharing agreement. The Company has not made any payments, is not obligated to make payments and is not a party to an agreement that could obligate it to make any payments that would not be deductible under section 280G of the Code. For purposes of this Section III.S: "IRS" means the United States Internal Revenue Service. "Tax" or "Taxes" means federal, state, county, local, foreign, or other income, gross receipts, ad valorem, franchise, profits, sales or use, transfer, registration, excise, utility, environmental, communications, real or personal property, capital stock, license, payroll, wage or other withholding, employment, social security, severance, stamp, occupation, alternative or add-on minimum, estimated and other taxes of any kind whatsoever (including, without limitation, deficiencies, penalties, additions to tax, and interest attributable thereto) whether disputed or not. "Tax Return" means any return, information report or filing with respect to Taxes, including any schedules attached thereto and including any amendment thereof. T. Property. Except as set forth on Schedule III.T, each of the Company and the Subsidiaries has good and marketable title to all of its assets and properties material to the conduct of its business, free and clear of any liens, pledges, security interests, claims, encumbrances or other restrictions of any kind (collectively, "Liens"). With respect to any assets or properties it leases, each of the Company and its Subsidiaries holds a valid and subsisting leasehold interest therein, free and clear of any Liens, is in compliance, in all material respects, with the terms of the applicable lease, and enjoys peaceful and undisturbed possession under such lease. All of the assets and properties of the Company and any of its Subsidiaries that are material to the conduct of business as presently conducted or as proposed to be conducted by it are in good operating condition and repair. Except as reserved for, the inventory of the Company and its Subsidiaries is in good and marketable condition, does not include any material quantity of items which are obsolete, damaged or slow moving, and is salable (or may be leased) in the normal course of business as currently conducted by it. U. Intellectual Property. The Company owns or possesses adequate and enforceable rights to use all patents, patent applications, trademarks, trademark applications, trade names, service marks, copyrights, copyright applications, licenses, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures) and other similar rights and proprietary knowledge (collectively, "Intangibles") necessary for the conduct of its business as now being conducted and currently proposed to be conducted including, but not limited to, those described on Schedule III.U hereto. Except as set forth on Schedule III.U, the Company has all right, title and interest in all of the Intangibles, free and clear of any and all Liens. The Company is not infringing upon or in conflict with any right of any other person with respect to any Intangibles. Except as disclosed on Schedule III.U hereto, (i) no claims have been asserted by any individual, partnership, corporation, unincorporated organization or association, limited liability company, trust or other entity (collectively, a "Person") contesting the validity, enforceability, use or ownership of any Intangibles, and the Company has no knowledge of any basis for such claim, and (ii) neither the Company nor the Subsidiaries has any knowledge of infringement or misappropriation of the Intangibles by any third party. Each employee and officer of the Company has executed a proprietary information and inventions agreement substantially in the form or forms which have been delivered or made available to the Buyer. The Company is not aware that any of its employees or officers is in violation thereof. Each consultant and vendor to the Company with access to confidential information of the Company is a party to a written agreement under which, among other things, such consultant or vendor is obligated to maintain the confidentiality of confidential information of the Company. The Company is not aware that any of its consultants or vendors is in violation thereof. V. Contracts. Except as indicated on Schedule III.V, all contracts, agreements, notes, instruments, franchises, leases, licenses, commitments, arrangements or understandings, written or oral (collectively, "Contracts") which are material to the business and operations of the Company and the Subsidiaries are in full force and effect and constitute legal, valid and binding obligations of the Company and the Subsidiaries and, to the Company's knowledge, the other parties thereto; the Company and the Subsidiaries and, to the Company' knowledge, each other party thereto, have performed in all material respects all obligations required to be performed by them under the Contracts, and no material violation or default exists in respect thereof, nor any event that with notice or lapse of time, or both, would constitute a default thereof, on the part of the Company and the Subsidiaries or, to the Company's knowledge, any other party thereto; none of the Contracts is currently being renegotiated; and the validity, effectiveness and continuation of all Contracts will not be materially adversely affected by the transactions contemplated by this Agreement. W. Registration Rights. Except as set forth on Schedule III.W, no Person has, and as of the relevant Closing (as defined below), no Person shall have, demand, "piggy-back" or other rights to cause the Company to file any registration statement under the Securities Act, relating to any of its securities or to participate in any such registration statement. X. Interest; Dividends. The timely payment of interest on the Notes as specified therein and dividends on the Preferred Shares as specified in the Certificate of Designation is not prohibited by the Certificate of Incorporation or By-Laws of the Company or any agreement, contract, document or other undertaking to which the Company or any of the Subsidiaries is a party. Y. Investment Company Act. Neither the Company nor any of the Subsidiaries is an "investment company" within the meaning of the Investment Company Act of 1940, as amended (the "Investment Company Act"), nor is the Company nor any of the Subsidiaries directly or indirectly controlled by or acting on behalf of any Person which is an "investment company" within the meaning of the Investment Company Act. Z. Business Plan. Any business information of the Company previously submitted to any Buyer in any form, including the projections contained therein, was prepared by the senior management of the Company in good faith and is based on assumptions that the Company believes are reasonable. The Company is not aware of any fact or condition that could reasonably be expected to result in the Company not achieving the results described in such business plan. AA. Internal Controls and Procedures. The Company maintains accurate books and records and internal accounting controls that provide reasonable assurance that (i) all transactions to which the Company or each of the Subsidiaries is a party or by which its properties are bound are executed with management's authorization; (ii) the reported accountability of the Company's and the Subsidiaries' assets is compared with existing assets at regular intervals; (iii) access to the Company's and the Subsidiaries' assets is permitted only in accordance with management's authorization; and (iv) all transactions to which any of the Company and the Subsidiaries is a party or by which its properties are bound are recorded as necessary to permit preparation of the financial statements of the Company in accordance with GAAP. BB. Payments and Contributions. Neither the Company nor any of its Subsidiaries nor any of their respective directors, officers or, to their respective knowledge, other employees has (i) used any company funds for any unlawful contribution, endorsement, gift, entertainment or other unlawful expense relating to political activity; (ii) made any direct or indirect unlawful payment of company funds to any foreign or domestic government official or employee, (iii) violated or is in violation of any provision of the Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate, payoff, influence payment, kickback or other similar payment to any person with respect to Company matters. CC. Finder's Fees. No person, firm or corporation has or will have, as a result of any act or omission of the Company, any right, interest or valid claim against the Company or any Buyer for any commission, fee or other compensation as a finder or broker in connection with the transactions contemplated by this Agreement. The Company shall indemnify and hold each Buyer harmless against any and all liability with respect to any such commission, fee or other compensation which may be payable or be determined to be payable in connection with the transactions contemplated by this Agreement as a result of any act or omission of the Company. DD. Accounts Payable. Attached to Schedule III.DD is a complete and accurate listing, as of the most recent practicable date, of all of the Company's and Subsidiaries' accounts payable. EE. GET Merger. The Company's proposed acquisition of GET USA, Inc. pursuant to an Agreement and Plan of Merger by and among GET USA, Inc., the Company and Innovative Gaming Technology Corp., dated February 15, 2002, has been terminated. FF. Disclosure 1. Except as set forth in Schedule III.FF, there is no fact known to the Company (other than general economic or industry conditions known to the public generally) that has not been fully disclosed in writing to Buyer that (i) reasonably could be expected to have a Material Adverse Effect or (ii) reasonably could be expected to materially and adversely affect the ability of the Company to perform its obligations pursuant to the Documents. 2. No representation or warranty of the Company contained in this Agreement or any of the other Documents, any schedule, annex or exhibit hereto or thereto or any agreement, instrument or certificate furnished by the Company to any Buyer pursuant to this Agreement, contains any untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, not misleading. ARTICLE IV CERTAIN COVENANTS AND ACKNOWLEDGMENTS A. Restrictive Legend. The Buyer acknowledges and agrees that, upon issuance pursuant to this Agreement, the Conversion Shares shall have endorsed thereon legends in substantially the following form (and a stop-transfer order may be placed against transfer of the Conversion Shares until such legend has been removed): THE OFFER AND SALE OF THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES LAW OF ANY STATE. THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND WITHOUT A VIEW TO THEIR DISTRIBUTION AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH TRANSACTION UNDER THE SECURITIES ACT OF 1933 OR UNLESS, IN THE OPINION OF COUNSEL SATISFACTORY TO THIS CORPORATION (IF THIS CORPORATION SO REQUESTS), AN EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER THE SECURITIES LAWS. THE ARTICLES OF INCORPORATION OF THE CORPORATION IMPOSE CERTAIN RESTRICTIONS ON THE OWNERSHIP OF FIVE PERCENT OR MORE OF THE CAPITAL STOCK OF THE CORPORATION AND EMPOWER THE BOARD OF DIRECTORS TO REDEEM CAPITAL STOCK UNDER CERTAIN CIRCUMSTANCES. THE CORPORATION WILL FURNISH ANY SHAREHOLDER UPON REQUEST AND WITHOUT CHARGE, A COPY OF THE ARTICLES OF INCORPORATION AND A FULL STATEMENT OF THE DESIGNATIONS, PREFERENCES, LIMITATIONS, AND RELATIVE RIGHTS OF THE SHARES OF EACH CLASS OR SERIES AUTHORIZED TO BE ISSUED, SO FAR AS THEY HAVE BEEN DETERMINED, AND THE AUTHORITY OF THE BOARD TO DETERMINE THE RELATIVE RIGHTS AND PREFERENCES OF SUBSEQUENT CLASSES OR SERIES. THESE SECURITIES ARE SUBJECT TO THE MISSISSIPPI GAMING CONTROL ACT AND THE REGULATIONS OF THE MISSISSIPPI GAMING COMMISSION. THESE SECURITIES ARE SUBJECT TO THE NEVADA GAMING CONTROL ACT AND THE REGULATIONS OF THE NEVADA GAMING COMMISSION. B. Filings. The Company shall timely make all necessary Commission Filings and "blue sky" filings required to be made by the Company in connection with the sale of the Notes to the Buyer as required by all applicable Laws, and shall provide a copy thereof to the Buyer promptly after such filing. C. Reporting Status. So long as the Buyer beneficially owns any of the Notes or Conversion Shares, the Company shall use its best efforts to timely file all reports required to be filed by it with the Commission pursuant to Section 13 or 15(d) of the Exchange Act. D. Listing. Except to the extent the Company lists its Common Stock on the Nasdaq National Market or the New York Stock Exchange, the Company shall use its best efforts to maintain its listing of the Common Stock on Nasdaq, including, if applicable, seeking shareholder approval of the transactions contemplated by this Agreement at the special shareholder's meeting to be held as provided in Section IV.E; provided that the Company's sale of Notes pursuant to this Agreement shall not be deemed to be a violation of this Section IV.D. If the Common Stock is delisted from Nasdaq, the Company will use its best efforts to list the Common Stock on the most liquid national securities exchange or quotation system that the Common Stock is qualified to be listed on. E. Covenant Regarding Shareholder Approval. The Company will call a special meeting of shareholders to be held on or before October 15, 2002 and seek shareholder support at such meeting for (i) a resolution which would amend the Company's Articles of Incorporation to increase the number of shares authorized thereunder to such number as shall be sufficient to enable the Company to reserve a sufficient number of shares of Common Stock for issuance upon conversion of the Preferred Shares and (ii) a resolution to ratify and approve the transactions contemplated hereby. To the extent that the Buyer is a holder of capital stock of the Company entitled to vote at the special meeting, then the Buyer agrees to vote for approval of the matters specified in the preceding sentence at that meeting. F. Covenants Regarding Conversion Shares. The Company at all times from and after the date hereof shall have a sufficient number of Preferred Shares duly and validly authorized and reserved for issuance to satisfy the conversion in full of the Notes and the Company's obligations with respect to the Preferred Shares. The Company at all times from and after the date of shareholder approval referenced in Section IV.G shall have a sufficient number of shares of Common Stock duly and validly authorized and reserved for issuance to satisfy the conversion in full of the Preferred Shares. The Company understands and acknowledges the potentially dilutive effect on the Company's currently outstanding capital stock of the issuance of the Preferred Shares and the Conversion Shares. The Company further acknowledges that its obligation to issue the Conversion Shares upon conversion of the Notes and the Preferred Shares is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company and notwithstanding the commencement of any case under 11 U.S.C. Section 101 et seq. (the "Bankruptcy Code"). In the event the Company is a debtor under P the Bankruptcy Code, the Company hereby waives to the fullest extent permitted any rights to relief it may have under 11 U.S.C. Section 362 in respect of the conversion of the Notes and the Preferred Shares. The Company agrees, without cost or expense to the Buyer, to take or consent to any and all action necessary to effectuate relief under 11 U.S.C. Section 362. G. Covenant Regarding Issuance of Additional Securities and Other Borrowing. Except for "Excluded Issuances" (as defined below), from the Initial Closing Date until such time as 75% of all Notes issued in the Private Placement have been either (a) repaid in full or (b) converted into Common Stock (by means of conversion into Preferred Shares and thereafter into shares of Common Stock) (the date on which this occurs is hereafter referred to as the "Covenant Termination Date"), the Company will not issue any other equity securities or securities exchangeable for, exercisable for or convertible into equity securities of the Company, or borrow money (other than (i) borrowings in the ordinary course of business under the existing relationships with New Horizon Capital and/or PDS Gaming Corporation and (ii) additional borrowings not to exceed $500,000 in the aggregate at any given time) unless the Company has obtained the written consent of the holders of 75% of the Preferred Shares that are (x) issued and outstanding as of the relevant date and (y) issuable as of the relevant date with respect to then outstanding Notes issued in the Private Placement (assuming conversion into Preferred Shares of all then outstanding principal under all then outstanding Notes) (the "Required Buyer Consent") (which Required Buyer Consent shall be separate from any consent that may be required by the Certificate of Designation). Notwithstanding anything to the contrary in this Section IV.G, the Company shall not be required to obtain the Required Buyer Consent prior to borrowing money or issuing any equity securities or securities exchangeable for, exercisable for or convertible into equity securities of the Company if the Company's Board unanimously determines in good faith, following consultation with outside counsel for the Company, that either (i) any delay in acquiring the Required Buyer Consent or (ii) abiding by the withholding of the Required Buyer Consent could constitute a breach of its fiduciary duties to the Company's shareholders under applicable law; provided, however, that in such case the Company shall offer the Buyer the opportunity to purchase the Buyer's pro rata portion of any such borrowing or issuance of equity securities or securities exchangeable for, exercisable for or convertible into equity securities of the Company on the following terms and conditions. Promptly after the Company's Board shall have made the determination provided in the preceding sentence, the Company shall provide Buyer with a notice (the "First Offer Notice") stating (A) its bona fide intention to take action pursuant to this paragraph of this Section IV.G, (B) the total amount of borrowing to be sought or total number of securities to be offered, (C) the Buyer's "pro rata share" of such borrowing or securities and (D) the price and terms upon which the Company proposes to seek such loans or offer such securities. The Buyer shall have a period of 15 days from the effective date of the First Offer Notice to elect to provide or purchase, at the price and on the terms specified in the First Offer Notice, up to the Buyer's pro rata share of such borrowings or securities. If the Buyer elects to provide or purchase the Buyer's pro rata share, then the Buyer shall have a right of over-allotment such that if any other party with a similar right fails to provide or purchase such party's pro rata share, the parties who have elected to do so may provide or purchase, on a pro rata basis (taking into account only the rights of parties who did so elect), that portion of the proposed borrowing or securities which any other party had the right to provide or purchase but elected not to provide or purchase. If all the borrowing or securities referred to in the First Offer Notice which parties to agreements with the Company are entitled to provide or purchase are not elected to be provided or purchased, the Company may, during the 60-day period following the expiration of the 15-day period provided above, obtain the remaining portion of such borrowing or sell the remaining unsubscribed portion of such securities to any person or persons at a price not less than, and upon terms no more favorable to the lender or purchaser than, those specified in the First Offer Notice. If the Company does not obtain all borrowings or sell all such securities within such 60-day period, the right provided hereunder shall be deemed to be revived and such borrowings or securities shall not be offered unless first reoffered pursuant to this paragraph of this Section IV.G. For purposes of this paragraph, the Buyer's "pro rata portion" shall be equal to (x) the principal amount of Notes purchased by the Buyer through the date of determination divided by (y) the aggregate principal amount of Notes sold through the date of determination in the Private Placement. For purposes of this Section IV.G, the term "Excluded Issuances" means (i) the issuance of Conversion Shares on conversion of the Notes, (ii) the issuance of Conversion Shares on conversion of the Preferred Shares, (iii) the issuance of up to 17,367,652 shares of Common Stock (appropriately adjusted for any subdivision, split, combination or reverse split with respect to the Common Stock or declaration of any dividend payable in Common Stock) upon the exercise of options and warrants outstanding on the date hereof, (iv) the grant of options to purchase up to 56,690,722 shares of Common Stock (appropriately adjusted for any subdivision, split, combination or reverse split with respect to the Common Stock or declaration of any dividend payable in Common Stock) under the Company's 2002 stock option plan and the issuance of shares of Common Stock on the exercise of such options, (v) the issuance of: (A) 1,428,571 shares of Common Stock upon the conversion of the shares of Series E Convertible Preferred Stock outstanding as of the date of this Agreement, (B) 9,523,810 shares of Common Stock upon the conversion of the shares of Series F Convertible Preferred Stock outstanding as of the date of this Agreement, (C) 13,540,000 shares of Common Stock upon the conversion of the shares of Series K Convertible Preferred Stock outstanding as of the date of this Agreement and (D) 4,062,500 shares of Common Stock upon the conversion of convertible debt securities outstanding as of the date of this Agreement and (vi) the issuance, to the holders of shares of the Company's Series E Convertible Preferred Stock, Series F Convertible Preferred Stock and Series K Convertible Preferred Stock outstanding as of the date of this Agreement, of shares of Common Stock in lieu of the payment of cash dividends that have become due and payable (it being acknowledged and agreed that this clause (vi) has been deliberately omitted from the definition of Excluded Issuances under the Certificate of Designation). H. Reverse Split. The Company shall effectuate a reverse split of its Common Stock on a not less than one-for-ten basis, on or before September 15, 2002. I. Release of Security Interest. On or before January 30, 2003, the Company shall pay off all indebtedness then owed to Crown Bank pursuant to that certain Promissory Note in favor of Crown Bank, dated February 15, 2002 (the "Crown Note"), as amended, obtain a release of any security interest or lien in favor of Crown Bank, and furnish to Buyer evidence of the foregoing promptly after the date on which it is obtained (and in any event before January 30, 2003). J. Exemption from Investment Company Act. The Company shall conduct its business, and shall cause the Subsidiaries to conduct their businesses, in such a manner that neither the Company nor any Subsidiary shall become an "investment company" within the meaning of the Investment Company Act. K. Accounting and Reserves. The Company shall maintain a standard and uniform system of accounting and shall keep proper books and records and accounts in which full, true and correct entries shall be made of its transactions, all in accordance with GAAP applied on a consistent basis through all periods, and shall set aside on such books for each fiscal year all such proper reserves for depreciation, obsolescence, amortization, bad debts and other purposes in connection with its operations as are required by such principles so applied. L. Transactions with Affiliates. Neither the Company nor any of its Subsidiaries shall, directly or indirectly, enter into any transaction or agreement with any stockholder, officer director or Affiliate of the Company or family member of any officer, director or Affiliate of the Company, unless the transaction or agreement is (i) reviewed and approved by a majority of Disinterested Directors (as defined below) and (ii) on terms no less favorable to the Company or the applicable Subsidiary than those obtainable from a non-affiliated person. A "Disinterested Director" shall mean a director of the Company who is not and has not been an officer or employee of the Company and who is not a member of the family of, controlled by or under common control with, any such officer or employee. M. Certain Restrictions. 1. For so long as any principal or interest under any Note remains unpaid, unless any Preferred Shares have been issued pursuant to this Agreement, the Company shall not without obtaining the prior written consent of the holders of 75% of the issued and outstanding principal amount of the Notes (i) amend the terms and conditions of the Series A-1 5.5% Convertible Preferred Stock as set forth in the Certificate of Designation, (ii) take any action that would require the approval of the holders of the Preferred Shares under the Certificate of Designation, (iii) declare, pay or set aside for payment any dividends or declare or make any other distribution upon Junior Securities (as defined in the Certificate of Designation), (iv) directly or indirectly redeem, purchase or otherwise acquire any Junior Securities (other than a redemption, purchase or other acquisition of shares of Common Stock approved in good faith by the Company's Board of Directors in advance of such redemption, purchase or other acquisition for purposes of an employee incentive or benefit plan (including a stock option plan) of the Corporation or any subsidiary) or (v) directly or indirectly pay any moneys to or make any moneys available for a sinking fund for the redemption of any Junior Securities. 2. For so long as at least 25% of the principal and accrued but unpaid interest under the Notes remains unpaid or at least 25% of the Preferred Shares remain outstanding, the Company shall not, without obtaining the Required Buyer Consent, issue any Preferred Shares other than upon conversion of the Notes. 3. Until the Covenant Termination Date, if any amount due under any Note remains unpaid, the Company will not, without obtaining the Required Buyer Consent, take any action with respect to the matters described in Article 8 of the Certificate of Designation (which Required Buyer Consent shall be separate from any consent that may be required by the Certificate of Designation). N. Approvals. The Company shall use its best efforts to obtain, in a timely fashion, any authorization, approval or consent of any court or public or governmental authority that is required to be obtained by the Company for the consummation of any of the transactions contemplated by any of the Documents. O. Use of Proceeds. Unless the Company shall have obtained a Required Buyer Consent to do otherwise, the Company shall use the net proceeds from the sale of the Notes (excluding amounts paid by the Company for the Buyer's out-of-pocket costs and expenses, whether or not accounted for or incurred, in connection with the transactions contemplated by this Agreement (including the fees and disbursements of legal counsel for the Buyer and any other buyers in the Private Placement)) solely as set forth on Exhibit E. P. Option Plans. Unless the Company shall have obtained a Required Buyer Consent to do otherwise, the Company will not issue any options under its 1992, 1998 or Director's stock option plans. ARTICLE V TRANSFER AGENT INSTRUCTIONS The Company undertakes and agrees that no instruction, other than the instructions referred to in this Article V, instructions regarding the reservation and issuance of the Conversion Shares pursuant to the connections contemplated by this Agreement and customary stop-transfer instructions prior to the registration and sale of the Common Stock pursuant to an effective Securities Act registration statement, shall be given to its transfer agent for the Conversion Shares. The Conversion Shares shall otherwise be freely transferable on the Company's books and records as and to the extent provided in this Agreement and applicable law. Nothing contained in this Article V shall affect in any way Buyer's obligations and agreement to comply with all applicable securities laws upon resale of such Conversion Shares. If, at any time, the Buyer provides the Company with an opinion of counsel reasonably satisfactory to the Company that registration of the resale by the Buyer of such Conversion Shares is not required under the Securities Act and that the removal of restrictive legends is permitted under applicable law, the Company shall permit the transfer of such Conversion Shares and promptly instruct the Company's transfer agent to issue one or more certificates for such Conversion Shares without any restrictive legends endorsed thereon. ARTICLE VI DELIVERY INSTRUCTIONS The Company shall deliver the Notes to the Buyer pursuant to Article I hereof, on a delivery-against-payment basis on the relevant Closing Date. ARTICLE VII CLOSING DATES A. The issuance and sale of the Notes provided for in Section I.A (the "Initial Closing") shall be at such date as shall be mutually agreed upon by the parties, but in no event later than August 23, 2002 (the "Initial Closing Date"). B. The issuance and sale of the Notes provided for in Section I.B (the "Second Closing") shall be at such date as shall be mutually agreed upon by the parties, but in no event later than October 30, 2002 (or such later date that is 15 days following the date of the special shareholders meeting referred to in Section IV.E) as the (the "Second Closing Date"). C. The issuance and sale of the Notes provided for in Section I.C (the "Final Closing") shall be at such date as shall be mutually agreed upon by the parties, but in no event later than January 30, 2003 (the "Final Closing Date"). (Each of the Initial Closing Date, the Second Closing Date and the Final Closing Date a "Closing Date.") D. The issuance and sale of the Notes shall occur on each Closing Date at the offices of Maslon Edelman Borman & Brand, LLP. ARTICLE VIII CONDITIONS TO THE COMPANY'S OBLIGATIONS The Buyer agrees and understands that the Company's obligation to sell the Notes on each Closing Date to the Buyer pursuant to this Agreement is conditioned upon: A. Delivery by the Buyer of the Purchase Price for the Notes the Buyer is purchasing on such Closing Date; B. The accuracy in all material respects on the relevant Closing Date of the representations and warranties of the Buyer contained in this Agreement as if made on the relevant Closing Date (except for representations and warranties which by their express terms speak as of and relate to a specified date, in which case such accuracy shall be measured as of such specified date), and the Buyer's performance in all material respects on or before the relevant Closing Date of all covenants and agreements of the Buyer required to be performed by it pursuant to this Agreement on or before the relevant Closing Date; and C. There shall not be in effect any Law or order, ruling, judgment or writ of any court or public or governmental authority restraining, enjoining or otherwise prohibiting any of the transactions contemplated by this Agreement. ARTICLE IX CONDITIONS TO BUYER'S OBLIGATIONS AT INITIAL CLOSING The Company agrees and understands that the Buyer's obligation to purchase Notes at the Initial Closing pursuant to this Agreement is conditioned upon: A. The satisfactory completion, in the Buyer's absolute and sole discretion, of a due-diligence investigation of the Company, including financial and legal due diligence and current client interests; B. The absence of any event, development or condition that has or is reasonably likely to have a Material Adverse Effect on the Company; C. The execution and delivery to the Company by all persons holding shares of the Company's Series E Convertible Preferred Stock, Series F Convertible Preferred Stock and Series K Convertible Preferred Stock (the "Convertible Preferred Stock"), and by GET USA, Inc. and Cornell Bank with respect to any securities convertible into shares of Common Stock (the "Convertible Debt," and together with the Convertible Preferred Stock the "Convertible Securities"), of agreements providing for the conversion of such Convertible Securities into shares of Common Stock at a per-share price of not less than Thirty Cents ($0.30) before giving effect to any discount on conversion required by the applicable certificate of designation or other instrument for each respective series of Convertible Securities; D. The Company shall have entered into incentive compensation arrangements with its senior management that are approved by the Buyer, the terms of which are indicated on Exhibit F; E. The Company shall have executed and delivered the Security Agreement; F. The Company shall have executed and delivered the Registration Rights Agreement; G. The delivery by the Company to the Buyer of evidence of the Company's efforts with respect to the covenants contained in Section IV.H and IV.I that is satisfactory to the Buyer in Buyer's sole discretion. H. The delivery by the Company to the Buyer of evidence that the Certificate of Designation has been filed and is effective; I. Since the date of this Agreement, the Company shall not have entered into any new financing arrangements or commitments (in whatever form) without the prior written consent of the Buyer; J. The Company shall have entered into a consulting agreement with Edward Harris upon terms and conditions satisfactory to the Buyer and the Company; K. The extension of the maturity date of the Crown Note to January 30, 2003; L. The accuracy in all material respects on the Initial Closing Date of the representations and warranties of the Company contained in this Agreement as if made on the Initial Closing Date (except for representations and warranties which by their express terms speak as of and relate to a specified date, in which case such accuracy shall be measured as of such specified date), and the Company's performance in all material respects on or before the Initial Closing Date of all covenants and agreements of the Company required to be performed by it pursuant to this Agreement on or before the Initial Closing Date; M. Except as set forth on Schedule III.G and except for the shareholder approval contemplated by Section IV.E, the Company shall have obtained all consents, approvals or waivers from governmental authorities and third persons necessary for the execution, delivery and performance of this Agreement and the other Documents and the transactions contemplated hereby and thereby, all without material cost to the Company; N. The Buyer shall have received such additional documents and certificates (including, without limitation, officers' certificates certifying as to the satisfaction of the conditions contained in this Article IX that are within the Company's control) as Buyer or Buyer's legal counsel may reasonably request and as are customary to effect a closing of transactions similar to those contemplated by this Agreement; and O. There shall not be in effect any Law or order, ruling, judgment or writ of any court or public or governmental authority restraining, enjoining, or otherwise prohibiting any of the transactions contemplated by this Agreement. ARTICLE X CONDITIONS TO BUYER'S OBLIGATIONS AT SECOND AND FINAL CLOSINGS The Company agrees and understands that the Buyer's obligation to purchase Notes at either of the Second Closing or the Final Closing pursuant to this Agreement is conditioned upon: A. The Buyer's election, in the Buyer's absolute and sole discretion, to purchase Notes at such Closing; B. The release, on or prior to the Second Closing Date, of any and all security interests against the Company other than the security interests (i) held by Crown Bank, New Horizon Capital and PDS Gaming Corporation and (ii) created by the Security Agreement; C. The absence of any event, development or condition that has or is reasonably likely to have a Material Adverse Effect on the Company; D. The delivery by the Company to the Buyer of evidence that the Certificate of Designation is still effective; E. The accuracy in all material respects on the relevant Closing Date of the representations and warranties of the Company contained in this Agreement as if made on the relevant Closing Date (except for representations and warranties which by their express terms speak as of and relate to a specified date, in which case such accuracy shall be measured as of such specified date), and the Company's performance in all material respects on or before the relevant Closing Date of all covenants and agreements of the Company required to be performed by it pursuant to this Agreement on or before the relevant Closing Date; F. Except as set forth on Schedule III.G, the Company shall have obtained all consents, approvals or waivers from governmental authorities and third persons necessary for the execution, delivery and performance of this Agreement and the other Documents and the transactions contemplated hereby and thereby, all without material cost to the Company; G. The Buyer shall have received such additional documents and certificates (including, without limitation, officers' certificates certifying as to the satisfaction of the conditions contained in this Article X that are within the Company's control) as the Buyer or the Buyer's legal counsel may reasonably request and as are customary to effect a closing of transactions similar to those contemplated by this Agreement; and H. There shall not be in effect any Law or order, ruling, judgment or writ of any court or public or governmental authority restraining, enjoining, or otherwise prohibiting any of the transactions contemplated by this Agreement. ARTICLE XI TERMINATION A. Termination by Mutual Written Consent. This Agreement may be terminated and any of the transactions contemplated hereby may be abandoned for any reason and at any time prior to the Initial Closing Date by the mutual written consent of the Company and the Buyer. B. Termination by the Buyer. This Agreement may be terminated and any transactions contemplated hereby may be abandoned by the Buyer at any time prior to the Initial Closing Date, if (i) the Company shall have failed to comply with any of its covenants or agreements contained in this Agreement, (ii) there shall have been a breach by the Company of any representation or warranty made by it in this Agreement, or (iii) there shall have occurred any event or development, or there shall be in existence any condition having, or reasonably likely to have, a Material Adverse Effect. In addition, the Buyer may terminate this Agreement if the conditions provided in Article IX hereof are not satisfied on the Initial Closing Date. C. Termination by the Company. This Agreement may be terminated and the transactions contemplated hereby may be abandoned by the Company at any time prior to the Initial Closing Date, if (i) the Buyer shall have failed to comply with any of the Buyer's covenants or agreements contained in this Agreement, or (ii) there shall have been a breach by the Buyer of any representation or warranty made by the Buyer in this Agreement. In addition, the Company may terminate this Agreement if the conditions provided in Article VIII hereof are not satisfied on the Initial Closing Date. D. Effect of Termination. If this Agreement is terminated pursuant to this Article XI, this Agreement shall thereafter become void and have no effect, and neither party hereto shall have any liability or obligation to the other party hereto in respect of this Agreement except that the provisions of Articles 2 XII, XIII, XIV and XV, this Section XI.D and Sections XVI.D and XVI.F shall survive any such termination; provided, however, that neither party shall be released from any liability hereunder if this Agreement is terminated and the transactions contemplated hereby abandoned by reason of (i) willful failure of such party to perform its obligations hereunder, or (ii) any misrepresentation made by such party of any matter set forth herein. ARTICLE XII SURVIVAL; INDEMNIFICATION A. The representations, warranties and covenants made by the Buyer and the Company in this Agreement, the schedules and exhibits hereto, and in each instrument, agreement, and certificate entered into and delivered by them pursuant to this Agreement, shall survive the Closing Date and the consummation of the transactions contemplated hereby (except for those representations and warranties made as of a specific date). B. The Company hereby agrees to indemnify and hold harmless the Buyer, the Buyer's affiliates, and their respective officers, directors, employees, shareholders, partners and members (collectively, the "Buyer Indemnitees"), for, from and against any and all losses, claims, damages, judgments, penalties, liabilities and deficiencies (other than unrealized losses on the Notes, the Preferred Shares or the Conversion Shares) (collectively, the "Losses"), and agrees to reimburse Buyer Indemnitees for all out-of-pocket expenses (including the reasonable fees and expenses of legal counsel), in each case promptly as incurred by Buyer Indemnitees and to the extent arising out of or in connection with: 1. any misrepresentation, omission of fact, or breach of any of the Company's representations or warranties contained in any of the Documents, or the schedules or exhibits thereto, or the Company's representations and warranties contained in any instrument, agreement or certificate entered into or delivered by the Company pursuant to any of the Documents; or 2. the issuance of the Notes, or the conversion of the Notes or the Preferred Shares or issuance of any Conversion Shares. C. The Buyer hereby agrees to indemnify and hold harmless the Company, its affiliates and their respective officers, directors, partners and members (collectively, the "Company Indemnitees"), for, from and against any and all losses, claims, damages, judgments, penalties, liabilities and deficiencies, and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses (including the reasonable fees and expenses of legal counsel), in each case promptly as incurred by the Company Indemnitees and to the extent arising out of or in connection with any misrepresentation, omission of fact, or breach of any of the Buyer's representations or warranties contained in any of the Documents, or the annexes, schedules or exhibits thereto, or any instrument, agreement or certificate entered into or delivered by the Buyer pursuant to any of the Documents. D. Promptly after receipt by either party hereto seeking indemnification pursuant to this Article XII (an "Indemnified Party") of written notice of any investigation, claim, proceeding or other action in respect of which indemnification is being sought (each a "Claim"), the Indemnified Party 3 shall notify the party against whom indemnification pursuant to this Article XII is being sought (the "Indemnifying Party") of the commencement thereof within 15 days of commencement; provided that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement, except to the extent, but only to the extent, that the Indemnifying Party's ability to defend against such claim or litigation is impaired as a result of such failure to give notice. In connection with any Claim as to which both the Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party shall be entitled to assume the defense thereof. Notwithstanding the assumption of the defense of any Claim by the Indemnifying Party, the Indemnified Party shall have the right to employ separate legal counsel and to participate in the defense of such Claim, and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs and expenses of such separate legal counsel to the Indemnified Party if (and only if): (1) the Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs, and expenses; (2) the Indemnified Party shall reasonably have concluded on the basis of advice of counsel that representation of the Indemnified Party and the Indemnifying Party by the same legal counsel would not be appropriate due to actual or potentially differing interests between such parties in the conduct of the defense of such Claim, or if there may be legal defenses available to the Indemnified Party that are in addition to or different from those available to the Indemnifying Party; or (3) the Indemnifying Party shall have failed to employ legal counsel reasonably satisfactory to the Indemnified Party within a reasonable period of time after notice of the commencement of such Claim. If the Indemnified Party employs separate legal counsel in circumstances other than as described in clauses (1), (2) or (3) above, the fees, costs and expenses of such legal counsel shall be borne exclusively by the Indemnified Party. Except as provided above, the Indemnifying Party shall not, in connection with any Claim in the same jurisdiction, be liable for the fees and expenses of more than one firm of legal counsel for the Indemnified Party (together with appropriate local counsel). The Indemnifying Party shall not, without the prior written consent of the Indemnified Party (which consent shall not unreasonably be withheld), settle or compromise any Claim or consent to the entry of any judgment that does not include an unconditional release of the Indemnified Party from all liabilities with respect to such Claim or judgment. ARTICLE XIII GOVERNING LAW This Agreement shall be governed by and interpreted in accordance with the laws of the State of Minnesota, without regard to the conflicts-of-law principles of such state. ARTICLE XIV SUBMISSION TO JURISDICTION Each of the parties hereto consents to the exclusive jurisdiction of the federal courts whose districts encompass any part of the City of Minneapolis or the state courts of the State of Minnesota sitting in the City of Minneapolis in connection with any dispute arising under the Documents. Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may effectively do so, any defense of an inconvenient forum or improper venue to the maintenance of such action or proceeding in any such court and any right of jurisdiction on account of its place of residence or domicile. Each party hereto irrevocably and unconditionally consents to the service of any and all process in any such action or proceeding in such courts by the mailing of copies of such process by certified or registered airmail at its address specified in Article XVI.E. Each party hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. ARTICLE XV WAIVER OF JURY TRIAL TO THE FULLEST EXTENT PERMITTED BY LAW, EACH OF THE PARTIES HERETO HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT AND/OR ANY OF THE DOCUMENTS OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS AGREEMENT AND SUCH OTHER DOCUMENTS. EACH PARTY HERETO (1) CERTIFIES THAT NEITHER OF THEIR RESPECTIVE REPRESENTATIVES, AGENTS OR ATTORNEYS HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS, AND (2) ACKNOWLEDGES THAT IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS AND CERTIFICATIONS HEREIN. ARTICLE XVI MISCELLANEOUS A. This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all which counterparts when so executed shall together constitute one and the same instrument. A facsimile or digital transmission of this signed Agreement shall be legal and binding on all parties hereto. B. The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. C. In the event any one or more of the provisions contained in any of the Documents should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein or therein shall not in any way be affected or impaired thereby. The parties shall endeavor in good-faith negotiations to replace the invalid, illegal, or unenforceable provisions with valid provisions the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions. D. This Agreement and the other Documents constitute the entire agreement among the parties pertaining to the subject matter hereof and supersede all prior agreements, understandings, negotiations, and discussions, 5 whether oral or written, of the parties. No amendment, supplement, modification, or waiver of this Agreement shall be binding unless executed in writing by all parties. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided in writing. Failure of a party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. E. Except as may be otherwise provided herein, any notice or other communication or delivery required or permitted hereunder shall (1) be in writing and shall be delivered personally, by certified mail (postage prepaid), by a nationally recognized overnight courier service, or by electronic mail or facsimile transmission, and (2) and shall be deemed given when so delivered personally, if mailed, three (3) days after the date of deposit in the United States mails, when delivered by overnight courier service, or, if transmitted electronically or by facsimile, upon receipt of electronic confirmation of transmission, as follows: If to the Company: Innovative Gaming Corporation of America Attention: Loren A. Piel, General Counsel 333 Orville Wright Court Las Vegas, Nevada 89119 Tel: (702) 614-7199 Fax: (703) 614-7114 E-Mail: lpiel@igca.com With a copy to: Maslon Edelman Borman & Brand, LLP Attention: Douglas T. Holod, Esq. 3300 Wells Fargo Center 90 South Seventh Street Minneapolis, Minnesota 55402 Tel: (612) 672-8313 Fax: (612) 642-8313 E-Mail: doug.holod@maslon.com If to the Buyer: To the address indicated on Schedule A ---------- The Company and the Buyer may change their respective addresses by notice given pursuant to this Section XVI.E. F. Each of the Company and the Buyer agrees to keep confidential and not to disclose to, or use for the benefit of, any third party the terms of this Agreement or any other information which at any time is communicated by the other party as being confidential without the prior written approval of the other party; provided, however, that this provision shall not apply to information which, at the time of disclosure, is already part of the public domain (except by breach of this Agreement) and information which is required to be disclosed by law (including without limitation pursuant to Item 601(b)(10) of Regulation S-K under the Securities Act and the Exchange Act). 6 G. This Agreement shall not be assignable by either of the parties hereto prior to the Final Closing Date without the prior written consent of the other party, and any attempted assignment contrary to the provisions hereby shall be null and void; provided, however, that the Buyer may assign the Buyer's rights and obligations hereunder, in whole or in part, to any affiliate of the Buyer. H. The Company shall promptly, upon receipt of appropriate documentation, reimburse the reasonable fees and expenses incurred with respect to this Agreement and the transactions contemplated hereby by Dorsey & Whitney LLP, special counsel to the Buyer and certain other potential purchasers of Notes, not to exceed $40,000. I. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including permitted transferees of any Notes or Conversion Shares). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. The remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law. J. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement or any of the other Documents, the prevailing party shall be entitled to reasonable attorneys' fees, costs and disbursements in addition to any other relief to which such party may be entitled. K. The Buyer acknowledges that in making the decision to purchase Notes pursuant to this Agreement, and to elect to convert any Notes into Conversion Shares, such Buyer is not relying upon any person, firm or company other than the Company and its officers, employees and directors. The Buyer agrees that no other person will be liable for any actions taken by the Buyer, or omitted to be taken by the Buyer, in connection with the transactions contemplated by this Agreement. IN WITNESS WHEREOF, the undersigned have set their hands to this Securities Purchase Agreement as of the date first set forth above. Innovative Gaming Corporation of America: By: Name: Laus M. Abdo Its: President, Chief Executive Officer and Chief Financial Officer BUYER: By: ______________________________________ Print Name: _______________________________ EX-10.2 5 inngam8ksept02ex10-2.txt FORM OF CONVERTIBLE NOTES EXHIBIT 10.2 The offer and sale of this Convertible Promissory Note and of the equity securities issuable upon conversion hereof have not been registered under the Securities Act of 1933, as amended, or under the securities laws of any state or other jurisdiction (together, the "Securities Laws") and may not be offered for sale, sold or otherwise transferred or encumbered in the absence of compliance with such Securities Laws and until the Company (as defined herein) shall, if it so requests, have received an opinion from counsel acceptable to it that the proposed disposition will not violate any applicable Securities Laws. This Note is non-negotiable and non-transferable and no interest shall be paid except to the payee named herein except as otherwise noted herein. This Note is secured by a Security Agreement of even date herewith given by the Company to the Holder (as defined herein). INNOVATIVE GAMING CORPORATION OF AMERICA CONVERTIBLE PROMISSORY NOTE $ Las Vegas, Nevada ----------- ----------------- FOR VALUE RECEIVED, Innovative Gaming Corporation of America, a Minnesota corporation (the "Company"), promises to pay to ____________________, or its successors and assigns (collectively, the "Holder"), in lawful money of the United States of America, on _______ the date 18 months from date of this Note, the principal sum of ____________________ ($______), together with interest on the unpaid principal balance at a rate equal to FIVE AND ONE-HALF PERCENT (5.5%) per annum, in the manner provided below. 1. PAYMENTS. 1.1 Interest. The principal amount of $______ will bear interest at a rate equal to FIVE AND ONE-HALF PERCENT (5.5%) per annum, and shall be due and payable on the last day of each of the Company's fiscal quarters, commencing on the last day of the Company's current fiscal quarter, and at final maturity; in the event that any principal amount of this Note is converted into Series A-1 5.5% Convertible Preferred Stock as provided below, all accrued but unpaid interest with respect to the principal amount so converted shall be due and payable on the date of such conversion. Interest shall be computed on the basis of actual days elapsed and a year of 360 days. Upon the happening of any Event of Default, this Note, at the option of the Holder, shall bear interest until paid in full at a rate per annum equal to the rate of 15%. 1.2 Manner of Payment. All payments of principal and interest on this Note (other than any payments made in the form of Series A-1 5.5% Convertible Preferred Stock as provided below) shall be made in immediately available funds wired to the account designated by the Holder. If any payment due under this Note is due on a day which is not a Business Day (as defined below), such payment shall be due on the next succeeding Business Day, and such extension of time shall not be taken into account in calculating the amount of interest payable under this Note. The term "Business Day" shall mean any day other than a Saturday, Sunday or legal holiday in the State of Minnesota. 7 2. DEFAULT. 2.1 Event of Default. The occurrence of any one or more of the following events shall constitute a breach hereunder (an "Event of Default"): (a) The Company shall fail to make any payment of principal or interest hereon when due or shall default in performance of any covenant or agreement contained herein. (b) The Company shall become insolvent or shall generally not pay its debts as they mature or shall apply for, shall consent to, or shall acquiesce in the appointment of a custodian, trustee or receiver for the Company or for a substantial part of the property thereof or, in the absence of such application, consent or acquiescence, a custodian, trustee or receiver shall be appointed for the Company or for a substantial part of the property thereof; or any bankruptcy, reorganization, debt arrangement or other proceedings under any bankruptcy or insolvency law shall be instituted by or against the Company. (c) The maturity of any material indebtedness of the Company (other than the indebtedness on this Note) shall be accelerated or the Company shall fail to pay any such material indebtedness when due or, in the case of indebtedness payable on demand, when demanded. For these purposes, indebtedness of the Company shall be deemed material if it exceeds $100,000 as to any item of indebtedness or in the aggregate for all items of indebtedness with respect to which any of the events described in this paragraph has occurred. (d) Any default shall occur under the terms of the Security Agreement or the Securities Purchase Agreement dated as of August 20, 2002 by and between the Company and the Holder (the "Securities Purchase Agreement") and shall continue for more than the period of grace, if any, applicable thereto. (e) A judgment or judgments for the payment of money in excess of the sum of $25,000 in the aggregate shall be rendered against the Company and the Company shall not discharge the same or provide for its discharge, or procure a stay of execution thereof, prior to any execution on such judgment, within 15 days from the date of entry thereof, and within said period of 15 days, or such longer period during which execution shall be stayed, appeal therefrom and cause the execution to be stayed during such appeal. (f) Any execution or attachment shall be issued whereby any substantial part of the property of the Company shall be taken or attempted to be taken and the same shall not have been vacated or stayed within 15 days after the issuance thereof. 2 (g) The Security Agreement or the Securities Purchase Agreement shall, at any time, cease to be in full force and effect or shall be judicially declared null and void, or the validity or enforceability thereof shall be contested by the Company. (h) The taking of any action described in Article 8 of the Company's Certificate of Designation for the Company's Series A-1 5.5% Convertible Preferred Stock after the date on which shares of Series A-1 5.5% Convertible Preferred Stock are issued without the shareholder approval required by such Article. (i) Any representation or warranty or covenant of the Company made in the Securities Purchase Agreement, or in any agreement, statement or certificate given in writing pursuant thereto or in connection therewith, shall prove to have been untrue or incorrect in any material respect as of the date it was made, furnished or delivered. 2.2 Remedies. Upon the occurrence of an Event of Default (unless all Events of Default have been cured by the Company or waived by Holder), Holder may declare this Note to be, and the same shall forthwith become, immediately due and payable and Holder may exercise all rights and remedies under the Security Agreement and all rights available to it under law, including its rights under Section 4 hereof. 3. TRANSFERABILITY. Except as otherwise provided in Section 6.6 below, Holder is prohibited from transferring any of its right, title and interest in this Note. 4. CONVERSION. 4.1 Conversion into Preferred Stock. At any time while there remains any unpaid principal or accrued interest outstanding hereunder, Holder shall have the right, at its option and in accordance with the provisions of Section 4.2 hereof, in whole or in part, to convert the unpaid balance of principal due hereunder into fully paid and nonassessable shares of Series A-1 5.5% Convertible Preferred Stock. Subject to adjustment as described below, the number of shares of Series A-1 5.5% Convertible Preferred Stock into which this Note may be converted (the "Conversion Shares") shall be equal to the principal to be so converted divided by 1,000. 4.2 Conversion Procedure. (a) Notice of Conversion. Holder shall not be entitled to convert this Note into shares of Series A-1 5.5% Convertible Preferred Stock until it has surrendered this Note at the Company's office and given written notice to the Company in the form attached hereto as Exhibit A (the "Conversion Notice") of Holder's election to convert all or any portion of the principal of this Note pursuant to Section 4.1. If this Note is converted only in part and not in full, the Company shall execute and deliver a new note to the Holder thereof in the principal amount equal to that portion of the principal of this Note not so converted. (b) Mechanics and Effect of Conversion. No fractional shares of Series A-1 5.5% Convertible Preferred Stock shall be issued upon conversion of this Note. Upon the conversion of this Note pursuant to 3 Section 4.1, the Holder shall surrender this Note, duly endorsed, at the Company's principal office. At its expense, the Company shall, as soon as practicable after any conversion, issue and deliver to such Holder a certificate or certificates for the number of shares of Series A-1 5.5% Convertible Preferred Stock to which the Holder shall be entitled upon such conversion (bearing such legends as are required by the Securities Purchase Agreement and by applicable state and federal securities laws in the opinion of Company's counsel), together with a new note for the principal amount of the Note that was not converted. Upon conversion of all or a portion of the principal owing under this Note, the Company shall be forever released from all its obligations and liabilities under this Note, to the extent of the amount so converted; provided, that the Company shall remain obligated to pay interest accrued but unpaid on the amount of principal so converted through the date of such conversion. 4.3 Reservation of Preferred Stock. For so long as any principal under this Note remains outstanding, the Company shall reserve and keep available such number of shares of Series A-1 5.5% Convertible Preferred Stock as shall from time to time be sufficient to effect conversion of this Note. The Company covenants that all shares of Series A-1 5.5% Convertible Preferred Stock which shall be so issuable shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, free from preemptive or similar rights on the part of the holders of any shares of capital stock or securities of the Company or any other person or entity, and free from all taxes, liens and charges with respect to the issue thereof (not including any income taxes payable by the Holder of this Note in respect of gains thereon). The Company shall use its best efforts to take all such action as may be necessary to ensure that such shares of Series A-1 5.5% Convertible Preferred Stock may be so issued without violation of any applicable law or regulation, or of any applicable requirements of the National Association of Securities Dealers, Inc. and of any domestic securities exchange upon which the Common Stock of the Company may be listed. 4.4 Limitations on Conversion Shares. For so long as the Company's Common Stock is listed on the Nasdaq SmallCap Market ("Nasdaq"), the Company will not issue Conversion Shares on conversion of this and any similar notes issued in the Private Placement (as defined in the Securities Purchase Agreement) in excess of the Maximum Issuance Amount (as defined below), unless its shareholders have approved such issuance as required by Nasdaq rules. The "Maximum Issuance Amount" is equal to 20% of the number of shares of the Company's Common Stock which were issued and outstanding on the Initial Closing Date (as defined in the Securities Purchase Agreement). If after October 15, 2002 (which date shall be extended to November 30, 2002 in the event of delays caused by the SEC or gaming regulatory authorities with jurisdiction over the Company) the Holder is unable to convert some or all of this Note upon request by reason of this Section 4.4 or because the Company shall have failed to obtain the shareholder approval described in Section IV.E of the Securities Purchase Agreement, the Holder may elect, at the Holder's sole discretion, to (i) rescind any conversion request and retain this Note and the Holder's rights hereunder as though no such request had been made, (ii) (A) accept as many Conversion Shares as are issuable, (B) receive payment of accrued but unpaid interest pursuant to Section 1.1 with respect to the principal amount so converted and (C) retain the remainder of the principal amount of this Note together with accrued but unpaid interest thereon or (iii) treat such event as an Event of Default and exercise its remedies pursuant to Section 2.2 (except that the amount that shall become due and payable upon declaration that this Note is due and payable shall be an amount equal to (x) all accrued interest on the principal amount of this Note plus (y) two (2) times the principal amount of this Note). 4 5. ANTI-DILUTION ADJUSTMENTS. 5.1 Adjustments for Stock Splits and Subdivisions. In the event the Company should at any time or from time to time after the date of issuance hereof fix a record date for the effectuation of a split or subdivision of the outstanding shares of Series A-1 5.5% Convertible Preferred Stock, or for the determination of holders of Series A-1 5.5% Convertible Preferred Stock entitled to receive a dividend or other distribution payable in additional shares of Series A-1 5.5% Convertible Preferred Stock or other securities or rights convertible into, or entitling the holder thereof to directly or indirectly receive additional shares of Series A-1 5.5% Convertible Preferred Stock (the "Series A-1 5.5% Convertible Preferred Stock Equivalents") without payment of any consideration by such holder for the additional shares of Series A-1 5.5% Convertible Preferred Stock or Series A-1 5.5% Convertible Preferred Stock Equivalents (including the additional shares of Series A-1 5.5% Convertible Preferred Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the number of shares of Series A-1 5.5% Convertible Preferred Stock issuable upon conversion of this Note shall be adjusted in proportion to the increase of such outstanding shares. 5.2 Adjustments for Reverse Stock Splits. If the number of shares of Series A-1 5.5% Convertible Preferred Stock outstanding at any time after the date hereof is decreased by a combination of the outstanding shares of Series A-1 5.5% Convertible Preferred Stock through a reverse stock split, then, following the record date of such combination, the number of shares of Series A-1 5.5% Convertible Preferred Stock issuable upon conversion of this Note shall be appropriately decreased in proportion to the decrease in such outstanding shares. 5.3 Adjust for Reorganization, Reclassification, Merger and Sale. If any capital reorganization or reclassification of the capital stock of the Company, or consolidation or merger of Company with another corporation, or the sale of all or substantially all of its assets to another corporation shall be effected in such a way that holders of the Series A-1 5.5% Convertible Preferred Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for such common shares, then, as a condition of such reorganization, reclassification, consolidation, merger or sale, the Holder shall have the right to convert and receive upon the basis and upon the terms and conditions specified in this Note and in lieu of the shares of Series A-1 5.5% Convertible Preferred Stock immediately theretofore convertible and receivable upon the exercise of the rights represented hereby, such shares of stock, other securities or assets as would have been issued or delivered to the Holder as if it had exercised this Note and had received such shares of Series A-1 5.5% Convertible Preferred Stock prior to such reorganization, reclassification, consolidation, merger or sale. The Company shall not effect any such consolidation, merger or sale, unless prior to the consummation thereof the successor corporation (if other than the Company) resulting from such consolidation or merger, or the corporation purchasing such assets, shall assume, by written instrument executed and mailed to the registered Holder of this Note, the obligation to deliver to such Holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such Holder may be entitled to convert. 5 6. MISCELLANEOUS. 6.1 Waiver. No waiver by Holder of any right or remedy under this Note shall be effective unless in a writing signed by Holder. Neither the failure nor any delay in exercising any right, power or privilege under this Note will operate as a waiver of such right, power or privilege and no single or partial exercise of any such right, power or privilege by Holder will preclude any other or further exercise of such right, power or privilege or the exercise of any other right, power or privilege. To the maximum extent permitted by applicable law, (a) no claim or right of Holder arising out of this Note can be discharged by Holder, in whole or in part by a waiver or renunciation of the claim or right unless in a writing, signed by Holder, (b) no waiver that may be given by Holder will be applicable except in the specific instance for which it is given, and (c) no notice to or demand on the Company will be deemed to be a waiver of any obligation of the Company or of the right of Holder to take further action without notice or demand as provided in this Note. The Company hereby waives presentment, demand, protest and notice of dishonor and protest. 6.2 Amendment. This Note may not be amended or modified except by an instrument in writing signed by the party against whom enforcement of any amendment or modification is sought. 6.3 Notices. Any notice or other communication or delivery required or permitted hereunder shall (1) be in writing and shall be delivered personally, by certified mail (postage prepaid), by a nationally recognized overnight courier service, or by electronic mail or facsimile transmission, and (2) and shall be deemed given when so delivered personally, if mailed, three (3) days after the date of deposit in the United States mails, when delivered by overnight courier service, or, if transmitted electronically or by facsimile, upon receipt of electronic confirmation of transmission, as follows: If to the Company: Innovative Gaming Corporation of America Attention: Loren A. Piel, General Counsel 333 Orville Wright Court Las Vegas, Nevada 89119 Tel: (702) 614-7199 Fax: (702) 614-7114 E-Mail: lpiel@igca.com With a copy to: Maslon Edelman Borman & Brand, LLP Attention: Douglas T. Holod, Esq. 3300 Wells Fargo Center 90 South Seventh Street Minneapolis, Minnesota 55402 Tel: (612) 672-8313 Fax: (612) 642-8313 E-Mail: doug.holod@maslon.com If to Holder: __________________________________ __________________________________ __________________________________ 6 6.4 Severability. If any provision in this Note is held invalid or unenforceable by any court of competent jurisdiction, the other provisions of this Note will remain in full force and effect. Any provision of this Note held invalid or unenforceable only in part or degree will remain in full force and effect to the extent not held invalid or unenforceable. 6.5 Governing Law. This Note will be governed by the laws of the State of Minnesota without regard to the conflicts of law principles of such state. 6.6 Consent to Jurisdiction. AT THE OPTION OF THE HOLDER THIS NOTE MAY BE ENFORCED IN ANY FEDERAL COURT OR MINNESOTA STATE COURT SITTING IN HENNEPIN COUNTY, MINNESOTA; AND THE COMPANY CONSENTS TO THE JURISDICTION AND VENUE OF ANY SUCH COURT AND WAIVES ANY ARGUMENT THAT THE VENUE IN SUCH FORUMS IS NOT CONVENIENT. IF THE COMPANY COMMENCES ANY ACTION IN ANOTHER JURISDICTION OR VENUE UNDER ANY TORT OR CONTRACT THEORY ARISING DIRECTLY OR INDIRECTLY FROM THE RELATIONSHIP CREATED BY THIS NOTE, THE HOLDER AT ITS OPTION SHALL BE ENTITLED TO HAVE THE CASE TRANSFERRED TO ONE OF THE JURISDICTIONS AND VENUES ABOVE-DESCRIBED, OR, IF SUCH TRANSFER CANNOT BE ACCOMPLISHED UNDER APPLICABLE LAW, TO HAVE SUCH CASE DISMISSED WITHOUT PREJUDICE. 6.7 Costs and Expenses. The Company shall reimburse the Holder upon demand for all reasonable out-of-pocket expenses paid or incurred by the Holder (including reasonable attorneys' fees) in connection with the amendment, modification, interpretation, collection and enforcement of this Note. 6.8 Parties in Interest; Assignment. This Note shall bind the Company and its successors and assigns. This Note shall not be assigned by Holder without the express prior written consent of the Company, which consent may be granted or withheld in the Company's reasonable discretion. 7 IN WITNESS WHEREOF, the Company has executed and delivered this Note as of the date first stated above. INNOVATIVE GAMING CORPORATION OF AMERICA: By: --------------------------------------------- Name: Laus M. Abdo Its: President, Chief Executive Officer and Chief Financial Officer 8 EXHIBIT A NOTICE OF CONVERSION AT THE ELECTION OF THE HOLDER (To Be Signed Only Upon Conversion of Note) TO INNOVATIVE GAMING CORPORATION OF AMERICA: The undersigned, the Holder of the foregoing Note, hereby surrenders such Note for conversion into shares of Series A-1 5.5% Convertible Preferred Stock, to the extent of $____________ of the principal, and requests that the certificates for such shares be issued in the name of, and delivered to,_____________________________________ whose address is set forth below: Delivery Address: ______________________________________________________ ______________________________________________________ ______________________________________________________ Dated: _____________________ __________________________________________________ (Signature must conform in all respects to name of Holder as specified on the face of the Note) EX-10.3 6 inngam8ksept02ex10-3.txt FORM OF REGISTRATION RIGHTS AGREEMENT EXHIBIT 10.3 REGISTRATION RIGHTS AGREEMENT THIS REGISTRATION RIGHTS AGREEMENT dated August 21, 2002 (this "Agreement") is entered into by and between Innovative Gaming Corporation of America, a Minnesota corporation, with principal executive offices located at 333 Orville Wright Court, Las Vegas, Nevada 89119 (the "Company"), and the party named on the signature page below (the "Initial Investor"). WHEREAS, the Company has authorized its officers to execute and deliver to one or more parties, including the Initial Investor, one or more convertible secured promissory notes in an aggregate principal amount not to exceed Five Million and No/Dollars ($5,000,000.00) (the "Notes") which are convertible into shares (the "Preferred Shares") of the Company's Series A-1 5.5% Convertible Preferred Stock, par value $0.01 per share, in a series of transactions exempt from registration under the Securities Act (as defined below) (such transactions, collectively, the "Private Placement"). WHEREAS, upon the terms and subject to the conditions of the Securities Purchase Agreement dated as of August 20, 2002 between the Initial Investor and the Company (the "Securities Purchase Agreement"), the Company has agreed to issue and sell to the Initial Investor certain of the Notes; WHEREAS, the Preferred Shares are convertible into shares of the Company's common stock, par value $0.01 per share (the "Common Stock"), upon the terms of and subject to the conditions of the Company's Certificate of Designation of Series A-1 5.5% Convertible Preferred Stock (the "Certificate of Designation"); and WHEREAS, to induce the Initial Investor to execute and deliver the Securities Purchase Agreement and consummate the transactions contemplated thereby, the Company has agreed to provide with respect to the Common Stock issued or issuable upon conversion of the Preferred Shares certain registration rights under the Securities Act. NOW, THEREFORE, in consideration of the premises and the mutual covenants contained herein, the parties hereto, intending to be legally bound, hereby agree as follows: 1. Definitions (a) Unless the context requires otherwise, the terms defined in this Section 1 shall have the following meanings for all purposes of this Agreement: (i) "Affiliate" shall have the meaning set forth in Rule 405 under the Securities Act. (ii) "Claim" is defined in Section 7(c). (iii) "Commission" means the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. (iv) "Exchange Act" means the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Commission thereunder, or any similar successor statute, all as the same shall be in effect from time to time. (v) "Form S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the Commission which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the Commission. (vi) "Holder" means the Initial Investor and any transferee or assignee of Registrable Securities which agrees to become bound by all of the terms and provisions of this Agreement in accordance with Section 9 hereof. (vii) "Indemnified Party" is defined in Section 7(c). (viii) "Indemnified Person" is defined in Section 7(a). (ix) "Indemnifying Party" is defined in Section 7(c). (x) "Initiating Holders" means the record holder or holders of at least 30% of the Registrable Securities. (xi) "Losses" is defined in Section 7(a). (xii) "NASD Rules" is defined in Section 4(w). (xiii) "Non-Responsive Holder" is defined in Section 5(a). (xiv) "Other Shares" is defined in Section 2(f). (xv) "Person" means any individual, partnership, corporation, limited liability company, joint stock company, association, trust, unincorporated organization, or a government or agency or political subdivision thereof. (xvi) "Public Offering" means an offer registered with the Commission and the appropriate state securities commissions by the Company of its Common Stock and made pursuant to the Securities Act. (xvii) The terms "register," "registered," and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement. (xviii) "Registrable Securities" means (a) the shares of Common Stock (or any other equity securities) at any time issued or subject to issuance upon the conversion of the Preferred Shares and (b) any shares of Common Stock (or any other equity securities) issued as (or subject to issuance upon the conversion or exercise of any warrant, right or other 2 security that is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, the shares referenced in (a) above; excluding, in all cases, however, any Registrable Securities when (aa) such securities shall have been sold to the public either (i) pursuant to a registration statement that has been declared effective under the Securities Act or (ii) pursuant to an exemption from such registration, (bb) such securities shall be eligible for transfer without restriction pursuant to paragraph (k) of Rule 144 under the Securities Act (or any successor provision thereto) or (cc) such securities shall have ceased to be outstanding. (xix) "Registration Expenses" means all expenses incurred in effecting any registration pursuant to this Agreement, including, without limitation, all registration, qualification, and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, and expenses of any regular or special audits incident to or required by any such registration, but shall not include Selling Expenses (but excluding the compensation of regular employees of the Company, which shall be paid in any event by the Company). (xx) "Registration Period" means the period beginning on the date a registration statement is declared effective and ending on earlier of (a) such time as all of the Registrable Securities included in such registration statement have been disposed of in accordance with the intended methods of disposition by the holder or holders thereof as set forth in such registration statement or (b) 120 days after such registration statement becomes effective (provided, however, that (i) such 120 day period shall be extended for a period of time equal to the period the Holder refrains from selling any securities included in such registration at the request of an underwriter of Common Stock (or other securities) of the Company; and (ii) in the case of any registration of Registrable Securities on Form S-3 which are intended to be offered on a continuous or delayed basis, such 120 day period shall be extended to a period of one year). (xxi) "Requested Information" is defined in Section 5(a). (xxii) "Securities Act" means the Securities Act of 1933, as amended, and the rules and regulations of the Commission thereunder, or any similar successor statute, all as the same shall be in effect from time to time. (xxiii) "Selling Expenses" shall mean all underwriting discounts and selling commissions applicable to the sale of Registrable Securities and fees and disbursements of counsel for any Holder. (b) Certain other terms are defined elsewhere in this Agreement. (c) All capitalized terms used and not defined herein have the meanings assigned to them in the Securities Purchase Agreement. 2. Demand Registration 3 (a) Request for Registration. If the Company shall receive from the Initiating Holders a written request that the Company effect a registration with respect to all or any part of the Registrable Securities, the Company will: (i) within ten days of receipt thereof, give written notice of the proposed registration to all other Holders; and (ii) use its best efforts to effect such registration (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act) and facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within 20 days after such written notice from the Company is delivered, as promptly as possible. (b) Exceptions to Requirement to Effect Registration. The Company shall not be obligated to effect, or to take any action to effect, any registration pursuant to Section 2(a): (i) As to more than two such registrations per year (counting for these purposes only (A) registrations which have been declared or ordered effective and pursuant to which securities have been sold and (B) registrations which have been withdrawn by the Holders as to which the Holders have not elected to bear the Registration Expenses pursuant to Section 6 except in cases where such withdrawal is based upon material adverse information relating to the Company that is different from the information known or available (upon request from the Company or otherwise) to the Holders requesting registration at the time of their request for registration under Section 2(a)); (ii) If the Company delivers written notice to all Holders within 30 days of a request for registration pursuant to this Section 2(a) that the Company intends to file for an public offering of shares of its Common Stock within 90 days of such written notice (in which case the Company shall afford all Holders their rights pursuant to Section 3 with respect to such offering); or (iii) If the Initiating Holders propose to dispose of shares of Registrable Securities which may be immediately registered on Form S-3 pursuant to a request made under Section 2(g). (c) Registration Statement. Subject to Section 2(b), the Company shall file a registration statement covering the Registrable Securities requested to be registered as soon as practicable, and in any event within 60 days after receipt of the request or requests of the Initiating Holders. (d) Inclusion of Other Securities. The registration statement filed pursuant to the request of the Initiating Holders may, subject to the provisions of Sections 2(e) and 2(f), include other securities of the Company with respect to which registration rights have been granted, and may include securities of the Company being sold for the account of the Company. If the Company shall 4 request inclusion in any registration pursuant to Section 2(a) of securities being sold for its own account, or if other Persons shall request inclusion in any registration pursuant to Section 2(a), the Initiating Holders shall, on behalf of all Holders, offer to include such securities in the underwriting and may condition such offer on their acceptance of the further applicable provisions of this Section 2. (e) Underwriting. The Initiating Holders may elect that the offering shall be underwritten by an underwriter or underwriters selected by a majority-in-interest of the Initiating Holders and reasonably acceptable to the Company. The Company shall (together with all Holders and other Persons proposing to distribute their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders, which underwriters are reasonably acceptable to the Company, and the right of any Person (including any Holder) to registration pursuant to this Section 2 shall be conditioned upon such Person's participation in such underwriting and the inclusion of such Person's securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Person with respect to such participation and inclusion) to the extent provided herein. If a Person who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such Person shall be excluded therefrom by written notice from the Company, the underwriter or the Initiating Holders. The securities so excluded shall also be withdrawn from registration. If shares are so withdrawn when the number of shares to be included in such registration had previously been reduced as provided in Section 2(f), then the Company shall offer to all Holders who have retained rights to include securities in the registration the right to include additional securities in the registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among such Holders requesting additional inclusion. (f) Priority on Demand Registration. Notwithstanding any other provision of this Section 2, if the representative of the underwriters advises the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, then the Initiating Holders shall so advise all Holders of Registrable Securities that would otherwise be underwritten, and the number of shares to be included in the underwriting or registration shall be allocated (i) first among all Holders thereof (including Initiating Holders) and all other holders of Common Shares of the Company issued or issuable, directly or indirectly, on conversion of Notes issued in the Private Placement in proportion (as nearly as practicable) to the amount of Registrable Securities or other Common Shares of the Company held by each such holder and (ii) second to any other Common Shares of the Company (including Common Shares issued or issuable upon conversion of shares of any currently unissued series of preferred stock of the Company) or other securities of the Company (the "Other Shares"). The Other Shares shall be excluded until the aggregate number of shares of Registrable Securities requested for inclusion may be included in such registration. (g) Registrations on Form S-3. At any time at which the Company qualifies for the use of Form S-3, in addition to the rights contained in Sections 2(a) and 3, Initiating Holders shall have the right to request registrations on Form S-3 or any similar short form registration (such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended methods of disposition of such 5 shares by such Holder or Holders) up to four times per year (which number shall be increase to five or six, as the case may be, if the Company elects to any registration demands made pursuant to Section 2(a) be subject to this Section 2(g) as provided in Section 2(b)(iii)). The provisions of Sections 2(a) and 2(c) and the allocation provision of clause (i) of Section 2(f) shall apply to any registration on Form S-3 pursuant to this Section 2(g); the relevant provisions of Section 2(e) shall also apply if the registration is for an underwritten offering. 3. Company Registration (a) Company Registration. If the Company shall determine to register any of its securities either for its own account or the account of a security holder or holders (other than pursuant to Sections 2), other than a registration relating solely to employee benefit plans, or a registration relating solely to a transaction covered by Rule 145 under the Securities Act (or any successor thereto), the Company will: (i) promptly give to each Holder written notice thereof; and (ii) use its reasonable best efforts to include in such registration (and any related qualification under blue sky laws or other compliance), except as set forth in Section 3(c) below, and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made by any Holder and received by the Company within 20 days after the written notice from the Company described in clause (i) above is delivered by the Company. Such written request may specify all or a part of a Holder's Registrable Securities. (b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 3(a)(i). In such event, the right of any Holder to registration pursuant to this Section 3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders of securities of the Company with registration rights to participate therein distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by the Company. If any Holder does not agree to the terms of any such underwriting, such Holder shall be excluded therefrom by written notice from the Company or the underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. If shares are so withdrawn from the registration and if the number of shares of Registrable Securities to be included in such registration had previously been reduced pursuant to Section 3(c), the Company shall then offer to all Persons who have retained the right to include securities in the registration the right to include additional securities in the registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among the Persons requesting additional inclusion in accordance with Section 3(c). (c) Priority on Company Registrations. Notwithstanding any other provision of this Section 3, if the representative of the underwriters advises the Company in writing that marketing factors require a limitation on the number 6 of shares to be underwritten, the representative may limit or exclude the amount of securities (including Registrable Securities) to be included in the registration by the Company's stockholders (including the Holders), provided that (i) first, (A) if the Company initiated the registration to cover the offer and sale of securities for its own account, the securities the Company proposes to sell shall be included, or (B) if the Company initiated the registration to cover the offer and sale of securities for the account of any of its security holders, the securities to be sold by such security holders shall be included (provided, that all holders of Common Shares of the Company issued or issuable, directly or indirectly, on conversion of Notes issued in the Private Placement, including all Holders, shall all be treated together for purposes of this clause (i)(B)), (ii) second, the Registrable Securities requested to be included in the registration shall be included, pro rata among the holders of such Registrable Securities on the basis of the number of Registrable Securities held by each such Holder and all other holders of Common Shares of the Company issued or issuable, directly or indirectly, on conversion of Notes issued in the Private Placement and (iii) third, Other Shares shall be included, pro rata among the holders of such Other Shares on the basis of the number of Other Shares held by each such holder. 4. Obligations of the Company If and whenever the Company is required by the provisions of Section 2 or Section 3 to effect a registration of Registrable Securities under the Securities Act, the Company shall, as promptly as possible and as provided in such Section: (a) In the case of a demand registration pursuant to Section 2, prepare and file with the Commission the requisite registration statement to effect such registration (including such audited financial statements as may be required by the Securities Act) and use its best efforts to cause such registration statement to become effective. (b) As far in advance as practical before filing any registration statement or any amendment thereto and the distribution or delivery of any prospectus (including any supplements thereto), furnish each Holder with copies of reasonably complete drafts of all such documents proposed to be filed (including exhibits), and any such Holder shall have the opportunity to object to any information pertaining solely to such Holder that is contained therein and the Company shall make the corrections reasonably requested by such Holder with respect to such information prior to filing such registration statement or amendment. (c) Permit any Holder that, in its judgment exercised in reasonable good faith, might be deemed to be a controlling Person of the Company, to participate in the preparation of such registration or comparable statement and to require the insertion therein of material furnished to the Company in writing relating to such Holder or its plan of distribution, which in the reasonable judgment of the Holder and its counsel should be included (d) Prepare and file with the Commission such amendments and supplements to such registration statement and any prospectus used in connection therewith as may be necessary to maintain the effectiveness of such registration statement and to comply with the provisions of the Securities Act with respect to the disposition of all Registrable Securities included in such registration 7 statement, in accordance with the intended methods of disposition thereof, until the end of the Registration Period. (e) Take all lawful action such that each of (i) the registration statement and any amendment thereto does not, when it becomes effective, contain an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, not misleading and (ii) the prospectus forming part of the registration statement, and any amendment or supplement thereto, does not at any time during the Registration Period include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading. (f) Furnish to each Holder whose Registrable Securities are included in the registration statement and its legal counsel identified to the Company, (i) promptly after the same is prepared and publicly distributed, filed with the Commission, or received by the Company, one copy of the registration statement, each prospectus, and each amendment or supplement thereto, and (ii) such number of copies of the prospectus and all amendments and supplements thereto and such other documents, as such Holder may reasonably request in order to facilitate the disposition of the Registrable Securities owned by such Holder. (g) Use its best efforts to (i) register or qualify the Registrable Securities covered by the registration statement under such securities or "blue sky" laws of such jurisdictions as the Holders who hold a majority-in-interest of the Registrable Securities being offered reasonably request, (ii) prepare and file in such jurisdictions such amendments (including post-effective amendments) and supplements to such registrations and qualifications as may be necessary to maintain the effectiveness thereof at all times during the Registration Period, (iii) take all such other lawful actions as may be necessary to maintain such registrations and qualifications in effect at all times during the Registration Period, and (iv) take all such other lawful actions reasonably necessary or advisable to qualify the Registrable Securities for sale in such jurisdictions; provided, however, that the Company shall not be required in connection therewith or as a condition thereto to (A) qualify to do business in any jurisdiction where it would not otherwise be required to qualify but for this Section 4(g), (B) subject itself to general taxation in any such jurisdiction or (C) file a general consent to service of process in any such jurisdiction except as may be required by the Securities Act. (h) As promptly as practicable after becoming aware of such event, notify each Holder of the occurrence of any event, as a result of which the prospectus included in the registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein, in light of the circumstances under which they were made, not misleading, and promptly prepare an amendment to the registration statement and supplement to the prospectus to correct such untrue statement or omission, and deliver a number of copies of such supplement and amendment to each Holder as such Holder may reasonably request. (i) Notify the Holders of Registrable Securities and the underwriters, if any, of the following events and (if requested by any such persons) confirm such notification in writing: (i) the filing of the prospectus or any prospectus supplement and the registration statement and any amendment or post-effective 8 amendment thereto and, with respect to the registration statement or any post-effective amendment thereto, the declaration of the effectiveness of such document; (ii) any requests by the Commission for amendments or supplements to the registration statement or the prospectus or for additional information; (iii) the issuance or threat of issuance by the Commission of any stop order or other suspension of the effectiveness of the registration statement or the initiation of any proceedings for that purpose; and (iv) the receipt by the Company of any notification with respect to the suspension of the qualification of the Registrable Securities for sale in any jurisdiction or the initiation or threat of initiation of any proceeding for such purpose. (j) Take all lawful action (i) to prevent the entry of any order suspending the effectiveness of the registration statement, suspending or preventing the use of any related prospectus or suspending the qualification of any security included in such registration statement for sale in any jurisdiction and (ii) in the event of the issuance of any such stop, to obtain the withdrawal, recession or removal of such order. (k) Cause all the Registrable Securities covered by the registration statement to be listed, upon official notice of issuance, on the principal national securities exchange, and included in an inter-dealer quotation system of a registered national securities association, on or in which securities of the same class or series issued by the Company are then listed or included. (l) Maintain a transfer agent and registrar, which may be a single entity, for the Registrable Securities not later than the effective date of the registration statement. (m) Cooperate with each Holder of Registrable Securities being offered to facilitate the timely preparation and delivery of certificates for the Registrable Securities to be offered pursuant to the registration statement and enable such certificates for the Registrable Securities to be in such denominations or amounts, as the case may be, as the Holder reasonably may request and registered in such names as the Holder may request; and, within three business days after a registration statement which includes Registrable Securities is declared effective by the Commission, deliver and cause legal counsel selected by the Company to deliver to the transfer agent for the Registrable Securities (with copies to the Holders whose Registrable Securities are included in such registration statement) an appropriate instruction and, to the extent necessary, an opinion of such counsel. (n) Take all such other lawful actions reasonably necessary to expedite and facilitate the disposition by the Holders of their Registrable Securities in accordance with the intended methods therefor provided in the prospectus which are customary under the circumstances. (o) Use its best efforts to comply with all applicable rules and regulations of the Commission. (p) Make generally available to its security holders as soon as practicable, but in any event not later than three (3) months after (i) the effective date (as defined in Rule 158(c) under the Securities Act) of the Registration Statement, and (ii) the effective date of each post-effective amendment to the Registration Statement, as the case may be, an earnings statement of the Company and its subsidiaries complying with Section 11(a) of the Securities Act and the rules and regulations of the Commission thereunder 9 (including, at the option of the Company, Rule 158). (q) In the event of an underwritten offering, promptly include or incorporate in a Prospectus supplement or post-effective amendment to the registration statement such information as the managers reasonably agree should be included therein and to which the Company does not reasonably object and make all required filings of such prospectus supplement or post-effective amendment as soon as practicable after it is notified of the matters to be included or incorporated in such prospectus supplement or post-effective amendment. (r) Make reasonably available for inspection by the Holders, any underwriter participating in any disposition pursuant to the registration statement, and any attorney, accountant or other agent retained by such Holders or any such underwriter all relevant financial and other records, pertinent corporate documents and properties of the Company and its subsidiaries, and cause the Company's officers, directors and employees to supply all information reasonably requested by such Holders or any such underwriter, attorney, accountant or agent in connection with the registration statement, in each case, as is customary for similar due diligence examinations; provided, however, that all records, information and documents that are designated in writing by the Company, in good faith, as confidential, proprietary or containing any material nonpublic information shall be kept confidential by such Holders and any such underwriter, attorney, accountant or agent (pursuant to an appropriate confidentiality agreement in the case of any such holder or agent), unless such disclosure is made pursuant to judicial process in a court proceeding (after first giving the Company an opportunity promptly to seek a protective order or otherwise limit the scope of the information sought to be disclosed) or is required by law, or such records, information or documents become available to the public generally or through a third party not in violation of an accompanying obligation of confidentiality; and provided, further, that, if the foregoing inspection and information gathering would otherwise disrupt the Company's conduct of its business, such inspection and information gathering shall, to the maximum extent possible, be coordinated on behalf of the Holders and the other parties entitled thereto by one firm of counsel designed by and on behalf of the majority in interest of the Holders. (s) In connection with any underwritten offering, enter into and perform its obligations under an underwriting agreement reasonably in usual and customary form with respect to such underwriting. (t) If such securities are being sold through underwriters, furnish, at the request of any such underwriter and on the date that such Registrable Securities are delivered to the underwriters for sale, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and reasonably satisfactory to such underwriters, addressed to the underwriters and (ii) a "comfort" letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering and reasonably satisfactory to such underwriters, addressed to the underwriters. 10 (u) If such securities are being sold in a registration pursuant to Section 2 but are not being sold through underwriters, furnish, at the request of any Holder requesting registration of Registrable Securities and on the date the registration statement with respect to such securities becomes effective, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given in connection with such offerings and reasonably satisfactory to a majority-in-interest of the Holders of Registrable Securities requesting registration, addressed to the Holders requesting such opinion and (ii) a "comfort" letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants in connection with such offerings and reasonably satisfactory to a majority-in-interest of the Holders of Registrable Securities requesting registration, addressed to the Holders requesting such letter. (v) In connection with any underwritten offering, deliver such documents and certificates as may be reasonably required by the managers, if any. (w) In the event that any broker-dealer registered under the Exchange Act shall be an "affiliate" (as defined in Rule 2729(b)(1) of the rules and regulations of the National Association of Securities Dealers, Inc. (the "NASD Rules") (or any successor provision thereto)) of the Company or has a "conflict of interest" (as defined in Rule 2720(b)(7) of the NASD Rules (or any successor provision thereto)) and such broker-dealer shall underwrite, participate as a member of an underwriting syndicate or selling group or assist in the distribution of any Registrable Securities covered by the registration statement, whether as a Holder of such Registrable Securities or as an underwriter, a placement or sales agent or a broker or dealer in respect thereof, or otherwise, the Company shall assist such broker-dealer in complying with the requirements of the NASD Rules, including, without limitation, by (A) engaging a "qualified independent underwriter" (as defined in Rule 2720(b)(15) of the NASD Rules (or any successor provision thereto)) to participate in the preparation of the registration statement relating to such Registrable Securities, to exercise usual standards of due diligence in respect thereof and to recommend the public offering price of such Registrable Securities, (B) indemnifying such qualified independent underwriter to the extent of the indemnification of underwriters provided in Section 7(a) hereof, and (C) providing such information to such broker-dealer as may be required in order for such broker-dealer to comply with the requirements of the NASD Rules. 5. Obligations of the Holders In connection with the registration of the Registrable Securities, the Holders shall have the following obligations: (a) It shall be a condition precedent to the obligations of the Company to complete a registration pursuant to this Agreement with respect to the Registrable Securities of a particular Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it and the intended method of disposition of the Registrable Securities held by it as shall be reasonably required to effect the registration of such Registrable Securities and shall execute such documents in connection with such registration as the Company may reasonably request. As least seven days prior to the first anticipated filing date of the relevant registration statement, the Company shall notify each Holder of the information the Company requires from 11 each such Holder (the "Requested Information") if such Holder elects to have any of its Registrable Securities included in such registration statement. If at least two business days prior to the anticipated filing date the Company has not received the Requested Information from a Holder (a "Non-Responsive Holder"), then the Company may file such registration statement without including Registrable Securities of such Non-Responsive Holder and have no further obligations to the Non-Responsive Holder with respect to such registration statement. (b) Each Holder agrees that, upon receipt of any notice from the Company (i) of the occurrence of any event of the kind described in Section 4(h) or (ii) the issuance by the Commission of any stop order or other suspension of the effectiveness of the registration statement, it shall (x) immediately discontinue its disposition of Registrable Securities pursuant to the registration statement covering such Registrable Securities until (A) such Holder's receipt of the copies of the supplemented or amended prospectus contemplated by 4(h) and/or (B) the withdrawal, recession or removal of such stop order or other suspension of effectiveness and (y) , if so directed by the Company, deliver to the Company (at the expense of the Company) or destroy (and deliver to the Company a certificate of destruction) all copies in such Holder's possession of the prospectus covering such Registrable Securities current at the time of receipt of such notice. 6. Expenses of Registration All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Sections 2 and 3 shall be borne by the Company; provided, however, that, with respect to any registration proceeding begun pursuant to Section 2(a) or 2(g), if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered, the Holders of such a majority may elect to have the participating Holders bear such expenses. All Selling Expenses relating to securities registered pursuant to Sections 2 and 3 (together with any Registration Expenses elected to be borne by the participating Holders pursuant to the preceding sentence) shall be borne by the holders of such securities pro rata on the basis of the number of shares of securities so registered on their behalf. 7. Indemnification and Contribution (a) The Company shall indemnify and hold harmless each Holder and each underwriter, if any, which facilitates the disposition of Registrable Securities, and each of their respective partners, stockholders, officers and directors and each Person who controls such Holder or underwriter within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act (each such Person being sometimes hereinafter referred to as a "Indemnified Person") from and against any losses, claims, damages, expenses or liabilities, joint or several (collectively, "Losses"), to which such Indemnified Person may become subject under the Securities Act or otherwise, insofar as such Losses (or actions in respect thereof) arise out of or are based upon (i) any untrue statement or alleged untrue statement of a material fact contained in any registration statement or any omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein, not misleading, (ii) any untrue statement or alleged untrue statement of a material fact contained in any prospectus or any omission or alleged omission to state therein a material fact required to be stated therein or 12 necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading or (iii) any violation or alleged violation by the Company of the Securities Act, the Exchange Act, any state securities law or any rule or regulation promulgated under any state securities law in connection with the offering covered by such registration statement; and the Company hereby agrees to reimburse each such Indemnified Person for all reasonable legal and other expenses incurred by such Indemnified Person in connection with investigating or defending any such action or claim as and when such expenses are incurred; provided, however, that the Company shall not be liable to any such Indemnified Person in any such case to the extent that any such loss, claim, damage or liability arises out of or is based upon (x) an untrue statement or alleged untrue statement made in, or an omission or alleged omission from, such registration statement or prospectus in reliance upon and in conformity with written information furnished to the Company by such Indemnified Person expressly for use therein or (ii) in the case of the occurrence of an event of the type specified in Section 4(h), the use by the Indemnified Person of an outdated or defective prospectus after the Company has provided to such Indemnified Person an updated prospectus correcting the untrue statement or alleged untrue statement or omission or alleged omission giving rise to such loss, claim, damage or liability. (b) Each Holder agrees, as a consequence of the inclusion of any of its Registrable Securities in a registration statement, and each underwriter, if any, which facilitates the disposition of Registrable Securities shall agree, as a consequence of facilitating such disposition of Registrable Securities, severally and not jointly, to (i) indemnify and hold harmless the Company, its directors (including any Person who, with his or her consent, is named in the registration statement as a director nominee of the Company), its officers who sign any registration statement and each Person, if any, who controls the Company within the meaning of either Section 15 of the Securities Act or Section 20 of the Exchange Act, against any Losses to which the Company or such other Persons may become subject, under the Securities Act or otherwise, insofar as such Losses (or actions in respect thereof) arise out of or are based upon an untrue statement or alleged untrue statement of a material fact contained in such registration statement or prospectus or arise out of or are based upon the omission or alleged omission to state therein a material fact required to be stated therein or necessary to make the statements therein (in light of the circumstances under which they were made, in the case of the prospectus), not misleading, in each case to the extent, but only to the extent, that such untrue statement or alleged untrue statement or omission or alleged omission was made in reliance upon and in conformity with written information furnished to the Company by such holder or underwriter expressly for use therein; provided, however, that no Holder or underwriter shall be liable under this Section 7(b) for any amount in excess of the net proceeds paid to such Holder or underwriter in respect of shares sold by it, and (ii) reimburse the Company for any legal or other expenses incurred by the Company in connection with investigating or defending any such action or claim as such expenses are incurred. (c) Promptly after receipt by a party seeking indemnification pursuant to this Section 7 (an "Indemnified Party") of written notice of any investigation, claim, proceeding or other action in respect of which indemnification is being sought (each, a "Claim"), the Indemnified Party promptly shall notify the party against whom indemnification pursuant to this Section 7 is being sought (the "Indemnifying Party") of the commencement thereof; but the omission to so notify the Indemnifying Party shall not relieve it from any liability that it otherwise may have to the Indemnified Party, except to the extent that the Indemnifying Party is materially prejudiced and 13 forfeits substantive rights and defenses by reason of such failure. In connection with any Claim as to which both the Indemnifying Party and the Indemnified Party are parties, the Indemnifying Party shall be entitled to assume the defense thereof. Notwithstanding the assumption of the defense of any Claim by the Indemnifying Party, the Indemnified Party shall have the right to employ separate legal counsel and to participate in the defense of such Claim, and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs and expenses of such separate legal counsel to the Indemnified Party if (and only if): (x) the Indemnifying Party shall have agreed to pay such fees, costs and expenses, (y) the Indemnified Party shall reasonably have concluded that representation of the Indemnified Party by the Indemnifying Party by the same legal counsel would not be appropriate due to actual or, as reasonably determined by legal counsel to the Indemnified Party, potentially differing interests between such parties in the conduct of the defense of such Claim, or if there may be legal defenses available to the Indemnified Party that are in addition to or disparate from those available to the Indemnifying Party, or (z) the Indemnifying Party shall have failed to employ legal counsel reasonably satisfactory to the Indemnified Party within a reasonable period of time after notice of the commencement of such Claim. If the Indemnified Party employs separate legal counsel in circumstances other than as described in clauses (x), (y) or (z) above, the fees, costs and expenses of such legal counsel shall be borne exclusively by the Indemnified Party. Except as provided above, the Indemnifying Party shall not, in connection with any Claim in the same jurisdiction, be liable for the fees and expenses of more than one firm of counsel for the Indemnified Party (together with appropriate local counsel). The Indemnified Party shall not, without the prior written consent of the Indemnifying Party (which consent shall not unreasonably be withheld), settle or compromise any Claim or consent to the entry of any judgment that does not include an unconditional release of the Indemnifying Party from all liabilities with respect to such Claim or judgment. (d) If the indemnification provided for in this Section 7 is unavailable to or insufficient to hold harmless an Indemnified Person under Section 7(a) or Section 7(b) in respect of any Losses (or actions in respect thereof) referred to therein, then each Indemnifying Party shall contribute to the amount paid or payable by such Indemnified Party as a result of such Losses (or actions in respect thereof) in such proportion as is appropriate to reflect the relative fault of the Indemnifying Party and the Indemnified Party in connection with the statements or omissions which resulted in such Losses (or actions in respect thereof), as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by such Indemnifying Party or by such Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 7(d) were determined by pro rata allocation (even if the Holders or any underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to in this Section 7(d). The amount paid or payable by an Indemnified Party as a result of the Losses (or actions in respect thereof) referred to above shall be deemed to include any legal or other fees or expenses reasonably incurred by such Indemnified Party in connection with investigating or defending any such action or claim. No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of 14 the Securities Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation. The obligations of the Holders and any underwriters in this Section 7(d) to contribute shall be several in proportion to the percentage of Registrable Securities registered or underwritten, as the case may be, by them and not joint. (e) Notwithstanding any other provision of this Section 7, in no event shall any (i) Holder be required to undertake liability to any person under this Section 7 for any amounts in excess of the dollar amount of the proceeds received by such Holder from the sale of such Holder's Registrable Securities (after deducting any fees, discounts and commissions applicable thereto) and (ii) underwriter be required to undertake liability to any Person hereunder for any amounts in excess of the aggregate discount, commission or other compensation payable to such underwriter with respect to the Registrable Securities underwritten by it. (f) The obligations of the Company under this Section 7 shall be in addition to any liability which the Company may otherwise have to any Indemnified Person and the obligations of any Indemnified Person under this Section 7 shall be in addition to any liability which such Indemnified Person may otherwise have to the Company. The remedies provided in this Section 7 are not exclusive and shall not limit any rights or remedies which may otherwise be available to an indemnified party at law or in equity. (g) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in an underwriting agreement entered into in connection with an underwritten public offering are in conflict with the foregoing provisions, the provisions in such underwriting agreement shall control, unless such underwriting agreement does not specifically provide for indemnification between the Company and the Holders. 8. Reporting (a) With a view to making available to the Holders the benefits of Rule 144 under the Securities Act or any other similar rule or regulation of the Commission that may at any time permit the Holders to sell securities of the Company to the public without registration ("Rule 144"), the Company agrees to use its best efforts to: (i) comply with the provisions of paragraph (c) (1) of Rule 144; (ii) file with the Commission in a timely manner all reports and other documents required to be filed by the Company pursuant to Section 13 or 15(d) under the Exchange Act; and, if at any time it is not required to file such reports but in the past had been required to or did file such reports, it will, upon the request of any Investor, make available other information as required by, and so long as necessary to permit sales of, its Registrable Securities pursuant to Rule 144; and (iii) so long as a Holder owns any Registrable Securities, furnish to the Holder forthwith upon written request a written statement by the Company as to its compliance with the reporting requirements of Rule 144, and of the Securities Act and the Exchange Act, a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration. 15 (b) Eligibility For Use Of Form S-3. The Company shall use its reasonable best efforts to qualify for registration on Form S-3 or any comparable or successor form or forms. The Company agrees that at such time as it meets all the requirements for the use of Form S-3 it shall file all reports and information required to be filed by it with the Commission in a timely manner and take all such other action so as to maintain such eligibility for the use of such form. 9. Assignment The rights to have the Company register Registrable Securities pursuant to this Agreement shall be automatically assigned by any Holder to any permitted transferee of all or any portion of such Registrable Securities (or all or any portion of any Preferred Shares which are convertible into Registrable Securities) only if: (a) the Investor agrees in writing with the transferee or assignee to assign such rights, and a copy of such agreement is furnished to the Company within a reasonable time after such assignment, (b) the Company is, within a reasonable time after such transfer or assignment, furnished with written notice of (i) the name and address of such transferee or assignee and (ii) the securities with respect to which such registration rights are being transferred or assigned, (c) immediately following such transfer or assignment, the securities so transferred or assigned to the transferee or assignee constitute Restricted Securities and (d) at or before the time the Company received the written notice contemplated by clause (b) of this sentence the transferee or assignee agrees in writing with the Company to be bound by all of the provisions contained herein. 10. Amendment and Waiver Any provision of this Agreement may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of (i) the Company, (ii) Holders who hold 75% of the Registrable Securities and (iii) if any principal or interest remains unpaid on any of the Notes, the holders of 75% of the aggregate principal amount of the Notes that are then unpaid (provided, that any amendment to the provisions with respect to the treatment of all persons holding Common Shares issued or issuable, directly or indirectly, on conversion of Notes issued in the Private Placement shall require the written consent of the holders of 75% of such Common Shares that are "Registrable Securities" under the terms of the respective holders' registration rights agreements with the Company, all of which are in the same form as this Agreement). Any amendment or waiver effected in accordance with this Section 10 shall be binding upon each Holder and the Company. 11. Other Registration Rights Agreements (a) Other than entering into other agreements in the same form as this Agreement with other purchasers of Notes in the Private Placement, the Company shall not on or after the date of this Agreement enter into any agreement with any holder or prospective holder of any securities of the Company that (i) gives such holder or prospective holder any registration rights with respect to any securities of the Company or (ii) is inconsistent with the rights granted to the holders of Registrable Securities in this Agreement or otherwise conflicts with the provisions hereof. 16 (b) Other than other agreements in the same form as this Agreement entered into with other purchasers of Notes in the Private Placement, the Company is not currently a party to any agreement granting any registration rights with respect to any of its securities to any person which conflicts with the Company's obligations hereunder or gives any other party the right to include any securities in any registration statement filed pursuant hereto. 12. Miscellaneous (a) A person or entity shall be deemed to be a Holder of Registrable Securities whenever such person or entity owns of record such Registrable Securities. If the Company receives conflicting instructions, notices or elections from two or more persons or entities with respect to the same Registrable Securities, the Company shall act upon the basis of instructions, notice or election received from the registered owner of such Registrable Securities. (b) Except as may be otherwise provided herein, any notice or other communication or delivery required or permitted hereunder shall (1) be in writing and shall be delivered personally, by certified mail (postage prepaid), by a nationally recognized overnight courier service, or by electronic mail or facsimile transmission, and (2) and shall be deemed given when so delivered personally, if mailed, three (3) days after the date of deposit in the United States mails, when delivered by overnight courier service, or, if transmitted electronically or by facsimile, upon receipt of electronic confirmation of transmission, as follows:: (i) if to the Company, to: Innovative Gaming Corporation of America 333 Orville Wright Court Las Vegas, Nevada 89119 Attention: Loren A. Piel, General Counsel (702) 614-7199 (703) 614-7114 (Fax) with a copy to: Maslon Edelman Borman & Brand, LLP 3300 Wells Fargo Center 90 South Seventh Street Minneapolis, Minnesota 55402 Attention: Douglas T. Holod, Esq. (612) 672-8200 (612) 672-8397 (Fax) (ii) if to any Holder, at such address as such Holder shall have provided in writing to the Company. The Company or any Holder may change the foregoing address by notice given pursuant to this Section 12(b). 17 (c) This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts, each of which when so executed and delivered shall be an original, but all which counterparts when so executed shall together constitute one and the same instrument. A facsimile or digital transmission of this signed Agreement shall be legal and binding on all parties hereto. (d) The headings of this Agreement are for convenience of reference and shall not form part of, or affect the interpretation of, this Agreement. (e) This Agreement constitutes the entire agreement among the parties pertaining to the subject matter hereof and supersedes all prior agreements, understandings, negotiations, and discussions, whether oral or written, of the parties. No amendment, supplement, modification, or waiver of this Agreement shall be binding unless executed in writing by all parties. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provision hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided in writing. Failure of any party to exercise any right or remedy under this Agreement or otherwise, or delay by a party in exercising such right or remedy, shall not operate as a waiver thereof. (f) This Agreement shall be governed by and interpreted in accordance with the laws of the State of Minnesota, without regard to the conflicts-of-law principles of such state. Each of the parties hereto consents to the exclusive jurisdiction of the federal courts whose districts encompass any part of the City of Minneapolis or the state courts of the State of Minnesota sitting in the City of Minneapolis in connection with any dispute arising under this Agreement. Each party hereto hereby irrevocably and unconditionally waives, to the fullest extent it may effectively do so, any defense of an inconvenient forum or improper venue to the maintenance of such action or proceeding in any such court and any right of jurisdiction on account of its place of residence or domicile. Each party hereto irrevocably and unconditionally consents to the service of any and all process in any such action or proceeding in such courts by the mailing of copies of such process by certified or registered airmail at its address specified in Section 12(b). Each party hereto agrees that a final judgment in any such action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. (g) The remedies provided in this Agreement are cumulative and not exclusive of any remedies provided by law. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable. (h) Subject to the requirements of Section 9, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties. Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement. 18 (i) If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys' fees, costs and disbursements in addition to any other relief to which such party may be entitled. (j) All pronouns and any variations thereof refer to the masculine, feminine or neuter, singular or plural, as the context may require. (k) The Company acknowledges that any failure by the Company to perform its obligations under this Agreement, or any delay in such performance could result in direct damages to the Holders and the Company agrees that, in addition to any other liability the Company may have by reason of any such failure or delay, the Company shall be liable for all direct damages caused by such failure or delay. IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered as of the date first above written. INNOVATIVE GAMING CORPORATION OF AMERICA By:_____________________________________________ Name: Title: Initial Investor By:_____________________________________________ 19 EX-10.4 7 inngam8ksept02ex10-4.txt TABLE IDENTIFYING MATERIAL DETAILS
EXHIBIT 10.4 TABLE OF INVESTORS PRIVATE PLACEMENT OF CONVERTIBLE PROMISSORY NOTES AND SERIES A-1 5.5% CONVERTIBLE PREFERRED STOCK - ---------------------------------------- ------------------------------ -------------------------------------- Shares of Series A-1 into which Note Investor Amount of Note is convertible - ---------------------------------------- ------------------------------ -------------------------------------- Edward J. Harris, Trustee $250,000 250 The Harris Family Living Trust U/A dated 3/1/96 - ---------------------------------------- ------------------------------ -------------------------------------- Ronald E. Eibensteiner $500,000 500 - ---------------------------------------- ------------------------------ -------------------------------------- IGCA Investments, LLC $666,667 666 - ---------------------------------------- ------------------------------ -------------------------------------- Wayne Mills $500,000 500 - ---------------------------------------- ------------------------------ -------------------------------------- IGCA Holdings, LLC $83,333 83 - ---------------------------------------- ------------------------------ --------------------------------------
EX-99.1 8 inngam8ksept02ex99-1.txt PRESS RELEASE DATED SEPTEMBER 10, 2002 EXHIBIT 99.1 Tuesday, September 10, 2002 Press Release SOURCE: Innovative Gaming Corporation of America IGCA Announces Financing Company Eliminates Floorless Securities; Reverse Stock Split Takes Effect Las Vegas, Nevada, September 10, 2002 - Innovative Gaming Corporation of America (NASDAQ -SmallCap: IGCA) announced that it recently completed a private placement of $2,000,000 of Convertible Promissory Notes which convert into Series A-1 Convertible Preferred Stock. Under the terms of the private placement, the investors may purchase up to $3,000,000 in additional convertible notes over a five month period. Approximately $1,000,000 of the proceeds from this financing has been used to reduce exiting liabilities and the balance will be allocated to working capital. Commenting on the private placement, Laus M. Abdo, President, Chief Executive Officer and Chief Financial Officer of IGCA said, "This private placement provides much needed working capital to the Company. The initial funding will allow the Company to focus on its operations rather than on raising capital and will enable the Company to develop, manufacture and ship new products. In addition, future placements with these investors will allow the Company to complete its workout with vendors and creditors." Additionally, the Company announced that in connection with the financing the Company reached agreements with the holders of its existing convertible preferred securities establishing a floor on the conversion price for future conversions. According to Mr. Abdo, this eliminates all floorless convertible preferred stock previously issued. "With the signing of these agreements, the Company will have successfully eliminated the negative pricing pressures which related to the previously issued floorless preferred stock offerings. The conversion of the remaining preferred convertible stock will all be well above $1 per share on a split adjusted basis." Finally, the Company indicated that its previously announced 1 for 10 reverse stock split was effective as of the close of business on September 9, 2002. With regard to the reverse stock split, Mr. Abdo commented, "Coupled with our improving operations, new features on existing products that will be available in September and new product launches that are anticipated early in the 4th quarter, I believe that the reverse stock split will allow the Company to regain full compliance with the NASDAQ rules relating to the $1 minimum closing bid price requirement." Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995: Except for historical information, the forward looking matters discussed in this news release are subject to certain risks and uncertainties, including but not limited to issuance of additional convertible notes, the continued listing of Company's common stock on Nasdaq, the Company's liquidity, as well as other risks indicated from time to time in the Company's filings with the Securities and Exchange Commission, such as the Company's Form 10K for the fiscal year ended December 31, 2001. The Company assumes no obligation to update or supplement forward-looking statements that become untrue because of subsequent events. A registration statement relating to certain securities of the Company has been filed with the Securities and Exchange Commission but has not yet become effective. These securities may or may not be sold nor may offers to buy be accepted prior to the time the registration statement becomes effective. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state in which such offer, solicitation, or sale would be unlawful prior to registration or qualification under the securities laws of any such state. SOURCE: Innovative Gaming Corporation of America For further information contact: IGCA Investor Relations: Innovative Gaming Corporation of America 333 Orville Wright Court Jens Dalsgaard Las Vegas, NV 89119 Managing Director Phone: 702-614-7199 Redwood Consultants, LLC Laus M. Abdo, President, CEO and Chief Phone: 415-884-0348 Financial Officer www.igca.com -----END PRIVACY-ENHANCED MESSAGE-----