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
000 Xxxxxxx Xxxxxx Xxxxx, Xxx Xxxxx, Xxxxxx 00000 (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: Xxxxx Fargo Bank
0000 Xxxxxx Xxxxxx Xxxx #000
Xxx Xxxxx, XX 00000
Account Name: Innovative Gaming, Inc.
ABA Routing: 000000000
Account No: 0000000000
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 Xxxxxx Xxxxxxx Xxxxxx & 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
Xxxxxx Xxxxxx 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
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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
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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: Xxxxx X. Xxxx, General Counsel
000 Xxxxxxx Xxxxxx Xxxxx
Xxx Xxxxx, Xxxxxx 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
E-Mail: xxxxx@xxxx.xxx
With a copy to: Xxxxxx Xxxxxxx Xxxxxx & Brand, LLP
Attention: Xxxxxxx X. Xxxxx, Esq.
3300 Xxxxx Fargo Center
00 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxxxxx, Xxxxxxxxx 00000
Tel: (000) 000-0000
Fax: (000) 000-0000
E-Mail: xxxx.xxxxx@xxxxxx.xxx
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 Xxxxxx & Xxxxxxx
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 X. Xxxx
Its: President, Chief Executive Officer and
Chief Financial Officer
BUYER:
By: ______________________________________
Print Name: _______________________________
