1
EXHIBIT 10.2
INNOVATIVE GAMING CORPORATION OF AMERICA
0000 Xxxxx Xxxxxx
Xxxx, Xxxxxx 00000
SUBSCRIPTION AGREEMENT
Including Investment Representations
Series B Convertible Preferred Stock
Ladies and Gentlemen:
KA Investments LDC ("Buyer") desires to purchase upon the terms and conditions
set forth below from Innovative Gaming Corporation of America, a Minnesota
corporation (the "Company"), Series B Convertible Preferred Stock of the Company
(the "Preferred Shares") convertible into shares of Common Stock of the Company
(the "Common Shares," and collectively with the Preferred Shares, the "Shares")
pursuant to the terms of that certain Certificate of Designation of Series B
Convertible Preferred Stock (the "Certificate of Designation"). The Preferred
Shares being offered are described in the Company's Confidential Private
Placement Memorandum, dated April 28, 1998 (the "Memorandum"). This Agreement,
the Certificate of Designation and the Registration Rights Agreement by and
between Buyer and the Company dated the date hereof (the "Registration Rights
Agreement") shall be collectively referred to herein as the "Transaction
Documents").
1. AGENT. The name of Buyer's agent or sub-agent for this offering is
--------------------------------------------.
(INSERT NAME OF AGENT/SUB-AGENT, IF ANY)
2. SUBSCRIPTION.
a. Buyer hereby subscribes to purchase 3,000 Preferred Shares
and agrees to pay to the Company the purchase price
of: $3,000,000.
b. Buyer shall pay the purchase price by delivering at the
Closing same day funds in United States Dollars to the
Company, to be delivered to the order of the Company upon
delivery of the Preferred Shares.
c. Company and Buyer are executing and delivering this
Agreement in reliance upon the exemption from securities
registration afforded by Rule 506 under Regulation D
("Regulation D") as promulgated by the United States
Securities and Exchange Commission under the Securities
Act of 1933, as amended (the "Securities Act").
2
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF BUYER. In connection
with the sale of the Preferred Shares to it, Buyer hereby acknowledges,
represents, warrants and covenants as follows:
a. Buyer has received and carefully reviewed a copy of the
Memorandum and the exhibits thereto. In purchasing the
Preferred Shares, Buyer has not relied on any information
or representation other than those contained in the
Memorandum or that is publicly disclosed or that which is
contained in this Agreement, the Registration Rights
Agreement or the Certificate of Designation relating to
the Preferred Shares.
b. Buyer has been given access to full and complete
information regarding the Company (including the
opportunity to meet with Company officers) and has
utilized such access to its satisfaction for the purpose
of obtaining information in addition to, or verifying
information included in, the Memorandum.
c. Buyer is experienced and knowledgeable in financial and
business matters, and is capable of evaluating the merits
and risks of investing in the Preferred Shares.
d. Buyer believes the investment is suitable for it based on
its investment objectives and financial needs. Buyer can
bear the economic risk of an investment in the Preferred
Shares for an indefinite period of time and can afford a
complete loss of such investment.
e. Buyer understands that there will be no market for the
Preferred Shares, that there are significant restrictions
on the transferability of the Preferred Shares, and that
for these and other reasons, Buyer may not be able to
liquidate an investment in the Preferred Shares for an
indefinite period.
f. 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, consent to a background investigation, and
respond to questions from gaming authorities. Buyer
further acknowledges that the Company may, pursuant to
the terms of its Articles of Incorporation and Section
6(g) of the Certificate of Designation, 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.
-2-
3
g. Buyer has no existing short position with respect to the
Common Stock of the Company and agrees not to enter into
any short sales or other hedging transactions with
respect to the Common Stock of the Company, or cause
others to do so, at any time after the execution of this
Agreement by it and prior to the date of effectiveness
of the Registration Statement relating to the Common
Shares with the Securities and Exchange Commission ("SEC
Effectiveness"). After SEC Effectiveness, so long as
Preferred Shares remain outstanding, Buyer agrees not to
enter into any short sales or hedging transactions in
Common Stock that would exceed the number of Preferred
Shares that are available for conversion pursuant to the
Certificate of Designation relating to the Preferred
Shares. Buyer further agrees that, at all times after
the execution of this Agreement by it and prior to ten
days after the closing of the purchase of the Preferred
Shares, it will keep its purchase of the Preferred
Shares confidential, except as required by law and
except as necessary in the ordinary course of its
business.
h. Buyer is not subscribing for the Preferred Shares as a
result of or pursuant to any advertisement, article,
notice, or other communication published in any
newspaper, magazine, or similar media or broadcast over
television or radio.
i. Buyer acknowledges that in no event shall Buyer be
entitled to convert any portion of the principal of or
interest on the Preferred Shares in excess of that
amount upon conversion of which the sum of 1) the number
of Common Shares beneficially owned by Buyer and its
affiliates (other than shares of Common Shares which may
be deemed beneficially owned through ownership of the
unconverted portion of the principal amount of, and
interest on, the Preferred Shares); and 2) the number of
Common Shares issuable upon conversion of the Preferred
Shares, would result in beneficial ownership by Buyer
and its affiliates of more than 4.9% of the outstanding
shares of the Company's issued and outstanding Common
Stock. Buyer acknowledges that any beneficial ownership
in excess of 4.9% may require filing certain documents
with the Securities and Exchange Commission and certain
state gaming regulatory agencies and that beneficial
ownership in excess of 10% could trigger certain
Minnesota anti-takeover statutes.
j. Buyer acknowledges that the Company or any transfer
agent of the Company shall register the transfer or
exchange of any of the Preferred Shares only upon
receipt of the certificate(s) evidencing such Preferred
Shares with the transfer notice set forth thereon
appropriately completed, upon the receipt of an opinion
of counsel acceptable to the Company, that the transfer
is exempt from registration under the Securities Act of
1933 and upon receipt in writing from the transferee or
the recipient of such Preferred Shares in such transfer
or exchange (as the case may be) of a
-3-
4
certificate setting forth the representations, warrants
and covenants in Paragraphs 3 and 4 hereof transferee or
any affiliated person of such transferee, provided,
however, that the Buyer may not transfer or exchange any
of the Preferred Shares to any proposed transferee who the
Company reasonably believes is: (1) a convicted felon; (2)
convicted of gaming-related offenses or (3) publicly known
to be associated with organized crime. With respect to
such transferee, the Company has ten (10) business days
following receipt of written notice of the identity of
such transferee to conduct any investigation and make any
objection to such transfer.
k. Buyer acknowledges that it is not acquiring the Shares for
the purpose of exerting any control over the Company.
l. The Company acknowledges and agrees that the Buyer makes
no representations or warranties with respect to the
transactions contemplated hereby other than those
specifically set forth in this Section 3, and in Sections
4, 5 and 7 of this Agreement.
4. INVESTMENT INTENT; RESTRICTIONS ON TRANSFER OF PREFERRED SHARES.
a. Buyer represents and warrants that it is purchasing the
Preferred Shares for its own account, for investment and
without the current intention of reselling or
redistributing the Preferred Shares except pursuant to the
terms of this Agreement and pursuant to an effective
registration statement under the 1933 Act and State Laws
or pursuant to an exemption from such registration. Buyer
has made no arrangement or agreement with others regarding
any of the Preferred Shares.
b. Buyer understands that Preferred Shares have not been
registered as of the date of the closing of this offering
under the Securities Act of 1933, as amended (the "1933
Act"), or applicable state securities laws (the "State
Laws"), and are being offered and sold pursuant to
exemptions from registration under the 1933 Act and the
State Laws. Buyer understands that the Company's reliance
on such exemptions is predicated in part on its
representations and warranties contained herein.
c. Buyer understands that neither the Preferred Shares nor
the underlying Common Shares may be sold by it except
pursuant to an effective registration statement under the
1933 Act and State Laws, or an exemption from such
registration.
d. Buyer understands that any transfer of the Preferred
Shares by it will be further restricted by a legend placed
on the certificate(s) representing the Preferred Shares
containing substantially the following language:
-4-
5
"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 ANY EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE SECURITIES ACT OF 1933 OR UNLESS AN
EXEMPTION FROM REGISTRATION IS AVAILABLE UNDER THE
SECURITIES LAWS."
e. Certificates for Common Shares issued on conversion of
Preferred Shares shall not contain any legend, other
than the legends indicated on Annex A, if the conversion
of Preferred Shares occurs at any time while a
Registration Statement relating to the Common Stock
issuable upon conversion of the Preferred Shares (the
"Common Shares Registration Statement") is effective
under the Securities Act or, in the event there is not
an effective Common Shares Registration Statement at
such time, if in the opinion of counsel to the Company
such legend is not required under applicable
requirements of the Securities Act (including judicial
interpretations and pronouncements issued by the staff
of the Commission). The Company agrees that it will
provide the Buyer, upon request, with a certificate or
certificates representing the Common Shares issuable
upon exercise of the Preferred Shares free from such
legend, other than the legends indicated on Annex A, at
such time as such legend is no longer required
hereunder. The Company may not make any notation on its
records or give instructions to any transfer agent of
the Company which enlarge the restrictions of transfer
set forth in this Section 4(e).
5. RESIDENCE. Buyer represents and warrants as follows.
a. Buyer is a corporation organized and existing under the
laws of the British Virgin Islands.
b. The Preferred Shares are being purchased by Buyer in its
name solely for its own beneficial interest and not as
nominee for, on behalf of, for the beneficial interest of,
or with the intention to transfer to, any other person,
trust, or organization, except as specifically set forth
in this Subscription Agreement.
6. CONVERSION. The Company shall use its best efforts to issue and
deliver to Buyer a certificate or certificates for the number of Common Shares
to which Buyer shall be entitled within three (3) business days after Buyer has
fulfilled all conditions required for conversion as set forth in this Agreement
and the Certificate of Designation of Series B Preferred Stock (the
-5-
6
"Deadline"). The Company understands that a delay in the issuance of the
registered Common Shares beyond the Deadline could result in economic loss to
Buyer. The Company agrees to pay liquidated damages to Buyer for late issuance
of registered Common Shares to Buyer upon conversion in the amount of one
percent (1%) of the requested conversion amount, per day, beginning on the fifth
(5th) business day from the date of receipt by the Company of a duly executed
notice of conversion accompanied by the certificate representing the Preferred
Shares, all in accordance with this Agreement, the Preferred Shares and the
requirements of the Company's transfer agent. Said liquidated damages shall
accrue each day through the date the registered Common Shares are issued to
Buyer upon conversion, and shall be paid by wire transfer to an account
designated by Buyer upon the earlier to occur of (i) issuance of the Preferred
Shares to Buyer, or (ii) each monthly anniversary of the receipt by the Company
of such Buyer's notice of conversion. Nothing herein shall waive the Company's
obligations to deliver Common Shares upon conversion of the Preferred Shares or
Buyer's other rights and remedies in the event of a breach of this Section 6.
7. INVESTOR QUALIFICATIONS. The undersigned subscriber represents and
warrants that the undersigned was not formed for the specific purpose of
acquiring shares of the Company and is a corporation with total assets in excess
of $5,000,000.
8. REPRESENTATIONS, WARRANTS AND COVENANTS OF THE COMPANY. In connection
with the sale of the Preferred Shares by it, the Company hereby acknowledges,
represents, warrants and covenants as follows:
8.1 Corporate Organization. The Company is a corporation duly
organized, validly existing and in good standing under the
laws of the State of Minnesota, and has the requisite
corporate power and authority to carry on its business in
all material respects as it is now being conducted and to
enter into this Agreement and the Registration Rights
Agreement by and between the Company and Buyer dated as of
the date hereof (the "Registration Rights Agreement") and
to issue Preferred Shares and Common Stock pursuant to the
Certificate of Designation. Each of the Company's
subsidiaries is duly organized, validly existing and in
good standing under the laws of its respective
incorporation, with all requisite corporate power and
authority to carry out its business in all material
respects as it is now being conducted.
8.2 Qualification. The Company and each of its subsidiaries is
duly qualified or licensed as a foreign corporation in
good standing in each jurisdiction wherein the nature of
its activities makes such qualification or licensing
necessary and failure to be so qualified or licensed would
have a material adverse impact on its business.
8.3 Corporate Acts and Proceedings. This Agreement and the
Registration Rights Agreement and the consummation of
the transactions contemplated by the Certificate of
Designation have been duly authorized by all necessary
-6-
7
corporate action on behalf of the Company, and have been
duly executed and delivered by authorized officers of the
Company. All corporate action necessary for the
authorization, creation, issuance and delivery of the
Preferred Shares and the Common Shares, including
reservation of such Common Shares has been taken on the
part of the Company. The Company at all times while the
Preferred Stock is outstanding will maintain an adequate
reserve of duly authorized shares of Common Stock to
enable it to timely perform its conversion, exercise and
other obligations under this Agreement and the Certificate
of Designation. As of the date hereof, the Company has
reserved 1,505,000 shares of Common Stock for issuance
upon conversion of the Preferred Shares. This Agreement
and the Registration Rights Agreement are valid and
binding agreements of the Company enforceable in
accordance with their respective terms, except as the
enforceability thereof may be limited by bankruptcy,
insolvency, moratorium, reorganization or other similar
laws affecting the enforcement of creditors' rights
generally, and except for judicial limitations on the
enforcement of the remedy of specific enforcement and
other equitable remedies.
8.4 Brokers or Finders. Other than fees paid to Equity
Securities, Inc. and X.X. Xxxxxxxx & Co., Inc., for which
the Company is responsible, no person, firm or corporation
has or will have any right, interest or valid claim
against the Company for any commission, fee or other
compensation as a finder or broker, or in any similar
capacity, in connection with the transactions contemplated
by this Agreement.
8.5 Adverse Government or Legal Actions. There are no legal or
governmental actions, suits or proceedings/pending, or to
the best of the Company's knowledge, threatened to which
the Company is or may be a party to which would adversely
affect the Company or the transactions
8.6 Capitalization. Except for stock options issued to
employees of the Company pursuant to the Company's 1992
Stock Option and Incentive Compensation Plan and the
Company's 1997 Director's Stock Option Plan and except for
warrants issued to a consultant of the Company to acquire
up to 10,000 shares of the Company's Common Stock, there
have been no issuances of capital stock, warrants,
outstanding subscriptions, contracts, calls, commitments
or any purchase rights of any nature or character
(including preemptive rights) relating to the Company's
capital stock since December 31, 1997.
8.7 Issuance of Shares. The Preferred Shares and the Common
Shares have been duly authorized and the Preferred Shares,
when issued, delivered and paid for pursuant to the terms
hereof and the Common Shares, when issued pursuant to the
terms of the Certificate of Designation relating to the
-7-
8
Preferred Shares, will be duly authorized, validly issued,
fully paid and nonassessable and free from all taxes,
liens and other encumbrances and will not be subject to
preemptive rights.
8.8 No Conflicts. The execution, delivery and performance of
the Transaction Documents by the Company and the
consummation by the Company of the transactions
contemplated hereby and thereby do not and will not (i)
conflict with or violate any provision of its certificate
of incorporation, bylaws or other charter documents (each
as amended through the date hereof) or (ii) subject to
obtaining the consents referred to in Section 8.9,
conflict with, or constitute a default (or an event which
with notice or lapse of time or both would become a
default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of,
any agreement, indenture or instrument (evidencing a
Company debt or otherwise) to which the Company is a party
or by which any property or asset of the Company or any of
its subsidiaries is bound or affected, or (iii) result in
a violation of any law, rule, regulation, order, judgment,
injunction, decree or other restriction of any court or
governmental authority to which the Company or any of its
subsidiaries is subject (including federal and state
securities laws and regulations), or by which any property
or asset of the Company or any of its subsidiaries is
bound or affected, except in the case of each of clauses
(ii) and (iii), as could not, individually or in the
aggregate, have or result in a material adverse effect on
the financial condition of the Company and its
subsidiaries taken as a whole ("Material Adverse Effect").
The business of the Company and its subsidiaries is not
being conducted in violation of any law, ordinance or
regulation of any governmental authority, except for
violations which, individually or in the aggregate, do not
have a Material Adverse Effect.
8.9 Consents and Approvals. Except for consents and approvals
required by the Nevada Gaming Commission and the
Mississippi Gaming Commission, neither the Company nor any
of its subsidiaries is required to obtain any consent,
waiver, authorization or order of, or make any filing or
registration with, any court or other federal, state,
local or other govern mental authority or other Person in
connection with the execution, delivery and performance by
the Company of the Transaction Documents other than (i)
the filing of a Registration Statement with the Securities
and Exchange Commission (the "Commission"), which shall be
filed in the time period set forth in the Registration
Rights Agreement and (ii) other than, in all other cases,
where the failure to obtain such consent, waiver,
authorization or order, or to give or make such notice or
filing, could not have or result in, individually or in
the aggregate, a Material Adverse Effect (together with
the consents, waivers, authorizations, orders, notices and
filings referred to in herein, the "Required Approvals").
The consummation of the transactions contemplated hereby
does not and will not require the approval
-8-
9
of the Company's shareholders under the rules of the
NASDAQ National Market.
8.10 Litigation; Proceedings. Except as specifically disclosed
in the Disclosure Materials (as hereinafter defined),
there is no action, suit, notice of violation, proceeding
or investigation pending or, to the best knowledge of the
Company, threatened against or affecting the Company or
any of its subsidiaries or any of their respective
properties before or by any court, governmental or
administrative agency or regulatory authority (Federal,
state, county, local or foreign) which (i) adversely
affects or challenges the legality, validity or
enforceability of any of the Transaction Documents or the
Shares or (ii) could, individually or in the aggregate,
have or result in a Material Adverse Effect.
8.11 No Default or Violation. None of the Company or any of its
subsidiaries (i) is not in default under or in violation
of (and no event has occurred which has not been waived
which, with notice or lapse of time or both, would result
in a default by the Company under), nor has the Company
received notice of a claim that it is in default under or
that it is in violation of, any indenture, loan or credit
agreement or any other agreement or instrument to which it
is a party or by which it or any of its properties is
bound except as could not individually or in the
aggregate, have or result in, individually or in the
aggregate, Material Adverse Effect, (ii) is in violation
of any order of any court, arbitrator or governmental
body, or (iii) is in violation of any statute, rule or
regulation of any governmental authority, except as could
not individually or in the aggregate, have or result in,
individually or in the aggregate, a Material Adverse
Effect.
8.12 Private Offering. Assuming the accuracy of the
representations and warranties of the Buyer set forth
herein, the issuance and sale of the Preferred Shares to
the Buyer as contemplated hereby are exempt from the
registration requirements of the Securities Act. Except as
provided in the Transaction Documents, neither the Company
nor any person acting on its behalf has taken or will take
any action which might subject the offering, issuance or
sale of the Preferred Shares to the registration
requirements of the Securities Act.
8.13 SEC Documents; Financial Statements; No Adverse Change.
The Company has filed all reports required to be filed by
it under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), including pursuant to Section 13(a)
or 15(d) thereof, for the two years preceding the date
hereof (or such shorter period as the Company was required
by law to file such material) (the foregoing materials
being collectively referred to herein as the "SEC
Documents" and, together with the Schedules to this
Agreement and the Memorandum, the "Disclosure Materials")
on a timely basis or has
-9-
10
received a valid extension of such time of filing and has
filed any such SEC Documents prior to the expiration of
any such extension. As of their respective dates, the SEC
Documents complied in all material respects with the
requirements of the Securities Act and the Exchange Act
and the rules and regulations of the Commission
promulgated thereunder, and none of the SEC Documents,
when filed, 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. All material
agreements to which the Company is a party or to which the
property or assets of the Company are subject have been
filed as exhibits to the SEC Documents as required. The
financial statements of the Company included in the SEC
Documents comply in all material respects with applicable
accounting requirements and the rules and regulations of
the Commission with respect thereto as in effect at the
time of filing. Such financial statements have been
prepared in accordance with generally accepted accounting
principles applied on a consistent basis during the
periods involved, except as may be otherwise specified in
such financial statements or the notes thereto, and fairly
present in all material respects the financial position of
the Company as of and for the dates thereof and the
results of operations and cash flows for the periods then
ended, subject, in the case of unaudited statements, to
normal year end audit adjustments. Since the date of the
financial statements included in the last filed Annual
Report on Form 10-K for the year ended December 31, 1997
for the Company, there has been no event, occurrence or
development that has had a Material Adverse Effect which
has not been specifically disclosed to the Buyer by the
Company. The Company last filed audited financial
statements with the Commission in connection with its 1997
Form 10-K, and has not received any comments from the
Commission in respect thereof.
8.14 Form S-3 Eligibility. The Company is, and at the Closing
Date will be, eligible to register securities for resale
with the Commission under Form S-3 promulgated under the
Securities Act.
8.15 Investment Company. The Company is not, and is not an
affiliate of, an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
8.16 Solicitation Materials. The Company has not (i)
distributed any offering materials in connection with the
offering and sale of the Preferred Shares other than, or
that are materially different from, the Disclosure
Materials and any amendments and supplements thereto or
(ii) solicited any offer to buy or sell the Preferred
Shares by means of any form of general solicitation or
advertising.
-10-
11
8.17 Listing and Maintenance Requirements Compliance. Except
as indicated on Schedule 8.17, since the date on which
the Company's Common Stock was initially listed on the
NASDAQ National Market, the Company has not received
written notice from the NASDAQ to the effect that the
Company is not in compliance with the listing,
maintenance or other requirements of such market. The
Company has no reason to believe that it does not now or
will not in the future meet any such requirements.
8.18 Disclosure. All information relating to or concerning
the Company set forth in the Transaction Documents or
the Disclosure Materials, or provided to the Buyer or
its respective representatives and counsel in connection
with the transactions contemplated hereby is true and
correct in all material respects and does not fail to
state any material fact necessary in order to make the
statements herein or therein, in light of the
circumstances under which they were made, not
misleading. The Company confirms that it has not
provided to the Buyer or any of its representatives,
agents or counsel any information that constitutes or
might constitute material nonpublic information. The
Company understands and confirms that the Buyer shall be
relying on the foregoing representation in effecting
transactions in securities of the Company.
9. CONDITIONS OF CLOSING. Buyer shall have no obligation to consummate
the transactions contemplated hereby until the following conditions have been
met:
a. The Certificate of Designation shall have been duly
filed with the Secretary of State of the State of
Minnesota.
b. The Buyer shall have received the opinion of Xxxxxx
Xxxxxxx Xxxxxx & Brand LLP, counsel to the Company, with
respect to the issuance and sale of the Preferred Shares
and the Common Shares, in form attached hereto as Annex
B.
c. No events or circumstances shall have occurred that
would have a Material Adverse Effect.
10. MISCELLANEOUS.
a. Buyer agrees to furnish any additional information that
the Company or its counsel reasonably deem necessary in
order to verify the responses set forth above.
b. Buyer represents and warrants that it has not reproduced
or distributed the Memorandum, in whole or in part, or
divulged any of its contents, and that it will not do so
without the prior written consent of the Company.
-11-
12
c. Buyer understands the meaning and legal consequences of
the agreements, representations, warranties and
covenants contained herein.
d. As long as the Buyer owns any Preferred Shares or Common
Shares, the Company covenants to use its best efforts to
timely file (or obtain extensions in respect thereof and
file within the applicable grace period) all reports
required to be filed by the Company after the date
hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. If at any time prior to the date on which
the Purchasers may resell all of the Common Shares
without volume restrictions pursuant to Rule 144(k)
promulgated under the Securities Act (as determined by
counsel to the Company pursuant to a written opinion
letter to such effect, addressed and acceptable to the
Company's transfer agent for the benefit of and
enforceable by the Buyer) the Company is not required to
file reports pursuant to such sections, it will prepare
and furnish to the Purchasers and make publicly
available in accordance with Rule 144(c) promulgated
under the Securities Act annual and quarterly financial
statements, together with a discussion and analysis of
such financial statements in form and substance
substantially similar to those that would otherwise be
required to be included in reports required by Section
13(a) or 15(d) of the Exchange Act in the time period
that such filings would have been required to have been
made under the Exchange Act.
e. The Company shall (i) not later than the tenth trading
day following the closing date prepare and file with the
NASDAQ National Market (as well as any other national
securities exchange or market on which the Common Stock
is then listed) an additional shares listing application
or a letter acceptable to the NASDAQ National Market
covering and listing at least 1,505,000 shares of Common
Stock, (ii) take all reasonable steps necessary to cause
the Common Shares to be approved for listing in the
NASDAQ National Market (as well as on any other national
securities exchange or market on which the Common Stock
is then listed) as soon as possible thereafter, and
(iii) provide to the Buyers, if requested, evidence of
such listing, and the Company shall take all steps
reasonably necessary to maintain the listing of its
Common Shares on such exchange. In addition, if at any
time following the listing of the Common Shares in
accordance with the foregoing, the number of shares of
Common Stock issuable on conversion of all then
outstanding Preferred Shares, and on account of accrued
and unpaid dividends thereon is greater than the number
of shares of Common Stock theretofore listed, the
Company shall promptly take such action to file an
additional shares listing application covering at least
a number of shares as the Buyer shall reasonably
request.
f. If at any time while the Buyer (or any assignee thereof)
owns any Preferred Shares, the shares of Common Stock
cease to be Actively Traded (as defined below), or the
Common Shares Registration Statement ceases to be
effective,
-12-
13
or the prospectus included in the Common Shares
Registration Statement may not be used by the Buyer, in
each case for more than five trading days in the
aggregate, at the option of the Buyer exercisable by
written notice to the Company delivered after the
expiration of such five trading day period, the Company
shall redeem all Preferred Shares and Common Shares in
cash, then held by such Buyer, at an aggregate purchase
price equal to the sum of (I) the number of shares of
Preferred Shares then held by the Buyer multiplied by the
product of (1) the average Per Share Market Value for the
five (5) Trading Days immediately preceding (a) the day of
such notice or (b) the date of payment in full of the
redemption price calculated under this Section, whichever
is greater and (2) the Conversion Ratio on the date of the
repurchase notice, (II) the aggregate of all accrued but
unpaid dividends payable in respect of all shares of
Preferred Stock to be redeemed, (III) the number of Shares
and Common Shares then held by such Purchaser multiplied
by the average Per Share Market Value for the five (5)
Trading Days immediately preceding (A) the date of the
notice or (B) the date of payment in full by the Company
of the redemption price calculated under this Section,
whichever is greater, and (IV) interest on the amounts set
forth in (I) - (III) above accruing from the 5th Trading
Day after such notice until the repurchase price under
this Section is paid in full at the rate of 12% per annum
for the first three months after the date due, and 15% per
annum thereafter. For purposes of this Section 10(f), the
Common Stock shall not be "Actively Traded" if trading in
the Common Stock is suspended (other than as a result of
the suspension of trading in securities on such market
generally or temporary suspensions pending the release of
material information) or the Common Stock is delisted from
the NASDAQ National Market other than in connection with a
listing of the shares on the NASDAQ SmallCap, the New York
Stock Exchange or the American Stock Exchange (a "Major
Exchange"), or trading is suspended (other than as a
result of the suspension of trading in securities on such
exchange or market generally or temporary suspensions
pending the release of material information) or the Common
Stock is delisted from a Major Exchange without being
immediately thereafter listed on another Major Exchange or
on the NASDAQ National Market; provided, however, that if
the Common Stock is delisted from the NASDAQ National
Market or a Major Exchange and is immediately thereafter
quoted in the OTC Bulletin Board, the Common Stock shall
be deemed to be Actively Traded so long as there are at
all times not less than four market makers actively
entering quotations for the Common Stock and the daily
reported trading volume for the Common Stock is not less
than 80% of the reported average daily volume for the
shares during the 30 days immediately preceding the date
on which the delisting occurred. For purposes of this
Section 10(f), "Conversion Ratio" at any date with respect
to a Preferred Share shall mean the Liquidation Value of
such Preferred Shares (as defined in the Certificate of
Designation) divided by the applicable Conversion Price.
-13-
14
g. The Company shall use all of the proceeds from the sale
of the Preferred Shares for working capital purposes and
not to redeem any equity or equity-equivalent
securities of the Company.
h. The Company understands the meaning and legal
consequences of the agreements, representations,
warranties and covenants contained herein. Company
further agrees to indemnify and hold harmless the Buyer,
and each current and future officer, director, employee,
agent and shareholder of the Buyer, from and against any
and all loss, damage or liability due to, or arising out
of, a breach of any of the Company's agreements,
representations or warranties contained herein, which
shall survive the execution hereof.
i. This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and to the successors
and assigns of the Company and to the legal
representatives, successors and permitted assignees of
the undersigned.
j. This Subscription Agreement shall be governed by, and
construed and enforced in accordance with, Minnesota
law, without reference to principles of conflicts of
laws.
k. This instrument contains the entire agreement of the
parties, and there are no representations, covenants or
other agreements except as stated or referred to herein.
-14-
15
SIGNATURES/SUBSCRIBER INFORMATION
Entity Subscriber:
Dated: May 13, 1998
------------------------------------------
Name of Entity (Typed or Printed)
------------------------------------------
Signature
------------------------------------------
Name (Typed or printed) and Title
------------------------------------------
Contact Person (If different from person signing)
Address for Notices:
Bank of Xxxxxxxxxxx International (Cayman) Ltd.
Xxxxxxxxxxx House
Fort Strut, Xxxxxx Town
Grand Cayman, Cayman Island
With a copy to:
0000 Xxxxxxx Xxxxx Xxxx
Xxxxxxxxxx, XX 00000
Attention: Ivana Bozjak
Facsimile (000) 000-0000
-15-
16
ENTITY SUBSCRIBER TYPE OF OWNERSHIP:
The Shares subscribed for are to be registered in the following form of
ownership (check only one):
[ ] Partnership [ ] Trust or Estate
(Describe and
enclose evidence of signer's authority)
[X] Corporation [ ] XXX Trust Account
[ ] Other (Describe) ---------------------------------------
-------------------
ACCEPTANCE
This Subscription Agreement of KA Investments, LDC for 3,000 shares of
the Company's Series B Convertible Preferred Stock is hereby accepted by
Innovative Gaming Corporation of America.
Dated: May 13, 1998
INNOVATIVE GAMING CORPORATION OF AMERICA
By
-------------------------------------------------------------------
Xxxxxx X. Xxxxxxxxx, President and Chief Executive Officer
-16-
17
SCHEDULE 8.17
The Company received notice or April 30, 1997, that its private
placement of Series A Convertible Preferred Stock may violate NASDAQ rules in
that the Company could issue in excess of 20% of its outstanding Common Stock at
a discount without shareholder approval. The Company revised the terms of its
Certificate of Designation relating to the Series A Convertible Preferred Stock
to accommodate NASDAQ and NASDAQ subsequently retracted such notice in May 1997.
-17-
