BRIDGE LOAN AGREEMENT
THIS BRIDGE LOAN AGREEMENT (the "Agreement") is made and entered into as of
this 18th day of December, 2001 (the "Effective Date"), by and among Innovative
Gaming Corporation of America, a Minnesota corporation (the "Company"), with its
principal place of business at 000 Xxxxxxx Xxxxxx Xxxxx, Xxx Xxxxx, XX 00000,
and GET USA, Inc., a Nevada corporation ("GET USA").
RECITALS
WHEREAS, the Company currently needs capital to fund its operations until
such time as it is able to secure additional equity capital; and
WHEREAS, GET USA desires to advance funds to the Company on the terms and
conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual promises
set forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
AGREEMENT
1. Loan Amount.
-----------
(a) Maximum Amount. On the terms and subject to the conditions hereof, GET
--------------
USA and/or one or more of its Affiliates (as such term is defined in Rule 12b-2
of the General Rules and Regulations under the Securities Exchange Act of 1934,
as amended (the "Exchange Act")) may advance (an "Advance" or the "Advances" as
the case may be), from time to time in one or more installments, up to an
aggregate of US$750,000 to the Company. GET USA may make Advances on such dates
and in such amounts as the parties may agree.
(b) No Minimum Commitment. Notwithstanding any other provision in this
----------------------
Agreement to the contrary, neither GET USA nor its Affiliates shall have any
obligation to make any minimum number or amount of Advances to the Company.
2. Issuance of Convertible Promissory Note(s). Upon the execution of this
---------------------------------------------
Agreement, the Company agrees to issue, upon the receipt of each Advance, a
convertible promissory note (the "Note(s)") made payable to the order of GET USA
in the maximum principal amount of US$750,000 and in the form attached hereto as
Exhibit A. The Note(s) shall bear simple interest at the rate of ten percent
(10%) per annum, and all principal and accrued interest shall be due and payable
on the six-month anniversary of the date of this Agreement (the "Maturity
Date"). The Company shall have the right to prepay the Note(s) in whole or in
part at any time, without premium or penalty, upon providing ten (10) days'
prior written notice to GET USA.
3. Conversion. GET USA shall have the irrevocable right to convert all or any
----------
portion of the principal balance under the outstanding Note(s) into shares of
common stock ("Common Stock") of the Company at any time after the date hereof.
The conversion price of the Note(s) shall be equal to the ten (10) day trailing
average of the closing bid price of the Company's Common Stock as quoted on the
Nasdaq SmallCap Market, or other over-the-counter market (i.e., the "Electronic
1
Bulletin Board" or "Pink Sheets") in the event the Company fails to comply with
Nasdaq's continued listing requirements and is delisted. The conversion of this
Note will be deemed to have been made at the close of business on the date on
which the Note(s) has been surrendered for conversion with the conversion notice
duly executed (the "Conversion Date"). The Conversion Date shall be used in
determining the commencement of the ten (10) day look-back period. The shares of
Common Stock issuable upon conversion of the Note(s) are referred to as the
"Conversion Securities" and shall be registered with the Securities and Exchange
("SEC") as described in Section 7 hereinbelow. The conversion feature of the
Note shall be subject to restrictions required by gaming laws, securities laws
and NASDAQ requirements with respect to percentage of ownership, regulatory
approvals and shareholder approvals, if any, triggered by (i) the total number
of shares into which the Note converts, and/or (ii) the total number of shares
held by GET USA and its affiliates.
4. Representations and Warranties of the Company. The Company represents and
----------------------------------------------
warrants to GET USA as follows:
(a) 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 own, lease or operate its
properties and to carry on its business as it is now being conducted and as it
is proposed to be conducted. In addition, each subsidiary of the Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Minnesota or Nevada and has the requisite corporate power and
authority to own, lease or operate its properties and assets to carry on its
business as it is now being conducted and as it is proposed to be conducted.
Further, the Company is qualified to do business and is in good standing as a
foreign corporation in every jurisdiction in which its ownership of property or
conduct of business requires it to be qualified and in which the failure to so
qualify would have a material adverse effect on the financial condition or
business of the Company.
(b) Authorization. The Company has the corporate power and authority to
-------------
execute and deliver this Agreement and to perform its obligations hereunder,
including the issuance of the Note(s) and the Conversion Securities. This
Agreement has been duly authorized by all necessary corporate action on behalf
of the Company, has been duly executed and delivered by authorized officers of
the Company, is a valid and binding agreement on the part of the Company and is
enforceable against the Company in accordance with its 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 to judicial limitations on the enforcement of the remedy of
specific performance and other equitable remedies. The Note(s), when issued
pursuant to this Agreement, will be duly authorized and represent valid and
binding agreements on the part of the Company enforceable against it in
accordance with their 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 to judicial
limitations on the enforcement of the remedy of specific performance and other
equitable remedies. All corporate actions necessary for reservation and issuance
of the Conversion Securities has been taken. The Conversion Securities when
issued pursuant to conversion of the Note(s) will be duly authorized, validly
issued, fully paid and non-assessable, and free and clear of any and all liens,
charges, claims, encumbrances and preemptive rights.
(c) No Violation. Neither the execution and delivery of this Agreement or
------------
any Note(s) by the Company, nor the performance by the Company of its
obligations hereunder, nor the consummation of the transactions contemplated
hereby or thereby will: (a) conflict with or result in any breach of any
provision of the Certificate of Incorporation or By-Laws of the Company; (b)
2
result in a default (or give rise to any right of termination, cancellation or
acceleration) under any of the terms, conditions or provisions of any note,
lease, mortgage, license, agreement or other instrument or obligation to which
the Company is a party or by which any of its assets may be bound, except for
such defaults (or rights of termination, cancellation or acceleration) as to
which requisite waivers or consents have been obtained or which, in the
aggregate, would not result in a material adverse effect on the Company; (c)
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to the Company or any of its assets, except for violations which
would not result in a material adverse effect on the Company; or (d) result in
the creation or imposition of any liens, charges or encumbrances upon any assets
of the Company.
(d) SEC Filings. The Company has timely filed all reports (including
-----------
annual, quarterly and periodic reports), registration statements and other
filings with the SEC required to be filed by it pursuant to the Securities Act
of 1933, as amended (the "Securities Act"), and the Exchange Act. All such
reports, registration statements and other filings (including all notes,
exhibits and schedules thereto, all documents incorporated by reference therein,
and any amendments thereto) are collectively referred to herein as the "SEC
Filings." As of their respective dates of filing with the Commission, the SEC
Filings complied in all material respects with all of the rules and regulations
of the SEC and did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which they
were made, not misleading. The Company warrants that it will timely file with
the SEC all SEC Filings required to be filed under the Exchange Act and any
other documents required to meet the public information requirements of Rule
144(c) under the Securities Act.
(e) Financial Statements. The financial statements of the Company
---------------------
included in the SEC Filings (the "Financial Statements") have been prepared in
accordance with generally accepted accounting principles consistently applied
and fairly present the financial position of the Company at the dates thereof
and the results of the Company's operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal adjustments and
the omission of footnotes). The Company has no material liabilities, known or
unknown, absolute, contingent or otherwise, except for (i) liabilities that are
set forth in the Financial Statements, the notes thereto or the SEC Filings and
(ii) liabilities that have been incurred in the ordinary course of business
since the date of the most recent Financial Statements.
(f) No Material Adverse Change. There have not been any changes in
---------------------------
the assets, properties, liabilities, financial condition, business or operations
of the Company from that reflected in the Financial Statements except for (i)
changes in the ordinary course of business which have not been, either
individually or in the aggregate, materially adverse and (ii) the Company's
continued operating losses and negative cash flow.
(g) Authorized Capital Stock; Outstanding Securities. The authorized
--------------------------------------------------
capital stock of the Company is as set forth in the Company's most recent
quarterly report on Form 10-Q. All issued and outstanding shares of capital
stock of the Company have been duly authorized, validly issued and are fully
paid and non-assessable. In addition, all issued and outstanding options,
warrants and rights (if any) to purchase shares of Common Stock have been duly
authorized and validly issued. As of the date hereof, the Company has the
following issued and outstanding securities: (i) 24,702,198 shares of Common
Stock (including shares for which instructions have been issued to the Company's
Transfer Agent for issuance in the ordinary course of business); (ii)
convertible preferred stock as shown on Exhibit C; and (iii) options, warrants
and rights (if any) to purchase 7,258,450 shares of Common Stock, with an
average life of 4.97 years and weighted average exercise price of US$2.01 per
3
share. Except as set forth in the preceding sentence, there are no other
outstanding securities of the Company. All of the issued and outstanding
securities of the Company were issued in compliance with all applicable federal
and state securities laws and were not issued in violation of or subject to any
preemptive rights or other rights to subscribe for or purchase securities.
(h) Intellectual Property. The Company owns or possesses adequate
----------------------
legal rights to use all patents, patent rights, inventions, trademarks, trade
names, copyrights, licenses, domain names, governmental authorizations, trade
secrets and know-how that are used or necessary for the conduct of its business.
The Company has not received any notice of, and has no knowledge of, any
infringement of or conflict with asserted rights of others with respect to any
patents, patent rights, inventions, trademarks, trade names, copyrights,
licenses, governmental authorizations, trade secret or know-how that,
individually or in the aggregate, if the subject of an unfavorable decision,
ruling or finding, would have a material adverse effect on the condition
(financial or otherwise), earnings, operations or business of the Company.
(i) U.S. Securities Laws. Subject to the accuracy of the
------------------------
representations of GET USA in Section 5, no consent, authorization, approval,
permit or order of or filing with any governmental or regulatory authority is
required under current laws and regulations in connection with the execution and
delivery of this Agreement or the offer, issuance, sale or delivery to GET USA
of the Note(s) or the Conversion Securities other than the filing with the SEC
of a notice on Form D pursuant to Regulation D under the Securities Act, and the
qualification thereof, if required, under applicable state securities laws,
which qualification has been or will be effected as a condition of the sale of
the Note(s) and the issuance and sale of the Conversion Securities. Under the
circumstances contemplated by this Agreement, the offer, issuance, sale and
delivery of the Note(s) will not, under current laws and regulations, require
compliance with the prospectus delivery or registration requirements of the
Securities Act.
(j) Litigation. There are no actions, suits, proceedings or
----------
investigations pending or, to the best of the Company's knowledge, threatened
against the Company or any of its properties before or by any court or
arbitrator or any governmental body (gaming or otherwise), agency or official in
which there is a reasonable likelihood (in the judgment of management of the
Company) of an adverse decision that (a) would have a material adverse effect on
the Company's properties or assets or the business of the Company as presently
conducted or proposed to be conducted or (b) would impair the ability of the
Company to perform in any material respect its obligations under this Agreement.
The Company is not in default with respect to any judgment, order or decree of
any court or governmental agency or instrumentality that, individually or in the
aggregate, would have a material adverse effect on the assets, properties or
business of the Company.
(k) Assets. The Company has good and marketable title to all assets
------
reflected as owned in the Financial Statements, and as listed in Schedule A to
the Note(s). No Company asset is subject to any lien, mortgage, pledge, charge
or encumbrance of any kind except as described in Exhibit B hereto.
(l) Brokers or Finders. To the knowledge of the Company, 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 GET USA 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 GET USA harmless for any claims made for any commission, fee or other
compensation concerning the transactions contemplated by this Agreement.
4
5. Representations and Warranties of GET USA. GET USA represents and warrants
-------------------------------------------
to the Company as follows:
(a) Any Note(s) purchased will be for investment purposes only and for
GET USA's own account and not with the view to, or for resale in connection
with, any distribution or public offering thereof. GET USA understands that
neither the Note(s) nor the Conversion Securities have been registered under the
Securities Act or any state securities laws by reason of their contemplated
issuance in transactions exempt from the registration requirements of the
Securities Act and applicable state securities laws and that the reliance of the
Company and others upon these exemptions is predicated in part upon this
representation by GET USA. GET USA further understands that the Note(s) and the
Conversion Securities may not be transferred or resold without (i) registration
under the Securities Act and any applicable state securities laws, or (ii) the
availability of an exemption from the requirements of the Securities Act and
applicable state securities laws.
(b) GET USA's principal place of business is located at the address set
forth on the signature page hereto. GET USA qualifies as an "accredited
investor," as defined in Rule 501 of Regulation D under the Securities Act. GET
USA acknowledges that the Company has made available to GET USA at a reasonable
time prior to the execution of this Agreement the opportunity to ask questions
and receive answers concerning the business, operations and financial condition
of the Company and the terms and conditions of the sale of securities
contemplated by this Agreement and to obtain any additional information
requested by such Investor. GET USA is able to bear the loss of its entire
investment in the Note(s) and the Conversion Securities and it has such
knowledge and experience of financial and business matters that it is capable of
evaluating the merits and risks of the investment to be made pursuant to this
Agreement. However, neither the foregoing nor any other due diligence
investigation conducted by GET USA or on its behalf shall limit, modify or
affect the representations and warranties of the Company set forth in Section 4
of this Agreement or the right of GET USA to rely thereon.
(c) This Agreement has been duly authorized by all necessary action on
the part of GET USA, has been duly executed and delivered by GET USA and is a
valid and binding agreement of GET USA.
(d) GET USA will not permit any of its Affiliates to invest in the
securities offered pursuant to this Agreement unless and until such Affiliate
agrees to be bound by the terms of this Agreement, including without limitation
the representations and warranties contained in this Section 5, and such
representations and warranties shall be true and accurate with respect to such
Affiliate at the time such Affiliate makes an Advance hereunder.
6. Covenants of the Company.
------------------------
(a) Subject to the terms of a Confidentiality Agreement to be executed
by GET USA and the Company, from the date hereof through the earlier of the
Maturity Date or the termination of this Agreement, the Company shall (i)
provide GET USA with observation rights for all regular and special meetings of
the Company's Board of Directors and shall provide prompt notice thereof in each
instance; provided, however, the Company may exclude GET USA from any portion of
the Board meetings which it deems necessary due to the nature of the discussions
taking place including, without limitation, discussions regarding any merger,
acquisition or recapitalization of the Company; (ii) hold telephonic or
5
in-person meetings on not less than a weekly basis with GET USA representatives
to discuss, inter alia, the business operations and capital needs of the
Company; and (iii) provide, during normal business hours, full access to
management of the Company and all Company records, including financial
information and otherwise, by GET USA representatives provided that such access
shall not interfere with the operations of the Company and shall not include
access to any confidential information of any third party with respect to which
the Company is obligated not to disclose the information to any third party.
7. Registration Rights. The Company shall register the Conversion Securities
--------------------
with the SEC on Form S-3 as soon as practicable following the earlier of the
Maturity Date or the termination of the Agreement. The Company shall bear all
filing expenses associated with the registration of the Conversion Securities
while GET USA shall be solely responsible for all selling expenses associated
with any sale of the Conversion Securities.
8. Exclusivity; Right of First Refusal.
-----------------------------------
(a) During the term of this Agreement (as defined in Section 9(h)
below), the Company hereby covenants and agrees that GET USA, and its assigns,
shall have the exclusive right (but not the obligation) to negotiate with the
Company with respect to any merger, acquisition (of all or substantially all of
the assets of the Company) or other form of business combination; provided,
however, that the Company shall be entitled to seek $500,000 to $1,000,000 in
additional funding from time to time to meet operational needs with GET USA's
consent, which consent shall not be unreasonably withheld or delayed. In
addition, for a six-month period following the term hereof, the Company hereby
acknowledges and agrees that GET USA, and its assigns, shall have an exclusive
right of first refusal on any proposed merger, acquisition (of all or
substantially all of the assets of the Company) or other form of business
combination between the Company and any third party.
9. Miscellaneous.
-------------
(a) Fees and Expenses. The Company shall pay all legal fees and
------------------
related costs incurred by GET USA in connection with the preliminary due
diligence investigation of the Company and the negotiation and drafting of this
Agreement, including the Exhibits hereto, in an amount not to exceed $10,000 in
the aggregate. All such fees and related costs shall be paid in full at the time
of each Advance. If it is determined in a judicial proceeding that a party to
this Agreement has failed to perform under any provision of this Agreement, and
if the other party shall employ attorneys or incur other expenses for the
enforcement, performance or observance of the terms of this Agreement on the
part of the non-performing party, then such other party shall be reimbursed by
the non-performing party, on demand, for reasonable attorneys' fees and other
out-of-pocket expenses including any such costs and expenses incurred in any
bankruptcy or insolvency proceedings or on appeal.
(b) Indemnification. The Company agrees to defend, indemnify, pay and
---------------
hold harmless (jointly and severally) GET USA and the each of the officers,
directors, counsel, agents and affiliates of GET USA (collectively, the "GET USA
Indemnitees") from and against any and all losses, liabilities, damages and
claims, whether based on any federal, state or foreign laws, statutes, rules and
regulations, on common law or equitable cause or on contract or otherwise, that
may be imposed on, incurred by or asserted against any GET USA Indemnitee in any
manner relating to, arising out of or resulting from this Agreement or the
transactions contemplated hereby (collectively, the "GET USA Indemnified
Liabilities"); provided, however, that the Company shall not have any obligation
to any GET USA Indemnitee hereunder with respect to GET USA Indemnified
6
Liabilities to the extent such GET USA Indemnified Liabilities arise from the
gross negligence or willful misconduct of that GET USA Indemnitee as determined
by a final judgment of a court of competent jurisdiction.
(c) Waiver of Trial by Jury. THE PARTIES, INCLUDING ANY ASSIGNEES,
-----------------------
HEREBY WAIVE (A) THEIR RIGHT TO TRIAL BY JURY OF DISPUTES, CLAIMS OR
CONTROVERSIES BETWEEN THEMSELVES ARISING OUT OF OR RELATING TO THIS AGREEMENT OR
ANY AGREEMENTS, INSTRUMENTS OR TRANSACTIONS RELATING TO THIS AGREEMENT, WHETHER
ARISING IN CONTRACT, TORT OR OTHERWISE; AND (B) THEIR RIGHT TO ANY CONSEQUENTIAL
OR PUNITIVE DAMAGES.
(d) Modifications, Consents and Waivers; Entire Agreement. No
------------------------------------------------------------
modification, amendment or waiver of or with respect to any provision of this
Agreement, nor consent to any departure by the Company from any of the terms or
conditions thereof, shall in any event be effective unless it shall be in
writing and signed by each of the parties hereto. Any such waiver or consent
shall be effective only in the specific instance and for the purpose for which
given. This Agreement, including the Exhibits hereto, embodies the entire
agreement and understanding between the Company and GET USA relating to the
subject matter hereof and supersedes all prior agreements and understandings.
(e) Notices. All demands, notices and communications hereunder shall be
-------
in writing and shall be deemed to have been duly given if mailed, by registered
or certified mail, return receipt requested, or, if by other means, when
received by the other party at the address as set forth in the introductory
paragraph and/or signature page hereto, or such other address as may hereafter
be furnished to the other party by like notice. Any such demand, notice or
communication hereunder shall be deemed to have been received on the date
delivered to or received at the premises of the addressee (as evidenced, in the
case of registered or certified mail, by the date noted on the return receipt).
(f) Construction; Governing Law; Consent to Jurisdiction. The headings
-----------------------------------------------------
used in this Agreement are for convenience only. Each party acknowledges that it
has had the opportunity to consult with legal counsel in the preparation and
review of this Agreement and the Exhibits hereto. The parties therefore
stipulate that the rule of construction that ambiguities are to be resolved
against the drafting party shall not be employed in the interpretation of this
Agreement to favor any party against the other. This Agreement shall be
construed in accordance with the laws of the State of Nevada. The parties hereto
irrevocably (i) agree that any suit, action or other legal proceeding arising
out of or relating to this Agreement may be brought in a court of record in the
State of Nevada, County of Xxxxx, or in the United States District Court in Las
Vegas, Nevada, (ii) consent to the jurisdiction of each such court in any such
suit, action or proceeding, and (iii) waive any objection which it may have to
the laying of venue of any such suit, action or proceeding in any of such courts
and any claim that any such suit, action or proceeding has been brought in an
inconvenient forum.
(g) Binding Effect: No Assignment or Delegation. This Agreement shall
--------------------------------------------
be binding upon and inure to the benefit of the Company and its successors and
to the benefit of GET USA and its successors and assigns. The rights and
obligations of the Company under this Agreement shall not be assigned or
delegated without the prior written consent of GET USA, and any purported
assignment or delegation without such consent shall be void.
7
(h) Term of Agreement; Termination. This Agreement shall terminate on
-------------------------------
the six-month anniversary of the date hereof unless terminated earlier by GET
USA at its sole discretion. In the event that such termination is as a result of
an event of default under the Note(s), all outstanding principal and accrued
interest under the Note(s) shall become immediately become due and payable.
(i) No Joint Venture. This Agreement is not intended and shall not be
----------------
construed as creating a partnership or joint venture between the parties hereto.
(j) Counterparts. This Agreement may be executed in multiple
-------------
counterparts so that when all parties have signed this form of Agreement such
signatures taken together form one complete agreement.
(k) Certain Remedies. Without in any way limiting the remedies
-----------------
otherwise available under the Agreement, the parties hereto acknowledge that in
the event of any breach or nonperformance by either party of any agreements or
covenant required by this Agreement to be performed or observed by it, the other
party shall be entitled to such equitable remedies as may be appropriate,
including, without limitation, specific performance.
IN WITNESS WHEREOF, the Company and GET USA have executed this
Agreement effective as of the date first written above.
INNOVATIVE GAMING CORPORATION OF AMERICA,
A Minnesota Corporation
By:
-----------------------------------------
Print Name:
---------------------------------
Its:
----------------------------------------
Address:
000 Xxxxxxx Xxxxxx Xxxxx
Xxx Xxxxx, XX 00000
Facsimile (000) 000-0000
GET USA, INC.,
A Nevada Corporation
By:
-----------------------------------------
Print Name:
---------------------------------
Its:
----------------------------------------
Address:
0000 Xxxxx Xx.
Xxxxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
8
EXHIBIT A
FORM OF CONVERTIBLE PROMISSORY NOTE
9
EXHIBIT B
LIST OF ASSETS AND DESCRIPTION
OF ENCUMBRANCES THEREON
Secured Party Collateral
------------- ----------
Finova Capital Corp. All contracts, receivables and equipment
covered by bucket sale agreements.
Crown Bank Raw materials, work in process, and
finished goods held for sale
Systran Fin. Svcs. Corp. Accounts receivable, customer deposits,
contract rights, chattel paper, general
intangibles, instruments and documents,
and proceeds therefrom.
PDS Gaming Corp. All equipment covered by lease
schedules; all subleases, chattel paper,
accounts, deposits, or other proceeds
therefrom.
New Horizon Capital Accounts receivable, inventories,
contract rights, chattel paper,
intangibles, equipment (subordinate to
prior financing parties), and proceeds
from the foregoing.
Except as set forth above, the assets of the Company are not encumbered.
10
EXHIBIT C
OUTSTANDING PREFERRED STOCK
AS OF DECEMBER 12, 2001
Potential
Description Shares Stated Value Common
Series E Convertible Preferred 60,000 $ 600,000 2,764,977
Convertible to common at 70% of average
closing bid price for prior 5 days
Series F Convertible Preferred 230,000 $2,300,000 10,599,078
Convertible to common at 70% of average
closing bid price for prior 5 days
Series J Convertible Preferred 50,000 $ 645,000 500,000
Convertible to common at 10 shares of
Common for each share of preferred
Series K Convertible Preferred 4,567 $4,567,000 16,310,714
Convertible to common at current
market value
11
