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EXHIBIT 10.5
ANNEX A
NEITHER THIS NOTE NOR THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION
HEREUNDER HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER THE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION (TOGETHER, THE "SECURITIES
LAWS") AND MAY NOT BE OFFERED FOR SALE, SOLD OR OTHERWISE TRANSFERRED OR
ENCUMBERED IN THE ABSENCE OF COMPLIANCE WITH SUCH SECURITIES LAWS AND UNTIL THE
COMPANY (AS DEFINED HEREIN) THEREOF SHALL HAVE RECEIVED AN OPINION FROM COUNSEL
ACCEPTABLE TO IT THAT THE PROPOSED DISPOSITION WILL NOT VIOLATE ANY APPLICABLE
SECURITIES LAWS. THIS NOTE IS NON-NEGOTIABLE AND NON-TRANSFERABLE AND NO
INTEREST SHALL BE PAID EXCEPT TO THE PAYEE NAMED HEREIN EXCEPT AS OTHERWISE
NOTED HEREIN. THIS NOTE IS SECURED PURSUANT TO THE TERMS OF THE SECURITY
AGREEMENT OF EVEN DATE HEREOF.
INNOVATIVE GAMING, INC.
12% SECURED CONVERTIBLE PROMISSORY NOTE
Reno, Nevada
$[ ] June 1, 1999
FOR VALUE RECEIVED, Innovative Gaming, Inc., a Nevada corporation (the
"Company"), promises to pay to [ ] ("Holder"), in lawful money of the United
States of America, the principal sum of [ ] DOLLARS ($[ ]), together with
interest in arrears on the unpaid principal balance at a rate equal to TWELVE
PERCENT (12%) per annum, in the manner provided below. Interest shall be
calculated on the basis of a 360-day year of twelve 30-day months.
This Note is secured in accordance with and pursuant to that Security Agreement
dated on even date herewith and attached hereto as Annex A (the "Security
Agreement").
1. PAYMENTS.
1.1 PRINCIPAL AND INTEREST. The principal amount of this Note shall be
due and payable on June 1, 2002 (the "Maturity Date"). Interest on the unpaid
principal balance of this Note shall be due and payable quarterly in cash on the
fifteenth (15th) day of March, June, September and December of each year,
commencing September 15,1999 until said principal amount of the Note is paid in
full or upon conversion of the Note in accordance with Section 5 hereof.
1.2 MANNER OF PAYMENT. All payments of principal and interest on this
Note shall be made by check with [ ] or at such other place in the United States
of America as Holder shall designate to the Company in
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writing. If any payment of principal or interest on this Note is due on a day
which is not a Business Day, such payment shall be due on the next succeeding
Business Day, and such extension of time shall not be taken into account in
calculating the amount of interest payable under this Note. "Business Day" means
any day other than a Saturday, Sunday or legal holiday in the State of Nevada.
1.3 PREPAYMENT. At any time after June 1, 2000, the Company may, without
premium or penalty, at any time and from time to time, prepay all or any portion
of the outstanding principal balance due under this Note, provided that each
such prepayment is accompanied by the accrued interest on the amount of
principal prepaid calculated to the date of such prepayment. The Company shall
provide Holder with not less than forty-five (45) days written notice prior to
such prepayment. In the event a transaction described in Section 6.3 hereof is
contemplated prior to or contemporaneous with prepayment, said written notice
shall include the information specified in the notice made pursuant to Section
6.3 hereof.
2. DEFAULT.
2.1 EVENTS OF DEFAULT. The occurrence of any one or more of the
following events with respect to Company shall constitute an event of default
hereunder ("Event of Default"):
(a) If Company shall fail to pay when due any payment of
principal or interest on this Note and such failure continues for
thirty (30) days after the Holder notifies the Company thereof in
writing.
(b) If, pursuant to or within the meaning of the United States
Bankruptcy Code or any other federal or state law relating to
insolvency or relief of debtors (a "Bankruptcy Law"), the Company shall
(i) commence a voluntary case or proceeding; (ii) consent to the entry
of an order for relief against it in an involuntary case; (iii) consent
to the appointment of a trustee, receiver, assignee, liquidator or
similar official; (iv) make an assignment for the benefit of its
creditors; or (v) admit in writing its inability to pay its debts as
they become due.
(c) If a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that (i) is for relief against the
Company in an involuntary case, (ii) appoints a trustee, receiver,
assignee, liquidator or similar official for the Company or
substantially all of the Company's properties, or (iii) orders the
liquidation of the Company, and in each case the order or decree is not
dismissed within 90 days.
2.2 NOTICE BY THE COMPANY. The Company shall notify Holder in writing
within five days after the occurrence of any Event of Default of which the
Company acquires knowledge.
2.3 REMEDIES. Upon the occurrence of an Event of Default hereunder
(unless all Events of Defaults have been cured or waived by Xxxxxx), Holder may
(subject to the provisions of Section 3), at its option, (i) by written notice
to the Company, declare the entire unpaid principal
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balance of this Note, together with all accrued interest thereon, immediately
due and payable regardless of any prior forbearance, and (ii) exercise any and
all rights and remedies available to it under applicable law, including, without
limitation, the right to collect from the Company all sums due under this Note.
The Company shall pay all reasonable costs and expenses incurred by or on behalf
of Holder in connection with Xxxxxx's exercise of any or all of its rights and
remedies under this Note, including, without limitation, reasonable attorneys'
fees.
3. TRANSFERABILITY.
3.1 Except as otherwise provided in 7.5 below, Holder is prohibited
from transferring its right, title and interest in this Note.
4. CONVERSION.
4.1 HOLDER CONVERSION. At any time after June 1, 2000 and subject to
Section 4.2, the Holder shall have the right, at the Holder's option, at any
time prior to payment in full of the principal balance of this Note, to convert
this Note, in accordance with the provisions of Section 4.3 hereof, in whole or
in part, into fully paid and nonassessable shares of Common Stock (the "Common
Stock") of Innovative Gaming Corporation of America, a Minnesota corporation and
beneficially owner of 100% of the Company's issued and outstanding capital stock
("IGCA"). The number of shares of Common Stock into which this Note may be
converted ("Conversion Shares") shall be determined by dividing the outstanding
principal amount of the Note to be converted together with all accrued interest
thereon to the date of conversion by $1.50 (the "Conversion Price").
4.2 CONVERSION LIMITATION. No amount of principal or accrued but unpaid
interest under this Note shall be convertible into Common Stock of IGCA if the
sum of 1) the number of Common Stock beneficially owned by the Holder (other
than shares of Common Stock which may be deemed beneficially owned through
ownership of the unconverted portion of the principal amount of, and interest
on, the Note); and 2) the number of shares of Common Stock issuable upon
conversion of the Note would result in beneficial ownership by the Holder of
more than 4.9% of IGCA's issued and outstanding Common Stock.
4.3 CONVERSION PROCEDURE.
(a) NOTICE OF CONVERSION PURSUANT TO SECTION 4.1. Before the
Holder shall be entitled to convert this Note into shares of Common
Stock, it shall surrender this Note at the office of the Company and
shall give written notice by mail in the form attached hereto as
Exhibit A (the "Holder Conversion Notice") to the Company at its
principal corporate office, of the election to convert all or a portion
of this Note pursuant to Section 4.1. If this Note is converted in part
only, the Company shall execute and deliver a new note to the Holder
thereof in the principal amount equal to the portion of this Note not
so converted.
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(b) MECHANICS AND EFFECT OF CONVERSION. No fractional shares
of Common Stock shall be issued upon conversion of this Note. Upon the
conversion of this Note pursuant to Section 4.1 above, the Holder shall
surrender this Note, duly endorsed, at the principal office of the
Company. At its expense, IGCA shall, as soon as practicable thereafter,
issue and deliver to such Holder at such principal office a certificate
or certificates for the number of shares of Common Stock to which the
Holder shall be entitled upon such conversion (bearing such legends as
are required by the Agreement and applicable state and federal
securities laws in the opinion of counsel to IGCA), together with a new
note for the principal amount of the Note that was not converted. Upon
conversion of all or a portion of this Note, the Company shall be
forever released from all its obligations and liabilities under this
Note, to the extent of the principal amount so converted.
5. ANTI-DILUTION ADJUSTMENTS.
5.1 ADJUSTMENTS FOR STOCK SPLITS AND SUBDIVISIONS. In the event IGCA
should at any time or from time to time after the date of issuance hereof fix a
record date for the effectuation of a split or subdivision of the outstanding
shares of Common Stock or the determination of holders of Common Stock entitled
to receive a dividend or other distribution payable in additional shares of
Common Stock or other securities or rights convertible into, or entitling the
holder thereof to receive directly or indirectly, additional shares of Common
Stock (hereinafter referred to as "Common Stock Equivalents") without payment of
any consideration by such holder for the additional shares of Common Stock or
the Common Stock Equivalents (including the additional shares of Common Stock
issuable upon conversion or exercise thereof), then, as of such record date (or
the date of such dividend distribution, split or subdivision if no record date
is fixed), the Conversion Price of this Note shall be appropriately decreased so
that the number of shares of Common Stock issuable upon conversion of this Note
shall be increased in proportion to such increase of outstanding shares.
5.2 ADJUSTMENTS FOR REVERSE STOCK SPLITS. If the number of shares of
Common Stock outstanding at any time after the date hereof is decreased by a
combination of the outstanding shares of Common Stock through a reverse stock
split, then, following the record date of such combination, the Conversion Price
for this Note shall be appropriately increased so that the number of shares of
Common Stock issuable on conversion of this Note shall be decreased in
proportion to such decrease in outstanding shares.
5.3 ADJUST FOR REORGANIZATION, RECLASSIFICATION, MERGER AND SALE. If
any capital reorganization or reclassification of the capital stock of IGCA, or
consolidation or merger of IGCA with another corporation, or the sale of all or
substantially all of its assets to another corporation shall be effected in such
a way that holders of IGCA's Common Stock shall be entitled to receive stock,
securities or assets with respect to or in exchange for such common shares,
then, as a condition of such reorganization, reclassification, consolidation,
merger or sale, the Holder shall have the right to convert and receive upon the
basis and upon the terms and conditions specified in this Note and in lieu of
the shares of the Common Stock of IGCA immediately theretofore convertible and
receivable upon the exercise of the rights represented hereby, such shares of
stock, other securities or assets as would have been issued or delivered to the
Holder as if it had exercised
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this Note and had received such shares of common stock prior to such
reorganization, reclassification, consolidation, merger or sale. IGCA shall not
effect any such consolidation, merger or sale, unless prior to the consummation
thereof the successor corporation (if other than IGCA) resulting from such
consolidation or merger or the corporation purchasing such assets shall assume
by written instrument executed and mailed to the registered Holder of this Note
at the last address of such Holder appearing on the books of IGCA, the
obligation to deliver to such Holder such shares of stock, securities or assets
as, in accordance with the foregoing provisions, such Holder may be entitled to
convert.
5.4 OTHER ADJUSTMENT. If IGCA takes any other action, or if any other
event occurs which does not come within the scope of the provisions of Sections
5.1 through 5.3, but which should result in an adjustment in the Conversion
Price and/or the number of shares subject to this Note in order to fairly
protect the purchase rights of the Holder, an appropriate adjustment in such
purchase rights shall be made by IGCA Company.
5.5 RESERVATION OF STOCK ISSUABLE UPON CONVERSION. IGCA shall at all
times reserve and keep available out of its authorized but unissued shares of
Common solely for the purpose of effecting the conversion of this Note such
number of its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of this Note; and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of the entire outstanding principal amount of this Note, in addition
to such other remedies as shall be available to the holder of this Note, IGCA
will use its best efforts to take such corporate action as may, in the opinion
of its counsel, be necessary to increase its authorized but unissued shares to
such number of shares as shall be sufficient for such purposes.
6. REGISTRATION RIGHTS.
6.1 PIGGY BACK REGISTRATION RIGHTS. If, at any time after June 1, 2000
and prior to the Maturity Date, IGCA shall propose to file any registration
statement under the Securities Act of 1933, as amended, covering a public
offering IGCA's Common Stock and permitting the inclusion of shares of selling
shareholders, it will notify the holder hereof at least thirty (30) days prior
to each such filing and will include in the registration statement (to the
extent permitted by applicable regulation) the Common Stock issued by the Holder
upon conversion of the Note to the extent requested by the Holder hereof.
Notwithstanding the foregoing, the number of shares of the Common Stock proposed
to be registered shall thereby be reduced pro rata (other than IGCA) upon the
request of the managing underwriter of such offering subject to the prior rights
of any other selling shareholders that give it first priority in any such
registration. If the registration statement or offering statement filed pursuant
to such forty-five (45) day notice has not become effective within six months
following the date such notice is given to the holder hereof, IGCA must again
notify such holder in the manner provided above.
6.2 DEMAND REGISTRATION RIGHTS. On a one-time basis only, during the
two- year period commencing one year after the date of this Note, upon request
by the Holder of this Note, and of any Conversion Shares, IGCA will promptly
take all necessary steps to register or qualify, under the 1933 Act and the
securities laws of such states as the holders may reasonably request, such
number
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of Conversion Shares issued and to be issued upon conversion of the Notes
requested by such holders in their request to IGCA. The Company shall keep
effective and maintain any registration, qualification, notification, or
approval specified in this section for such period as may be reasonably
necessary for such Holder or Holders of such Notes and/or such Conversion Shares
to dispose thereof and from time to time shall amend or supplement the
prospectus used in connection therewith to the extent necessary in order to
comply with applicable law.
6.3 REGISTRATION EXPENSES AND COOPERATION. All expenses of any such
registrations referred to in this Section 7, except the fees of counsel to such
holders and underwriting commissions or discounts, shall be borne by IGCA. The
Holder agrees to cooperate with IGCA in the preparation and filing of any such
registration statement or offering statement, and in the furnishing of
information concerning the holder for inclusion therein, or in any efforts by
IGCA to establish that the proposed sale is exempt under the Act as to any
proposed distribution.
7. MISCELLANEOUS.
7.1 WAIVER. The rights and remedies of Holder under this Note shall be
cumulative and not alternative. No waiver by Holder of any right or remedy under
this Note shall be effective unless in a writing signed by Xxxxxx. Neither the
failure nor any delay in exercising any right, power or privilege under this
Note will operate as a waiver of such right, power or privilege and no single or
partial exercise of any such right, power or privilege by Holder will preclude
any other or further exercise of such right, power or privilege or the exercise
of any other right, power or privilege. To the maximum extent permitted by
applicable law, (a) no claim or right of Holder arising out of this Note can be
discharged by Holder, in whole or in part by a waiver or renunciation of the
claim or right unless in a writing, signed by Xxxxxx; (b) no waiver that may be
given by Holder will be applicable except in the specific instance for which it
is given; and (c) no notice to or demand on the Company will be deemed to be a
waiver of any obligation of the Company or of the right of Holder to take
further action without notice or demand as provided in this Note. The Company
hereby waives presentment, demand, protest and notice of dishonor and protest.
7.2 NOTICES. Any notice required or permitted to be given hereunder
shall be given by the Company to the Holder or the Holder to the Company in
accordance with the Agreement.
7.3 SEVERABILITY. If any provision in this Note is held invalid or
unenforceable by any court of competent jurisdiction, the other provisions of
this Note will remain in full force and effect. Any provision of this Note held
invalid or unenforceable only in part or degree will remain in full force and
effect to the extent not held invalid or unenforceable.
7.4 GOVERNING LAW. This Note will be governed by the laws of the
State of Nevada without regard to conflicts of laws principles.
7.5 PARTIES IN INTEREST. This Note shall bind the Company and its
successors and assigns. This Note shall not be assigned by Holder without the
express prior written consent the Company, except as follows:
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(a) by will or in default thereof by operation of law;
(b) by gift to the Holder's spouse, children, grandchildren or
parents or a trust for the benefit of such persons;
(c) by gift to any other third party but only with the express
written consent of the Company, which consent shall not be unreasonably
withheld; and
(d) to a revocable trust created by the Holder, of which the
Holder is the primary beneficiary during his lifetime.
7.6 SECTION HEADINGS, CONSTRUCTION. The headings of Sections in this
Note are provided for convenience only and will not affect its construction or
interpretation. All references to "Section" or "Sections" refer to the
corresponding Section or Sections of this Note unless otherwise specified.
All words used in this Note will be construed to be of such gender or number as
the circumstances require. Unless otherwise expressly provided, the words
"hereof" and "hereunder" and similar references refer to this Note in its
entirety and not to any specific section or subsection hereof.
IN WITNESS WHEREOF, the Company has executed and delivered this Note as
of the date first stated above.
INNOVATIVE GAMING, INC.
By:
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Title:
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EXHIBIT A
NOTICE OF CONVERSION
AT THE ELECTION OF THE HOLDER
(To Be Signed Only Upon Conversion of Note)
TO INNOVATIVE GAMING CORPORATION OF AMERICA
The undersigned, the holder of the foregoing Note, hereby surrenders
such Note for conversion into shares of Common Stock of INNOVATIVE GAMING
CORPORATION OF AMERICA, to the extent of $ of the unpaid principal amount
of such Note, and requests that the certificates for such shares be issued in
the name of, and delivered to, whose address is
. The undersigned, the holder of the foregoing
Note, hereby represents and warrants to INNOVATIVE GAMING CORPORATION OF AMERICA
that it is in compliance with the Conversion Limitation of Section 4.2 of the
Note.
Dated:
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(Signature must conform in all respects to
name of holder as specified on the face of
the Note)
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(Address)
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