exv4w1



 





EXHIBIT 4.1




SUBSCRIPTION AGREEMENT




     This Subscription Agreement is made effective this      day of          ,
200      , by and between Spectre Gaming, Inc. (the “Company”), and            
and            (if joint investor) (the
“undersigned”) in connection with the private placement offering of shares of
common stock of the Company (the “Shares”), together with warrants to purchase
additional shares of the Company’s common stock at a purchase price of $3.75
per share (the “Warrant,” and hereinafter collectively referred to with the
Shares as the “Units”), having a maximum aggregate value of $10 million (the
“Offering”). Notwithstanding the foregoing, the Company may in its sole
discretion increase the maximum aggregate value of Units in the Offering. The
undersigned understands and acknowledges that the Company has the right to
reject any subscription, in whole or in part, for any reason, and that the
Company will promptly return the funds delivered herewith, without interest or
deduction, if this subscription is rejected or if the Offering is otherwise
terminated. The Offering will continue until 120 days after the date of the
Offering’s Confidential Private Placement Memorandum, subject to the right of
the Company to extend the Offering for up to an additional 60 days.



     1. Units. Subject to the terms hereinafter set forth, the undersigned hereby
irrevocably subscribes for and agrees to purchase from the Company            Units at a
price of $2.50 per Unit, or a total of $            (the “Purchase Price”). Payment for
the Purchase is being delivered as follows (please check one):



     o Enclosed check payable to the order of “Private Bank Minnesota -
Spectre Gaming, Inc. Escrow Account”



     o Wire transfer to Private Bank Minnesota (wire transfer instructions are
attached as Annex C)



     Upon acceptance of this subscription and the closing of the Offering (or
any part of the Offering to which this subscription relates), the Company will
(a) record the undersigned as an owner of the Shares and Warrants subscribed,
and (b) promptly cause a certificate representing the Shares, and a Warrant, to
be delivered to the undersigned, but in any event within 20 days of the closing
date of this subscription. The undersigned hereby authorizes the Company to
issues certificates representing the Shares, and the Warrants, in the name and
to the address below:



	 	 	 	 	 
	

	Print Name(s) of Investor
	 	 	 	 
	 
	 	 	 	 
	

	Social Security Number(s) or Federal Tax I.D. Number
	 
	 	 	 	 
	

	Mailing Address
	 	 	 	 
	 
	 	 	 	 
	

	City

	 	State
	 	Zip Code
	 
	 	 	 	 
	

	Telephone No.	 	Fax No.

	 
	 	 	 	 
	

	Electronic Mail Address(es)
	 	 	 	 







 









 






     2. Investor Representations and Warranties. By executing and delivering this
Subscription Agreement, the undersigned acknowledges, warrants and represents
to the Company as follows:




     (a) The undersigned has obtained and reviewed (i) the Company’s
Confidential Private Placement Memorandum dated October 21, 2004,
including any and all supplements and amendments thereto (the
“Memorandum”), (ii) this Subscription Agreement, and (iii) any other
documents specifically requested by the undersigned (all such documents
are collectively referred to hereinafter as the “Disclosure Documents”).




     (b) The undersigned has, either alone or with the assistance of a
professional advisor, sufficient knowledge and experience in financial
and business matters that the undersigned believes himself/herself
capable of evaluating the merits and risks of the prospective investment
in the Units and the suitability of an investment in the Company in light
of the undersigned’s financial condition and investment needs, and legal,
tax and accounting matters.




     (c) The undersigned has been given access to full and complete
information regarding the Company and has utilized such access to the
undersigned’s satisfaction for the purpose of obtaining information in
addition to, or verifying information included in, the Disclosure
Documents. Particularly, the undersigned has been given reasonable
opportunity to meet with and/or contact Company representatives for the
purpose of asking questions of, and receiving answers from, such
representatives concerning the terms and conditions of the Offering and
to obtain any additional information, to the extent reasonably available,
necessary to verify the accuracy of information provided in the
Disclosure Documents.




     (d) The undersigned is an “accredited investor” as defined in Rule
501(a) of Regulation D promulgated under the Securities Act of 1933, as
amended (the “Act”). This representation is based on the representation
and information provided below (check all that apply):




	 	•	 	(1) The undersigned has had an individual income
in excess of $200,000 in each of the two most recent years or
joint income with the undersigned’s spouse in excess of
$300,000 in each of the two most recent fiscal years, and
reasonably expect reaching the same income level in the
current year;
	 
	 	•	 	(2) As of the date hereof, the undersigned
(either individually or with the undersigned’s spouse) have a
net worth exceeding $1,000,000;
	 
	 	•	 	(3) The undersigned is a director or executive
officer of the Company;
	 
	 	•	 	(4) The undersigned is a corporation, partnership
or Massachusetts or similar business trust not formed for the
specific purpose of acquiring the Units and has total assets
exceeding $5,000,000;
	 
	 	•	 	(5) The undersigned (or, in the case of a trust,
the undersigned trustee) is a bank or savings and loan
association as defined in Sections 3(a)(2) and 3(a)(5)(A),
respectively, of the Act acting either in the undersigned’s
individual or fiduciary capacity;
	 
	 	•	 	(6) The undersigned is an insurance company as
defined in Section 2(13) of the Act, an investment company
registered under the Investment Company Act of 1940 or a




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	 	 	 	business development company as defined in Section 2(a)(48)
of that Act or a Small Business Investment Company licensed
by the U.S. Small Business Administration under Section
301(c) or (d) of the Small Business Investment Act of 1958.
	 
	 	•	 	(7) The undersigned is an employee benefit plan
within the meaning of Title I of the Employee Retirement
Income Security Act of 1974 and either (check one or more, as
applicable):






	 	•	 	(a) The investment decision is made
by a plan fiduciary, as defined in Section 3(21) of such
Act, which is either a bank, savings and loan
association, insurance company, or registered investment
adviser; or
	 
	 	•	 	(b) The employee benefit plan has total assets in
excess of $5,000,000; or
	 
	 	•	 	(c) The plan is a self-directed plan
with investment decisions made solely by persons who are
“Accredited Investors” as defined under the Act.






	 	•	 	(8) The undersigned is a private business
development company as defined in Section 202(a)(22) of the
Investment Advisers Act of 1940.
	 
	 	•	 	(9) The undersigned, if not an individual, is an
entity all of whose equity owners meet one of the tests set
forth in paragraph (1) through (8) above (if relying on this
category alone, each equity owner must complete a separate
copy of this Agreement).






     (e) The undersigned recognizes that an investment in the Units
involves a high degree of risk, including but not limited to the risk of
losing his/her/its entire investment in the Company.




     (f) No federal or state agency, including the United States
Securities and Exchange Commission or the securities commission or
authority of any state, has approved or disapproved the Units, passed
upon or endorsed the merits of the Offering of the Units or the accuracy
or adequacy of the Disclosure Documents, or made any finding or
determination as to the fairness or fitness of the Units for public sale.




     (g) The undersigned recognizes that he/she/it will experience
substantial dilution in the book value of the Units immediately upon the
purchase thereof, or shortly thereafter, due to the prior issuance of
 shares of our common stock (or securities convertible into shares of our
common stock) at per-share prices below the per-share price offered in
the Offering.




     (h) The undersigned has relied upon the advice of the undersigned’s
legal counsel and accountants or other financial advisors with respect to
tax and other considerations relating to the purchase of Units in the
Offering. The undersigned is not relying upon the Company with respect
to the economic considerations involved to make an investment decision in
the Units.




     (i) Prior to the termination date of the Offering (as described in
the introductory paragraph of this Agreement), the Company may conduct a
closing of the purchase and sale of the Units, and may conduct subsequent
closings on an interim basis until the maximum aggregate Offering amount
(as the same may be increased, as described in the introductory paragraph
of this Agreement) has been purchased and sold.




     (j) The undersigned acknowledges that upon acceptance of this
subscription and close of the Offering, the undersigned will receive a
warrant, substantially in the form attached as Annex A, for



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the number of
Warrants subscribed, which governs the terms and conditions of the
undersigned’s exercise of the Warrants.




     (k) The undersigned acknowledges that the Company has engaged two
placement agents, The Seidler Companies and Feltl and Company
(collectively, the “Agents”), in connection with this Offering; and
further acknowledges that such Agents shall collectively receive cash
commissions equal to eight percent (8%) of the gross Offering price of
the Units, plus five-year warrants to purchase, at a purchase price of
$2.50 per Unit, a number of Units equal to ten percent (10%) of the Units
issued and sold in the Offering.




     (l) The undersigned is a bona fide resident of (or, if an entity, is
organized or incorporated under the laws of, and is domiciled in) and
received the offer and decided to invest in the Units in the state set
forth in Paragraph 1 above.



     3. Investment Purpose. The undersigned represents and warrants that it is the
undersigned’s intention to acquire the Units for the account of the
undersigned, for investment purposes and not with a view to resale of the Units
in connection with any distribution thereof. In order to assure the Company
that the undersigned has no present intention to resell or dispose of the Units
acquired in the Offering, the undersigned further represents and warrants to
the Company as follows:




     (a) The undersigned intends to receive and hold the Units for the
undersigned’s personal account.




     (b) The undersigned has no contract, undertaking, agreement or
arrangement with any person or entity to sell or otherwise transfer the
Units to any such person or entity or to have any such person or entity
sell the Units on the undersigned’s behalf.




     (c) The undersigned has no need for immediate liquidity with respect
to his/her/its investment and has sufficient income to meet the
undersigned’s current and anticipated obligations. The loss of the
undersigned’s entire investment in the Units would not cause financial
hardship to the undersigned and would not adversely affect the
undersigned’s current standard of living. In addition, the overall
commitment of the undersigned to investments that are not readily
marketable is not disproportionate to the undersigned’s net worth and the
undersigned’s investment in the Units will not cause such overall
commitment to become excessive.




     (d) The undersigned is not aware of any occurrence, event or
circumstance upon the happening of which the undersigned intends to
transfer or sell the Units and the undersigned does not have any present
intention to transfer or sell the Units after a lapse of any particular
period of time.




     (e) The undersigned has been informed that, in the view of the
Securities and Exchange Commission and certain state securities
commissions, a purchase of the Units with a current intent to resell, by
reason of any foreseeable specific contingency or anticipated change in
market values, any change in the condition of the Company or the
investment market as a whole, or in connection with a contemplated
liquidation or settlement of any loan obtained for the acquisition of the
Units, would represent a purchase with an intent inconsistent with the
representations set forth above, and that the Securities and Exchange
Commission and certain state securities commissions might regard such
sale or disposition as a deferred sale with regard to which an exemption
from registration is not available.




     (f) The undersigned, if other than an individual, represents and
warrants that (i) it was not organized for the specific purpose of
acquiring the Units, and (ii) this subscription has been duly authorized
by all necessary action on the part of the undersigned, has been duly
executed by an



4









 







authorized officer or representative of the undersigned,
and is a legal, valid and binding obligation of the undersigned
enforceable in accordance with its terms.



     4. Purchases Through Retirement Accounts. An investment in a private
placement of securities, including the Units, is HIGHLY SPECULATIVE in nature.
Accordingly, such an investment may not be appropriate for Individual
Retirement Accounts or other retirement-type accounts that have conservative
investment objectives. If this investment is in fact purchased in a
retirement-type account, the purchaser hereby represents and affirms that
he/she understands the risks of the investment and has decided that such risks
are consistent with the purchaser’s investment objectives for this account.



     5. Registration Status; Restrictions on Transferability. With respect to the
registration status and transferability of the Units (in addition to Section 3
above), the undersigned understands, acknowledges and agrees that:




     (a) The Units to be issued in connection with this subscription and
the Offering have not been registered under the Act or under applicable
state securities laws on the grounds that they are being issued in a
transaction (i) involving a limited group of knowledgeable investors
fully familiar with the proposed operations of the Company and (ii) not
involving a public offering and that, consequently, such transaction is
exempt from registration under the Act and applicable state securities
laws. The Company will rely on the undersigned’s representations herein
as a basis for the exemption from the Act’s registration requirements.




     (b) The Units may not be sold, transferred or otherwise disposed of
except pursuant to an effective registration statement or appropriate
exemption from registration under applicable state law and, as a result,
the undersigned may be required to hold the Units for an indefinite
period of time.




     (c) Certificates representing the Shares, the Warrants (including
 shares of Company common stock issuable upon exercise of the Warrants,
hereinafter referred to as the “Warrant Shares”), and any shares of
common stock issued upon a failure to cause the Shares and Warrant Shares
to be registered as required under the Registration Rights Agreement (as
defined in Section 6), will bear a legend substantially in the following
form:



The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or
the securities law of any state. Such 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 such
securities under the Securities Act of 1933, as amended, and
under applicable state securities laws, unless an exemption
from registration is available under applicable securities
laws.



     6. Registration Rights. The Shares and Warrant Shares shall have the
registration rights set forth in the “Registration Rights Agreement,” in the
form attached hereto as Annex B.



     7. Confidentiality. The undersigned agrees that it will not disclose to any
unauthorized persons, use for the undersigned’s own account, or use for any
third party’s benefit, any confidential information relating to the Company or
its business that the undersigned obtains pursuant to this Agreement or any of
the Disclosure Documents. The parties acknowledge that all information
developed and presented pursuant to this Agreement and the Disclosure Documents
is the property of the Company. If requested, the undersigned shall turn over
to the Company all memoranda, plans, reports and other documentation, including
all Disclosure



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Documents and schedules, attachments and exhibits thereto (and
copies thereof) relating to the Company and its business that the undersigned
may then possess or have under the undersigned’s control.



     8. Term. From and after the date of the Company’s acceptance of this
subscription, as set forth on the signature page hereto, this Agreement shall
remain in effect until such time as (a) the undersigned has performed the full
subscription by delivering full payment of the aggregate Purchase Price for the
Units referenced above and set forth on the signature page hereto, and (b) the
Company has fulfilled its obligation to the undersigned by recording the
undersigned as the owner of the appropriate number of Units in its required
records and delivering a certificate representing the Shares, and delivering
the Warrants pursuant to Section 1.



     9. Survival. The covenants made in Section 7 shall be construed as an
agreement independent of any other provision of this Agreement, and shall
survive the termination of this Agreement. Furthermore, the representations
and warranties of the undersigned shall survive the termination of this
Agreement.



     10. Severability. If any provision of this Agreement or the application of
such provision to any party or circumstances shall be held invalid, the
remainder of the Agreement, or the application of such provision to such party
or circumstances other than those to which it is held invalid, shall not be
affected thereby.



     11. Amendment. This Agreement may be modified or amended only by a written
instrument signed by both the Company and the undersigned.



     12. Waiver. No failure or delay by either the Company or the undersigned in
exercising or enforcing any right or remedy under this Agreement will waive any
provision of the Agreement. Nor will any single or partial exercise by either
the Company or the undersigned of any right or remedy under this Agreement
preclude either of them from otherwise or further exercising these rights or
remedies, or any other rights or remedies granted by any law or any related
document.



     13. Binding Effect. Upon acceptance by the Company, this Subscription
Agreement shall be binding upon and shall inure to the benefit of the Company
and the undersigned and to the successors and assigns of the Company and to the
personal and legal representatives, heirs, guardians, successors and permitted
assignees of the undersigned.



     14. Governing Law; Venue. This Subscription Agreement shall be governed by and
construed in accordance with the laws of the State of Minnesota without regard
to the conflicts-of-law principles thereof. The venue for any action hereunder
shall be in the State of Minnesota, whether or not such venue is or
subsequently becomes inconvenient, and the parties consent to the jurisdiction
of the courts of the State of Minnesota, County of Hennepin, and the U.S.
District Court, District of Minnesota.



     15. Entire Agreement. This Agreement constitutes the entire agreement among
the parties with respect to the Company (except for the terms of the Company’s
articles of incorporation, as the same may be amended from time to time). It
supersedes any prior agreement or understanding among them, and it may not be
modified or amended in any manner other than as set forth herein.



     16. Further Acts and Assurances. Upon request, the undersigned agrees to
furnish to the Company such additional information as may be deemed necessary
to determine the undersigned’s suitability as an investor.



     17. Counterparts. This Agreement may be executed in counterparts, which taken
together shall constitute one agreement binding on the parties hereto.
Facsimile and electronically transmitted signatures shall be valid and binding
to the same extent as original signatures. A party shall become bound by this



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Agreement immediately upon signing and delivering any counterpart,
independently of the signature of the other party. Nevertheless, in making
proof of this Agreement, it will be necessary to produce only one copy signed
by the party to be charged.



Signature Page Follows




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SUBSCRIPTION AGREEMENT – SIGNATURE PAGE




     IN WITNESS WHEREOF, the undersigned has executed this Subscription
Agreement as of the    day of            , 200      .



	 	 	 
	Individuals:

	 	Entities:
	 
	 	 
	
 

	 	
 
	Signature of Investor

	 	Name of Entity
	 
	 	 
	
 

	 	
 
	Signature of Joint Investor

	 	Authorized Signature
	 
	 	 
	

	 	
 
	

	 	Print Name
	 
	 	 
	

	 	Its:
	

	 	
 







Form of Ownership for Individual Investors (check one):




	 	 	 	 	 	 	 
	

	 	Individual Ownership
	 	 	 	Tenants in Common
	
 

	 	 	 	
 	 	 
	 
	 	 	 	 	 	 
	

	 	Joint Tenants (JTWROS)
	 	 	 	Individual Ownership Pursuant to Purchases Under the Uniform Gift to Minors Act
	
 

	 	 	 	
 	 	 







	 	 	 
	Other:
	 	 
	

	 	
 
	
 







IMPORTANT: Each investor should sign and return a signature page to the
Registration Rights Agreement attached hereto as Annex B.




ACKNOWLEDGED AND ACCEPTED:




SPECTRE GAMING, INC., a Minnesota corporation




	 	 	 	 	 
	
 	 	
 
	By:

	 	 	 	Dated
	

	 	
 	 	 
	Title:
	 	 	 	 
	

	 	
 	 	 







 









 






Annex A




WARRANT




     The form of Warrant is attached hereto.



 









 





THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE OF THIS WARRANT
(COLLECTIVELY, THE “SECURITIES”) HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR UNDER ANY STATE SECURITIES
OR BLUE SKY LAWS (“BLUE SKY LAWS”). NO TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES OR ANY INTEREST THEREIN
MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER
THE SECURITIES ACT AND ANY APPLICABLE BLUE SKY LAWS OR (B) IF THE CORPORATION
HAS BEEN FURNISHED BOTH WITH AN OPINION OF COUNSEL FOR THE HOLDER, WHICH
OPINION AND COUNSEL SHALL BE SATISFACTORY TO THE CORPORATION, TO THE EFFECT
THAT NO REGISTRATION IS REQUIRED BECAUSE OF THE AVAILABILITY OF AN EXEMPTION
FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE BLUE SKY LAWS, AND
WITH ASSURANCES THAT THE TRANSFER, SALE, ASSIGNMENT, PLEDGE, HYPOTHECATION OR
OTHER DISPOSITION WILL BE MADE ONLY IN COMPLIANCE WITH THE CONDITIONS OF ANY
SUCH REGISTRATION OR EXEMPTION.



WARRANT TO PURCHASE SHARES OF COMMON STOCK

OF

SPECTRE GAMING, INC.




	 	 	 
	Warrant No.:

	 	Date:             







     This Certifies That, for value received,            or
its successors or assigns (collectively, the “Holder”), is entitled to purchase
from Spectre Gaming, Inc., a Minnesota corporation (the “Corporation”),            
(        ) fully paid and nonassessable shares
(the “Shares”) of the Corporation’s common stock (the “Common Stock”), at an
exercise price of Three and 75/100 Dollars ($3.75) per Share (the “Exercise
Price”), subject to adjustment as herein provided. This Warrant may be
exercised by Holder at any time from and after the date hereof until the date
five years from the date hereof, at which time all of Holder’s rights hereunder
shall expire.



     This Warrant is subject to the following provisions, terms and conditions:



     1. Exercise of Warrant. The rights represented by this Warrant may be
exercised by the Holder, in whole or in part (but not as to any fractional
shares of Common Stock), by the surrender of this Warrant (properly endorsed,
if required, at the Corporation’s principal office, or such other office or
agency of the Corporation as the Corporation may designate by notice in writing
to the Holder at the address of such Holder appearing on the Corporation’s
books at any time within the period above indicated), and upon payment to it by
certified check, bank draft or cash of the purchase price for such Shares.



     2. Issuance of Shares of Common Stock; No Fractional Shares. As soon as
practicable after the exercise of any Warrant, and in any event within thirty
(30) days after receipt by the Corporation of the notice of exercise under
Section 1, the Corporation at its expense (including the payment by it of any
applicable issuance taxes) will cause to be issued in the name of and delivered
to the Holder thereof or as such Holder (upon payment by such Holder of any
applicable transfer taxes) may direct:



 









 






     (a) a certificate or certificates for the number of fully paid and
nonassessable Shares to which such Holder shall be entitled upon such
exercise plus, in lieu of any fractional share of Common Stock to which
such Holder would otherwise be entitled, an amount in cash equal to such
fraction multiplied by the then-current value of a share of Common Stock,
such current value to be determined by the Corporation’s board of
directors in its sole discretion; and




     (b) in case such exercise includes only part of the Shares
represented by this Warrant, a new warrant of like tenor, representing
the right to acquire that number of Shares (if any) with respect to which
this Warrant shall not then have been exercised, shall also be delivered
to the Holder within such time, unless this Warrant shall have expired.
The Corporation may require that any such new warrant or any certificate
for Shares purchased upon the exercise hereof bear a legend substantially
similar to that which is contained on the face of this Warrant.



     3. Time of Exercise. The exercise of this Warrant shall be deemed
effective immediately prior to the close of business on the business day on
which the Warrant is surrendered to the Corporation as provided in Section 1,
and at such time, the person or persons in whose name or names any certificate
or certificates for shares of Common Stock shall be issuable upon such exercise
as provided in Section 2, shall be deemed Holder or Holders of record thereof.



     4. Transferability. This Warrant is issued upon the following terms, to
which Holder consents and agrees:




     (a) until this Warrant is transferred on the books of the
Corporation, the Corporation will treat the Holder of this Warrant,
registered as such on the books of the Corporation, as the absolute owner
hereof for all purposes without effect given to any notice to the
contrary;




     (b) this Warrant may not be exercised, and this Warrant and the
Shares underlying this Warrant shall not be transferable, except in
compliance with all applicable state and federal securities laws,
regulations and orders, and with all other applicable laws, regulations
and orders;




     (c) until the Warrant, and the Shares issuable upon exercise of this
Warrant, are registered under the Securities Act and applicable Blue Sky
Laws, they may not be transferred without the Holder obtaining an opinion
of counsel, which opinion and counsel are satisfactory to the
Corporation, stating that the proposed transaction will not result in a
prohibited transaction under the Securities Act and applicable Blue Sky
Laws. By accepting this Warrant, the Holder agrees to act in accordance
with any conditions imposed on such transfer by any such opinion of
counsel; and




     (d) neither this Warrant nor the Shares issuable upon exercise of
this Warrant have been registered under the Securities Act.



     5. Certain Covenants of the Corporation. The Corporation covenants and
agrees that all Shares which may be issued upon the exercise of the rights
represented by this Warrant, upon issuance and full payment for the Shares so
purchased, will be duly authorized and issued, fully paid and nonassessable and
free from all taxes, liens and charges with respect to the issue hereof, except
those that may be created by or imposed upon the Holder or its property; and,
without limiting the generality of the foregoing, the Corporation covenants and
agrees that it will from time to time take all such actions as may be required
to ensure that the par value per share of the Common Stock is at all times
equal to or less than this Warrant’s Exercise Price per Share. The Corporation
further covenants and agrees that during the period within which the rights
represented by this Warrant may be exercised, the Corporation will at all times
have authorized and available, free of preemptive or other rights, for the
purpose of issue upon exercise of the purchase rights evidenced by



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this Warrant, a sufficient number of shares of its Common Stock to provide
for the full exercise of the rights represented by this Warrant.



     6. Adjustment of Exercise Price and Number of Shares. The Exercise Price
and number of Shares are subject to the following adjustments:




     (a) Stock Dividend, Stock Split or Stock Combination. If (i) any
dividends on any class of the Corporation’s capital stock payable in
Common Stock or securities convertible into or exercisable for Common
Stock (collectively, “Common Stock Equivalents”) shall be paid by the
Corporation, (ii) the Corporation shall divide its then-outstanding
 shares of Common Stock into a greater number of shares, or (iii) the
Corporation shall combine its outstanding shares of Common Stock, by
reclassification or otherwise, then, in any such event, the Exercise
Price in effect immediately prior to such event shall (until adjusted
again pursuant hereto) be adjusted immediately after such event to a
price (calculated to the nearest full cent) equal to the quotient of (x)
the number of shares of Common Stock outstanding immediately prior to
such event, multiplied by the Exercise Price in effect immediately prior
to such event, divided by (y) the total number of shares of Common Stock
outstanding immediately after such event. No adjustment of the Exercise
Price shall be made if the amount of such adjustment shall be less than
$.05 per Share; but any such adjustment not required then to be made
shall be carried forward and shall be made at the time and together with
any subsequent adjustment(s) which, together with any adjustment(s) so
carried forward, shall amount to not less than $.05 per Share.




     (b) Number of Shares Issuable on Exercise of Warrants. Upon each
adjustment of the Exercise Price pursuant to this Section, the Holder
shall thereafter (until another such adjustment) be entitled to purchase,
at the adjusted Exercise Price, the number of Shares, calculated to the
nearest full Share, equal to the quotient of (i) the product of (A) the
number of Shares issuable under this Warrant (as then adjusted pursuant
hereto prior to the current adjustment), multiplied by (B) the Exercise
Price in effect prior to such adjustment, divided by (ii) the adjusted
Exercise Price.




     (c) Notice of Adjustment. Upon any adjustment of the Exercise Price
and any increase or decrease in the number of Shares of Common Stock
issuable upon the exercise of the Warrant, then, and in each such case,
the Corporation shall within thirty (30) days thereafter give written
notice thereof, by first-class mail, postage prepaid, addressed to the
Holder as shown on the books of the Corporation. Any such notice shall
state the adjusted Exercise Price and adjusted number of Shares issuable
upon the exercise of the Warrant, and shall set forth in reasonable
detail the methods of calculation of such adjustments and the facts upon
which such calculations were based.




     (d) Effect of Reorganization, Reclassification or Merger. If at any
time while this Warrant is outstanding there should be (i) any
reorganization of the Corporation’s capital stock (other than splits or
combinations of Common Stock contemplated by and provided for in Section
6(a)), (ii) any consolidation or merger of the Corporation with another
corporation, limited liability company, partnership or other business
entity, or any sale, conveyance, lease or other transfer by the
Corporation of all or substantially all of its property to any other
corporation, limited liability company, partnership or other business
entity, which is effected in such a manner that the holders of Common
Stock shall be entitled to receive cash, stock, securities or assets with
respect to or in exchange for Common Stock, or (iii) any dividend or any
other distribution upon any class of the Corporation’s capital stock
payable in capital stock of a different class, other securities of the
Corporation, or other Corporation property (other than cash), then, as a
part of such transaction, lawful provision shall be made so that Holder
shall have the right thereafter to receive, upon the exercise hereof, the
number of shares of stock or other securities or property of the
Corporation or of the successor entity resulting from a consolidation



3









 





or merger, or of the entity to which the property of the Corporation
has been sold, conveyed, leased or otherwise transferred, as the case may
be, which the Holder would have been entitled to receive upon such
capital reorganization, reclassification of capital stock, consolidation,
merger, sale, conveyance, lease or other transfer, if this Warrant had
been exercised immediately prior to such capital reorganization,
reclassification of capital stock, consolidation, merger, sale,
conveyance, lease or other transfer. In any such case, appropriate
adjustments (as determined by the Corporation’s board of directors) shall
be made in the application of the provisions of this Warrant to the end
that the provisions set forth herein shall thereafter be applicable, as
near as reasonably may be, in relation to any shares or other property
thereafter deliverable upon the exercise of the Warrant as if the Warrant
had been exercised immediately prior to such capital reorganization,
reclassification of capital stock, such consolidation, merger, sale,
conveyance, lease or other transfer and the Holder had carried out the
terms of the exchange as provided for by such capital reorganization,
consolidation or merger.



     7. Prior Notice as to Certain Events. In case at any time: (a) the
Corporation shall pay any dividend upon its Common Stock payable in stock or
make any distribution (other than cash dividends) to the holders of its Common
Stock; (b) the Corporation shall offer for subscription pro rata to the holders
of its Common Stock any additional shares of stock of any class or any other
rights; (c) there shall be any capital reorganization or reclassification of
the capital stock of the Corporation, or consolidation or merger of the
Corporation with, or sale, conveyance, lease or other transfer of all or
substantially all of its assets to, another corporation; or (d) there shall be
a voluntary or involuntary dissolution, liquidation or winding up of the
Corporation; then, in any one or more of such cases, the Corporation shall give
prior written notice, by first-class mail, postage prepaid, addressed to the
Holder as shown on the books of the Corporation, of the date on which (i) the
books of the Corporation shall close or a record shall be taken for such stock
dividend, distribution or subscription rights or (ii) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up shall take place, as the case may be. Such notice shall also
specify the date as of which the holders of the Common Stock of record shall
participate in such dividend, distribution or subscription rights or shall be
entitled to exchange their Common Stock for securities or other property
deliverable upon such reorganization, reclassification, consolidation, merger,
sale, dissolution, liquidation, or winding up, as the case may be. Such
written notice shall be given at least 15 days prior to the action in question
and not less than 15 days prior to the record date or the date on which the
Corporation’s transfer books are closed in respect thereto.



     8. Redemption by Corporation. The Corporation may redeem this Warrant, at
any time and at its option, when the average per-share closing bid price of the
Common Stock exceeds Five and No/100 Dollars ($5.00) for any period of thirty
(30) consecutive trading days (as such price is adjusted upon any stock
dividends, splits or combinations), by delivering notice of the exercise of
such right as set forth in Section 9, at a redemption price equal to $.001 per
Share; provided, however, that the Shares shall then be registered for resale
or otherwise be freely tradable. For purposes of this Section, the closing
bid price of the Common Stock shall be determined by the closing bid price as
reported by Nasdaq so long as the Common Stock is quoted on the Nasdaq National
Market or Small Cap Market Systems (or Over-the-Counter Bulletin Board) and, if
the Common Stock is listed on a national securities exchange, shall be
determined by the last reported sale price on the primary exchange on which the
Common Stock is traded.



     9. Notice of Redemption. In the case of any redemption of this Warrant,
the Corporation shall give written notice thereof by first class mail, postage
prepaid, addressed to the Holder as shown on the books of the Corporation not
less than thirty (30) days prior to the date fixed for redemption. Any notice
which is given in the manner herein provided shall be conclusively presumed to
have been duly given, whether or not the Holder receives the notice. Each such
notice shall specify the date fixed for redemption, the place of redemption and
the redemption price of $.001 per Share at which the Warrant is to be redeemed,
and shall state that payment of the redemption price will be made upon
surrender of the Warrant at such place of redemption,



4









 







and that if not exercised by the close of business on the date fixed for
redemption, the exercise rights of the Warrant shall expire unless extended by
the Corporation. Such notice shall also state the current Exercise Price and
the date on which the right to exercise the Warrant will expire unless extended
by the Corporation.



     10. Payment of Warrants on Redemption. If notice of redemption shall have
been given as provided in Section 9, the redemption price of $.001 per Share
shall, unless the Warrant is theretofore exercised pursuant to the terms
hereof, become due and payable on the date and at the place stated in such
notice. On presentation and surrender of the Warrant by the Holder to the
Corporation at such place of payment in such notice specified, the Warrant
shall be paid and redeemed at the redemption price of $.001 per Share. On and
after such date of redemption, the exercise rights of this Warrant shall
expire.



     11. Registration Rights. The Shares issuable upon exercise of this
Warrant shall have the registration rights set forth in the Registration Rights
Agreement dated        by and between the Corporation and the original
Holder of this Warrant.



     12. No Rights as Shareholder. This Warrant shall not entitle the Holder
hereof to any voting rights or other rights as a shareholder of the
Corporation.



     13. Loss or Mutilation. Upon receipt by the Corporation from Holder of
evidence reasonably satisfactory to it of the ownership of and the loss, theft,
destruction or mutilation of this Warrant and indemnity reasonably satisfactory
to the Corporation, and in case of mutilation upon surrender and cancellation
hereof, the Corporation will execute and deliver in lieu hereof a new Warrant
of like tenor to Holder; provided, however, in the case of mutilation no
indemnity shall be required if this Warrant in identifiable form is surrendered
to the Corporation for cancellation.



     14. Governing Law. This Warrant shall be governed by and construed in
accordance with the laws of the State of Minnesota without regard to its
conflicts-of-law provisions.



     15. Amendments and Waivers. The provisions of this Warrant may not be
amended, modified or supplemented, and waiver or consents to departures from
the provisions hereof may not be given, unless the Corporation agrees in
writing and has obtained the written consent of the Holder.



     16. Successors and Assigns. All the terms and conditions of this Warrant
shall be binding upon and inure to the benefit of the permitted successors and
assigns of the Corporation and Holder.



     17. Headings and References. The headings of this Warrant are for
convenience only and shall not affect the interpretation of this Warrant.
Unless the context indicates otherwise, all references herein to Sections are
references to Sections of this Warrant.



     18. Notices. All notices or communications hereunder, except as herein
otherwise specifically provided, shall be in writing. Notices sent to the
Holder shall be mailed, hand delivered or faxed and confirmed to the Holder at
his, her or its address set forth in the Corporation’s records. Notices sent
to the Corporation shall be mailed, hand delivered or faxed and confirmed to
Spectre Gaming, Inc., 1466 Pioneer Way, No. 10, El Cajon, California 92020, or
to such other address as the Corporation or the Holder shall notify the other
as provided in this Section.



     19. Counterparts. This Warrant may be executed by the Corporation and
attested to in counterparts.



5









 





     In Witness Whereof, the Corporation has caused this Warrant to be signed
by its duly authorized officer on the date first set forth above.



	 	 	 	 	 
	 	 	SPECTRE GAMING, INC.:
	 
	 	 	 	 
	

	 	By:	 	 
	

	 	 	 	
 
	

	 	 	 	Russell Mix, Chief Executive Officer







ATTEST:




	 	 	 
	By:
	 	 
	

	 	
 
	

	 	Brian D. Niebur, Chief Financial Officer







 









 






SUBSCRIPTION FORM




(To be signed only upon exercise of Warrant)




     THE UNDERSIGNED, the holder of the Warrant referenced below, hereby
irrevocably elects to exercise the purchase right represented by such Warrant
for, and to purchase thereunder,                            shares of
common stock of Spectre Gaming, Inc. (the “Shares”) to which such Warrant
relates, herewith makes payment of $            therefor in cash,
certified check, or bank draft, and hereby requests that a certificate
evidencing the Shares be delivered to                ,
the address of whom is set forth below the signature of the undersigned:



	 	 	 	 	 
	Dated:
	 	 	 	 
	

	 	
 
	 	
 
	

	 	 	 	(Signature)
	 
	 	 	 	 
	

	 	 	 	
 
	

	 	 	 	(Printed Name)
	 
	 	 	 	 
	

	 	 	 	
 
	

	 	 	 	(Address)
	 
	 	 	 	 
	

	 	 	 	
 
	

	 	 	 	(Address)







Warrant No.           , dated                (the “Warrant”)




 









 








ASSIGNMENT FORM




(To be signed only upon authorized transfer of Warrant)




     FOR VALUE RECEIVED, the undersigned hereby sells, assigns, transfers and
conveys unto               the right to purchase shares of
common stock of Spectre Gaming, Inc. (the “Corporation”) to which the Warrant
referenced below relates, and hereby appoints               as
his, her or its attorney to transfer said right on the books of the
Corporation with full power of substitution in the premises.



	 	 	 	 	 
	Dated:
	 	 	 	 
	

	 	
 
	 	
 
	

	 	 	 	(Signature)
	 
	 	 	 	 
	

	 	 	 	
 
	

	 	 	 	(Printed Name)
	 
	 	 	 	 
	

	 	 	 	
 
	

	 	 	 	(Address)
	 
	 	 	 	 
	

	 	 	 	
 
	

	 	 	 	(Address)







Warrant No.         , dated                  (the “Warrant”)




 









 








Annex B




REGISTRATION RIGHTS AGREEMENT




The Registration Rights Agreement is attached hereto.




 









 








Annex C




WIRING INSTRUCTIONS TO PRIVATE BANK




	 	 	 
	Bank Name:

	 	Private Bank Minnesota
	Routing Number:

	 	ABA 091 005 836
	Account Holder:

	 	Spectre Gaming, Inc.
	Account Number:

	 	3023751