Document:

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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

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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

6

 

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

2

 

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:

	 	3023751exv4w2

 

EXHIBIT 4.2

REGISTRATION RIGHTS AGREEMENT

     THIS REGISTRATION RIGHTS AGREEMENT (the “Agreement”) is entered into as of
             , 2004, by and among Spectre Gaming, Inc., a Minnesota
corporation (the “Company”), and the investors signatory to this Agreement
(collectively, the “Investors”).

R E C I T A L S :

     WHEREAS, the Company has engaged in a private placement offering (the
“Offering”) of up to 4,000,000 units (the “Units”), each Unit consisting of one
share of the Company’s common stock (the “Common Stock”) and a five-year
warrant to purchase an additional one share of Common Stock;

     WHEREAS, in connection with the Offering, the Company has entered into
subscription agreements with the Investors (the “Subscription Agreements”);

     WHEREAS, in the Subscription Agreements, the Company has agreed to grant
certain registration rights with respect to the shares of the Common Stock sold
and issued in the Offering (the “Shares”) and the shares of Common Stock
issuable upon exercise of the Warrants (the “Warrant Shares,” and referred to
collectively with the Shares as the “Offering Shares”);

     NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties, intending to be legally bound, hereby agree as follows:

ARTICLE 1

DEFINITIONS

     As used herein, the following terms shall have the following respective
meanings:

1.1 “Commission” shall mean the U.S. Securities and Exchange Commission or any
other successor federal agency at the time administering the Securities Act.

1.2 “Common Stock” shall mean the Company’s common stock, $0.01 par value per
share.

1.3 “Exchange Act” shall mean the Securities and Exchange Act of 1934, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.

1.4 “Holders” shall mean and include the Investors and any transferee thereof
who holds Registrable Securities or Penalty Shares of record.

1.5 “Penalty Shares” shall have the meaning set forth in Article 3.

1.6 “Register,” “registered” and “registration” refer to a registration
effected by preparing and filing with the Commission a registration statement
in compliance with the Securities Act, and the declaration or ordering by the
Commission of the effectiveness of such registration statement.

1.7 “Registrable Securities” means (i) any and all issued or issuable Offering
Shares, and (ii) securities issued or issuable with respect to the Offering
Shares upon any stock split, stock dividend, recapitalization,
reclassification, merger, consolidation or other similar event. The term
“Registrable

 

 

Securities” shall exclude in all cases, however, such shares of Common Stock
following sale by a Holder to the public pursuant to a registered offering or
pursuant to Rule 144 promulgated under the Securities Act or sold in a private
transaction in which the Holder’s registration rights under this Agreement are
not assigned.

1.8 “Registration Expenses” shall mean all expenses incurred by the Company in
complying with Article 2 hereof, including, without limitation, all
registration, qualification and Commission, National Association of Securities
Dealers, Inc., stock exchange and other filing fees, printing expenses, escrow
fees, fees and disbursements of legal counsel for the Company, blue sky fees
and expenses, and the expense of any special audits incident to or required by
any such registration (but excluding the compensation of regular employees of
the Company, which shall be paid in any event by the Company).

1.9 “Securities Act” shall mean the Securities Act of 1933, as amended, or any
similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.

1.10 “Selling Expenses” shall mean all underwriting fees, discounts, selling
commissions and stock transfer taxes applicable to the Registrable Securities
and/or Penalty Shares registered by the Holders and the fees and expenses of
any special counsel engaged by the Holders.

1.11 “Underwriter” shall mean (whether or not the term is capitalized) a
broker-dealer engaged by the Company to distribute Registrable Securities or
Penalty Shares as principal or agent.

1.12 “Underwriting” or “Underwritten” shall mean (whether or not the term is
capitalized) a method of publicly distributing securities through an
Underwriter.

ARTICLE 2

REQUIRED REGISTRATION

2.1 Required Registration. The Company will prepare and file with the
Commission a registration statement under the Securities Act (currently
expected to be on Form S-2 or SB-2) covering the resale of all of the
Registrable Securities and obtain the effectiveness of such registration by no
later than the date which is 140 days after the final closing of the Offering,
unless a majority in interest of the Holders request a delay of the Company for
up to an additional 90 days in writing and in such case, upon expiration of
this requested delaying period. The Company will provide written notice to
each Holder of the final closing date of this Offering within ten days of such
closing.

2.2 Underwriting.

     (a) The resale distribution of the Registrable Securities covered by the
registration statement referred to in Section 2.1 above shall be effected by
means of the method of distribution selected by the Holders holding a majority
of the Registrable Securities covered by such registration. The Holders
holding a majority of the Registrable Securities may also change the resale
distribution method from time to time (subject to amendment of the registration
statement as required to describe such changes). If such distribution is
effected by means of an underwriting, the right of any Holder to registration
pursuant to this Article 2 shall be conditioned upon such Holder’s
participation in such underwriting and the inclusion of such Holder’s
Registrable Securities in the underwriting to the extent provided herein.

     (b) If such distribution is effected by means of an underwriting, the
Company (together with all Holders proposing to distribute their securities
through such underwriting) shall enter into an underwriting agreement in
customary form with a managing underwriter of nationally recognized

2

 

standing selected for such underwriting by a majority in interest of the
Holders and approved by the Company, which approval shall not be unreasonably
withheld.

     (c) If any Holder disapproves of the terms of the underwriting, such
person may elect to withdraw therefrom by written notice to the Company, the
managing underwriter and the other Holders. The Registrable Securities and/or
other securities so withdrawn shall also be withdrawn from registration.

2.3 Inclusion of Shares by the Company. If the resale distribution of
Registrable Securities is being effected by means of an underwriting and if the
managing underwriter does not limit the number of Registrable Securities to be
underwritten, the Company may include securities for its own account or for the
account of others in such registration if the managing underwriter so agrees.
The inclusion of such shares shall be on the same terms as the registration of
shares held by the Holders. In the event that the underwriters exclude some of
the securities to be registered, the securities to be sold for the account of
the Company and any other holders shall be excluded in their entirety prior to
the exclusion of any Registrable Securities.

ARTICLE 3

PENALTY SHARES; PIGGYBACK REGISTRATION RIGHTS

3.1 The provisions of this Article 3 shall apply only in the event the Company
fails to cause a registration statement covering the resale of the Registrable
Securities to be declared effective on or prior to the date which is 140 days
after the final closing of the Offering (unless a majority in interest of the
Holders request a delay of the Company for up to an additional 90 days in
writing and in such case, upon expiration of such requested delaying period).
Upon any such failure, the Company shall issue to each Holder additional shares
of Common Stock in a number equal to 25 percent of the number of the Shares
purchased in the Offering (such additional shares of Common Stock issued, if
any, are referred to as the “Penalty Shares”); provided, however, that the
Company shall not be obligated to issue Penalty Shares to any Holder who has
not provided sufficient information to the Company, as required under Article
5, for the inclusion of such Holder’s Registrable Securities in any
registration statement filed or to be filed by the Company.

3.2. Subject to Section 3.3, below, whenever the Company has issued any Penalty
Shares and thereafter proposes to file a registration statement (except for
registrations relating to employee-benefit plans and corporate reorganizations)
at any time and from time to time, it will, prior to such filing, give written
notice to each Holder of its intention to do so and, upon the written request
of each Holder given within 20 days after the Company provides such notice
(which request shall state the intended method of disposition of such Penalty
Shares), the Company shall use commercially reasonable efforts to cause all
such Penalty Shares that the Company has been requested by the Holders to
register to be registered under the Securities Act and applicable state Blue
Sky Laws to the extent necessary to permit its sale or other disposition in
accordance with the intended methods of distribution specified in the request
of the Holders; provided, however, that the Company shall have the right to
postpone or withdraw any registration effected pursuant to this Article 3
without obligation to the Holders.

3.3. In connection with any offering under this Article 3 involving an
underwriting, the Company shall not be required to include any Penalty Shares
in such underwriting unless the Holders thereof accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected
by it, and then only in such quantity as will not, in the good faith opinion of
the underwriters, jeopardize the success of the offering by the Company. If,
in the opinion of the managing underwriter, the registration of all, or part
of, the Penalty Shares that the Holders have requested to be included would
materially and adversely affect such public offering, then the number of
Penalty Shares proposed to be included in such registration shall be reduced on
a pro rata basis.

3

 

ARTICLE 4

EXPENSES OF REGISTRATION

     All Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Article 2 and Article 3 hereof shall be
borne by the Company. All Selling Expenses relating to Registrable Securities
and Penalty Shares registered by the Holders shall be borne by the Holders of
such Registrable Securities and Penalty Shares.

ARTICLE 5

REGISTRATION PROCEDURES

     (a) In the case of any registration effected by the Company pursuant to
this Agreement, the Company will keep each Holder advised in writing as to the
initiation of each registration and as to the completion thereof. The Company
agrees to use its best efforts to effect or cause such registration to permit
the resale of the Registrable Securities (and Penalty Shares, if applicable)
covered thereby by the Holders thereof in accordance with the intended method
or methods of distribution thereof described in such registration statement.
In connection with any registration of any Registrable Securities or Penalty
Shares, the Company shall prepare and file with the Commission a registration
statement with respect to such securities and, as soon as reasonably possible:

          (i) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus included
therein as may be necessary to effect and maintain the effectiveness of
such registration statement as may be required by the applicable rules
and regulations of the Commission and the instructions applicable to the
form of such registration statement (provided, however, that the Company
shall not be obliged to maintain the effectiveness of the registration
statement described in Article 2 longer than through the earlier of (A)
seven years from the date hereof or, if earlier, the second anniversary
of the date on which the last of the Registrable Securities (or Penalty
Shares, if applicable) are issued or issuable upon exercise of the
Warrant, (B) the date on which the Holder may sell all Registrable
Securities (or Penalty Shares, if applicable) then held by the Holder, or
which may be issuable upon exercise of the Warrant, without restriction
under the Securities Act or (C) such time as all Registrable Securities
and Penalty Shares (if any) held by such Holder, or which may be issuable
upon exercise of the Warrant, have been sold pursuant to a registration
statement), and furnish to the Holders of such securities covered thereby
copies of any such supplement or amendment prior to their being used
and/or filed with the Commission;

          (ii) promptly notify the Holders of Registrable Securities (or
Penalty Shares, if applicable) to be included in a registration statement
hereunder, the sales or placement agent, if any, therefor and the
managing underwriter of the securities being sold, if any, and confirm
such advice in writing, (A) when such registration statement or the
prospectus included therein or any prospectus amendment or supplement or
post-effective amendment has been filed, and, with respect to such
registration statement or any post-effective amendment, when the same has
become effective, (B) of the issuance by the Commission of any stop order
suspending the effectiveness of such registration statement or the
initiation of any proceedings for that purpose, (C) of the receipt by the
Company of any notification with respect to the suspension of the
qualification of the Registrable Securities (or Penalty Shares) for sale
in any jurisdiction or the initiation or threatening of any proceeding
for such purpose or (D) if, to the Company’s knowledge, it shall be the
case, at any time when a prospectus is required to be delivered under the
Securities Act, that such registration statement or prospectus, or any
document incorporated by reference in any of the foregoing, contains an
untrue statement of a material fact or omits to

4

 

state any material fact required to be stated therein or necessary
to make the statements therein not misleading in light of the
circumstances then existing;

          (iii) furnish to each Holder of Registrable Securities (and Penalty
Shares, if applicable) to be included in such registration statement
hereunder, each placement or sales agent, if any, therefor and each
underwriter, if any, thereof a conformed copy of such registration
statement, each such amendment and supplement thereto (in each case
excluding all exhibits and documents incorporated by reference) and such
number of copies of the registration statement (excluding exhibits
thereto and documents incorporated by reference therein unless
specifically so requested by such holder, agent or underwriter, as the
case may be) of the prospectus included in such registration statement
(including each preliminary prospectus and any summary prospectus), in
conformity with the requirements of the Securities Act, as such Holder,
agent, if any, and underwriter, if any, may reasonably request in order
to facilitate the disposition of the Registrable Securities (and Penalty
Shares, if applicable) owned by such Holder sold by such agent or
underwritten by such underwriter and to permit such Holder, agent and
underwriter to satisfy the prospectus-delivery requirements of the
Securities Act; and

          (iv) if required by applicable law, use its best efforts to (A)
register or qualify the Registrable Securities (or Penalty Shares, if
applicable) to be included in such registration statement under such
other securities laws or blue sky laws of such states of the United
States or the District of Columbia to be designated by the Holders of a
majority of such Registrable Securities (or Penalty Shares, as
applicable) participating in such registration and each placement or
sales agent, if any, therefor and underwriter, if any, thereof, as any
Holder and each underwriter, if any, of the securities being sold shall
reasonably request (provided, that the Company shall not be required to
use its best efforts to register or qualify the Registrable Securities
(or Penalty Shares, if applicable) in more than 10 such jurisdictions
unless the expenses thereof are borne by the Holders requesting such
efforts), (B) keep such registrations or qualifications in effect and
comply with such laws so as to permit, as to a registration statement
filed under Article 2 above, the continuance of offers, sales and
dealings therein in such jurisdictions for the same period after the
initial effective date of the registration statement filed under the
Securities Act as described in Section 5(a)(i) above, or if underwritten,
as long as may be necessary to enable the underwriter to complete its
distribution of the Registrable Securities (or Penalty Shares, if
applicable) pursuant to such registration statement and (C) take any and
all such actions as may be reasonably necessary or advisable to enable
such Holder, agent, if any, and underwriter to consummate the disposition
in such jurisdictions of such Registrable Securities or Penalty Shares,
if applicable; provided, however, that in order to fulfill the foregoing
obligations under this Section 5(a)(iv), the Company shall not (unless
otherwise required to do so in any jurisdiction) be required to (1)
qualify generally to do business as a foreign company or a broker-dealer,
(2) execute a general consent to service of process or (3) subject itself
to taxation.

     (b) The Company may require each Holder of Registrable Securities (and
Penalty Shares, if applicable) as to which any registration is being effected
to furnish to the Company such information regarding such Holder and such
Holder’s method of distribution of such Registrable Securities (or Penalty
Shares, if applicable) as the Company may from time to time reasonably request
in writing. Each such Holder agrees to notify the Company as promptly as
practicable of any inaccuracy or change in information previously furnished by
such Holder to the Company or of the occurrence of any event in either case as
a result of which any prospectus relating to such registration contains or
would contain an untrue statement of a material fact regarding such Holder or
the distribution of such Registrable Securities (or Penalty Shares, if
applicable) or omits to state any material fact regarding such Holder or the
distribution of such Registrable Securities (or Penalty Shares, if applicable)
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and

5

 

promptly to furnish to the Company any additional information required to
correct and update any previously furnished information or required so that
such prospectus shall not contain, with respect to such Holder or the
distribution of such Registrable Securities (or Penalty Shares, if applicable),
an untrue statement or a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing.

     (c) Each of the Holders will comply with the provisions of the Securities
Act with respect to disposition of the Registrable Securities (and Penalty
Shares, if applicable) to be included in any registration statement filed by
the Company.

ARTICLE 6

INDEMNIFICATION

6.1 The Company will indemnify each Holder, each of its officers, directors and
partners, and such Holder’s legal counsel and independent accountants, if any,
and each person controlling any such persons within the meaning of Section 15
of the Securities Act, with respect to which registration, qualification or
compliance has been effected pursuant to this Agreement, and each underwriter,
if any, and each person who controls any underwriter within the meaning of
Section 15 of the Securities Act, against all expenses, claims, losses, damages
and liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any registration statement, prospectus, offering circular or
other document, or any amendment or supplement thereof, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by
the Company of any rule or regulation promulgated under the Securities Act or
any state securities laws applicable to the Company and relating to action or
inaction by the Company in connection with any such registration, qualification
or compliance, and will reimburse each such Holder, each of its officers,
directors and partners and such Holder’s legal counsel and independent
accountants, and each person controlling any such persons, each such
underwriter and each person who controls any such underwriter, for any legal
and any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action;
provided, however, that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission or alleged untrue statement or
omission made in reliance upon and in conformity with written information
furnished to the Company by such Holder, officers, directors, partners, legal
counsel, accountants, underwriter or controlling persons, and expressly
intended for use in such registration statement, prospectus, offering circular
or other document, or any amendment or supplement thereof.

6.2 Each Holder will, if Registrable Securities or Penalty Shares held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers and its legal counsel and independent accountants,
each underwriter, if any, of the Company’s securities covered by such a
registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers, directors, partners, legal counsel and
independent accountants, if any, and each person controlling such Holder within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages and liabilities (or actions in respect thereof), including any
of the foregoing incurred in settlement of any litigation, commenced or
threatened, arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, qualification or compliance or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to

6

 

make the statements therein not misleading, and will reimburse the Company,
such Holders, such directors, officers, partners, legal counsel, independent
accountants, underwriters or control persons for any legal or any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular, other document or
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such Holder and expressly intended for
use in such registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereof; provided, however, that the
obligations of each Holder hereunder shall be limited to an amount equal to the
proceeds to such Holder of Registrable Securities or Penalty Shares sold as
contemplated herein.

6.3 Each party entitled to indemnification under this Article 6 (the
“Indemnified Party”) shall give notice to the party required to provide
indemnification (the “Indemnifying Party”) promptly after such Indemnified
Party has actual knowledge of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such claim
or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld). The Indemnified Party may participate in such
defense at such party’s expense; provided, however, that the Indemnifying
Party shall bear the expense of such defense of the Indemnified Party if
representation of both parties by the same counsel would be inappropriate due
to actual or potential conflicts of interest. The failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying
Party of its obligations under this Agreement, unless such failure is
prejudicial to the ability of the Indemnifying Party to defend the action. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation.

6.4 If the indemnification provided for in Section 6.1 or 6.2 is unavailable or
insufficient to hold harmless an Indemnified Party, then each Indemnifying
Party shall contribute to the amount paid or payable by such Indemnified Party
as a result of the expenses, claims, losses, damages or liabilities (or actions
or proceedings in respect thereof) referred to in Section 6.1 or 6.2, in such
proportion as is appropriate to reflect the relative fault of the Company on
the one hand and the sellers of Registrable Securities (or Penalty Shares, if
applicable) on the other hand in connection with statements or omissions which
resulted in such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) or expenses, as well as any other relevant
equitable considerations. The relative fault shall be determined by reference
to, among other things, whether the untrue or alleged untrue statement of a
material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or the sellers of Registrable
Securities (or Penalty Shares, if applicable) and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. The Company and the Holders agree that it would
not be just and equitable if contributions pursuant to this Section 6.4 were to
be determined by pro rata allocation (even if all sellers of Registrable
Securities (and Penalty Shares, if applicable) were treated as one entity for
such purpose) or by any other method of allocation which does not take account
of the equitable considerations referred to in the first sentence of this
Section 6.4. The amount paid by an Indemnified Party as a result of the
expenses, claims, losses, damages or liabilities (or actions or proceedings in
respect thereof) referred to in the first sentence of this Section 6.4 shall be
deemed to include any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any claim,
action or proceeding which is the subject of this Section 6.4. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty

7

 

of such fraudulent misrepresentation. The obligations of sellers of
Registrable Securities and Penalty Shares to contribute pursuant to this
Section 6.4 shall be several in proportion to the respective amount of
Registrable Securities (or Penalty Shares, as applicable) sold by them pursuant
to a registration statement.

ARTICLE 7

RULE 144 REPORTING

     With a view to making available the benefits of certain rules and
regulations of the Commission which may at any time permit the sale of
securities of the Company to the public without registration, the Company
agrees to use its best efforts to:

7.1 Make and keep public information available as those terms are understood
and defined in Rule 144 under the Securities Act, at all times after the date
hereof;

7.2 File with the Commission in a timely manner all reports and other documents
required of the Company under the Securities Act and the Exchange Act; and

7.3 So long as a Holder owns any Registrable Securities (or Penalty Shares, if
applicab), furnish to such Holder forthwith upon request a written statement by
the Company as to its compliance with the applicable reporting requirements of
said Rule 144 and of the Securities Act and the Exchange Act, a copy of the
most recent annual or quarterly report of the Company, and such other reports
and documents of the Company and other information in the possession of or
reasonably obtainable by the Company as the Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing the Holder
to sell any such securities without registration.

ARTICLE 8

MISCELLANEOUS

8.1 Merger or Reorganization. Without limitation of the Company’s other rights
or obligations under this Agreement, the Company shall not, directly or
indirectly, enter into any merger, consolidation or reorganization (other than
a merger, consolidation or reorganization in which the Company shall be the
surviving corporation) unless the proposed surviving corporation shall, prior
to the proposed merger, consolidation or reorganization, agree in writing to
assume the obligations of the Company hereunder; in the event of such
assumption, “Registrable Securities” shall refer to the securities that Holder
would be entitled to receive in exchange for Registrable Securities (or Penalty
Shares, if applicable) in such merger, consolidation or reorganization.

8.2 Waiver, Discharge, Amendment, Etc. The failure of any party hereto to
enforce at any time any of the provisions of this Agreement shall not, absent
an express written waiver signed by the party making such waiver specifying the
provision being waived, be construed to be a waiver of any such provision, nor
in any way to affect the validity of this Agreement or any part hereof or the
right of the party thereafter to enforce each and every such provision. No
waiver of any breach of this Agreement shall be held to be a waiver of any
other or subsequent breach.

8.3 Governing Law. The laws of the state of Minnesota shall govern the
interpretation, validity and performance of the terms of this agreement,
regardless of the law that might be applied under principles of conflicts of
law.

8.4 Successors and Assigns. Except as otherwise expressly provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.

8

 

8.5 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement between the parties with regard to the subject
matter hereof.

8.6 Termination. The obligations of the Company to register Registrable
Securities (and Penalty Shares, if applicable) under this Agreement shall
terminate on the tenth anniversary of the date of this Agreement.

8.7 Notices. All notices, requests, consents, and other communications
hereunder shall be in writing and shall be deemed effectively given and
received when delivered in person or by national overnight courier service or
by certified or registered mail, return receipt requested, or by telecopier,
addressed as follows:

	 	(a)	 	if to the Company, at
	 
	 	 	 	Spectre Gaming, Inc.

1466 Pioneer Way, Unit #10

El Cajon, California 92020

Attention: Russell Mix, Chief Executive Officer
	 
	 	 	 	with a copy to:
	 
	 	 	 	Maslon Edelman Borman & Brand, LLP

90 South Seventh Street, Suite 3300

Minneapolis, Minnesota 55402

Attention: William M. Mower, Esq.

Facsimile: (612) 642-8358
	 
	 	(b)	 	if to the Investors, in care of:
	 
	 	 	 	Feltl and Company, Inc.

225 South 6th Street, Suite 4200

Minneapolis, MN 55402

Attention: John C. Feltl
	 
	 	 	 	with a copy to:
	 
	 	 	 	Lindquist & Vennum, P.L.L.P.

4200 IDS Center

80 South Eight Street

Minneapolis, Minnesota 55402

Attention: Girard P. Miller, Esq.

Facsimile: (612) 371-3207

     (c)    if to any other Holder, to the address reflected on the records of the
Company, or such other address or addresses as shall have been furnished in
writing by such party to the Company and to the other parties to this
Agreement.

8.8 Severability. The invalidity, illegality or unenforceability of one or
more of the provisions of this Agreement in any jurisdiction shall not affect
the validity, legality or enforceability of the remainder of this Agreement in
such jurisdiction or the validity, legality or enforceability of this
Agreement,

9

 

including any such provision, in any other jurisdiction, it being intended that
all rights and obligations of the parties hereunder shall be enforceable to the
fullest extent permitted by law.

8.9 Titles and Subtitles. The titles of the sections and subsections of this
Agreement are for convenience of reference only and are not to be considered in
construing this Agreement.

8.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
constitute one instrument.

[Signature Page Follows]

10

 

     IN WITNESS WHEREOF, the parties hereto have caused this Registration
Rights Agreement to be executed and delivered as of the date first written
above.

	 	 	 	 	 	 	 
	 	 	SPECTRE GAMING, INC.
	 
	 	 	 	 	 	 
	

	 	By:	 	 	 	 
	

	 	 	 	
	 	 
	

	 	 	 	Brian D. Niebur, Chief Financial Officer	 	 
	 
	 	 	 	 	 	 
	 	 	INVESTOR:

	 	 	 
	 

	 	Name
	

	 	

	

	 	By
	

	 	

	

	 	Its
	

	 	

11

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