Document:

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                                                                    EXHIBIT 10.1

                          SECURITIES PURCHASE AGREEMENT

         THIS SECURITIES PURCHASE AGREEMENT, dated as of November 1, 2000,
between Innovative Gaming Corporation of America, a Minnesota corporation with
principal executive offices located at 4725 Aircenter Circle, Reno, Nevada 89502
(the "COMPANY"), the buyer indicated on Schedule A ("BUYER").

         WHEREAS, Buyer desires to purchase from the Company, and the Company
desires to issue and sell to Buyer, upon the terms and subject to the conditions
of this Agreement, (i) the amount of shares of the Company's Series E 6%
Convertible Preferred Stock, par value $0.01 per share (collectively, the
"PREFERRED SHARES"), indicated on Schedule A; and (ii) Common Stock Purchase
Warrants, in the form attached hereto as Exhibit A , to purchase the amount of
Common Stock indicated on Schedule A (collectively, the "WARRANTS");

         WHEREAS, upon the terms and subject to the designations, preferences
and rights set forth in the Company's Certificate of Designation of Series E 6%
Convertible Preferred Stock in the form attached hereto as Exhibit B (the
"CERTIFICATE OF DESIGNATION"), the Preferred Shares are convertible into shares
of the Company's common stock, par value $0.01 per share (the "COMMON STOCK");
and

         WHEREAS, the Warrants, upon the terms and subject to the conditions in
the Warrants, will be exercisable for a period of five years;

         NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:

              I. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS

         A. TRANSACTION. Buyer hereby agrees to purchase from the Company, and
the Company has offered and hereby agrees to issue and sell to Buyer in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended (the "SECURITIES ACT"), the Preferred
Shares and the Warrants to purchase the amount of shares of Common Stock
indicated on Schedule A.

         B. PURCHASE PRICE; FORM OF PAYMENT. The purchase price for the
Preferred Shares and the Warrants to be purchased by Buyer hereunder shall be
the amount indicated on Schedule A (the "PURCHASE PRICE").

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                   II. BUYER'S REPRESENTATIONS AND WARRANTIES

         Buyer represents and warrants to and covenants and agrees with the
Company as follows:

         A. Buyer is purchasing the Preferred Shares, the Warrants, the Common
Stock issuable upon exercise of the Warrants (the "WARRANT SHARES"), the Common
Stock, if any, issuable in payment of dividends on the Preferred Shares (the
"DIVIDEND SHARES"), and the Common Stock issuable upon conversion or redemption
of the Preferred Shares (the "CONVERSION SHARES" and, collectively with the
Preferred Shares, the Warrants, the Warrant Shares and the Dividend Shares, the
"SECURITIES") for its own account, for investment purposes only and not with a
view towards or in connection with the public sale or distribution thereof in
violation of the Securities Act.

         B. Buyer is (i) an "ACCREDITED INVESTOR" within the meaning of Rule 501
of Regulation D under the Securities Act, (ii) experienced in making investments
of the kind contemplated by this Agreement, (iii) capable, by reason of its
business and financial experience, of evaluating the relative merits and risks
of an investment in the Securities, and (iv) able to afford the loss of its
investment in the Securities.

         C. Buyer understands that the Securities are being offered and sold by
the Company in reliance on an exemption from the registration requirements of
the Securities Act and equivalent state securities and "blue sky" laws, and that
the Company is relying upon the accuracy of, and Buyer's compliance with,
Buyer's representations, warranties and covenants set forth in this Agreement to
determine the availability of such exemption and the eligibility of Buyer to
purchase the Securities;

         D. Buyer understands that the Securities have not been approved or
disapproved by the Securities and Exchange Commission (the "COMMISSION") or any
state securities commission.

         E. This Agreement has been duly and validly authorized, executed and
delivered by Buyer and is a valid and binding agreement of Buyer enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except as rights to
indemnity and contribution may be limited by federal or state securities laws or
the public policy underlying such laws.

         F. Neither Buyer nor its affiliates nor any person acting on its or
their behalf has the intention of entering, or will enter into, prior to the
closing, any put option, short position or other similar instrument or position
with respect to the Common Stock and neither Buyer nor any of its affiliates nor
any person acting on its or their behalf will use at any time shares of Common
Stock acquired pursuant to this Agreement to settle any put option, short
position or other similar instrument or position that may have been entered into
prior to the execution of this Agreement.

         G. Buyer understands that there will be no market for the Preferred
Shares, that there are significant restrictions on the transferability of the
Preferred Shares and that, for these

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and other reasons, Buyer may not be able to liquidate an investment in the
Preferred Shares for an indefinite period.

         H. Buyer acknowledges that the Company's Articles of Incorporation
provide that no person or entity may become the beneficial owner of 5% or more
of the Company's shares of capital stock of every series and class unless such
person or entity agrees to provide personal background and financial information
to gaming authorities, consent to a background investigation and respond to
questions from gaming authorities. Buyer further acknowledges that the Company
may, pursuant to the terms of its Articles of Incorporation and Section 6.5 of
the Certificate of Designation, repurchase shares held by any person or entity
whose status as a shareholder jeopardizes the approval, continued existence or
renewal by any gaming authority of a tribal, federal or state license or
franchise held by the Company or any of its Subsidiaries. The foregoing
restrictions will be contained in a legend on each certificate of Common Stock.

                       III. THE COMPANY'S REPRESENTATIONS

         The Company represents and warrants to Buyer that:

         A. CAPITALIZATION.

                  1. The authorized capital stock of the Company consists solely
         of 100,000,000 shares of capital stock, of which (i) 9,724,901 shares
         of common stock are issued and outstanding on the date hereof (ii)
         4,000 shares have been designated Series B Convertible Preferred Stock,
         par value $0.01 per share, of which 30 shares are issued and
         outstanding on the date hereof, (iii) 2,000 shares have been designated
         Series C Cumulative Convertible Preferred Stock, par value $0.01 per
         share, of which 900 shares are issued and outstanding on the date
         hereof, and (iv) 3,000 shares have been designated Series D Convertible
         Preferred Stock, par value $0.01 per share, of which 1250 shares are
         issued and outstanding on the date hereof. All of the issued and
         outstanding shares of Common Stock and preferred stock, if any, have
         been duly authorized and validly issued and are fully paid and
         nonassessable. As of the date hereof, the Company has outstanding stock
         options to purchase 1,239,700 shares of Common Stock and outstanding
         warrants to purchase 1,385,000 shares of Common Stock.

                  2. The Conversion Shares, the Dividend Shares and the Warrant
         Shares have been duly and validly authorized and reserved for issuance
         by the Company, and when issued by the Company upon conversion of, or
         in lieu of cash dividends on, the Preferred Shares and on exercise of
         the Warrants will be duly and validly issued, fully paid and
         nonassessable and will not subject the holder thereof to personal
         liability by reason of being such holder.

                  3. Except as disclosed on Schedule III.A.3. hereto, there are
         no preemptive, subscription, "call," right of first refusal or other
         similar rights to acquire any capital stock of the Company or any of
         its Subsidiaries or other voting securities of the Company that have
         been issued or granted to any person and no other obligations of the
         Company or any of its Subsidiaries to issue, grant, extend or enter
         into any security,

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         option, warrant, "call," right, commitment, agreement, arrangement or
         undertaking with respect to any of their respective capital stock.

                  4. Schedule III.A.4. hereto lists all the subsidiaries of the
         Company (the "SUBSIDIARIES"). Except as disclosed on Schedule III.A.4.
         hereto, the Company does not own or control, directly or indirectly,
         any interest in any other corporation, partnership, limited liability
         company, unincorporated business organization, association, trust or
         other business entity.

                  5. The Company has delivered to Buyer complete and correct
         copies of the Certificate of Incorporation and the By-Laws of each of
         the Company and the Subsidiaries, in each case as amended to the date
         of this Agreement. Except as set forth on Schedule III.A.5. hereto, the
         Company has delivered to Buyer true and complete copies of all minutes
         of the Board of Directors of the Company (the "BOARD OF DIRECTORS")
         since September 1, 1997.

         B. ORGANIZATION; REPORTING COMPANY STATUS.

                  1. Each of the Company and the Subsidiaries is a corporation
         duly organized, validly existing and in good standing under the laws of
         the state of jurisdiction in which it is incorporated and is duly
         qualified as a foreign corporation in all jurisdictions in which the
         failure to so qualify would reasonably be expected to have a material
         adverse effect on the business, properties, prospects, condition
         (financial or otherwise) or results of operations of the Company and
         the Subsidiaries taken as a whole or on the consummation of any of the
         transactions contemplated by this Agreement (a "MATERIAL ADVERSE
         EFFECT").

                  2. The Company has registered the Common Stock pursuant to
         Section 12 of the Securities Exchange Act of 1934, as amended (the
         "EXCHANGE ACT"). The Common Stock is listed and traded on the Nasdaq
         National Market ("NASDAQ") and, except as set forth on Schedule
         III.B.2. hereto, the Company has not received any notice regarding, and
         to its knowledge there is no threat of, the termination or
         discontinuance of the eligibility of the Common Stock for such listing.

         C. AUTHORIZED SHARES. The Company (i) has duly and validly authorized
and reserved for issuance 4,000,000 shares of Common Stock, which is a number
sufficient for the conversion of and the payment of dividends (in lieu of cash
payments) on the 400,000 Preferred Shares in accordance with the Certificate of
Designation and the exercise of the Warrants in full, and (ii) at all times from
and after the date hereof shall have a sufficient number of shares of Common
Stock duly and validly authorized and reserved for issuance to satisfy the
conversion of Preferred Shares, the payment of dividends (in lieu of cash
payments) on the Preferred Shares and the exercise of the Warrants and (iii) at
all times from and after the date hereof shall have a sufficient number of
shares of Common Stock duly and validly authorized and reserved for issuance to
satisfy the conversion of Preferred Shares, the payment of dividends (in lieu of
cash payments) on the Preferred Shares and the exercise of the Warrants. The
Company understands and acknowledges the potentially dilutive effect on the
Common Stock of the issuance of the Preferred Shares, the Conversion Shares, the
Dividend Shares and the Warrant Shares upon the

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conversion of, and payment of dividends on, the Preferred Shares and the
exercise of the Warrants, respectively. The Company further acknowledges that
its obligation to issue Conversion Shares upon conversion of the Preferred
Shares and Warrant Shares upon exercise of the Warrants in accordance with this
Agreement, the Certificate of Designation and the Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company and notwithstanding
the commencement of any case under 11 U.S.C. ss. 101 et seq. (the "BANKRUPTCY
CODE"). In the event the Company is a debtor under the Bankruptcy Code, the
Company hereby waives to the fullest extent permitted any rights to relief it
may have under 11 U.S.C. ss. 362 in respect of the conversion of the Preferred
Shares and the exercise of the Warrants. The Company agrees, without cost or
expense to Buyer, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. ss. 362. Schedule III.C. hereto sets forth (a)
all issuances and sales by the Company since December 31, 1999 of its capital
stock, and other securities convertible, exercisable or exchangeable for capital
stock of the Company, except for shares issued upon exercise of options granted
pursuant to the Company's 1992 Stock Option and Compensation Plan, the Company's
1998 Non-Executive Stock Option Plan or the Company 1997 Director's Stock Option
Plan, (b) the amount of such securities sold, including any underlying shares of
capital stock, (c) the purchaser thereof, (d) the amount paid therefor, and (e)
the material terms of all outstanding capital stock of the Company (other than
the Common Stock).

         D. AUTHORITY; VALIDITY AND ENFORCEABILITY. The Company has the
requisite corporate power and authority to file and perform its obligations
under the Certificate of Designation and to enter into the Documents (as
hereinafter defined), and to perform all of its obligations hereunder and
thereunder (including the issuance, sale and delivery to Buyer of the
Securities). The execution, delivery and performance by the Company of the
Documents, and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the filing of the Certificate
of Designation with the Minnesota Secretary of State's office, the issuance of
the Preferred Shares, the Warrants and the issuance and reservation for issuance
of the Conversion Shares, the Dividend Shares and the Warrant Shares), have been
duly authorized by all necessary corporate action on the part of the Company.
Each of the Documents has been duly and validly executed and delivered by the
Company and the Certificate of Designation has been duly filed with the
Minnesota Secretary of State's office by the Company and each Document
constitutes a valid and binding obligation of the Company enforceable against it
in accordance with its terms, subject to applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally and except as rights to indemnity and
contribution may be limited by federal or state securities laws or the public
policy underlying such laws. The Securities have been duly and validly
authorized for issuance by the Company and, when executed and delivered by the
Company, will be valid and binding obligations of the Company enforceable
against it in accordance with their terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally. For purposes of this
Agreement, the term "DOCUMENTS" means (i) this Agreement; (ii) the Registration
Rights Agreement of even date herewith between the Company and Buyer, a copy of
which is annexed hereto as Exhibit D (the "REGISTRATION RIGHTS AGREEMENT");
(iii) the Certificate of Designation; and (iv) the Warrants.

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         E. VALIDITY OF ISSUANCE OF THE SECURITIES. As of the Closing Date, the
Preferred Shares and the Warrants, and the Conversion Shares, the Dividend
Shares and the Warrant Shares upon their issuance in accordance with the
Certificate of Designation, respectively, will be validly issued and
outstanding, fully paid and nonassessable, and not subject to any preemptive
rights, rights of first refusal, tag-along rights, drag-along rights or other
similar rights.

         F. NON-CONTRAVENTION. Except as set forth on Schedule III.F. hereto,
the execution and delivery by the Company of the Documents, the issuance of the
Securities, and the consummation by the Company of the other transactions
contemplated hereby and thereby, including, without limitation, the filing of
the Certificate of Designation with the Minnesota Secretary of State's office,
do not, and compliance with the provisions of this Agreement and other Documents
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a
material benefit under, or result in the creation of any Lien (as defined below)
upon any of the properties or assets of the Company or any of its Subsidiaries
under, or result in the termination of, or require that any consent be obtained
or any notice be given with respect to, (i) the Articles of Incorporation or
By-Laws of the Company or the comparable charter or organizational documents of
any of its Subsidiaries, (ii) any loan or credit agreement, note, bond,
mortgage, indenture, lease, contract or other agreement, instrument or permit
applicable to the Company or any of its Subsidiaries or their respective
properties or assets, or (iii) any Law (as defined below) applicable to the
Company or any of its Subsidiaries or their respective properties or assets.

         G. APPROVALS. Except as set forth on Schedule III.G. hereto, no
authorization, approval or consent of any court or public or governmental
authority is required to be obtained by the Company for the issuance and sale of
the Preferred Shares or the Warrants (and the Conversion Shares, the Dividend
Shares and the Warrant Shares) to Buyer as contemplated by this Agreement,
except such authorizations, approvals and consents that have been obtained by
the Company prior to the date hereof.

         H. COMMISSION FILINGS. The Company has properly and timely filed with
the Commission all reports, proxy statements, forms and other documents required
to be filed with the Commission under the Securities Act and the Exchange Act
since September 1, 1997 (the "COMMISSION FILINGS"). As of their respective
dates, (i) the Commission Filings complied in all material respects with the
requirements of the Securities Act, or the Exchange Act, as the case may be, and
the rules and regulations of the Commission promulgated thereunder applicable to
such Commission Filings, and (ii) none of the Commission Filings contained at
the time of its filing any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
Commission Filings, as of the dates of such documents, were true and complete in
all material respects and complied with applicable accounting requirements and
the published rules and regulations of the Commission with respect thereto, were
prepared in accordance with generally accepted accounting principles in the
United States ("GAAP") (except in the case of unaudited statements, as permitted
by Form 10-Q under the Exchange Act) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and

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fairly presented the consolidated financial position of the Company and its
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments that in the aggregate
are not material and to any other adjustment described therein).

         I. ABSENCE OF CERTAIN CHANGES. Except as set forth on Schedule III.I.
hereto, since the Balance Sheet Date (as defined in Section III.M.), there has
not occurred any change, event or development in the business, financial
condition, prospects or results of operations of the Company or any of the
Subsidiaries, there has not existed any condition having or reasonably likely to
have a Material Adverse Effect, and the Company and the Subsidiaries have
conducted there respective businesses only in the ordinary course.

         J. FULL DISCLOSURE. Except as set forth in Schedule III.J, there is no
fact known to the Company (other than general economic or industry conditions
known to the public generally) that has not been fully disclosed in writing to
Buyer that (i) reasonably could be expected to have a Material Adverse Effect or
(ii) reasonably could be expected to materially and adversely affect the ability
of the Company to perform its obligations pursuant to the Documents.

         K. ABSENCE OF LITIGATION. Except as set forth on Schedule III.K., there
are (i) no suits, actions or proceedings pending or, to the knowledge of the
Company, threatened against the Company or any of its Subsidiaries, (ii) no
complaints, lawsuits, charges or other proceedings pending or, to the knowledge
of the Company, threatened in any forum by or on behalf of any present or former
employee of the Company or any of its Subsidiaries, any applicant for employment
or classes of the foregoing alleging breach of any express or implied contract
of employment, any applicable law governing employment or the termination
thereof or other discriminatory, wrongful or tortious conduct in connection with
the employment relationship, and (iii) no judgments, decrees, injunctions or
orders of any governmental entity or arbitrator outstanding against the Company
or any Subsidiary.

         L. ABSENCE OF EVENTS OF DEFAULT. Except as set forth on Schedule
III.L., no "EVENT OF DEFAULT" (as defined in any agreement or instrument to
which the Company is a party) and no event which, with notice, lapse of time or
both, would constitute an Event of Default (as so defined), has occurred and is
continuing.

         M. FINANCIAL STATEMENTS; NO UNDISCLOSED LIABILITIES. The Company has
delivered to Buyer true and complete copies of the (i) audited balance sheet of
the Company and the Subsidiaries as at December 31, 1999, 1998, and 1997,
respectively, and the related audited statements of income, changes in
stockholders' equity and cash flows for the three fiscal years ended December
31, 1999, including the related notes and schedules thereto and (ii) unaudited
balance sheets of the Company and the Subsidiaries and the statements of income,
changes in stockholders' equity and cash flows for each fiscal quarter ended
since December 31, 1999, including the related notes and schedules, all
certified by the chief financial officer of the Company (collectively, the
"FINANCIAL STATEMENTS"), and all management letters, if any, from the Company's
independent auditors relating to the dates and periods covered by the Financial
Statements. Each of the Financial Statements is complete and correct in all
material respects, has been prepared in accordance with GAAP (subject, in the
case of the interim Financial Statements, to normal year end adjustments and the
absence of footnotes), and fairly presents the

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financial position, results of operations and cash flows of the Company as at
the dates and for the periods indicated. For purposes hereof, the audited
balance sheet of the Company as at December 31, 1999 is hereinafter referred to
as the "BALANCE SHEET" and December 31, 1999 is hereinafter referred to as the
"BALANCE SHEET DATE". The Company has no indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise, and
whether due or to become due), which was not fully reflected in, reserved
against or otherwise described in the Balance Sheet or the notes thereto or
incurred in the ordinary course of business consistent with the Company's past
practices since the Balance Sheet Date.

         N. COMPLIANCE WITH LAWS; PERMITS. Except as set forth in Schedule
III.N, each of the Company and its Subsidiaries is in compliance with all laws,
rules, regulations, codes, ordinances and statutes (collectively, "LAWS")
applicable to IT or to the conduct of its business. Each of the Company and its
Subsidiaries possesses all material permits, approvals, authorizations,
licenses, certificates and consents from all public and governmental authorities
which are necessary to conduct its business.

         O. RELATED PARTY TRANSACTIONS. Except as set forth on Schedule III.O.
hereto, neither the Company nor any of its officers, directors or "AFFILIATES"
(as such term is defined in Rule 12b-2 under the Exchange Act) nor any family
member of any officer, director or Affiliate of the Company has borrowed any
moneys from or has outstanding any indebtedness or other similar obligations to
the Company or any of the Subsidiaries. Except as set forth on Schedule III.O.
hereto, neither the Company nor any of its officers, directors or Affiliates nor
any family member of any officer, director or Affiliate of the Company (i) owns
any direct or indirect interest constituting more than a 1% equity (or similar
profit participation) interest in, or controls or is a director, officer,
partner, member or employee of, or consultant to or lender to or borrower from,
or has the right to participate in the profits of, any person or entity which is
(x) a competitor, supplier, customer, landlord, tenant, creditor or debtor of
the Company or any Subsidiary, (y) engaged in a business related to the business
of the Company or any Subsidiary, or (z) a participant in any transaction to
which the Company or any Subsidiary is a party or (ii) is a party to any
contract, agreement, commitment or other arrangement with the Company or any
Subsidiary.

         P. INSURANCE. Each of the Company and the Subsidiaries maintains
property and casualty, general liability, workers' compensation, environmental
hazard, personal injury and other similar types of insurance with financially
sound and reputable insurers that is adequate, and, consistent with industry
standards and the Company's historical claims experience. Except as set forth on
Schedule III.P. hereto, none of the Company and the Subsidiaries has received
notice from, and none of them has knowledge of any threat by, any insurer (that
has issued any insurance policy to the Company or any Subsidiary) that such
insurer intends to deny coverage under or cancel, discontinue or not renew any
insurance policy presently in force.

         Q. SECURITIES LAW MATTERS. Assuming the accuracy of the representations
and warranties of Buyer set forth in Article II hereof, the offer and sale by
the Company of the Securities is exempt from (i) the registration and prospectus
delivery requirements of the Securities Act and the rules and regulations of the
Commission thereunder and (ii) the registration and/or qualification provisions
of all applicable state securities and "blue sky" laws. Other than pursuant to
an effective registration statement under the Securities Act, the Company

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has not issued, offered or sold the Preferred Shares or any shares of Common
Stock (including for this purpose any securities of the same or a similar class
as the Preferred Shares or Common Stock, or any securities convertible into or
exchangeable or exercisable for the Preferred Shares or Common Stock or any such
other securities) within the one-year period next preceding the date hereof,
except as disclosed on Schedule III.Q. hereto or otherwise previously disclosed
in writing to Buyer, and the Company shall not directly or indirectly take, and
shall not permit any of its directors, officers or Affiliates directly or
indirectly to take, any action (including, without limitation, any offering or
sale to any person or entity of the Preferred Shares or shares of Common Stock),
which will make unavailable the exemption from Securities Act registration being
relied upon by the Company for the offer and sale to Buyer of the Preferred
Shares and the Warrants (and the Conversion Shares, the Dividend Shares and the
Warrant Shares) as contemplated by this Agreement. No form of general
solicitation or advertising has been used or authorized by the Company or any of
its officers, directors or Affiliates in connection with the offer or sale of
the Preferred Shares and the Warrants (and the Conversion Shares, the Dividend
Shares and the Warrant Shares) as contemplated by this Agreement or any other
agreement to which the Company is a party.

         R. ENVIRONMENTAL MATTERS.

         Except as set forth on Schedule III.R. hereto:

                  1. The Company, the Subsidiaries and their respective
         operations are in compliance with all applicable Environmental Laws and
         all permits (including terms, conditions, and limitations therein)
         issued pursuant to Environmental Laws or otherwise;

                  2. Each of the Company and the Subsidiaries has all permits,
         licenses, waivers, exceptions, and exemptions required under all
         applicable Environmental Laws necessary to operate its business;

                  3. None of the Company or the Subsidiaries is the subject of
         any outstanding written order of or agreement with any governmental
         authority or person respecting (i) Environmental Laws or permits, (ii)
         Remedial Action or (iii) any Release or threatened Release of Hazardous
         Materials;

                  4. None of the Company or the Subsidiaries has received any
         written communication alleging that it may be in violation of any
         Environmental Law or any permit issued pursuant to any Environmental
         Law, or may have any liability under any Environmental Law;

                  5. None of the Company or the Subsidiaries has any liability,
         contingent or otherwise, in connection with any presence, treatment,
         storage, disposal or Release of any Hazardous Materials whether on
         property owned or operated by the Company or any Subsidiary or property
         of third parties, and none of the Company or the Subsidiaries has
         transported, or arranged for transportation of, any Hazardous Materials
         for treatment or disposal on any property;

                  6. There are no investigations of the business, operations, or
         currently or previously owned, operated or leased property of the
         Company or any Subsidiary

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         pending or threatened which could lead to the imposition of any case or
         liability pursuant to any Environmental Law;

                  7. There is not located at any of the properties owned or
         operated by the Company or any Subsidiary any (A) underground storage
         tanks, (B) asbestos-containing material or (C) equipment containing
         polychlorinated biphenyls;

                  8. Each of the Company and the Subsidiaries has provided to
         Buyer all environmentally related assessments, audits, studies,
         reports, analyses, and results of investigations that have been
         performed with respect to the currently or previously owned, leased or
         operated properties or activities of the Company and such Subsidiaries;

                  9. There are no liens arising under or pursuant to any
         Environmental Law on any real property owned, operated, or leased by
         the Company or any Subsidiary, and no action of any governmental
         authority has been taken or, to the knowledge of the Company, is in
         process of being taken which could subject any of such properties to
         such liens, and none of the Company or the Subsidiaries has been or is
         expected to be required to place any notice or restriction relating to
         the presence of Hazardous Material at any real property owned,
         operated, or leased by it in any deed to such property;

                  10. Neither the Company nor any of the Subsidiaries owns,
         operates, or leases any hazardous waste generation, treatment, storage,
         or disposal facility, as such terms are used pursuant to the RCRA and
         related or analogous state, local, or foreign law. None of the
         properties owned, operated, or leased by the Company, any of the
         Subsidiaries or any predecessor thereof are now, or were in the past,
         used in any part as a dump, landfill, or disposal site, and neither the
         Company, any of the Subsidiaries nor any predecessor of any of them has
         filled any wetlands;

                  11. The purchase that is the subject of this Agreement will
         not require any governmental approvals under Environmental Laws,
         including those that are triggered by sales or transfers of businesses
         or real property, including, as examples and without limitation, the
         New Jersey Industrial Site Recovery Act, N.J. Stat. 13:1K-7 et seq.,
         and the Connecticut Transfer of Establishments Act, Conn. Gen. Stat.ss.
         22a-134 et seq.;

                  12. There is no currently existing requirement or requirement
         to be imposed in the future by any Environmental Law or Environmental
         Permit which could result in the incurrence of a cost that could be
         reasonably expected to have a Material Adverse Effect; and

                  13. Each of the Company and each of the Subsidiaries has
         disclosed to Buyer all other acts or conditions that could result in
         any costs or liabilities under Environmental Laws.

         For purposes of this Section III.R.:

         "ENVIRONMENTAL LAW" means any foreign, federal, state or local statute,
regulation, ordinance, or common law as now or hereafter in effect in any way
relating to the protection of human health, safety or welfare, or the
environment including, without limitation,

                                       10

<PAGE>   11

the Comprehensive Environmental Response, Compensation and Liability Act, the
Hazardous Materials Transportation Act, the Resource Conservation and Recovery
Act ("RCRA"), the Clean Water Act, the Clean Air Act, the Toxic Substances
Control Act, the Federal Insecticide, Fungicide, and Rodenticide Act, and the
Occupational Safety and Health Act, and the regulations promulgated pursuant to
any of them.

         "HAZARDOUS MATERIAL" means any substance that is listed, classified or
regulated pursuant to any Environmental Law, including petroleum, gasoline, and
any other petroleum product, by-product, fraction or derivative, asbestos or
asbestos-containing material, lead-containing paint, water, or plumbing,
polychlorinated biphenyls, radioactive materials and radon;

         "RELEASE" means any placement, release, spill, filtration, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, migration,
or leaching to, through, or under the indoor or outdoor environment, or into,
through, under, or out of any property; and

         "REMEDIAL ACTION" means any action to (x) clean up, remove, remediate,
treat or in any other way address any Hazardous Material; (y) prevent or contain
the Release of any Hazardous Material; or (z) perform studies and investigations
or post-remedial monitoring and care in relation to (x) or (y) above.

         S. LABOR MATTERS. Neither the Company nor any of the Subsidiaries is
party to any labor or collective bargaining agreement, and there are no labor or
collective bargaining agreements which pertain to any employees of the Company
or any Subsidiary. No employees of the Company or any of the Subsidiaries are
represented by any labor organization and none of such employees has made a
pending demand for recognition, and there are no representation proceedings or
petitions seeking a representation proceeding presently pending or, to the
Company's knowledge, threatened to be brought or filed, with the National Labor
Relations Board or other labor relations tribunal. There is no organizing
activity involving the Company or any Subsidiary pending or to the Company's
knowledge, threatened by any labor organization or group of employees of the
Company or any of the Subsidiaries. There are no (i) strikes, work stoppages,
slowdowns, lockouts or arbitrations or (ii) material grievances or other labor
disputes pending or, to the knowledge of the Company, threatened against or
involving the Company or any of the Subsidiaries. There are no unfair labor
practice charges, grievances or complaints pending or, to the knowledge of the
Company, threatened by or on behalf of any employee or group of employees of the
Company or any of the Subsidiaries.

         T. ERISA MATTERS. All Plans maintained by the Company or any of its
Subsidiaries and ERISA Affiliates are listed in Schedule III.T. and copies of
all documentation relating to such Plans (including, but not limited to, copies
of written Plans, written descriptions of oral Plans, summary plan descriptions,
trust agreements, the three most recent annual returns, employee communications
and IRS determination letters) have been delivered to or made available for
review by the Buyer. Each Plan has at all times been maintained and administered
in all material respects in accordance with its terms and the requirements of
applicable law, including ERISA and the Code, and each Plan intended to qualify
under section 401(a) of the Code has at all times since its adoption been so
qualified, and each trust which forms a part of any such plan has at all times
since its adoption been tax-exempt under section 501(a) of the

                                       11

<PAGE>   12

Code. The Company and each of its Subsidiaries and ERISA Affiliates are in
compliance in all material respects with all provisions of ERISA applicable to
it. No Reportable Event has occurred, been waived or exists as to which the
Company or any of its Subsidiaries and ERISA Affiliates was required to file a
report with the PBGC, and the present value of all liabilities under each
Pension Plan (based on those assumptions used to fund such Plans) listed in
Schedule III.T. did not, as of the most recent annual valuation date applicable
thereto, exceed the value of the assets of such Pension Plan. None of the
Company, its Subsidiaries and ERISA Affiliates has incurred, or reasonably
expects to incur, any Withdrawal Liability with respect to any Multi-employer
Plan that could result in a Material Adverse Effect. None of the Company, its
Subsidiaries and ERISA Affiliates has received any notification that any
Multi-employer Plan is in reorganization or has been terminated within the
meaning of Title IV of ERISA, and no Multi-employer Plan is reasonably expected
to be in reorganization or termination where such reorganization or termination
has resulted or could reasonably be expected to result in increases to the
contributions required to be made to such Plan or otherwise. No direct,
contingent or secondary liability has been incurred or is expected to be
incurred by the Company or any of its Subsidiaries under Title IV of ERISA to
any party with respect to any Plan, or with respect to any other Plan presently
or heretofore maintained or contributed to by any ERISA Affiliate. Neither the
Company nor any of its Subsidiaries and ERISA Affiliates has incurred any
liability for any tax imposed under sections 4971 through 4980B of the Code or
civil liability under section 502(i) or (l) of ERISA. No suit, action or other
litigation or any other claim which could reasonably be expected to result in a
material liability or expense to the Company or any of its Subsidiaries or ERISA
Affiliates (excluding claims for benefits incurred in the ordinary course of
plan activities) has been brought or, to the knowledge of the Company,
threatened against or with respect to any Plan and there are no facts or
circumstances known to the Company or any of its Subsidiaries or ERISA
Affiliates that could reasonably be expected to give rise to any such suit,
action or other litigation. All contributions to Plans that were required to be
made under such Plans have been made, and all benefits accrued under any
unfunded Plan have been paid, accrued or otherwise adequately reserved in
accordance with GAAP, all of which accruals under unfunded Plans are as
disclosed in Schedule III.T., and the Company, its Subsidiaries and ERISA
Affiliates have each performed all material obligations required to be performed
under all Plans. The execution, delivery and performance of this Agreement and
the other Documents and the consummation of the transactions contemplated hereby
and thereby (including, without limitation, the offer, issue and sale by the
Company, and the purchase by the Buyer, of the Preferred Shares, the Conversion
Shares, the Warrants, the Warrant Shares and Dividend Shares) will not involve
any "prohibited transaction" within the meaning of ERISA or the Code with
respect to any Plan.

         As used in this Agreement:

         "CODE" means the Internal Revenue Code of 1986, as amended.

         "ERISA" means the Employee Retirement Income Security Act of 1974, or
any successor statute, together with the regulations thereunder, as the same may
be amended from time to time.

                                       12

<PAGE>   13

         "ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that was, is or hereafter may become, a member of a group of which
the Company is a member and which is treated as a single employer under section
414 of the Code.

         "MULTI-EMPLOYER PLAN" means a multi-employer plan as defined in section
4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other than one
considered an ERISA Affiliate only pursuant to subsection (m) or (o) of section
414 of the Code) is making or accruing an obligation to make contributions, or
has within any of the preceding six plan years made or accrued an obligation to
make contributions.

         "PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.

         "PENSION PLAN" means any pension plan (other than a Multi-employer
Plan) subject to the provision of Title IV of ERISA or section 412 of the Code
that is maintained for employees of the Company or any of its Subsidiaries, or
any ERISA Affiliate.

         "PLAN" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, or whether for the benefit of a single
individual or more than one individual including, but not limited to, any
"employee benefit plan" within the meaning of section 3(3) of ERISA, including
any Pension Plan.

         "REPORTABLE EVENT" means any reportable event as defined in section
4043(b) of ERISA or the regulations issued thereunder with respect to a Plan.

         "WITHDRAWAL LIABILITY" means liability to a Multi-employer Plan as a
result of a complete or partial withdrawal from such Multi-employer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.

         U. TAX MATTERS.

                  1. The Company has filed all material Tax Returns which it is
         required to file under applicable Laws; all such Tax Returns are true
         and accurate in all material respects and have been prepared in
         compliance with all applicable Laws; the Company has paid all Taxes due
         and owing by it (whether or not such Taxes are required to be shown on
         a Tax Return) and has withheld and paid over to the appropriate taxing
         authorities all Taxes which it is required to withhold from amounts
         paid or owing to any employee, stockholder, creditor or other third
         parties; and since the Balance Sheet Date, the charges, accruals and
         reserves for Taxes with respect to the Company (including any
         provisions for deferred income taxes) reflected on the books of the
         Company are adequate to cover any Tax liabilities of the Company if its
         current tax year were treated as ending on the date hereof.

                                       13

<PAGE>   14

                  2. No claim has been made by a taxing authority in a
         jurisdiction where the Company does not file tax returns that the
         Company is or may be subject to taxation by such jurisdiction. There
         are no foreign, federal, state or local tax audits or administrative or
         judicial proceedings pending or being conducted with respect to the
         Company; no information related to Tax matters has been requested by
         any foreign, federal, state or local taxing authority; and, except as
         disclosed above, no written notice indicating an intent to open an
         audit or other review has been received by the Company from any
         foreign, federal, state or local taxing authority. There are no
         material unresolved questions or claims concerning the Company's Tax
         liability. The Company (A) has not executed or entered into a closing
         agreement pursuant to section 7121 of the Code or any predecessor
         provision thereof or any similar provision of state, local or foreign
         law; or (B) has not agreed to or is required to make any adjustments
         pursuant to section 481(a) of the Code or any similar provision of
         state, local or foreign law by reason of a change in accounting method
         initiated by the Company or any of its subsidiaries or has any
         knowledge that the IRS has proposed any such adjustment or change in
         accounting method, or has any application pending with any taxing
         authority requesting permission for any changes in accounting methods
         that relate to the business or operations of the Company. The Company
         has not been a United States real property holding corporation within
         the meaning of section 897(c)(2) of the Code during the applicable
         period specified in section 897(c)(1)(A)(ii) of the Code.

                  3. The Company has not made an election under section 341(f)
         of the Code. The Company is not liable for the Taxes of another person
         that is not a subsidiary of the Company under (A) Treas. Reg. Section
         1.1502-6 (or comparable provisions of state, local or foreign law), (B)
         as a transferee or successor, (C) by contract or indemnity or (D)
         otherwise. The Company is not a party to any tax sharing agreement. The
         Company has not made any payments, is not obligated to make payments
         and is not a party to an agreement that could obligate it to make any
         payments that would not be deductible under section 280G of the Code.

         For purposes of this Section III.U.:

         "IRS" means the United States Internal Revenue Service.

         "TAX" or "TAXES" means federal, state, county, local, foreign, or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer,
registration, excise, utility, environmental, communications, real or personal
property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.

         "TAX RETURN" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.

         V. PROPERTY. Except as set forth on Schedule III.V., each of the
Company and the Subsidiaries has good and marketable title to all of its assets
and properties material to the

                                       14

<PAGE>   15

conduct of its business, free and clear of any liens, pledges, security
interests, claims, encumbrances or other restrictions of any kind (collectively,
"LIENS"). With respect to any assets or properties it leases, each of the
Company and its Subsidiaries holds a valid and subsisting leasehold interest
therein, free and clear of any Liens, is in compliance, in all material
respects, with the terms of the applicable lease, and enjoys peaceful and
undisturbed possession under such lease. All of the assets and properties of the
Company and its Subsidiaries that are material to the conduct of business as
presently conducted or as proposed to be conducted by it are in good operating
condition and repair. Except as reserved for, the inventory of the Company and
its Subsidiaries is in good and marketable condition, does not include any
material quantity of items which are obsolete, damaged or slow moving, and is
salable (or may be leased) in the normal course of business as currently
conducted by it.

         W. INTELLECTUAL PROPERTY. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"INTANGIBLES") necessary for the conduct of its business as now being conducted
including, but not limited to, those described on Schedule III.W. hereto. Except
as set forth on Schedule III.W, the Company has all right, title and interest in
all of the Intangibles, free and clear of any and all Liens. The Company is not
infringing upon or in conflict with any right of any other person with respect
to any Intangibles. Except as disclosed on Schedule III.W. hereto, (i) no claims
have been asserted by any individual, partnership, corporation, unincorporated
organization or association, limited liability company, trust or other entity
(collectively, a "PERSON") contesting the validity, enforceability, use or
ownership of any Intangibles, and the Company has no knowledge of any basis for
such claim, and (ii) neither the Company nor the Subsidiaries has any knowledge
of infringement or misappropriation of the Intangibles by any third party.

         X. CONTRACTS. All contracts, agreements, notes, instruments,
franchises, leases, licenses, commitments, arrangements or understandings,
written or oral (collectively, "CONTRACTS") which are material to the business
and operations of the Company and the Subsidiaries are in full force and effect
and constitute legal, valid and binding obligations of the Company and the
Subsidiaries and, to the best knowledge of the Company, the other parties
thereto; the Company and the Subsidiaries and, to the best knowledge of the
Company, each other party thereto, have performed in all material respects all
obligations required to be performed by them under the Contracts, and no
material violation or default exists in respect thereof, nor any event that with
notice or lapse of time, or both, would constitute a default thereof, on the
part of the Company and the Subsidiaries or, to the best knowledge of the
Company, any other party thereto; none of the Contracts is currently being
renegotiated; and the validity, effectiveness and continuation of all Contracts
will not be materially adversely affected by the transactions contemplated by
this Agreement.

         Y. REGISTRATION RIGHTS. Except as set forth on Schedule III.Y., no
Person has, and as of the Closing (as defined below), no Person shall have,
demand, "piggy-back" or other rights to cause the Company to file any
registration statement under the Securities Act, relating to any of its
securities or to participate in any such registration statement.

                                       15

<PAGE>   16

         Z. DIVIDENDS. The timely payment of dividends on the Preferred Shares
as specified in the Certificate of Designation is not prohibited by the
Certificate of Incorporation or By-Laws of the Company or any agreement,
contract, document or other undertaking to which the Company or any of the
Subsidiaries is a party.

         AA. INVESTMENT COMPANY ACT. Neither the Company nor any of the
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "INVESTMENT COMPANY ACT"), nor is the
Company nor any of the Subsidiaries directly or indirectly controlled by or
acting on behalf of any Person which is an "investment company" within the
meaning of the Investment Company Act.

         BB. BUSINESS PLAN. Any business information of the Company previously
submitted to Buyer in any form, including the projections contained therein, was
prepared by the senior management of the Company in good faith and is based on
assumptions that the Company believes are reasonable. The Company is not aware
of any fact or condition that could reasonably be expected to result in the
Company not achieving the results described in such business plan.

         CC. INTERNAL CONTROLS AND PROCEDURES. The Company maintains accurate
books and records and internal accounting controls that provide reasonable
assurance that (i) all transactions to which the Company or each of the
Subsidiaries is a party or by which its properties are bound are executed with
management's authorization; (ii) the reported accountability of the Company's
and the Subsidiaries' assets is compared with existing assets at regular
intervals; (iii) access to the Company's and the Subsidiaries' assets is
permitted only in accordance with management's authorization; and (iv) all
transactions to which any of the Company and the Subsidiaries is a party or by
which its properties are bound are recorded as necessary to permit preparation
of the financial statements of the Company in accordance with GAAP.

         DD. PAYMENTS AND CONTRIBUTIONS. Neither the Company nor any of its
Subsidiaries nor any of their respective directors, officers or, to their
respective knowledge, other employees has (i) used any company funds for any
unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to political activity; (ii) made any direct or indirect
unlawful payment of company funds to any foreign or domestic government official
or employee, (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person with
respect to Company matters.

         EE. NO MISREPRESENTATION. No representation or warranty of the Company
contained in this Agreement or any of the other Documents, any schedule, annex
or exhibit hereto or thereto or any agreement, instrument or certificate
furnished by the Company to Buyer pursuant to this Agreement, contains any
untrue statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein, not
misleading.

         FF. FINDER'S FEE. There is no finder's fee, brokerage commission or
like payment in connection with the transactions contemplated by this Agreement
for which Buyer is liable or responsible.

                                       16

<PAGE>   17

                    IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS

         A. RESTRICTIVE LEGEND. Buyer acknowledges and agrees that, upon
issuance pursuant to this Agreement, the Securities (including without
limitation any Dividend Shares, Conversion Shares or Warrant Shares) shall have
endorsed thereon a legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the Preferred Shares, the
Warrant Shares and the Conversion Shares until such legend has been removed):

         "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
         1933, AS AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY
         STATE, AND ARE BEING OFFERED AND SOLD PURSUANT TO AN EXEMPTION FROM THE
         REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
         SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
         EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT
         TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
         SECURITIES ACT OR SUCH OTHER LAWS."

         B. FILINGS. The Company shall make all necessary Commission Filings and
"blue sky" filings required to be made by the Company in connection with the
sale of the Securities to Buyer as required by all applicable Laws, and shall
provide a copy thereof to Buyer promptly after such filing.

         C. REPORTING STATUS. So long as Buyer beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed by it
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.

         D. USE OF PROCEEDS. The Company shall use the net proceeds from the
sale of the Securities (excluding amounts paid by the Company for Buyer's
out-of-pocket costs and expenses, whether or not accounted for or incurred, in
connection with the transactions contemplated by this Agreement (including the
fees and disbursements of Buyer's legal counsel) and excluding finder's fees in
connection with such sale) solely for general corporate and working capital
purposes.

         E. LISTING. Except to the extent the Company lists its Common Stock on
the New York Stock Exchange, the Company shall use its best efforts to maintain
its listing of the Common Stock on Nasdaq. If the Common Stock is delisted from
Nasdaq, the Company will use its best efforts to list the Common Stock on the
most liquid national securities exchange or quotation system that the Common
Stock is qualified to be listed on.

         F. RESERVED CONVERSION SHARES. The Company at all times from and after
the date hereof shall have such number of shares of Common Stock duly and
validly authorized and reserved for issuance as shall be sufficient for the
conversion, in full of, and the payment of dividends on the Preferred Shares and
the exercise in full of the Warrants.

                                       17

<PAGE>   18

         G. INFORMATION. Each of the parties hereto acknowledges and agrees that
Buyer shall not be provided with, nor be given access to, any material
non-public information relating to the Company or any of the Subsidiaries.

         H. EXEMPTION FROM INVESTMENT COMPANY ACT. The Company shall conduct its
business, and shall cause the Subsidiaries to conduct their businesses, in such
a manner that neither the Company nor any Subsidiary shall become an "investment
company" within the meaning of the Investment Company Act.

         I. ACCOUNTING AND RESERVES. The Company shall maintain a standard and
uniform system of accounting and shall keep proper books and records and
accounts in which full, true and correct entries shall be made of its
transactions, all in accordance with GAAP applied on a consistent basis through
all periods, and shall set aside on such books for each fiscal year all such
proper reserves for depreciation, obsolescence, amortization, bad debts and
other purposes in connection with its operations as are required by such
principles so applied.

         J. TRANSACTIONS WITH AFFILIATES. Neither the Company nor any of its
Subsidiaries shall, directly or indirectly, enter into any transaction or
agreement with any stockholder, officer director or Affiliate of the Company or
family member of any officer, director or Affiliate of the Company, unless the
transaction or agreement is (i) reviewed and approved by a majority of
Disinterested Directors (as defined below) and (ii) on terms no less favorable
to the Company or the applicable Subsidiary than those obtainable from a
non-affiliated person. A "DISINTERESTED DIRECTOR" shall mean a director of the
Company who is not and has not been an officer or employee of the Company and
who is not a member of the family of, controlled by or under common control
with, any such officer or employee.

         K. CERTAIN RESTRICTIONS. So long as any Preferred Shares are
outstanding, no dividends shall be declared or paid or set apart for payment nor
shall any other distribution be declared or made upon Junior Securities (as
defined in the Certificate of Designation), nor shall any Junior Securities be
redeemed, purchased or otherwise acquired (other than a redemption, purchase or
other acquisition of shares of Common Stock made for purposes of an employee
incentive or benefit plan (including a stock option plan) of the Company or any
Subsidiary, for any consideration by the Company, directly or indirectly, nor
shall any moneys be paid to or made available for a sinking fund for the
redemption of any shares of any such stock.

                         V. TRANSFER AGENT INSTRUCTIONS

         A. The Company undertakes and agrees that no instruction other than the
instructions referred to in this Article V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement shall be given to its
transfer agent for the Common Stock and that the Conversion Shares, the Dividend
Shares and the Warrant Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement and applicable law. Nothing
contained in this Section V.A. shall affect in any way Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of such
Common Stock. If, at any time, Buyer provides the Company with an opinion of
counsel reasonably satisfactory to the Company that registration of the resale
by

                                       18

<PAGE>   19

Buyer of such Common Stock is not required under the Securities Act and that the
removal of restrictive legends is permitted under applicable law, the Company
shall permit the transfer of such Common Stock and, promptly instruct the
Company's transfer agent to issue one or more certificates for Common Stock
without any restrictive legends endorsed thereon.

         B. Buyer shall have the right to convert the Preferred Shares by
telecopying an executed and completed Notice of Conversion (as defined in the
Certificate of Designation) to the Company. Each date on which a Notice of
Conversion is telecopied to and received by the Company in accordance with the
provisions hereof shall be deemed a Conversion Date (as defined in the
Certificate of Designation). The Company shall transmit the certificates
evidencing the shares of Common Stock issuable upon conversion of any Preferred
Shares (together with certificates evidencing any Preferred Shares not being so
converted) to Buyer via express courier, by electronic transfer or otherwise,
within five business days after receipt by the Company of the Notice of
Conversion (the "DELIVERY DATE"). Within 15 days after Buyer delivers the Notice
of Conversion to the Company, Buyer shall deliver to the Company the Preferred
Shares being converted.

         C. Buyer shall have the right to purchase shares of Common Stock
pursuant to exercise of the Warrants in accordance with its applicable terms of
the Warrants. The last date that the Company may deliver shares of Common Stock
issuable upon any exercise of Warrants is referred to herein as the "WARRANT
DELIVERY DATE."

         D. The Company understands that a delay in the issuance of the shares
of Common Stock issuable in lieu of cash dividends on the Preferred Shares, upon
the conversion of the Preferred Shares or exercise of the Warrants beyond the
applicable Dividend Payment Due Date (as defined in the Certificate of
Designation), Delivery Date or Warrant Delivery Date could result in economic
loss to Buyer. As compensation to Buyer for such loss (and not as a penalty),
the Company agrees to pay to Buyer for late issuance of Common Stock issuable in
lieu of cash dividends on the Preferred Shares, upon conversion of the Preferred
Shares or exercise of the Warrants in accordance with the following schedule
(where "NO. BUSINESS DAYS" is defined as the number of business days beyond five
business days from the Dividend Payment Due Date, the Delivery Date or the
Warrant Delivery Date, as applicable):

                                       19

<PAGE>   20

                               COMPENSATION FOR EACH 10 SHARES
                              OF PREFERRED SHARES NOT CONVERTED
                               TIMELY OR 500 SHARES OF COMMON
                                STOCK ISSUABLE IN PAYMENT OF
                                DIVIDENDS OR UPON EXERCISE OF
     NO. BUSINESS DAYS           WARRANTS NOT ISSUED TIMELY
     -----------------        ---------------------------------
           1                               $   25
           2                                   50
           3                                   75
           4                                  100
           5                                  125
           6                                  150
           7                                  175
           8                                  200
           9                                  225
           10                                 250
       more than 10
                                              $250 + $100 for
                                              each Business Day Late
                                              beyond 10 days

The Company shall pay to Buyer the compensation described above by the transfer
of immediately available funds upon Buyer's demand. Nothing herein shall limit
Buyer's right to pursue actual damages for the Company's failure to issue and
deliver Common Stock to Buyer. In addition to any other remedies which may be
available to Buyer, in the event the Company fails for any reason to deliver
such shares of Common Stock within five business days after the relevant
Dividend Payment Due Date, Delivery Date or Warrant Delivery Date, as
applicable, Buyer shall be entitled to rescind the relevant Notice of Conversion
or exercise of Warrants by delivering a notice to such effect to the Company
whereupon the Company and Buyer shall each be restored to their respective
original positions immediately prior to delivery of such Notice of Conversion on
delivery.

                           VI. DELIVERY INSTRUCTIONS

         The Securities shall be delivered by the Company to the Buyer pursuant
to Section I.B. hereof on a "delivery-against-payment basis" at the Closing.

                               VII. CLOSING DATE

         The date and time (the "CLOSING DATE") of the issuance and sale of the
Preferred Shares and the Warrants shall be the date hereof or such other date
and time as shall be mutually agreed upon in writing. The issuance and sale of
the Securities shall occur on the Closing Date at the offices of Maslon Edelman
Borman & Brand.

                                       20

<PAGE>   21

                 VIII. CONDITIONS TO THE COMPANY'S OBLIGATIONS

         Buyer understands that the Company's obligation to sell the Securities
on the Closing Date to Buyer pursuant to this Agreement is conditioned upon:

         A. Delivery by Buyer of the Purchase Price;

         B. The accuracy in all material respects on the Closing Date of the
representations and warranties of Buyer contained in this Agreement as if made
on the Closing Date (except for representations and warranties which, by their
express terms, speak as of and relate to a specified date, in which case such
accuracy shall be measured as of such specified date) and the performance by
Buyer in all material respects on or before the Closing Date of all covenants
and agreements of Buyer required to be performed by it pursuant to this
Agreement on or before the Closing Date; and

         C. There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.

                     IX. CONDITIONS TO BUYER'S OBLIGATIONS

         The Company understands that Buyer's obligation to purchase the
Securities on the Closing Date pursuant to this Agreement is conditioned upon:

         A. Delivery by the Company to Buyer of evidence that the Certificate of
Designation has been filed and is effective.

         B. The accuracy in all material respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement as if
made on the Closing Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date, in which case
such accuracy shall be measured as of such specified date) and the performance
by the Company in all respects on or before the Closing Date of all covenants
and agreements of the Company required to be performed by it pursuant to this
Agreement on or before the Closing Date, all of which shall be confirmed to
Buyer by delivery of the certificate of the chief executive officer of the
Company to that effect;

         C. There not having occurred (i) any general suspension of trading in,
or limitation on prices listed for, the Common Stock on Nasdaq, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) the commencement of a war, armed hostilities
or other international or national calamity directly or indirectly involving the
United States or any of its territories, protectorates or possessions, or (iv)
in the case of the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof;

         D. There not having occurred any event or development, and there being
in existence no condition, having or which reasonably and foreseeably could have
a Material Adverse Effect;

                                       21

<PAGE>   22

         E. There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement;

         F. Except as set forth on Schedule III.F. hereof, the Company shall
have obtained all consents, approvals or waivers from governmental authorities
and third persons necessary for the execution, delivery and performance of this
Agreement and the other Documents and the transactions contemplated hereby and
thereby, all without material cost to the Company; and

         G. Buyer shall have received such additional documents, certificates,
payment, assignments, transfers and other delivers, as it or its legal counsel
may reasonably request and as are customary to effect a closing of the matters
herein contemplated.

                                 X. TERMINATION

         A. TERMINATION BY MUTUAL WRITTEN CONSENT. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned, for any
reason and at any time prior to the Closing Date, by the mutual written consent
of the Company and Buyer.

         B. TERMINATION BY THE COMPANY OR BUYER. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by action
of the Company or Buyer if (i) the Closing shall not have occurred at or prior
to 5:00 p.m., New York City time, on November 30, 2000 (the "LATEST CLOSING
DATE"); provided, however, that the right to terminate this Agreement pursuant
to this Section X.B. shall not be available to any party whose failure to
fulfill any of its obligations under this Agreement has been the cause of or
resulted in the failure of the Closing to occur at or before such time and date;
provided, further, however, that if the Closing shall not have occurred on or
prior to the Latest Closing Date, the Closing may only occur after the Latest
Closing Date with the written consent of Buyer.

         C. TERMINATION BY BUYER. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by Buyer at any time prior to
the Closing Date, if (i) the Company shall have failed to comply with any of its
covenants or agreements contained in this Agreement, (ii) there shall have been
a breach by the Company of any representation or warranty made by it in this
Agreement, (iii) there shall have occurred any event or development, or there
shall be in existence any condition, having or reasonably likely to have a
Material Adverse Effect or (iv) the Company shall have failed to satisfy the
conditions provided in Article IX hereof.

         D. TERMINATION BY THE COMPANY. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by the Company at any time
prior to the Closing Date, if (i) Buyer shall have failed to comply with any of
its covenants or agreements contained in this Agreement or (ii) there shall have
been a breach by Buyer of any representation or warranty made by it in this
Agreement.

         E. EFFECT OF TERMINATION. In the event of the termination of this
Agreement pursuant to this Article X, this Agreement shall thereafter become
void and have no effect, and

                                       22

<PAGE>   23

no party hereto shall have any liability or obligation to any other party hereto
in respect of this Agreement, except that the provisions of Article XI, this
Section X.E. and Section X.F. shall survive any such termination; provided,
however, that no party shall be released from any liability hereunder if this
Agreement is terminated and the transactions contemplated hereby abandoned by
reason of (i) willful failure of such party to perform its obligations hereunder
or (ii) any misrepresentation made by such party of any matter set forth herein.

         F. FEES AND EXPENSES OF TERMINATION. If this Agreement is terminated
for any reason, the Company shall promptly reimburse Buyer for all of Buyer's
out-of-pocket costs and expenses incurred in connection with the transactions
contemplated by this Agreement and the other Documents (including, without
limitation, the fees and disbursements of Buyer's legal counsel).

                         XI. SURVIVAL; INDEMNIFICATION

         A. The representations, warranties and covenants made by each of the
Company and Buyer in this Agreement, the annexes, schedules and exhibits hereto
and in each instrument, agreement and certificate entered into and delivered by
them pursuant to this Agreement, shall survive the Closing and the consummation
of the transactions contemplated hereby. In the event of a breach or violation
of any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.

         B. The Company hereby agrees to indemnify and hold harmless Buyer, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "BUYER INDEMNITEES"), from and against any and all losses,
claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "LOSSES"), and agrees to reimburse Buyer Indemnitees for all out
of-pocket expenses (including the fees and expenses of legal counsel), in each
case promptly as incurred by Buyer Indemnitees and to the extent arising out of
or in connection with:

                  1. any misrepresentation, omission of fact or breach of any of
         the Company's representations or warranties contained in this Agreement
         or the other Documents, or the annexes, schedules or exhibits hereto or
         thereto or any instrument, agreement or certificate entered into or
         delivered by the Company pursuant to this Agreement or the other
         Documents;

                  2. any failure by the Company to perform in any material
         respect any of its covenants, agreements, undertakings or obligations
         set forth in this Agreement or the other Documents or any instrument,
         certificate or agreement entered into or delivered by the Company
         pursuant to this Agreement or the other Documents;

                  3. the purchase of the Preferred Shares and the Warrants, the
         conversion of the Preferred Shares and the exercise of the Warrants and
         the consummation of the transactions contemplated by this Agreement and
         the other Documents, the use of any of the proceeds of the Purchase
         Price by the Company, the purchase or ownership of any or

                                       23
<PAGE>   24

         all of the Securities, the performance by the parties hereto of their
         respective obligations hereunder and under the Documents or any claim,
         litigation, investigation, proceedings or governmental action relating
         to any of the foregoing, whether or not Buyer is a party thereto; or

                  4. resales of the Common Shares by Buyer in the manner and as
         contemplated by this Agreement and the Registration Rights Agreement.

         C. Buyer hereby agrees to indemnify and hold harmless the Company, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "COMPANY INDEMNITEES"), from and against any and all Losses,
and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses
(including the fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:

                  1. any misrepresentation, omission of fact, or breach of any
         of Buyer's representations or warranties contained in this Agreement or
         the other Documents, or the annexes, schedules or exhibits hereto or
         thereto or any instrument, agreement or certificate entered into or
         delivered by Buyer pursuant to this Agreement or the other Documents;
         or

                  2. any failure by Buyer to perform in any material respect any
         of its covenants, agreements, undertakings or obligations set forth in
         this Agreement or the other Documents or any instrument, certificate or
         agreement entered into or delivered by Buyer pursuant to this Agreement
         or the other Documents.

         D. Promptly after receipt by either party hereto seeking
indemnification pursuant to this Article XI (an "INDEMNIFIED PARTY") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "CLAIM"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Article XI is being sought (the "INDEMNIFYING PARTY") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party except
to the extent that the Indemnifying Party is materially prejudiced and forfeits
substantive rights or defenses by reason of such failure. In connection with any
Claim as to which both the Indemnifying Party and the Indemnified Party are
parties, the Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the Indemnifying
Party, the Indemnified Party shall have the right to employ separate legal
counsel and to participate in the defense of such Claim, and the Indemnifying
Party shall bear the reasonable fees, out-of-pocket costs and expenses of such
separate legal counsel to the Indemnified Party if (and only if): (x) the
Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and
expenses, (y) the Indemnified Party and the Indemnifying Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the

                                       24

<PAGE>   25

Indemnifying Party shall have failed to employ legal counsel reasonably
satisfactory to the Indemnified Party within a reasonable period of time after
notice of the commencement of such Claim. If the Indemnified Party employs
separate legal counsel in circumstances other than as described in clauses (x),
(y) or (z) above, the fees, costs and expenses of such legal counsel shall be
borne exclusively by the Indemnified Party. Except as provided above, the
Indemnifying Party shall not, in connection with any Claim in the same
jurisdiction, be liable for the fees and expenses of more than one firm of legal
counsel for the Indemnified Party (together with appropriate local counsel). The
Indemnifying Party shall not, without the prior written consent of the
Indemnified Party (which consent shall not unreasonably be withheld), settle or
compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.

         E. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.

                               XII. GOVERNING LAW

         This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York, without regard to the conflicts of law
principles of such state.

                        XIII. SUBMISSION TO JURISDICTION

         Each of the parties hereto consents to the exclusive jurisdiction of
the federal courts whose districts encompass any part of the City of New York or
the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and the other
Documents. Each party hereto hereby irrevocably and unconditionally waives, to
the fullest extent it may effectively do so, any defense of an inconvenient
forum or improper venue to the maintenance of such action or proceeding in any
such court and any right of jurisdiction on account of its place of residence or
domicile. Each party hereto irrevocably and unconditionally consents to the
service of any and all process in any such action or proceeding in such courts
by the mailing of copies of such process by certified or registered airmail at
its address specified in Article XIX. Each party hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.

                           XIV. WAIVER OF JURY TRIAL

         TO THE FULLEST EXTENT PERMITTED BY LAW, EACH OF THE PARTIES HERETO
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RESPECTIVE RIGHTS TO
A JURY TRIAL OF ANY

                                       25

<PAGE>   26

CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS AGREEMENT OR ANY
OTHER DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF
THIS AGREEMENT AND OTHER DOCUMENTS. EACH PARTY HERETO (I) CERTIFIES THAT NEITHER
OF THEIR RESPECTIVE REPRESENTATIVES, AGENTS OR ATTORNEYS HAS REPRESENTED,
EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT OF LITIGATION,
SEEK TO ENFORCE THE FOREGOING WAIVERS AND (II) ACKNOWLEDGES THAT IT HAS BEEN
INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE MUTUAL WAIVERS
AND CERTIFICATIONS HEREIN.

                          XV. COUNTERPARTS; EXECUTION

         This Agreement may be executed in any number of counterparts and by the
different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all the counterparts shall
together constitute one and the same instrument. A facsimile transmission of
this signed Agreement shall be legal and binding on all parties hereto.

                                 XVI. HEADINGS

         The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.

                               XVII. SEVERABILITY

         In the event any one or more of the provisions contained in this
Agreement or in the other Documents should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein or therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.

           XVIII. ENTIRE AGREEMENT; REMEDIES, AMENDMENTS AND WAIVERS

         This Agreement and the Documents constitute the entire agreement among
the parties pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties. No supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by all parties. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.

                                       26

<PAGE>   27

                                  XIX. NOTICES

         Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three (3) days after the date of deposit in the United States mails, as follows:

         A. to the Company, to:

            Innovative Gaming Corporation of America
            4725 Aircenter Circle
            Reno, Nevada 89502
            Attention:  Roland M. Thomas, CEO
            (775) 823-3000
            (775) 823-3030 (Fax)

            with a copy to:

            Maslon Edelman Borman & Brand, LLP
            3300 Norwest Center
            90 South Seventh Street
            Minneapolis, Minnesota  55402
            Attention:  Douglas T. Holod, Esq.
            (612) 672-8200
            (612) 672-8397 (Fax)

         B. if to Buyer, to:

            with a copy to:

The Company or Buyer may change the foregoing address by notice given pursuant
to this Article XIX.

                                       27

<PAGE>   28

                              XX. CONFIDENTIALITY

         Each of the Company and Buyer agrees to keep confidential and not to
disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 601(b)(10)
of Regulation S-K under the Securities Act and the Exchange Act).

                                XXI. ASSIGNMENT

         This Agreement shall not be assignable by either of the parties hereto
prior to the Closing without the prior written consent of the other party, and
any attempted assignment contrary to the provisions hereby shall be null and
void; provided, however, that Buyer may assign its rights and obligations
hereunder, in whole or in part, to any Affiliate of Buyer.

                             SIGNATURE PAGE FOLLOWS

                                       28

<PAGE>   29

         In Witness Whereof, the parties hereto have duly executed and delivered
this Agreement on the date first above written.

                                       INNOVATIVE GAMING CORPORATION OF AMERICA

                                       By:
                                          --------------------------------------
                                          Name: Roland Thomas
                                          Title: Chief Executive Officer

                                       -----------------------------------------

                                       By:
                                          --------------------------------------
                                          Name:
                                          Title:

                                       29<PAGE>   1

                                                                    EXHIBIT 10.2

                          REGISTRATION RIGHTS AGREEMENT

                  THIS REGISTRATION RIGHTS AGREEMENT, dated as of November 1,
2000 (this "AGREEMENT"), by and between Innovative Gaming Corporation of
America, a Minnesota corporation, with principal executive offices located at
4725 Aircenter Circle, Reno, Nevada 89502 (the "COMPANY"), and the investor
indicated on Schedule A (the "INVESTOR").

                  WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement dated as of November 1, 2000, between the Investor
and the Company (the "SECURITIES PURCHASE AGREEMENT"), the Company has agreed to
issue and sell to the Investor (i) the number of shares of its Series E 6%
Convertible Preferred Stock, par value $0.01 per share (the "PREFERRED SHARES")
indicated on Schedule A, which upon the terms of and subject to the conditions
of the Company's Certificate of Designation of Series E 6% Convertible Preferred
Stock (the "CERTIFICATE OF DESIGNATION") are convertible into shares of the
Company's common stock, par value $0.01 per share (the "COMMON STOCK"); and (ii)
Common Stock Purchase Warrants (the "WARRANTS") to purchase shares of Common
Stock; and

                  WHEREAS, to induce the Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide with respect to
the Common Stock issued or issuable in lieu of cash dividend payments on the
Preferred Shares, upon conversion of the Preferred Shares and exercise of the
Warrants certain registration rights under the Securities Act;

                  NOW, Therefore, in consideration of the premises and the
mutual covenants contained herein, the parties hereto, intending to be legally
bound, hereby agree as follows:

                  1.       DEFINITIONS

                  (a) As used in this Agreement, the following terms shall have
the meanings:

                           (i) "AFFILIATE," of any specified Person means any
         other Person who directly, or indirectly through one or more
         intermediaries, is in control of, is controlled by, or is under common
         control with, such specified Person. For purposes of this definition,
         control of a Person means the power, directly or indirectly, to direct
         or cause the direction of the management and policies of such Person
         whether by contract, securities, ownership or otherwise; and the terms
         "CONTROLLING" and "CONTROLLED" have the respective meanings correlative
         to the foregoing.

                            (ii) "ASSIGNMENT AGREEMENT" means that certain
         Series B Convertible Preferred Stock Assignment Agreement, dated as of
         June 1, 1999, by and between the Company and Shaar, as the same may be
         amended and in effect from time to time.

<PAGE>   2

                           (ii) "CLOSING DATE" means the date and time of the
         issuance and sale of the Preferred Shares and the Warrants.

                           (iii) "COMMISSION" means the Securities and Exchange
         Commission.

                           (iv) "EXCHANGE ACT" means the Securities Exchange Act
         of 1934, as amended, and the rules and regulations of the Commission
         thereunder, or any similar successor statute.

                           (v) "INVESTOR" means each of the Investor and any
         transferee or assignee of Registrable Securities which agrees to become
         bound by all of the terms and provisions of this Agreement in
         accordance with Section 8 hereof.

                           (vi) "PERSON" means any individual, partnership,
         corporation, limited liability company, joint stock company,
         association, trust, unincorporated organization, or a government or
         agency or political subdivision thereof.

                           (vii) "PROSPECTUS" means the prospectus (including,
         without limitation, any preliminary prospectus and any final prospectus
         filed pursuant to Rule 424(b) under the Securities Act, including any
         prospectus that discloses information previously omitted from a
         prospectus filed as part of an effective registration statement in
         reliance on Rule 430A under the Securities Act) included in the
         Registration Statement, as amended or supplemented by any prospectus
         supplement with respect to the terms of the offering of any portion of
         the Registrable Securities covered by the Registration Statement and by
         all other amendments and supplements to such prospectus, including all
         material incorporated by reference in such prospectus and all documents
         filed after the date of such prospectus by the Company under the
         Exchange Act and incorporated by reference therein.

                           (viii) "PUBLIC OFFERING" means an offer registered
         with the Commission and the appropriate state securities commissions by
         the Company of its Common Stock and made pursuant to the Securities
         Act.

                           (ix) "REGISTRABLE SECURITIES" means the Common Stock
         issued or issuable (i) in lieu of cash dividend payments on the
         Preferred Shares, (ii) upon conversion or redemption of the Preferred
         Shares or (iii) upon exercise of the Warrants; provided, however, a
         share of Common Stock shall cease to be a Registrable Security for
         purposes of this Agreement when it no longer is a Restricted Security.

                           (x) "REGISTRATION STATEMENT" means a registration
         statement of the Company filed on an appropriate form under the
         Securities Act providing for the registration of, and the sale on a
         continuous or delayed basis by the holders of, all of the Registrable
         Securities pursuant to Rule 415 under the Securities Act, including the
         Prospectus contained therein and forming a part thereof, any amendments
         to such registration statement and supplements to such Prospectus, and
         all exhibits and other material incorporated by reference in such
         registration statement and Prospectus.

                                       2

<PAGE>   3

                           (xi) "RESTRICTED SECURITY" means any share of Common
         Stock issued or issuable in lieu of cash dividend payments on the
         Preferred Shares, upon conversion or redemption of the Preferred Shares
         or exercise of the Warrants except any such share that (i) has been
         registered pursuant to an effective registration statement under the
         Securities Act and sold in a manner contemplated by the prospectus
         included in such registration statement, (ii) has been transferred in
         compliance with the resale provisions of Rule 144 under the Securities
         Act (or any successor provision thereto) or is transferable pursuant to
         paragraph (k) of Rule 144 under the Securities Act (or any successor
         provision thereto), or (iii) otherwise has been transferred and a new
         share of Common Stock not subject to transfer restrictions under the
         Securities Act has been delivered by or on behalf of the Company.

                           (xii) "SECURITIES ACT" means the Securities Act of
         1933, as amended, and the rules and regulations of the Commission
         thereunder, or any similar successor statute.

                            (xiii) "SERIES C INVESTOR" means an "Investor" as
         defined in the Series C Registration Rights Agreement.

                           (xiv) "SERIES D INVESTOR" means an "Investor" as
         defined in the Series D Registration Rights Agreement.

                  (b) All capitalized terms used and not defined herein have the
respective meaning assigned to them in the Securities Purchase Agreement.

                  2.       REGISTRATION

                  (a) FILING AND EFFECTIVENESS OF REGISTRATION STATEMENT. The
Company shall prepare and file with the Commission not later than 90 days after
the Closing Date, a Registration Statement on Form S-3 relating to the offer and
resale of the Registrable Securities by the holders thereof and shall use its
best efforts to cause the Commission to declare such Registration Statement
effective under the Securities Act as promptly as practicable but not later than
180 days after the Closing Date, assuming for purposes hereof a Conversion Price
under the Certificate of Designation of $.50 per share. The Company shall
promptly (and, in any event, no more than 24 hours after it receives comments
from the Commission), notify the Buyer when and if it receives any comments from
the Commission on the Registration Statement and promptly forward a copy of such
comments, if they are in writing, to the Buyer. At such time after the filing of
the Registration Statement pursuant to this Section 2(a) as (i) the Commission
indicates, either orally or in writing, that it has no further comments with
respect to such Registration Statement or that it is willing to entertain
appropriate requests for acceleration of effectiveness of such Registration
Statement and (ii) the Company shall have received all necessary Nevada gaming
regulatory approvals, the Company shall promptly, and in no event later than two
business days after receipt of such indication from the Commission, request that
the effectiveness of such Registration Statement be accelerated within 48 hours
of the Commission's receipt of such request. The Company shall not include any
other securities in the Registration Statement relating to the offer and sale of
the Registrable Securities. The Company shall notify

                                       3

<PAGE>   4

the Investor by written notice that such Registration Statement has been
declared effective by the Commission within 24 hours of such declaration by the
Commission.

                  (b) REGISTRATION DEFAULT. If the Registration Statement
covering the Registrable Securities required to be filed by the Company pursuant
to Section 2(a) is not (i) filed with the Commission within 90 days after the
Closing Date or (ii) declared effective by the Commission within 180 days after
the Closing Date (either of which, without duplication, an "INITIAL DATE"), then
the Company shall make the payments to the Investor as provided in the next
sentence as liquidated damages and not as a penalty. The amount to be paid by
the Company to the Investor shall be determined as of each Computation Date (as
defined below), and such amount shall be equal to 2% (the "LIQUIDATED DAMAGE
RATE") of the Purchase Price (as defined in the Securities Purchase Agreement)
from the Initial Date to the first Computation Date and 3.5% for each
Computation Date thereafter, calculated on a pro rata basis to the date on which
the Registration Statement is filed with (in the event of an Initial Date
pursuant to clause (i) above) or declared effective by (in the event of an
Initial Date pursuant to clause (ii) above) the Commission (the "PERIODIC
AMOUNT"). The full Periodic Amount shall be paid by the Company to the Investor
by wire transfer of immediately available funds within three days after each
Computation Date.

                  As used in this Section 2(b), "COMPUTATION DATE" means the
date which is 30 days after the Initial Date and, if the Registration Statement
required to be filed by the Company pursuant to Section 2(a) has not theretofore
been declared effective by the Commission, each date which is 30 days after the
previous Computation Date until such Registration Statement is so declared
effective.

                  Notwithstanding the above, if the Registration Statement
covering the Registrable Securities required to be filed by the Company pursuant
to Section 2(a) is not filed with the Commission by the 90th day after the
Closing Date, the Company shall be in default of this Registration Rights
Agreement.

                  (c) ELIGIBILITY FOR USE OF FORM S-3. The Company agrees that
at such time as it meets all the requirements for the use of Securities Act
Registration Statement on Form S-3 it shall file all reports and information
required to be filed by it with the Commission in a timely manner and take all
such other action so as to maintain such eligibility for the use of such form.

                  (d) ADDITIONAL REGISTRATION STATEMENT. In the event the
Current Market Price declines to $.75 per share or less and each time thereafter
that the Current Market Price declines by 20% (each such date, a "DECLINE
DATE"), the Company shall, to the extent required by the Securities Act (because
the additional shares were not covered by the Registration Statement filed
pursuant to Section 2(a)), as reasonably determined by the Investor, file an
additional Registration Statement with the Commission for such additional number
of Registrable Securities as would be issuable upon conversion of the Preferred
Shares and exercise of the Warrants (the "ADDITIONAL REGISTRABLE SECURITIES") in
addition to those previously registered, assuming (x) with respect to the first
Additional Registration Statement, a Conversion Price of $.25 per share and (y)
with respect to each succeeding Additional Registration Statement, a Conversion
Price of 20% less than the Conversion Price assumed with respect to the
immediately preceding Additional Registration Statement. The Company shall, to
the extent

                                       4

<PAGE>   5

required by the Securities Act, as reasonably determined by the Investor,
prepare and file with the Commission not later than the 30th day thereafter, a
Registration Statement relating to the offer and sale of such Additional
Registrable Securities and shall use its best efforts to cause the Commission to
declare such Registration Statement effective under the Securities Act as
promptly as practicable but not later than 60 days thereafter. The Company shall
not include any other securities in the Registration Statement relating to the
offer and sale of such Additional Registrable Securities.

                  If the Additional Registration Statement is not (i) filed with
the Commission within 30 days after the Decline Date or (ii) declared effective
by the Commission within 90 days after the Decline Date (either of which,
without duplication, an "ADDITIONAL REGISTRATION DATE"), then the Company shall
make the payments to the Investor at the Liquidated Damage Rate from the
Additional Registration Date to the first Additional Computation Date and 3.5%
for each Additional Computation Date thereafter, calculated on a pro rata basis
to the date on which the Additional Registration Statement is filed with (in the
event of an Additional Registration Date pursuant to clause (i) above) or
declared effective by (in the event of an Additional Registration Date pursuant
to clause (ii) above) the Commission (the "ADDITIONAL PERIODIC AMOUNT"). The
full Additional Periodic Amount shall be paid by the Company to the Investor by
wire transfer of immediately available funds within three days after each
Additional Computation Date.

                  As used in this Section 2(d), "ADDITIONAL COMPUTATION DATE"
means the date which is 30 days after the Additional Registration Date and, if
the Additional Registration Statement required to be filed by the Company
pursuant to this Section 2(d) has not theretofore been declared effective by the
Commission, each date which is 30 days after the previous Additional Computation
Date until such Additional Registration Statement is so declared effective.

                  (e) (i) If the Company proposes to register any of its
         warrants, Common Stock or any other shares of common stock of the
         Company under the Securities Act (other than a registration (A) on Form
         S-8 or S-4 or any successor or similar forms, (B) relating to Common
         Stock or any other shares of common stock of the Company issuable upon
         exercise of employee share options or in connection with any employee
         benefit or similar plan of the Company or (C) in connection with a
         direct or indirect acquisition by the Company of another Person or any
         transaction with respect to which Rule 145 (or any successor provision)
         under the Securities Act applies), whether or not for sale for its own
         account, it will each such time, give prompt written notice at least 20
         days prior to the anticipated filing date of the registration statement
         relating to such registration to each Investor, which notice shall set
         forth such Investor's rights under this Section 2(e) and shall offer
         such Investor the opportunity to include in such registration statement
         such number of Registrable Securities as such Investor may request.
         Upon the written request of any Investor made within 10 days after the
         receipt of notice from the Company (which request shall specify the
         number of Registrable Securities intended to be disposed of by such
         Investor), the Company will use its best efforts to effect the
         registration under the Securities Act of all Registrable Securities
         that the Company has been so requested to register by such Investor, to
         the extent requisite to permit the disposition of the Registrable
         Securities so to be registered; provided, however, that (x) if such
         registration

                                       5

<PAGE>   6

         involves a Public Offering, the Investors must sell their Registrable
         Securities to the underwriters selected by the Company with the consent
         of each Investor on the same terms and conditions as apply to the
         Company and (y) if, at any time after giving written notice of its
         intention to register any Registrable Securities pursuant to this
         Section 2 and prior to the effective date of the registration statement
         filed in connection with such registration, the Company shall determine
         for any reason not to register such Registrable Securities, the Company
         shall give written notice to each Investor and, thereupon, shall be
         relieved of its obligation to register any Registrable Securities in
         connection with such registration. The Company's obligations under this
         Section 2(e) shall terminate on the date that the registration
         statement to be filed in accordance with Section 2(a) is declared
         effective by the Commission.

                           (ii) If a registration pursuant to this Section 2(e)
         involves a Public Offering and the managing underwriter thereof advises
         the Company that, in its view, the number of shares of Common Stock,
         Warrants or other shares of Common Stock that the Company, each
         Investor and all other sellers (the "THIRD-PARTY SELLERS") intend to
         include in such registration exceeds the largest number of shares of
         Common Stock or Warrants (including any other shares of Common Stock or
         Warrants of the Company) that can be sold without having an adverse
         effect on such Public Offering (the "MAXIMUM OFFERING SIZE"), the
         Company will include in such registration, only that number of shares
         of Common Stock or Warrants, as applicable, such that the number of
         shares of Registrable Securities registered does not exceed the Maximum
         Offering Size, with the difference between the number of shares in the
         Maximum Offering Size and the number of shares to be issued by the
         Company to be allocated (after including all shares to be issued and
         sold by the Company, the Investors and any Third-Party Sellers) first,
         among the Company and the Investors pro rata on the basis of the
         relative number of shares of Common Stock or Warrants offered for sale
         under such registration by each of the Company and the Investors and,
         second, to any Third-Party Sellers. If as a result of the proration
         provisions of this Section 2(e)(ii), any Investor is not entitled to
         include all such Registrable Securities in such registration, such
         Investor may elect to withdraw its request to include any Registrable
         Securities in such registration. With respect to registrations pursuant
         to this Section 2(e), the number of securities required to satisfy any
         underwriters' over-allotment option shall be allocated pro rata among
         the Company, the Investors and any Third-Party Sellers on the basis of
         proration as set forth in the second sentence preceding.

                  Notwithstanding anything contained in this Section 2(e) to the
contrary, the rights of any Investor under this Section 2(e) to include
Registrable Securities in any registration statement shall be junior and
subordinate in all respects to (i) the rights granted by the Company in the
Series D Registration Statement to the Series D Investors, (ii) the rights
granted by the Company in the Series C Registration Statement to the Series C
Investors and (iii) the rights assigned to the Series B Investors in the
Assignment Agreement.

                  3.       OBLIGATIONS OF THE COMPANY

                  In connection with the registration of the Registrable
Securities, the Company shall:

                                       6

<PAGE>   7

                  (a) Promptly (i) prepare and file with the Commission such
amendments (including post-effective amendments) to the Registration Statement
and supplements to the Prospectus as may be necessary to keep the Registration
Statement continuously effective and in compliance with the provisions of the
Securities Act applicable thereto so as to permit the Prospectus forming part
thereof to be current and useable by Investors for resales of the Registrable
Securities for a period of two years from the date on which the Registration
Statement is first declared effective by the Commission (the "EFFECTIVE TIME")
or such shorter period that will terminate when all the Registrable Securities
covered by the Registration Statement have been sold pursuant thereto in
accordance with the plan of distribution provided in the Prospectus, transferred
pursuant to Rule 144 under the Securities Act or otherwise transferred in a
manner that results in the delivery of new securities not subject to transfer
restrictions under the Securities Act (the "REGISTRATION Period") and (ii) take
all lawful action such that each of (A) the Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, not misleading and
(B) the Prospectus forming part of the Registration Statement, and any amendment
or supplement thereto, does not at any time during the Registration Period
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing provisions of this Section 3(a), any Class B
Investor, Class C Investor or Class D Investor may, by written notice to the
Company and each Investor during the Registration Period, require the Company to
suspend the use of the Prospectus for a period not to exceed 90 days (whether or
not consecutive) in any 12-month period, and if so notified the Company shall
suspend the use of the Prospectus as required by such Class B Investor, Class C
Investor or Class D Investor. At the end of any such suspension period, the
Company shall provide the Investors with written notice of the termination of
such suspension;

                  (b) During the Registration Period, comply with the provisions
of the Securities Act with respect to the Registrable Securities of the Company
covered by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the Investors as set forth in the Prospectus forming part of the
Registration Statement;

                  (c) (i) Prior to the filing with the Commission of any
Registration Statement (including any amendments thereto) and the distribution
or delivery of any Prospectus (including any supplements thereto), provide (A)
draft copies thereof to the Investors and reflect in such documents all such
comments as the Investors (and their counsel) reasonably may propose and (B) to
the Investors a copy of the accountant's consent letter to be included in the
filing and (ii) furnish to each Investor whose Registrable Securities are
included in the Registration Statement and its legal counsel identified to the
Company, (A) promptly after the same is prepared and publicly distributed, filed
with the Commission, or received by the Company, one copy of the Registration
Statement, each Prospectus, and each amendment or supplement thereto, and (B)
such number of copies of the Prospectus and all amendments and supplements
thereto and such other documents, as such Investor may reasonably request in
order to facilitate the disposition of the Registrable Securities owned by such
Investor;

                                       7

<PAGE>   8

                 (d) (i) Register or qualify the Registrable Securities covered
by the Registration Statement under such securities or "blue sky" laws of such
jurisdictions as the Investors who hold a majority-in-interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in such jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take all such other lawful actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction or
(C) file a general consent to service of process in any such jurisdiction;

                  (e) As promptly as practicable after becoming aware of such
event, notify each Investor of the occurrence of any event, as a result of which
the Prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct such untrue statement or omission, and deliver a
number of copies of such supplement and amendment to each Investor as such
Investor may reasonably request;

                  (f) As promptly as practicable after becoming aware of such
event, notify each Investor who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the Commission of any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time and
take all lawful action to effect the withdrawal, recession or removal of such
stop order or other suspension;

                  (g) Cause all the Registrable Securities covered by the
Registration Statement to be listed on the principal national securities
exchange, and included in an inter-dealer quotation system of a registered
national securities association, on or in which securities of the same class or
series issued by the Company are then listed or included;

                  (h) Maintain a transfer agent and registrar, which may be a
single entity, for the Registrable Securities not later than the effective date
of the Registration Statement;

                  (i) Cooperate with the Investors who hold Registrable
Securities being offered to facilitate the timely preparation and delivery of
certificates for the Registrable Securities to be offered pursuant to the
registration statement and enable such certificates for the Registrable
Securities to be in such denominations or amounts, as the case may be, as the
Investors reasonably may request and registered in such names as the Investor
may request; and, within three business days after a registration statement
which includes Registrable Securities is declared effective by the Commission,
deliver and cause legal counsel selected by the Company to deliver to the
transfer agent for the Registrable Securities (with copies to the Investors
whose

                                       8

<PAGE>   9

Registrable Securities are included in such registration statement) an
appropriate instruction and, to the extent necessary, an opinion of such
counsel;

                  (j) Take all such other lawful actions reasonably necessary to
expedite and facilitate the disposition by the Investors of their Registrable
Securities in accordance with the intended methods therefor provided in the
Prospectus which are customary under the circumstances;

                  (k) Make generally available to its security holders as soon
as practicable, but in any event not later than three (3) months after (i) the
effective date (as defined in Rule 158(c) under the Securities Act) of the
Registration Statement, and (ii) the effective date of each post-effective
amendment to the Registration Statement, as the case may be, an earnings
statement of the Company and its subsidiaries complying with Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);

                  (l) In the event of an underwritten offering, promptly include
or incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment;

                  (m) (i) Make reasonably available for inspection by Investors,
any underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by such
Investors or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and (ii) cause the Company's officers, directors and employees to
supply all information reasonably requested by such Investors or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
provided, however, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material nonpublic information shall be kept
confidential by such Investors and any such underwriter, attorney, accountant or
agent (pursuant to an appropriate confidentiality agreement in the case of any
such holder or agent), unless such disclosure is made pursuant to judicial
process in a court proceeding (after first giving the Company an opportunity
promptly to seek a protective order or otherwise limit the scope of the
information sought to be disclosed) or is required by law, or such records,
information or documents become available to the public generally or through a
third party not in violation of an accompanying obligation of confidentiality;
and provided, further, that, if the foregoing inspection and information
gathering would otherwise disrupt the Company's conduct of its business, such
inspection and information gathering shall, to the maximum extent possible, be
coordinated on behalf of the Investors and the other parties entitled thereto by
one firm of counsel designed by and on behalf of the majority in interest of
Investors and other parties;

                  (n) In connection with any underwritten offering, make such
representations and warranties to the Investors participating in such
underwritten offering and to the managers,

                                       9

<PAGE>   10

in form, substance and scope as are customarily made by the Company to
underwriters in secondary underwritten offerings;

                  (o) In connection with any underwritten offering, obtain
opinions of counsel to the Company (which counsel and opinions (in form, scope
and substance) shall be reasonably satisfactory to the managers) addressed to
the underwriters, covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed that the matters
to be covered by such opinions shall include, without limitation, as of the date
of the opinion and as of the Effective Time of the Registration Statement or
most recent post-effective amendment thereto, as the case may be, the absence
from the Registration Statement and the Prospectus, including any documents
incorporated by reference therein, of an untrue statement of a material fact or
the omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, subject to customary
limitations);

                  (p) In connection with any underwritten offering, obtain "cold
comfort" letters and updates thereof from the independent public accountants of
the Company (and, if necessary, from the independent public accountants of any
subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and financial data are, or are required to
be, included in the Registration Statement), addressed to each underwriter
participating in such underwritten offering (if such underwriter has provided
such letter, representations or documentation, if any, required for such cold
comfort letter to be so addressed), in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
secondary underwritten offerings;

                  (q) In connection with any underwritten offering, deliver such
documents and certificates as may be reasonably required by the managers, if
any; and

                  (r) In the event that any broker-dealer registered under the
Exchange Act shall be an "AFFILIATE" (as defined in Rule 2729(b)(1) of the rules
and regulations of the National Association of Securities Dealers, Inc. (the
"NASD RULES") (or any successor provision thereto)) of the Company or has a
"CONFLICT OF INTEREST" (as defined in Rule 2720(b)(7) of the NASD Rules (or any
successor provision thereto)) and such broker-dealer shall underwrite,
participate as a member of an underwriting syndicate or selling group or assist
in the distribution of any Registrable Securities covered by the Registration
Statement, whether as a holder of such Registrable Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Company shall assist such broker-dealer in complying
with the requirements of the NASD Rules, including, without limitation, by (A)
engaging a "QUALIFIED INDEPENDENT UNDERWRITER" (as defined in Rule 2720(b)(15)
of the NASD Rules (or any successor provision thereto)) to participate in the
preparation of the Registration Statement relating to such Registrable
Securities, to exercise usual standards of due diligence in respect thereof and
to recommend the public offering price of such Registrable Securities, (B)
indemnifying such qualified independent underwriter to the extent of the
indemnification of underwriters provided in Section 6 hereof, and (C) providing
such information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the NASD Rules.

                                       10

<PAGE>   11

                  4.       OBLIGATIONS OF THE INVESTORS

                  In connection with the registration of the Registrable
Securities, the Investors shall have the following obligations:

                  (a) It shall be a condition precedent to the obligations of
the Company to complete the registration pursuant to this Agreement with respect
to the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. As least seven
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor (the "REQUESTED INFORMATION") if such Investor elects to
have any of its Registrable Securities included in the Registration Statement.
If at least two business days prior to the anticipated filing date the Company
has not received the Requested Information from an Investor (a "NON-RESPONSIVE
INVESTOR"), then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor and have no
further obligations to the Non-Responsive Investor;

                  (b) Each Investor by its acceptance of the Registrable
Securities agrees to cooperate with the Company in connection with the
preparation and filing of the Registration Statement hereunder, unless such
Investor has notified the Company in writing of its election to exclude all of
its Registrable Securities from the Registration Statement; and

                  (c) Each Investor agrees that, upon receipt of any notice from
the Company of the occurrence of any event of the kind described in Section 3(e)
or 3(f), it shall immediately discontinue its disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 3(e) and, if so directed by the
Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the Prospectus covering such
Registrable Securities current at the time of receipt of such notice.

                  5.       EXPENSES OF REGISTRATION

                  All expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Section 3, but including, without limitation, all
registration, listing, and qualifications fees, printing and engraving fees,
accounting fees, and the fees and disbursements of counsel for the Company.

                  6.       INDEMNIFICATION AND CONTRIBUTION

                  (a) The Company shall indemnify and hold harmless each
Investor and each underwriter, if any, which facilitates the disposition of
Registrable Securities, and each of their respective officers and directors and
each person who controls such Investor or underwriter within the meaning of
Section 15 of the Securities Act or Section 20 of the Exchange Act (each

                                       11

<PAGE>   12

such person being sometimes hereinafter referred to as an "INDEMNIFIED PERSON")
from and against any losses, claims, damages or liabilities, joint or several,
to which such Indemnified Person may become subject under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in any Registration Statement or
an 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
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Prospectus or an omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company hereby agrees to
reimburse such Indemnified Person for all reasonable legal and other expenses
incurred by them in connection with investigating or defending any such action
or claim as and when such expenses are incurred; provided, however, that the
Company shall not be liable to any such Indemnified Person in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or (ii) in the case
of the occurrence of an event of the type specified in Section 3(e), the use by
the Indemnified Person of an outdated or defective Prospectus after the Company
has provided to such Indemnified Person an updated Prospectus correcting the
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such loss, claim, damage or liability.

                  (b) INDEMNIFICATION BY THE INVESTORS AND UNDERWRITERS. Each
Investor agrees, as a consequence of the inclusion of any of its Registrable
Securities in a Registration Statement, and each underwriter, if any, which
facilitates the disposition of Registrable Securities shall agree, as a
consequence of facilitating such disposition of Registrable Securities,
severally and not jointly, to (i) indemnify and hold harmless the Company, its
directors (including any person who, with his or her consent, is named in the
Registration Statement as a director nominee of the Company), its officers who
sign any Registration Statement and each person, if any, who controls the
Company within the meaning of either Section 15 of the Securities Act or Section
20 of the Exchange Act, against any losses, claims, damages or liabilities to
which the Company or such other persons may become subject, under the Securities
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based upon an untrue statement
or alleged untrue statement of a material fact contained in such Registration
Statement or Prospectus or arise out of or are based upon the omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein (in light of the circumstances under
which they were made, in the case of the Prospectus), not misleading, in each
case to the extent, but only to the extent, that such untrue statement or
alleged untrue statement or omission or alleged omission was made in reliance
upon and in conformity with written information furnished to the Company by such
holder or underwriter expressly for use therein; provided, however, that no
Investor or underwriter shall be liable under this Section 6(b) for any amount
in excess of the net proceeds paid to such Investor or underwriter in respect of
shares sold by it, and (ii) reimburse the Company for any legal or other
expenses incurred by the Company in connection with investigating or defending
any such action or claim as such expenses are incurred.

                                       12

<PAGE>   13

                  (c) NOTICE OF CLAIMS, ETC. Promptly after receipt by a party
seeking indemnification pursuant to this Section 6 (an "INDEMNIFIED PARTY") of
written notice of any investigation, claim, proceeding or other action in
respect of which indemnification is being sought (each, a "CLAIM"), the
Indemnified Party promptly shall notify the party against whom indemnification
pursuant to this Section 6 is being sought (the "INDEMNIFYING PARTY") of the
commencement thereof; but the omission to so notify the Indemnifying Party shall
not relieve it from any liability that it otherwise may have to the Indemnified
Party, except to the extent that the Indemnifying Party is materially prejudiced
and forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees, costs
and expenses, (y) the Indemnified Party and the Indemnifying Party shall
reasonably have concluded that representation of the Indemnified Party by the
Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Indemnifying Party shall not, in connection with any Claim
in the same jurisdiction, be liable for the fees and expenses of more than one
firm of counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnified Party shall not, without the prior written consent of
the Indemnifying Party (which consent shall not unreasonably be withheld),
settle or compromise any Claim or consent to the entry of any judgment that does
not include an unconditional release of the Indemnifying Party from all
liabilities with respect to such Claim or judgment.

                  (d) CONTRIBUTION. If the indemnification provided for in this
Section 6 is unavailable to or insufficient to hold harmless an Indemnified
Person under subsection (a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein, then
each Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and the Indemnified Party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such Indemnifying Party or by such Indemnified Party, and the parties' relative
intent, knowledge, access to information and

                                       13

<PAGE>   14

opportunity to correct or prevent such statement or omission. The parties hereto
agree that it would not be just and equitable if contribution pursuant to this
Section 6(d) were determined by pro rata allocation (even if the Investors or
any underwriters 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 this Section 6(d). The amount paid or payable by an Indemnified
Party as a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such Indemnified Party in connection
with investigating or defending any such action or claim. 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 of such fraudulent misrepresentation. The obligations of the Investors
and any underwriters in this Section 6(d) to contribute shall be several in
proportion to the percentage of Registrable Securities registered or
underwritten, as the case may be, by them and not joint.

                  (e) Notwithstanding any other provision of this Section 6, in
no event shall any (i) Investor be required to undertake liability to any person
under this Section 6 for any amounts in excess of the dollar amount of the
proceeds to be received by such Investor from the sale of such Investor's
Registrable Securities (after deducting any fees, discounts and commissions
applicable thereto) pursuant to any Registration Statement under which such
Registrable Securities are to be registered under the Securities Act and (ii)
underwriter be required to undertake liability to any Person hereunder for any
amounts in excess of the aggregate discount, commission or other compensation
payable to such underwriter with respect to the Registrable Securities
underwritten by it and distributed pursuant to the Registration Statement.

                  (f) The obligations of the Company under this Section 6 shall
be in addition to any liability which the Company may otherwise have to any
Indemnified Person and the obligations of any Indemnified Person under this
Section 6 shall be in addition to any liability which such Indemnified Person
may otherwise have to the Company. The remedies provided in this Section 6 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.

                  7.       RULE 144

                  With a view to making available to the Investors the benefits
of Rule 144 under the Securities Act or any other similar rule or regulation of
the Commission that may at any time permit the Investors to sell securities of
the Company to the public without registration ("RULE 144"), the Company agrees
to use its best efforts to:

                  (a) comply with the provisions of paragraph (c) (1) of Rule
144; and

                  (b) file with the Commission in a timely manner all reports
and other documents required to be filed by the Company pursuant to Section 13
or 15(d) under the Exchange Act; and, if at any time it is not required to file
such reports but in the past had been required to or did file such reports, it
will, upon the request of any Investor, make available other information as
required by, and so long as necessary to permit sales of, its Registrable
Securities pursuant to Rule 144.

                                       14

<PAGE>   15

                  8.       ASSIGNMENT

                  The rights to have the Company register Registrable Securities
pursuant to this Agreement shall be automatically assigned by the Investors to
any permitted transferee of all or any portion of such Registrable Securities
(or all or any portion of any Preferred Shares or Warrant of the Company which
is convertible into Registrable Securities) only if: (a) the Investor agrees in
writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee and (ii) the securities with respect to which such
registration rights are being transferred or assigned, (c) immediately following
such transfer or assignment, the securities so transferred or assigned to the
transferee or assignee constitute Restricted Securities, and (d) at or before
the time the Company received the written notice contemplated by clause (b) of
this sentence the transferee or assignee agrees in writing with the Company to
be bound by all of the provisions contained herein.

                  9.       AMENDMENT AND WAIVER

                  Any provision of this Agreement may be amended and the
observance thereof may be waived (either generally or in a particular instance
and either retroactively or prospectively), only with the written consent of the
Company and Investors who hold a majority-in-interest of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 9
shall be binding upon each Investor and the Company.

                  10.      CHANGES IN COMMON STOCK

                  If, and as often as, there are any changes in the Common Stock
by way of stock split, stock dividend, reverse split, combination or
reclassification, or through merger, consolidation, reorganization or
recapitalization, or by any other means, appropriate adjustment shall be made in
the provisions hereof, as may be required, so that the rights and privileges
granted hereby shall continue with respect to the Common Stock as so changed.

                  11.      MISCELLANEOUS

                  (a) A person or entity shall be deemed to be a holder of
Registrable Securities whenever such person or entity owns of record such
Registrable Securities. If the Company receives conflicting instructions,
notices or elections from two or more persons or entities with respect to the
same Registrable Securities, the Company shall act upon the basis of
instructions, notice or election received from the registered owner of such
Registrable Securities.

                  (b) If, after the date hereof and prior to the Commission
declaring the Registration Statement to be filed pursuant to Section 2(a)
effective under the Securities Act, the Company grants to any Person any
registration rights with respect to any Company securities which are more
favorable to such other Person than those provided in this Agreement, then the
Company forthwith shall grant (by means of an amendment to this Agreement or
otherwise) identical registration rights to all Investors hereunder.

                                       15

<PAGE>   16

                  (c) Except as may be otherwise provided herein, any notice or
other communication or delivery required or permitted hereunder shall be in
writing and shall be delivered personally or sent by certified mail, postage
prepaid, or by a nationally recognized overnight courier service, and shall be
deemed given when so delivered personally or by overnight courier service, or,
if mailed, three days after the date of deposit in the United States mails, as
follows:

                           (i)      if to the Company, to:

                                    Innovative Gaming Corporation of America
                                    4725 Aircenter Circle
                                    Reno, Nevada 89502
                                    Attention: Roland M. Thomas, CEO
                                    (775) 823-3000
                                    (775) 823-3030 (Fax)

                                    with a copy to:

                                    Maslon Edelman Borman & Brand, LLP
                                    3300 Norwest Center
                                    90 South Seventh Street
                                    Minneapolis, Minnesota  55402
                                    Attention:  Douglas T. Holod, Esq.
                                    (612) 672-8200
                                    (612) 672-8397 (Fax)

                            (ii)    if to the Investor, to:

                                    with a copy to:

                           (iii) if to any other Investor, at such address as
         such Investor shall have provided in writing to the Company.

The Company, the Investor or any Investor may change the foregoing address by
notice given pursuant to this Section 11(c).

                  (d) Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.

                                       16

<PAGE>   17

                  (e) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York. Each of the parties consents
to the jurisdiction of the federal courts whose districts encompass any part of
the City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions.

                  (f) The remedies provided in this Agreement are cumulative and
not exclusive of any remedies provided by law. If any term, provision, covenant
or restriction of this Agreement is held by a court of competent jurisdiction to
be invalid, illegal, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions set forth herein shall remain in full
force and effect and shall in no way be affected, impaired or invalidated, and
the parties hereto shall use their best efforts to find and employ an
alternative means to achieve the same or substantially the same result as that
contemplated by such term, provision, covenant or restriction. It is hereby
stipulated and declared to be the intention of the parties that they would have
executed the remaining terms, provisions, covenants and restrictions without
including any of such that may be hereafter declared invalid, illegal, void or
unenforceable.

                  (g) The Company shall not enter into any agreement with
respect to its securities that is inconsistent with the rights granted to the
holders of Registrable Securities in this Agreement or otherwise conflicts with
the provisions hereof. The Company is not currently a party to any agreement
granting any registration rights with respect to any of its securities to any
person which conflicts with the Company's obligations hereunder or gives any
other party the right to include any securities in any Registration Statement
filed pursuant hereto, except for the Assignment Agreement, the Series C
Registration Rights Agreement and the Series D Registration Rights Agreement and
except for such rights and conflicts as have been irrevocably waived. Without
limiting the generality of the foregoing, without the written consent of the
holders of a majority in interest of the Registrable Securities, the Company
shall not grant to any person the right to request it to register any of its
securities under the Securities Act unless the rights so granted are subject in
all respect to the prior rights of the holders of Registrable Securities set
forth herein, and are not otherwise in conflict or inconsistent with the
provisions of this Agreement. The restrictions on the Company's rights to grant
registration rights under this paragraph shall terminate on the date the
Registration Statement to be filed pursuant to Section 2(a) is declared
effective by the Commission. Notwithstanding the foregoing, the Company shall be
permitted to enter into and perform one or more registration rights agreements
with holders of the Company's Series E 6% Convertible Preferred Stock, par value
$0.01 per share, each containing provisions substantially similar to the
provisions of this Agreement.

                  (h) This Agreement, and the Securities Purchase Agreement,
between the Company, and the Investor, the Preferred Shares and the Warrants
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof. There are no restrictions, promises, warranties or
undertakings, other than those set forth or referred to herein. This Agreement
and the Securities Purchase Agreement, the Certificate of Designation and the
Warrants supersede all prior agreements and undertakings among the parties
hereto with respect to the subject matter hereof.

                                       17

<PAGE>   18

                  (i) Subject to the requirements of Section 8 hereof, this
Agreement shall inure to the benefit of and be binding upon the successors and
assigns of each of the parties hereto.

                  (j) All pronouns and any variations thereof refer to the
masculine, feminine or neuter, singular or plural, as the context may require.

                  (k) The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning thereof.

                  (l) The Company acknowledges that any failure by the Company
to perform its obligations under Section 3, or any delay in such performance
could result in direct damages to the Investors and the Company agrees that, in
addition to any other liability the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct damages caused by
such failure or delay.

                  (m) This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. A facsimile transmission of this signed
Agreement shall be legal and binding on all parties hereto.

                                       18

<PAGE>   19

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

                                        INNOVATIVE GAMING CORPORATION OF AMERICA

                                        By:
                                            ------------------------------------
                                             Name: Roland Thomas
                                             Title: Chief Executive Officer

                                        By:
                                            ------------------------------------
                                             Name:
                                             Title:

                                       19

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