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EXHIBIT 10.2

REGISTRATION RIGHTS AGREEMENT

     THIS
REGISTRATION RIGHTS AGREEMENT (the “Agreement”) is entered into as of
September 10, 2004, by and among Spectre Gaming, Inc., a Minnesota corporation
(the “Company”), Pandora Select Partners L.P., a British Virgin Islands limited
partnership (“Pandora”), and Whitebox Intermarket Partners L.P., a British
Virgin Islands limited partnership (“Whitebox”) (Pandora and Whitebox are
individually referred to as the “Investor” and together as the “Investors”).

R E C I T A L S :

     WHEREAS, the Company has entered into that certain Purchase Agreement,
dated as of the date hereof (the “Purchase Agreement”) with the Investors
pursuant to which the Company has agreed to issue and sell to each Investor a
secured promissory note (each, a “Note” and together, the “Notes”) and a
warrant (each, a “Warrant” and together, the “Warrants”) to purchase shares of
the Company’s common stock, $0.01 par value per share (the “Common Stock”);

     WHEREAS, the Company has agreed to grant certain registration rights with
respect to the shares of the Company’s Common Stock issuable upon exercise of
the Warrants;

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

ARTICLE 1

DEFINITIONS

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

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

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

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

1.4 “Holders” shall mean and include each Investor and any transferee thereof
who holds Registrable Securities of record.

1.5 “Register,” “registered” and “registration” refer to a registration
effected by preparing and filing with the Commission a registration statement
in compliance with the Securities Act,

 

 

and the declaration or ordering by the Commission of the effectiveness of such
registration statement.

1.6 “Registrable Securities” means any and all shares of Common Stock: (i)
issued or issuable upon exercise of the Warrants or (ii) issued or issuable
with respect to the Common Stock upon any stock split, stock dividend,
recapitalization, reclassification, merger, consolidation or other similar
event; excluding in all cases, however, Registrable Securities sold by a
Holder to the public pursuant to a registered offering or pursuant to Rule 144
promulgated under the Securities Act or sold in a private transaction in which
the Holder’s registration rights under this Agreement are not assigned.

1.7 “Registration Expenses” shall mean all expenses incurred by the Company in
complying with Articles 2 and 3 hereof, including, without limitation, all
registration, qualification and Commission, National Association of Securities
Dealers, Inc., stock exchange and other filing fees, printing expenses, escrow
fees, fees and disbursements of legal counsel for the Company, blue sky fees
and expenses, and the expense of any special audits incident to or required by
any such registration (but excluding the compensation of regular employees of
the Company, which shall be paid in any event by the Company).

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

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

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

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

ARTICLE 2

REQUIRED REGISTRATION

2.1 Required Registration. Not later than November 3, 2004 (unless a majority
in interest of the Holders request a delay of the Company for up to an
additional 90 days in writing and in such case, upon expiration of this
requested delaying period), the Company will prepare and file with the
Commission a registration statement under the Securities Act (currently
expected to be on Form S-2 or SB-2) covering all of the Registrable Securities
and use its best efforts to obtain the effectiveness of such registration as
soon as practicable as would permit or facilitate the original issuance or
subsequent resale and distribution of all of such Registrable Securities. The
Company’s failure to obtain effectiveness of this registration statement by
February 1, 2005 (subject to an extension of such date to correspond to a
filing date extension, if any, granted by

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the Holders above, and subject to delays incurred by any Holder’s failure to
comply with the provisions of Section 5(b) below) will constitute an event of
default under this Agreement.

2.2 Underwriting.

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

     (b) If such distribution is effected by means of an underwriting, the
Company (together with all Holders proposing to distribute their securities
through such underwriting) shall enter into an underwriting agreement in
customary form with a managing underwriter of nationally recognized standing
selected for such underwriting by a majority in interest of the Holders and
approved by the Company, which approval shall not be unreasonably withheld.

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

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

ARTICLE 3

COMPANY REGISTRATION

3.1 Notice of Registration to Holders. If at any time or from time to time
commencing after the date hereof, the Company shall determine to register any
of its securities, either for its own account or the account of a security
holder or holders, other than (i) a registration relating solely to employee
benefit plans on Form S-8 (or any successor form) or (ii) a registration
relating solely to a Commission Rule 145 transaction on Form S-4 (or any
successor form), the Company will:

     (a) promptly give to each Holder written notice thereof and

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     (b) include in such registration (and any related qualification under blue
sky laws or other compliance), and in any underwriting involved therein, all
the Registrable Securities specified in a written request or requests, made
within 30 days after receipt of such written notice from the Company described
in Section 3.1(a), by any Holder or Holders, but only to the extent that (i) if
the proposed registration under this Article 3 is not an underwritten offering,
the original issuance or resale distribution of such Registrable Securities is
not already covered by an effective registration statement under Article 2
above or (ii) if the proposed registration under this Article 3 is an
underwritten offering, such Registrable Securities are not then being offered
in a separate underwritten offering under Article 2 above.

3.2 Underwriting. If the registration of which the Company gives notice is for
an offering involving an underwriting, the Company shall so advise the Holders
as a part of the written notice given pursuant to Section 3.1(a). In such
event, the right of any Holder to registration pursuant to this Article 3 shall
be conditioned upon such Holder’s participation in such underwriting and the
inclusion of such Holder’s Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company.

     (a) Notwithstanding any other provision of this Article 3, if the managing
underwriter determines that marketing factors require a limitation of the
number of shares to be underwritten, the underwriter may exclude some or all
Registrable Securities from such registration and underwriting. The Company
shall so advise all Holders of Registrable Securities, and the number of shares
of Common Stock to be included in such registration shall be allocated as
follows: first, for the account of the Company, all shares of Common Stock
proposed to be sold by the Company; and second, for the account of the Holders
and any other shareholders of the Company participating in such registration,
the number of shares of Common Stock requested to be included in the
registration by the Holders and such other shareholders in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities that
are proposed to be offered and sold by the Holders and such other shareholders
of Registrable Securities at the time of filing the registration statement. No
Registrable Securities excluded from the underwriting in this Article 3 by
reason of the underwriters’ marketing limitation shall be included in such
registration.

     (b) The Company shall so advise all Holders and the other holders
distributing their securities through such underwriting of any such limitation,
and the number of shares of Registrable Securities held by Holders that may be
included in the registration. If any Holder disapproves of the terms of any
such underwriting, such Holder may elect to withdraw therefrom by written
notice to the Company and the managing underwriter. Any securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration, but
the Holder shall continue to be bound by the terms hereof.

     (c) The Company shall have the right to terminate or withdraw any
registration initiated by it under this Article 3 prior to the effectiveness of
such registration, whether or not a Holder has elected to include Registrable
Securities in such registration.

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ARTICLE 4

EXPENSES OF REGISTRATION

     All Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Articles 2 and 3 hereof shall be borne
by the Company. All Selling Expenses relating to Registrable Securities
registered by the Holders shall be borne by the Holders of such Registrable
Securities pro rata on the basis of the number of shares so registered.

ARTICLE 5

REGISTRATION PROCEDURES

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

     (i) prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its efforts to cause
such registration statement filed to become effective;

     (ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus included
therein as may be necessary to effect and maintain the effectiveness of
such registration statement as may be required by the applicable rules
and regulations of the Commission and the instructions applicable to the
form of such registration statement (provided, however, that the Company
shall not be obliged to maintain the effectiveness of the registration
statement described in Article 2 longer than through the earlier of (A)
seven years from the date hereof or, if earlier, the second anniversary
of the date on which the last of the Registrable Securities are issued or
issuable as payment under the Note or upon exercise of the Warrant, (B)
the date on which the Holder may sell all Registrable Securities then
held by the Holder, or which may become issuable as payment under the
Note or upon exercise of the Warrant, without restriction by the volume
limitations of Rule 144(e) of the Securities Act or (C) such time as all
Registrable Securities held by such Holder, or which may become issuable
as payment under the Note or upon exercise of the Warrant, have been sold
pursuant to a registration statement), and furnish to the holders of the
Registrable Securities covered thereby copies of any such supplement or
amendment prior to this being used and/or filed with the Commission;

     (iii) promptly notify the Holders of Registrable Securities to be
included in a registration statement hereunder, the sales or placement
agent, if any, therefor and the managing underwriter of the securities
being sold, and confirm such advice in writing, (A) when such
registration statement or the prospectus included therein or any
prospectus

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amendment or supplement or post-effective amendment has been filed,
and, with respect to such registration statement or any post-effective
amendment, when the same has become effective, (B) of the issuance by the
Commission of any stop order suspending the effectiveness of such
registration statement or the initiation of any proceedings for that
purpose, (C) of the receipt by the Company of any notification with
respect to the suspension of the qualification of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening
of any proceeding for such purpose or (D) if, to the Company’s knowledge,
it shall be the case, at any time when a prospectus is required to be
delivered under the Securities Act, that such registration statement or
prospectus, or any document incorporated by reference in any of the
foregoing, contains an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading in light of the circumstances
then existing;

     (iv) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of such registration statement or any
post-effective amendment thereto or of any order suspending or preventing
the use of any related prospectus or suspending the qualification of any
Registrable Securities included in such registration statement for sale
in any jurisdiction at the earliest practicable date;

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

     (vi) use its best efforts to (A) register or qualify the Registrable
Securities to be included in such registration statement under such other
securities laws or blue sky laws of such states of the United States or
the District of Columbia to be designated by the Holders of a majority of
such Registrable Securities participating in such registration and each
placement or sales agent, if any, therefor and underwriter, if any,
thereof, as any Holder and each underwriter, if any, of the securities
being sold shall reasonably request (provided, that the Company shall not
be required to use its best efforts to register or qualify the
Registrable Securities in more than 10 such jurisdictions unless the
expenses thereof are borne by the Holders requesting such efforts), (B)
keep such registrations or qualifications in effect and comply with such
laws so as to permit, as to a registration statement filed under Article
2 above, the continuance of offers, sales and dealings therein in such
jurisdictions for the same period after the initial effective date of the

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registration statement filed under the Securities Act as described
in Section 5(a)(ii) above or, as to a registration statement filed under
Article 3 above, for a period of 90 days after the effective date of the
registration statement, or if underwritten, as long as may be necessary
to enable the underwriter to complete its distribution of the Registrable
Securities pursuant to such registration statement and (C) take any and
all such actions as may be reasonably necessary or advisable to enable
such Holder, agent, if any, and underwriter to consummate the disposition
in such jurisdictions of such Registrable Securities; provided, however,
that in order to fulfill the foregoing obligations under this Section
5(a)(vi), the Company shall not (unless otherwise required to do so in
any jurisdiction) be required to (1) qualify generally to do business as
a foreign company or a broker-dealer, (2) execute a general consent to
service of process or (3) subject itself to taxation; and

     (vii) furnish, at the request of a majority of the Holders
participating in the registration, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities
are being sold through underwriters, or, if such securities are not being
sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated
as of such date, of the counsel representing the Company for the purposes
of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering and reasonably
satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities and (ii) a letter dated
as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public
offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any,
and if permitted by applicable accounting standards, to the Holders
requesting registration of Registrable Securities.

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

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

ARTICLE 6

INDEMNIFICATION

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

6.2 Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers and its legal counsel and independent accountants, each underwriter,
if any, of the Company’s securities covered by such a registration statement,
each person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, and each other such Holder, each of its
officers, directors, partners, legal counsel and independent accountants, if
any, and each person controlling such Holder within the meaning of Section 15
of the Securities Act, against all expenses, claims, losses, damages and
liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any

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

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

6.4 If the indemnification provided for in Section 6.1 or 6.2 is unavailable or
insufficient to hold harmless an Indemnified Party, then each Indemnifying
Party shall contribute to the amount paid or payable by such Indemnified Party
as a result of the expenses, claims, losses, damages or liabilities (or actions
or proceedings in respect thereof) referred to in Section 6.1 or 6.2, in such
proportion as is appropriate to reflect the relative fault of the Company on
the one hand and the sellers of Registrable Securities on the other hand in
connection with statements or omissions which resulted in such losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) or
expenses, as well as any other relevant equitable considerations. The relative
fault shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or
alleged omission to state a material fact relates to information supplied by
the Company or the sellers of Registrable Securities and the parties’

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relative intent, knowledge, access to information and opportunity to correct or
prevent such untrue statement or omission. The Company and the Holders agree
that it would not be just and equitable if contributions pursuant to this
Section 6.4 were to be determined by pro rata allocation (even if all Sellers
of Registrable Securities were treated as one entity for such purpose) or by
any other method of allocation which does not take account of the equitable
considerations referred to in the first sentence of this Section 6.4. The
amount paid by an Indemnified Party as a result of the expenses, claims,
losses, damages or liabilities (or actions or proceedings in respect thereof)
referred to in the first sentence of this Section 6.4 shall be deemed to
include any legal or other expenses reasonably incurred by such Indemnified
Party in connection with investigating or defending any claim, action or
proceeding which is the subject of this Section 6.4. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. The obligations of sellers of
Registrable Securities to contribute pursuant to this Section 6.4 shall be
several in proportion to the respective amount of Registrable Securities sold
by them pursuant to a registration statement.

ARTICLE 7

RULE 144 REPORTING

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

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

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

ARTICLE 8

TRANSFER OF REGISTRATION RIGHTS

     The rights to cause the Company to register Registrable Securities under
this Agreement may be assigned by a Holder to Whitebox Advisors, LLC (“Whitebox
Advisors”) or to a transferee or assignee of Registrable Securities that (i) is
a subsidiary, parent or affiliated entity, general partner or limited partner,
member or retired partner or member of a Holder or of Whitebox Advisors, (ii)
is an affiliated fund, a follow-on fund or predecessor fund of a Holder or a
related fund or of Whitebox Advisors, (iii) is a Holder’s family member or
trust for the benefit of an individual Holder or (iv) acquires at least 50,000
shares of Registrable Securities (as adjusted for stock splits, stock
dividends, stock combinations, reclassifications, recapitalizations, mergers,
consolidations or other similar events); provided, however, (A) the transferor
shall, within ten days before such transfer, furnish to the Company written
notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned
and (B) such transferee shall agree in writing to be subject to all
restrictions set forth in this Agreement. In each case, such rights may only
be transferred together with the underlying Registrable Securities in a
transfer permitted by the Securities Act

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and applicable state securities laws. Any such transferee or assignee
shall be deemed a Holder hereunder.

ARTICLE 9

LIMITATIONS ON REGISTRATION RIGHTS GRANTED TO OTHER SECURITIES

     From and after the date of this Agreement, the Company shall not without
the prior written consent of the holders of a majority of the Registrable
Securities then outstanding, enter into any agreement with any holder or
prospective holder of any securities of the Company providing for the grant to
such holder of registration rights superior to those granted herein.

ARTICLE 10

MISCELLANEOUS

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

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

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

10.4 Termination. The obligations of the Company to register Registrable
Securities under this Agreement shall terminate on the tenth anniversary of the
date of this Agreement. In addition, the right of any Holder to request
inclusion in any registration under Article 3 shall terminate on the date
hereafter when (i) such Holder (together with its affiliates, partners, members
and former partners and members) holds less than 1% of the Company’s
outstanding Common Stock and (ii) all Registrable Securities held by or
issuable to such Holder (and its affiliates, partners, members and former
partners and members) as payment under the Note or upon exercise of the Warrant
may be sold under Rule 144 during any 90 day period.

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

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

800 Nicollet Mall, Suite 2690

Minneapolis, Minnesota 55402

Attention: Brian D. Niebur, Chief Financial Officer

Facsimile: (612) 338-7332

-11-

 

	 	 	with a copy to:
	 	 	 
	 	 	Maslon Edelman Borman & Brand, LLP

90 South Seventh Street, Suite 3300

Minneapolis, Minnesota 55402

Attention: William M. Mower, Esq.

Facsimile: (612) 642-8358

	 
	(b)	 	if to the Investor, in care of:
	 
	 	 	Whitebox Advisors, LLC

3033 Excelsior Boulevard, Suite 300

Minneapolis, Minnesota 55416

Attention: Jonathan Wood, Chief Financial Officer

Facsimile: (612) 253-6151

	 
	 	 	with a copy to:
	 
	 	 	Messerli & Kramer P.A.

150 South Fifth Street, Suite 1800

Minneapolis, Minnesota 55402

Attention: Jeffrey C. Robbins, Esq.

Facsimile: (612) 672-3777

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

10.6 Severability. The invalidity, illegality or unenforceability of one or
more of the provisions of this Agreement in any jurisdiction shall not affect
the validity, legality or enforceability of the remainder of this Agreement in
such jurisdiction or the validity, legality or enforceability of this
Agreement, including any such provision, in any other jurisdiction, it being
intended that all rights and obligations of the parties hereunder shall be
enforceable to the fullest extent permitted by law.

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

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

-12-

 

     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed and delivered by their respective duly authorized officers or
representatives as of the date first written above.

	 	 	 	 	 
	 	 	SPECTRE GAMING, INC.
	 
	 	 	 	 
	

	 	By
	 	   /s/ Brian Niebur

	

	 	 	 	   Brian D. Niebur
	

	 	 	 	     Chief Financial Officer
	 
	 	 	 	 
	 	 	PANDORA SELECT PARTNERS L.P.
	 
	 	 	 	 
	

	 	By
	 	[executed]
	

	 	 	 	
 
	

	 	Its	 	 
	

	 	 	 	
 
	 
	 	 	 	 
	 	 	WHITEBOX INTERMARKET PARTNERS L.P.
	 
	 	 	 	 
	

	 	By
	 	[executed]
	

	 	 	 	
 
	

	 	Its	 	 
	

	 	 	 	
 

-13-exv10w3

 

EXHIBIT 10.3

WARRANT NO. WIP 1

To Purchase 50,000 Shares of Common Stock

of

SPECTRE GAMING, INC.

     This Warrant and the Securities issuable upon exercise of this Warrant
have not been registered under the Securities Act of 1933 (the “1933 Act”) or
under any state securities or “Blue Sky” laws (“Blue Sky Laws”). No transfer,
sale, assignment, pledge, hypothecation or other disposition of this Warrant or
the Securities issuable upon exercise of this Warrant or any interest therein
may be made except (a) pursuant to an effective registration statement under
the 1933 Act and any applicable Blue Sky Laws or (b) if the Corporation has
been furnished with an opinion of counsel for the holder, which opinion and
counsel shall be reasonably satisfactory to the Corporation, to the effect that
no registration is required because of the availability of an exemption from
registration under the 1933 Act and applicable Blue Sky laws.

     THIS CERTIFIES THAT, for good and valuable consideration Whitebox
Intermarket Partners L.P., a British Virgin Islands limited partnership (the
“Holder”), or the Holder’s registered assigns, is entitled to subscribe for and
purchase from Spectre Gaming, Inc., a Minnesota corporation (the
“Corporation”), at any time on or after September 10, 2004, to and including
September 10, 2009 (subject to the limitations provided in Section 10 below),
50,000 (fifty thousand) fully paid and nonassessable shares of the Common Stock
of the Corporation at a per share exercise price that is equal to the lesser of
(i) $3.00 or (ii) the purchase price paid in connection with the first private
placement of the Corporation’s Common Stock for an aggregate consideration in
excess of $1 million that is commenced on or after the date hereof and
completed before March 10, 2005 (the “Warrant Exercise Price”), subject to the
anti-dilution and price protection provisions of this Warrant. (For purposes
of determining the Warrant Exercise Price, it is assumed that any warrants
issued by the Company as part of such private placement will have no value.)

     The shares which may be acquired upon exercise of this Warrant are
referred to herein as the “Warrant Shares.” As used herein, the term “Holder”
means the Holder, any party who acquires all or a part of this Warrant as a
registered transferee of the Holder, or any record holder or holders of the
Warrant Shares issued upon exercise, whether in whole or in part, of the
Warrant. The term “Common Stock” means the common stock, $0.01 par value per
share, of the Corporation.

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

1. Exercise; Transferability.

     (a) The rights represented by this Warrant may be exercised by the Holder
hereof, in whole or in part (but not as to a fractional share of Common Stock),
by written notice of exercise (in the form attached hereto) delivered to the
Corporation at the principal office of the

 

 

     Corporation prior to the expiration
of this Warrant and accompanied or preceded by the surrender of this Warrant
along with a check in payment of the Warrant Exercise Price for such Warrant
Shares.

     (b) Except as provided in Section 8 hereof, this Warrant may not be sold,
transferred, assigned, hypothecated or divided into two or more Warrants of
smaller denominations, nor may any Warrant Shares issued pursuant to exercise
of this Warrant be transferred. In no event may this Warrant be transferred
and divided (without any exercise hereof) into any denomination(s) of less than
100 Warrant Shares.

2. Exchange and Replacement. Subject to Sections 1 and 8 hereof, this Warrant
is exchangeable upon the surrender hereof by the Holder to the Corporation at
its office for new Warrants of like tenor and date representing in the
aggregate the right to purchase the number of Warrant Shares purchasable
hereunder, each of such new Warrants to represent the right to purchase such
number of Warrant Shares (not to exceed the aggregate total number purchasable
hereunder) as shall be designated by the Holder at the time of such surrender.
Upon receipt by the Corporation of evidence reasonably satisfactory to it of
the loss, theft, destruction or mutilation of this Warrant, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
it, and upon surrender and cancellation of this Warrant, if mutilated, the
Corporation will make and deliver a new Warrant of like tenor, in lieu of this
Warrant. This Warrant shall be promptly canceled by the Corporation upon the
surrender hereof in connection with any exchange or replacement. The
Corporation shall pay all expenses, taxes (other than stock transfer taxes),
and other charges payable in connection with the preparation, execution, and
delivery of Warrants pursuant to this Section 2.

3. Issuance of the Warrant Shares.

     (a) The Corporation agrees that the Warrant Shares shall be and are deemed
to be issued to the Holder as of the close of business on the date on which
this Warrant shall have been surrendered and the payment made for such Warrant
Shares as aforesaid. Subject to the provisions of paragraph (b) of this
Section 3, certificates for the Warrant Shares so purchased shall be delivered
to the Holder within a reasonable time after the rights represented by this
Warrant shall have been so exercised, and, unless this Warrant has expired, a
new Warrant representing the right to purchase the number of Warrant Shares, if
any, with respect to which this Warrant shall not then have been exercised
shall also be delivered to the Holder.

     (b) Notwithstanding the foregoing, however, the Corporation shall not be
required to deliver any certificate for Warrant Shares upon exercise of this
Warrant except in accordance with exemptions from the applicable securities
registration requirements or registrations under applicable securities laws.
Except as described in Section 10, nothing herein shall obligate the
Corporation to effect registrations under federal or state securities laws. If
registrations are not in effect and if exemptions are not available when the
Holder seeks to exercise the Warrant, the Warrant exercise period will be
extended, if need be, to prevent the Warrant from expiring, until such time as
either registrations become effective or exemptions are available, and the
Warrant

-2-

 

shall then remain exercisable for a period of at least 30 calendar days
from the date the Corporation delivers to the Holder written notice of the
availability of such registrations or exemptions. The Holder agrees to execute
such documents and make such representations, warranties and agreements as may
be required solely to comply with the exemptions relied upon by the
Corporation, or the registrations made, for the issuance of the Warrant Shares.

4. Covenants of the Corporation. The Corporation covenants and agrees that all
Warrant Shares will, upon issuance, be duly authorized and issued, fully paid,
non-assessable and free from all taxes, liens and charges with respect to the
issue thereof. The Corporation further covenants and agrees that during the
period within which the rights represented by this Warrant may be exercised,
the Corporation will at all times have authorized and reserved for the purpose
of issue or transfer upon exercise of the subscription rights evidenced by this
Warrant a sufficient number of shares of Common Stock to provide for the
exercise of the rights represented by this Warrant.

5. Anti-dilution Adjustments. The provisions of this Warrant are subject to
adjustment as provided in this Section 5.

     (a) Stock Splits, Dividends and Combinations. The Warrant Exercise Price
shall be adjusted from time to time such that in case the Corporation shall
hereafter:

          (i) pay any dividends on any class of stock of the Corporation payable in
Common Stock or securities convertible into Common Stock;

          (ii) subdivide its then outstanding shares of Common Stock into a greater
number of shares; or

          (iii) combine outstanding shares of Common Stock, by reclassification or
otherwise;

then, in any such event, the Warrant Exercise Price in effect immediately prior
to such event shall (until adjusted again pursuant hereto) be adjusted
immediately after such event to a price (calculated to the nearest full cent)
determined by dividing (A) the number of shares of Common Stock outstanding
immediately prior to such event, multiplied by the then existing Warrant
Exercise Price, by (B) the total number of shares of Common Stock outstanding
immediately after such event (including in each case the maximum number of
shares of Common Stock issuable in respect of any securities convertible into
Common Stock), and the resulting quotient shall be the adjusted Warrant
Exercise Price per share. An adjustment made pursuant to this Subsection shall
become effective immediately after the record date in the case of a dividend or
distribution and shall become effective immediately after the effective date in
the case of a subdivision, combination or reclassification. If, as a result of
an adjustment made pursuant to this Subsection, the Holder of any Warrant
thereafter surrendered for exercise shall become entitled to receive shares of
two or more classes of capital stock or shares of Common Stock and other
capital stock of the Corporation, the Board of Directors (whose determination
shall be

-3-

 

conclusive) shall determine the allocation of the adjusted Warrant
Exercise Price between or among shares of such classes of capital stock or
shares of Common Stock and other capital stock. All calculations under this
Subsection shall be made to the nearest cent or to the nearest 1/100 of a
share, as the case may be. In the event that at any time as a result of an
adjustment made pursuant to this Subsection, the holder of any Warrant
thereafter surrendered for exercise shall become entitled to receive any shares
of the Corporation other than shares of Common Stock, thereafter the Warrant
Exercise Price of such other shares so receivable upon exercise of any Warrant
shall be subject to adjustment from time to time in a manner and on terms as
nearly equivalent as practicable to the provisions with respect to Common Stock
contained in this Section.

     (b) Mechanics of Adjustment for Stock Splits, Dividends and Combinations.
Upon each adjustment of the Warrant Exercise Price pursuant to Section 5(a)
above, the Holder of each Warrant shall thereafter (until another such
adjustment) be entitled to purchase at the adjusted Warrant Exercise Price the
number of shares, calculated to the nearest full share, obtained by multiplying
the number of shares specified in such Warrant (as adjusted as a result of all
adjustments in the Warrant Exercise Price in effect prior to such adjustment)
by the Warrant Exercise Price in effect prior to such adjustment and dividing
the product so obtained by the adjusted Warrant Exercise Price.

     (c) Consolidations, Mergers and Reorganization Events. In case of any
consolidation or merger to which the Corporation is a party other than a merger
or consolidation in which the Corporation is the continuing corporation, or in
case of any sale or conveyance to another corporation of the property of the
Corporation as an entirety or substantially as an entirety, or in the case of
any statutory exchange of securities with another corporation (including any
exchange effected in connection with a merger of a third corporation into the
Corporation), there shall be no adjustment under Subsection (a) of this Section
5; but the Holder of each Warrant then outstanding shall have the right
thereafter to convert such Warrant into the kind and amount of shares of stock
and other securities and property which he would have owned or have been
entitled to receive immediately after such consolidation, merger, statutory
exchange, sale or conveyance had such Warrant been converted immediately prior
to the effective date of such consolidation, merger, statutory exchange, sale
or conveyance and, in any such case, if necessary, appropriate adjustment shall
be made in the application of the provisions set forth in this Section with
respect to the rights and interests thereafter of any Holders of the Warrant,
to the end that the provisions set forth in this Section shall thereafter
correspondingly be made applicable, as nearly as may reasonably be, in relation
to any shares of stock and other securities and property thereafter deliverable
on the exercise of the Warrant. The provisions of this Subsection shall
similarly apply to successive consolidations, mergers, statutory exchanges,
sales or conveyances.

     (d) Adjustments for Diluting Issues. In addition to the adjustments of
the Warrant Exercise Price provided above, the Warrant Exercise Price shall be
subjected to further adjustment from time to time as follows (the main
operative provision hereof is in Section 5(d)(iii) below):

          (i) Special Definitions:

-4-

 

               (A) “Options” shall mean rights, options or warrants (other than as
excluded by Section 5(d)(i)(D) below) to subscribe for, purchase or otherwise
acquire either Common Stock or Convertible Securities (as defined herein).

               (B) “Original Issue Date” shall mean the date hereof.

               (C) “Convertible Securities” shall mean securities (other than as excluded
by (4) below) convertible, either directly or indirectly, into or exchangeable
for Common Stock.

               (D) “Additional Shares of Common Stock” shall mean all shares of Common
Stock issued (or, deemed to be issued) by the Corporation after the Original
Issue Date other than shares of Common Stock issued (or deemed to be issued):

                    1. to employees, consultants or directors pursuant to stock option, stock
grant, stock purchase or similar plans or arrangements approved by the
Corporation’s Board of Directors;

                    2. as a dividend or other distribution in connection with which an
adjustment to the Warrant Exercise Price is made;

                    3. in a merger, consolidation, acquisition or similar business combination
that is approved by the Corporation’s Board of Directors;

                    4. pursuant to credit, lease or other commercial financing arrangements
with parties not affiliated with the Corporation that are approved by the
Corporation’s Board of Directors;

                    5. in exchange for technology or other non-cash assets as approved by the
Corporation’s Board of Directors;

                    6. pursuant to any rights or agreements outstanding on the Original Issue
Date; or

                    7. if the Holder agrees in writing that such shares shall not constitute
Additional Shares of Common Stock.

          (ii) Deemed Issue of Additional Shares of Common Stock. Except as
otherwise provided in Section 5(d), in the event the Corporation at any time or
from time to time after the Original Issue Date shall issue any Options or
Convertible Securities or shall fix a record date for the determination of any
holders of any class of securities entitled to receive any such Options or
Convertible Securities, then the maximum number of shares (as set forth in the
instrument relating thereto without regard to any provisions contained therein
for a subsequent adjustment of such number) of Common Stock issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such

-5-

 

Convertible Securities, shall be
deemed to be Additional Shares of Common Stock issued as of the time of such
issue or, in case such record date shall have been fixed, as of the close of
business on such record date, provided that in any such case in which
Additional Shares of Common Stock are deemed to be issued:

               (A) no further adjustment in the Warrant Exercise Price shall be made upon
the subsequent issue of such Convertible Securities or shares of Common Stock
upon the exercise of such Options or conversion or exchange of such Convertible
Securities;

               (B) if such Options or Convertible Securities by their terms provide, with
the passage of time or otherwise, for any increase or decrease in the
consideration payable to the Company, or increase or decrease in the number of
shares of Common Stock issuable upon the exercise, conversion or exchange
thereof, the Warrant Exercise Price computed upon the original issue thereof or
upon the occurrence of a record date with respect thereto, and any subsequent
adjustments based thereon, shall, upon any such increase or decrease becoming
effective, be recomputed to reflect such increase or decrease;

               (C) upon the expiration of any such Option or any rights of conversion or
exchange under such Convertible Securities which shall not have been exercised,
the Warrant Exercise Price computed upon the original issue thereof or upon
occurrence of a record date with respect thereto, and any subsequent
adjustments based thereon, shall, upon such expiration:

                    1. in the case of Convertible Securities or Options for Common Stock, be
recomputed as though the only Additional Shares of Common Stock issued were
shares of Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities, and the
consideration received therefor was the consideration actually received by the
Company for the issue of all such Options, whether or not exercised, plus the
consideration actually received by the Company upon such exercise, or for the
issue of all such Convertible Securities, whether or not converted or
exchanged, plus the additional consideration, if any, actually received by the
Company upon such conversion or exchange; and

                    2. in the case of Options for Convertible Securities, be recomputed as
though only the Convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options and the
consideration received by the Company for the Additional Shares of Common Stock
deemed to have been then issued was the consideration actually received by the
Company for the issue of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Company upon the issue of the
Convertible Securities with respect to which such Options were actually
exercised.

               (D) no readjustment pursuant to Section 5(d) shall have the effect of
increasing the Warrant Exercise Price to an amount which exceeds the Warrant
Exercise Price existing immediately prior to the original adjustment with
respect to the issuance of such Options or Convertible Securities, as adjusted
for any Additional Shares of Common Stock issued (or deemed to be issued)
between such original adjustment date and such readjustment date; and

-6-

 

               (E) in the case of any Option or Convertible Security with respect to
which the maximum number of shares of Common Stock issuable upon exercise or
conversion or exchange thereof is not determinable, no adjustment to the
Warrant Exercise Price shall be made until such number becomes determinable.

          (iii) Adjustments for Issuance of Additional Shares of Common Stock. If
the Company, at any time after the issuance of this Warrant, shall issue any
Additional Shares of Common Stock (otherwise than as provided in the Sections
5(a) and 5(c) above) at a price per share less than the applicable Warrant
Exercise Price then in effect or without consideration, then the applicable
Warrant Exercise Price upon each such issuance shall be adjusted to that price
(rounded to the nearest cent) determined by multiplying the applicable Warrant
Exercise Price then in effect by a fraction, (i) the numerator of which shall
be equal to the sum of (A) the number of shares of Common Stock outstanding
immediately prior to the issuance of such Additional Shares of Common Stock
plus (B) the number of shares of Common Stock (rounded to the nearest whole
share) which the aggregate consideration for the total number of such
Additional Shares of Common Stock so issued would purchase at a price per share
equal to the applicable Warrant Exercise Price then in effect, and (ii) the
denominator of which shall be equal to the number of shares of Common Stock
outstanding immediately after the issuance of such Additional Shares of Common
Stock.

               The provisions of this Section 5(d)(iii) shall not apply under any of the
circumstances for which an adjustment is provided in Sections 5(a), 5(b) or
5(c) above. No adjustment of the applicable Warrant Exercise Price shall be
made under this Section 5(d) upon the issuance of any Additional Shares of
Common Stock which are issued pursuant to any Options or Convertible Securities
if upon the issuance of such Options or Convertible Securities (x) any
adjustment shall have been made pursuant to Section 5(d)(ii) above or (y) no
adjustment was required pursuant to this Section 5(d)(iii). No adjustment of
the applicable Warrant Exercise Price shall be made under this Section
5(d)(iii) in an amount less than $.01 per share, but any such lesser adjustment
shall be carried forward and shall be made at the time and together with the
next subsequent adjustment, if any, which together with any adjustments so
carried forward shall amount to $.01 per share or more; provided, however,
that upon any adjustment of the applicable Warrant Exercise Price as a result
of any dividend or distribution payable in Common Stock or Convertible
Securities or the reclassification, subdivision or combination of Common Stock
into a greater or smaller number of shares, the foregoing figure of $.01 per
share (or such figure as last adjusted) shall be adjusted (to the nearest
one-half cent) in proportion to the adjustment in the applicable Warrant
Exercise Price.

          (iv) Determination of Consideration. For purposes of this Section 5(d),
the consideration received by the Corporation for any Additional Shares of
Common Stock issued (or deemed to be issued) shall be computed as follows:

               (A) Cash and Property. Such consideration shall:

                    (i) insofar as it consists of cash, be computed at the aggregate amount of
cash received by the Company;

-7-

 

                    (ii) insofar as it consists of securities and the value of such securities
is not determinable by reference to a separate agreement, (A) if the securities
are then traded on a national securities exchange or the Nasdaq Stock Market
(or a similar national quotation system), then the value shall be computed
based on the average of the closing prices of the securities on such exchange
or system over the thirty (30)-day period ending on the date of receipt by the
Corporation, (B) if the securities are actively traded over-the-counter, then
the value shall be computed based on the average of the closing bid prices over
the thirty (30) day ending on the date of receipt by the Corporation, and (C)
if there is no active public market, then the value shall be computed based on
the fair market value thereof on the date of receipt by the Corporation, as
determined in good faith by the Board of Directors;

                    (iii) insofar as it consists of property other than cash and securities,
be computed at the fair market value thereof at the time of such issuance, as
determined in good faith by the Board of Directors; and

                    (iv) if Additional Shares of Common Stock are issued (or deemed to be
issued) together with other shares or securities or other assets of the
Corporation for consideration which cover both, by the proportion of such
consideration so received, computed as provided in the immediately preceding
Sections 5(d)(iv)(A)(i), 5(d)(iv)(A)(ii) and 5(d)(iv)(A)(iii), as determined in
good faith by the Board of Directors.

               (B) Options and Convertible Securities. The consideration received by the
Corporation for Additional Shares of Common Stock deemed to have been issued
pursuant to Section 5(d) relating to Option and Convertible Securities, shall
be the sum of (x) the total amount, if any, received or receivable by the
Corporation as consideration for the issue of such Options or Convertible
Securities, plus (y) the minimum aggregate amount of additional consideration
(as set forth in the instruments relating thereto, without regard to any
provision contained therein for a subsequent adjustment of such consideration)
payable to the Corporation upon the exercise of such Options or the conversion
or exchange of such Convertible Securities, or in the case of Options for
Convertible Securities, the exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible Securities.

     (e) Default. For purposes of a secured promissory note of this date (the
“Note”) issued by the Corporation to the original Holder hereof, this Warrant
is in default if the Corporation fails by February 1, 2005 (the “Registration
Deadline”) to obtain effectiveness under the 1933 Act and applicable state
securities laws of a registration statement for the benefit of the Holder under
the terms of a Registration Rights Agreement of this date covering all of the
Warrant Shares hereunder. Despite the foregoing, if the Holder consents (as
provided under the Registration Rights Agreement) to an extension of the
effective date of the Registration Statement beyond February 1, 2005, then the
Registration Deadline hereunder shall be extended by a like period.

-8-

 

     (f) Certificate as to Adjustments. Upon the occurrence of each adjustment
or readjustment of the Warrant Exercise Price or the number of Warrants covered
hereby pursuant to this Section 5 or pursuant to Section 6 below, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and furnish to the Holder a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of the Holder, furnish or cause to
be furnished to the Holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Warrant Exercise Price at the time in
effect, and (iii) the number of shares of Common Stock and the amount, if any,
of other property which at the time would be received upon the exercise of this
Warrant.

6. Price Protection Adjustments. In addition to the adjustments provided
above, if at any time the closing price of the Corporation’s Common Stock as
reported on the NASDAQ System (or if not then traded on the NASDAQ System, on
the OTC Bulletin Board as reported by bigcharts.com, or if this service is
discontinued, such other reporting service acceptable to Holder) is less than
$1.25 per share (the “Triggering Price”) for 30 or more consecutive trading
days, then the Holder may elect a special adjustment in the number of Warrant
Shares, and the Warrant Exercise Price, of this Warrant. The Holder may elect
the special adjustment at any time thereafter by giving written notice to the
Corporation. This Warrant will then represent the right to purchase 75% of the
number of Warrant Shares purchasable hereunder immediately prior to the
election (rounded up to the nearest whole share) at a new Warrant Exercise
Price of $1.25 per share. However, the Triggering Price and the new Warrant
Exercise Price shall be similarly adjusted for events that otherwise adjust the
Warrant Exercise Price as described in Section 5(a) above.

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

8. Notice of Transfer of Warrant or Resale of the Warrant Shares.

     (a) Subject to the sale, assignment, hypothecation or other transfer
restrictions set forth in Section 1 hereof, the Holder, by acceptance hereof,
agrees to give written notice to the Corporation before transferring this
Warrant or transferring any Warrant Shares of such Holder’s intention to do so,
describing briefly the manner of any proposed transfer. Promptly upon
receiving such written notice, the Corporation shall present copies thereof to
the Corporation’s counsel. If in the opinion of such counsel the proposed
transfer may be effected without registration or qualification (under any
federal or state securities laws), the Corporation, as promptly as practicable,
shall notify the Holder of such opinion, whereupon the Holder shall be entitled
to transfer this Warrant or to dispose of Warrant Shares received upon the
previous exercise of this Warrant, all in accordance with the terms of the
notice delivered by the Holder to the Corporation; provided that an appropriate
legend may be endorsed on this Warrant or the certificates for such Warrant
Shares respecting restrictions upon transfer thereof necessary or advisable in
the opinion of counsel and satisfactory to the Corporation to prevent further
transfers which would be in violation of Section 5 of the 1933 Act and
applicable state securities laws;

-9-

 

and provided further that the prospective
transferee or purchaser shall execute such documents and make such
representations, warranties and agreements as may be required solely to comply
with the exemptions relied upon by the Corporation for the transfer or
disposition of the Warrant or Warrant Shares.

     (b) If, in the opinion of the Corporation’s counsel, the proposed transfer
or disposition of this Warrant or such Warrant Shares described in the written
notice given pursuant to this Section 8 may not be effected without
registration or qualification of this Warrant or such Warrant Shares, the
Corporation shall promptly give written notice thereof to the Holder, and the
Holder will limit its activities in respect to such transfer or disposition as,
in the opinion of such counsel, are permitted by law.

9. Fractional Shares. Fractional shares shall not be issued upon the exercise
of this Warrant, but in any case where the holder would, except for the
provisions of this Section, be entitled under the terms hereof to receive a
fractional share, the Corporation shall, upon the exercise of this Warrant for
the largest number of whole shares then called for, pay a sum in cash equal to
the sum of (a) the excess, if any, of the Market Price of such fractional share
over the proportional part of the Warrant Exercise Price represented by such
fractional share, plus (b) the proportional part of the Warrant Exercise Price
represented by such fractional share. For purposes of this Section, the term
“Market Price” with respect to shares of Common Stock of any class or series
means the last reported sale price or, if none, the average of the last
reported closing bid and asked prices on any national or regional securities
exchange or quoted in the National Association of Securities Dealers, Inc.’s
Automated Quotations System (“Nasdaq”), or if not listed on a national or
regional securities exchange or quoted in Nasdaq, the average of the last
reported closing bid and asked prices as reported by Metro Data Corporation,
Inc. or the OTC Bulletin Board from quotations by market makers in such Common
Stock on the Minneapolis-St. Paul local over-the-counter market, or if no
quotations in such Common Stock are available, the fair market value of the
shares as determined in good faith by the Board of Directors of the
Corporation.

10. Registration Rights. Holder shall have registration rights for the shares
underlying its Warrants as described in the Registration Rights Agreement of
this same date.

11. Limitation of Exercise of this Warrant. Despite anything to the contrary
in this Warrant, the Holder may not exercise this Warrant during the time
period and to the extent that the shares of Common Stock that the Holder could
acquire upon the exercise hereof would cause Holder’s Beneficial Ownership (as
defined below) of the Corporation’s Common Stock to exceed 4.99%. These
limitations on the right to exercise this Warrant shall first reduce the
Holder’s Beneficial Ownership of the Corporation’s Common Stock before
limitation of the Holder’s conversion rights, or the Corporation’s right to
make payments in Common Stock, under the Note. The parties shall compute the
Holder’s “Beneficial Ownership” of Common Stock in accordance with U.S.
Securities and Exchange Commission Rule 13d-3. The Holder will, at the request
of the Corporation, from time to time, notify the Corporation of the Holder’s
computation of Holder’s Beneficial Ownership.

-10-

 

     IN WITNESS WHEREOF, Spectre Gaming, Inc. has caused this Warrant to be
signed by its duly authorized officer and this Warrant to be dated September
10, 2004.

	 	 	 	 	 
	 	 	SPECTRE GAMING, INC.
	 
	 	 	 	 
	

	 	By
	 	/s/ Brian Niebur
	

	 	 	 	
 
	

	 	 	 	Brian D. Niebuhr
	

	 	 	 	   Chief Financial Officer

-11-

 

EXERCISE FORM

(To Be Executed by the Registered Holder in Order to Exercise the Warrant)

To:     Spectre Gaming, Inc.

The undersigned hereby irrevocably elects to exercise the attached Warrant to
purchase for cash,                     of the shares issuable upon the exercise of
such Warrant, and requests that certificates for such shares (together with a
new Warrant to purchase the number of shares, if any, with respect to which
this Warrant is not exercised) shall be issued in the name of:

	 	 	 	 	 
	

	 	NAME:
	 	

	 
	 	 	 	 
	

	 	SOC. SEC. or

TAX I.D. NO.
	 	

	 
	 	 	 	 
	

	 	ADDRESS:
	 	

	 
	 	 	 	 
	

	 	 	 	

	 	 	 
	Date:                    , 20                                      .

	 	

	

	 	Signature *

	*	 	The signature on the Notice of Exercise of Warrant must correspond to
the name as written upon the face of the Warrant in every particular
without alteration or enlargement or any change whatsoever. When signing
on behalf of a corporation, partnership, trust or other entity, please
indicate your position(s) and title(s) with such entity.

 

ASSIGNMENT FORM

(To be Executed by the Registered Holder in Order to Transfer the Warrant)

To:     Spectre Gaming, Inc.

     FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
unto                                                           the right to purchase the securities of
Spectre Gaming, Inc. to which the within Warrant relates and appoints
                                      , attorney, to transfer said right on the books of
Spectre Gaming, Inc. with full power of substitution in the premises.

	 	 	 
	Dated:                    20                   

	 	

	

	 	(Signature)
	 
	 	 
	

	 	Address:

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