Document:

EMPLOYMENT AGREEMENT

PARTIES:           Innovative Gaming Corporation of America
                   a Minnesota Corporation
                   333 Orville Wright Court
                   Las Vegas, Nevada 89119
                   (the "Company")

                   Tom Foley
                   W1450 First National Bank Building
                   332 Minnesota Street
                   St. Paul, MN 55101-1314
                   (the "Executive")

DATE:              December 20, 2001

INTRODUCTION:

A.   The  Company  desires  to  continue  to employ  Executive  on the terms and
     conditions stated in this Agreement;

B.   The  Executive  wishes to receive  compensation  from the  Company  for the
     Executive's  continued services and desires to accept continued  employment
     pursuant to the terms and conditions of this Agreement; and

C.   The Parties agree that this Agreement  supercedes  any existing  employment
     agreement, written or oral, between the Parties.

     NOW, THEREFORE,  in consideration of the covenants and agreements contained
herein, the parties hereto agree as follows:

AGREEMENT:

The Company and the  Executive,  each  intending to be legally  bound,  agree as
follows:

     1. Employment.  Subject to the terms and conditions of this Agreement,  the
        ----------
Company shall employ the Executive as the Chief Executive Officer ("CEO") of the
Company, and the

                                    1
<PAGE>

Executive accepts such employment.

     2. Duties.  The Executive  will devote a substantial  amount of time during
        ------
business hours to accomplish his duties and, during such time, make the best use
of his energy,  knowledge,  and training to advance the Company's interests. The
Executive  will  diligently  and  conscientiously  perform  the  duties  of  the
Executive's  position  within the general  guidelines  to be  determined  by the
Company's  Board of  Directors  (the "Board of  Directors")  including,  without
limitation,  primary  responsibility for the areas of: (i) day-to-day management
of the Company;  (ii)  supervision  of other  executives of the Company in their
assigned areas of responsibility; (iii) negotiation of mergers and acquisitions;
and (iv) other tasks as directed by the Board of Directors.  The Executive shall
further act as an interface to Wall Street and the financial  community at large
(including analysts,  investment brokerages,  etc.) and work in conjunction with
the Company's  outside  investor  relations firm,  media  consultant and others.
While the Executive is employed by the Company,  Executive will keep the Company
informed of any other business  activities,  and will promptly stop any activity
or employment that conflicts with the Company's  interests or adversely  affects
the performance of the Executive's duties for the Company.

     3. Outside  Consulting and Activities.  The Executive may render consulting
        ----------------------------------
services to other businesses from time to time if the Executive meets all of the
following  requirements:  (a) the consulting  services do not interfere with the
Executive's  ability to fulfill his duties and  obligations to the Company;  (b)
the consulting services are not rendered to any business which competes with the
Company in any area of the Company's  business;  and (c) the consulting services
do not relate to any  products  or  services  which  form part of the  Company's
business.  Anything  herein  to  the  contrary  notwithstanding,  nothing  shall
preclude the Executive from engaging in any of the following, provided that none
of the activities shall materially  interfere with the proper performance of his
duties and responsibilities  which fall within the scope of his employment:  (i)
serving on the Board of Directors of any outside  corporation;  (ii) engaging in
charitable  community and business affairs;  (iii) managing any and all personal
investments  and  affairs of a  personal  or  familial  nature;  (iv)  providing
services to any person or entity not a direct competitor of the Company in which
the Executive maintained a business  relationship prior to the effective date of
this  Agreement;  or (v) engaging in the practice of law with his  Minnesota law
firm or its affiliates.  The Company  acknowledges  and agrees that this Section
expressly permits the continuation of Executive's  business  activities  through
Johnson  Hamilton  Quigley Twait & Foley,  PLC,  PACE/Minnesota,  LLC and Indian
Country Ventures, LLC.

     4. Term.  This  Agreement  will remain in effect for the period  commencing
        ----
October 16, 2001 and ending December 31, 2001 ("term"),  unless it is terminated
in  accordance  with  Section  5;  provided,   however,   that  the  term  shall
automatically  be extended for successive  thirty (30) day terms until such time
as the Company or  Executive  elects to terminate  the  Agreement on thirty (30)
days' advance notice.

     5.  Termination.  Subject to the respective  continuing  obligations of the
         -----------
Company and the Executive under Sections 7, 8, and 9:

          a. The Company may terminate this Agreement  immediately  upon written

                                       2
<PAGE>

     notice to the Executive  "for cause," which is defined as: (i)  dishonesty,
     fraud,  or  material  and  deliberate  injury  or  attempted  material  and
     deliberate  injury,  in each case  related to the Company or its  business;
     (ii) any  criminal  activity  of a serious  nature;  (iii) the  Executive's
     continued  failure to  satisfactorily  perform  the duties  assigned to him
     pursuant  to  Section 2 of this  Agreement  for a period of 60 days after a
     written demand by the Board of Directors for such satisfactory  performance
     which demand specifically identifies the manner in which it is alleged that
     Executive  has  not  satisfactorily  performed  such  duties;  or  (iv)  if
     Executive  fails to receive a gaming license in a jurisdiction in which the
     Company  has  applied  for a  license.  In  the  event  this  Agreement  is
     terminated for cause pursuant to this Section 5(a), within thirty (30) days
     of the date of  termination,  Executive  shall be paid at the usual rate of
     Executive's annual Base Salary through the date of termination specified in
     any notice of  termination  and shall be paid  bonuses  for work  performed
     prior to the  date of  termination,  and  Executive  will  have no right to
     receive any bonus for work performed after the termination occurs.

          Any  termination by the Company other than for a reason  enumerated in
     this Section 5(a) shall be deemed to be a termination  "without cause." The
     executive shall also be deemed to be terminated without cause in the event:
     (A) the  Executive  is removed  from his  capacity as an  executive  of the
     Company; or (B) the Executive has had his authority and position diminished
     from that provided in Section 2. For all "without cause" terminations,  the
     Executive shall receive severance pay as provided in Section 6(g).

          b.  This  Agreement  will  terminate  upon  the  Executive's  death or
     permanent  disability  and all earned and unpaid  compensation  and bonuses
     shall be payable to the Executive, his estate or designated beneficiary.

          c. The  Executive may terminate  this  Agreement at any time,  with or
     without  cause,  by  providing  sixty  (60)  days  written  notice  of  his
     resignation  to the Company.  If the  Executive  voluntarily  resigns,  the
     Executive  shall be entitled to receive  his then  current  Base Salary and
     bonuses for work performed  prior to his last day of  employment.  The Base
     Salary  shall  be paid  in the  regular  course  of the  Company's  payroll
     practices  and all  Bonuses  shall be paid  within  thirty (30) days of the
     Executive's  final day of  employment.  However,  if the  Executive in good
     faith  believes that the Company is in material  breach of this  Agreement,
     the Executive may  terminate  this  Agreement,  effective  immediately,  by
     providing  written  notice of the material  breach and  resignation  to the
     Company.  If the Executive  terminates  this Agreement  based upon his good
     faith belief that the Company has materially  breached the  Agreement,  the
     Executive shall be entitled to receive severance pay as provided in Section
     6(g). If it is subsequently determined that the Company was not in material
     breach of this Agreement, the Company's obligations to pay severance to the
     Executive shall cease.

                                       3
<PAGE>

     6. Compensation.
        -------------

          a. Base Salary.  In consideration  for the Executive's  services under
             -----------
     this  Agreement,  the Company  agrees to pay the Executive a base salary as
     follows:  (i) from  October 16,  2001,  through  December  31, 2001, a base
     salary at a rate of Ten Thousand Dollars ($10,000) per month, and (ii) from
     January  1, 2002  through  December  31,  2002,  a base  salary of  Fifteen
     Thousand  Dollars  ($15,000) per month (as applicable,  the "Base Salary").
     The Base Salary shall be paid no less often than monthly in accordance with
     the standard payroll practices of the Company; provided,  however, that (i)
     the Base  Salary  shall be accrued  but shall not be paid prior to January,
     2002,  and (ii) the Base  Salary  shall be paid as and when the Company has
     available  funds from  operations  and may be paid in  installments  over a
     reasonable  period of time as agreed by the Company and the Executive.  The
     Base Salary may be adjusted from time to time by the Board of Directors but
     may not be decreased during the term of this Agreement.

          b. Bonus.  In addition to other  compensation to be paid under Section
             -----
     6(a),  the Company may pay Executive an annual bonus or a merit increase of
     up to 25% of the current  year's Base Salary for each year during  which he
     performs  services under this Agreement,  the exact amount to be determined
     in the sole and complete  discretion of the  Compensation  Committee of the
     Board of Directors.

          c. Stock  Options.  In  connection  with this  Agreement,  the parties
             --------------
     hereto shall have entered into a Stock Option  Agreement  pursuant to which
     the Company shall grant to Executive the right and option to purchase up to
     500,000  shares of the  Company's  Common  Stock  subject  to the terms and
     conditions set forth in the form of Stock Option Agreement  attached hereto
     as Exhibit A. The exercise  price of the share options shall be the average
     of the closing  price of the stock for the five  trading  days  immediately
     preceding the execution of this  Agreement.  The option for 350,000  shares
     shall vest  immediately  upon  execution of this  Agreement.  The remaining
     options for 150,000 shares shall vest upon Executive discontinuing as Chief
     Executive Officer of the Company.  The Stock Option Agreement shall include
     anti-dilution  adjustments  regarding  increase in the Company's  number of
     Common Stock,  capital stock  reorganization  or  reclassification,  or any
     other action by the Company that would unfairly hinder the option rights of
     Executive.

          d. Reimbursement of Business  Expenses.  In addition to the payment of
             -----------------------------------
     Base Salary,  the Company shall  reimburse the Executive for all reasonable
     out-of-pocket  business expenses incurred by the Executive on behalf of the
     Company;  provided that the Executive  properly accounts to the Company for
     all such  expenses  in  accordance  with the rules and  regulations  of the
     Internal  Revenue  Service  under the  Internal  Revenue  Code of 1986,  as
     amended,  and in  accordance  with the  standard  policies  of the  Company
     relating to reimbursement of business expenses.

          e.  Benefits  and  Vacation.   The  Executive   will  be  entitled  to
              -----------------------
     participate  in all benefit plans adopted by the Company to the extent that
     the terms of such benefit  plans permit the Executive to  participate.  The
     Executive  will be entitled  to an annual paid  vacation of three weeks and
     all legal

                                       4
<PAGE>

     holidays  observed  by the  Company,  in each case in  accordance  with the
     Company's  policies  and  consistent  with  the  benefits  provided  to the
     Company's other executives in effect from time to time.

          f. Life Insurance. The Executive shall be entitled to have the Company
             --------------
     pay all premiums of a life insurance  policy insuring the Executive's  life
     and for the  Executive's  benefit  or any other  person  designated  by the
     Executive  as  beneficiary  of such  policy,  in the amount of One  Million
     Dollars (1,000,000.00).

     7. Inventions.
        ----------

          a.  "Inventions,"  as used in this  Section 7, means any  discoveries,
     improvements  and ideas  (whether  or not they are in writing or reduced to
     practice)  or works of  authorship  (whether or not they can be patented or
     copyrighted) that the Executive makes,  authors, or conceives (either alone
     or with others) and that:

                    (i) concern directly the Company's business or the Company's
          present or demonstrably anticipated future research or development;

                    (ii) result  from any work the  Executive  performs  for the
          Company;

                    (iii) use the Company's equipment,  supplies, facilities, or
          trade-secret information; or

                    (iv) the Executive develops during the time the Executive is
          performing employment duties for the Company.

          b. The  Executive  agrees that all  Inventions  made by the  Executive
     during the term of this  Agreement will be the Company's sole and exclusive
     property. The Executive will, with respect to any Invention:

                    (i) keep current,  accurate, and complete records that shall
          belong to the Company and be kept and stored on the Company's premises
          while the Executive is employed by the Company;

                    (ii) promptly and fully  disclose the existence and describe
          the nature of the Invention to the Company in writing;

                    (iii) assign (and the Executive  does hereby  assign) to the
          Company all of his rights to the Invention,  any applications he makes
          for  patents  or  copyrights  in  any  country,  and  any  patents  or
          copyrights granted to him in any country; and

                    (iv)  acknowledge  and  deliver  promptly to the Company any
          written  instruments,  and  perform  any other acts  necessary  in the
          Company's  reasonable  opinion  to  preserve  property  rights  in the
          Invention  against  forfeiture,  abandonment or loss and to obtain and

                                       5
<PAGE>

          maintain letters patent and/or copyrights to the Invention and to vest
          the entire right and title to the Invention in the Company.

The  requirements of this subsection 7(b) do not apply to an Invention for which
no equipment,  supplies, facility or trade-secret information of the Company was
used and which was developed entirely on the Executive's own time, and which (1)
does not relate directly to the Company's business or to the Company's actual or
demonstrably  anticipated  research or development,  or (2) does not result from
any work the Executive performed for the Company. Except as previously disclosed
to the Company in writing, the Executive does not have, and will not assert, any
claims to or rights  under  any  Inventions  as  having  been  made,  conceived,
authored,  or acquired by the Executive  prior to his employment by the Company.
With respect to any obligations performed by the Executive under this subsection
7(b) following  termination  of  employment,  the Company will pay the Executive
reasonable  hourly  compensation  (consistent  with the highest Base Salary) and
will pay or reimburse all reasonable out-of-pocket expenses.

     8. Confidential Information.
        ------------------------

          a.  "Confidential  Information,"  as  used in this  Section  8,  means
     information  that is not  generally  known and that is  proprietary  to the
     Company or that the Company treats or is obligated to treat as proprietary.
     Any  information  that  the  Executive  reasonably  considers  Confidential
     Information,  or that the Company treats as Confidential Information,  will
     be presumed to be Confidential Information (whether the Executive or others
     originated it and regardless of how the Executive obtained it).

          b. Except as  specifically  permitted by an authorized  officer of the
     Company or by written Company  policies,  the Executive will never,  either
     during or after his employment by the Company, use Confidential Information
     for any  purpose  other than the  business of the Company or disclose it to
     any  person  who  is  not  also  an  Executive  of the  Company.  When  the
     Executive's  employment  with the Company ends, the Executive will promptly
     deliver to the Company all records and any compositions, articles, devices,
     apparatuses and other items that disclose, describe, or embody Confidential
     Information,  including  all copies,  reproductions,  and  specimens of the
     Confidential  Information in the Executive's possession,  regardless of who
     prepared them and will promptly  deliver any other  property of the Company
     in the Executive's possession, whether or not Confidential Information.

     9.  Competitive  Activities.  The Executive  agrees that during the term of
         -----------------------
employment with the Company the Executive will not alone or in any capacity with
another firm:

          a. directly  engage in any commercial  activity that competes with the
     Company's business, as a gaming machine  manufacturer,  within any state in
     the United  States or within  any  country  in which the  Company  directly
     markets or services products or provides services;

                                       6
<PAGE>

          b. in any way  interfere  or attempt to interfere  with the  Company's
     relationships with any of its then current customers; or

          C. employ or attempt to employ any of the Company's then Executives on
     behalf of any other entity competing with the Company.

     Provided, however, that the provisions of this Section 9 shall not apply in
     -----------------
the event that the Executive is  terminated  without cause and the Company fails
to pay the  severance as provided in Section  6(g) hereof.  This Section 9 shall
cease to be applicable to any activity of the Executive from and after such time
as the Company (i) shall have ceased all business  activities for a period of 60
days or (ii) shall have made a decision  through its Board of  Directors  not to
continue,  or shall have ceased for a period of 60 days, the business activities
with  which  such  activity  of the  Executive  would  be  competitive.  Company
acknowledges  and agrees that this  Section  does not apply to  business  placed
through Johnson Hamilton  Quigley Twait & Foley,  PLC,  PACE/Minnesota,  LLC, or
Indian Country Ventures, LLC.

     10. Conflicts of Interest.  The Executive agrees that he will not, directly
         ---------------------
or  indirectly,  transact  business  with the Company  personally,  or as agent,
owner, partner or shareholder of any other entity;  provided,  however, that any
such transaction may be entered into if approved by the Board of Directors.

     11. No Adequate  Remedy.  The Executive  understands  that if the Executive
         -------------------
materially  breaches  Sections 8, 9 or 10 of this Agreement,  the damages to the
Company  would be difficult to  determine.  Therefore,  in addition to any other
rights or remedies  available  to the Company at law, in equity,  or by statute,
the Executive hereby consents to the specific enforcement of Sections 8, 9 or 10
by  the  Company  through  an  injunction  or  restraining  order  issued  by an
appropriate court.

     12. Miscellaneous.
         -------------

               a.  Successors  and  Assigns.  This  Agreement  is binding on and
                   ------------------------
          inures to the benefit of the Company's  successors and assigns, all of
          which are  included  in the term the  "Company"  as it is used in this
          Agreement;  provided,  however,  that  the  Company  may  assign  this
          Agreement only in connection with a merger, consolidation, assignment,
          sale or  other  disposition  of  substantially  all of its  assets  or
          business.

               b.  Modification.  This Agreement may be modified or amended only
                   ------------
          by a writing signed by both the Company and the Executive.

               c. Governing law. The laws of Minnesota will govern the validity,
                  -------------
          construction,  and performance of this Agreement. Any legal proceeding
          related to this Agreement shall be brought in an appropriate Minnesota
          court,  and both the Company and the Executive  hereby  consent to the
          exclusive  jurisdiction of the  appropriate  court(s) in Minnesota for
          this purpose.

               d.  Construction.  Wherever  possible,  each  provision  of  this
                   ------------
          Agreement will be interpreted so that it is valid under the applicable

                                       7
<PAGE>

          law. If any provision of this Agreement is to any extent invalid under
          the  applicable  law, the remaining  portion of that provision will be
          effective  to the  extent it  remains  valid.  The  remainder  of this
          Agreement  also will  continue to be valid,  and the entire  Agreement
          will continue to be valid and enforceable.

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

               f. Captions.  The headings in this Agreement are for  convenience
                  --------
          only and do not affect this Agreement's interpretation.

               g.  Sections.  Except as  otherwise  required or indicated by the
                   --------
          context,  all  references to Sections in this  Agreement  refer to the
          specified Section of this Agreement.

               h. Entire Agreement.  This Agreement  supersedes all previous and
                  ----------------
          contemporaneous   oral   negotiations,   commitments,   writings   and
          understandings  between  the  parties  concerning  the matters in this
          Agreement,  including  without  limitation  any  policy  or  personnel
          manuals of the Company.

               i.  Notices.  All  notices and other  communications  required or
                   -------
          permitted  under this Agreement  shall be in writing and shall be hand
          delivered or sent by registered or certified first-class mail, postage
          prepaid,  and shall be effective upon delivery if hand  delivered,  or
          three days  after  mailing  if mailed to the  addresses  stated at the
          beginning of this  Agreement.  These  addresses  may be changed at any
          time by like notice.

               j.  Attorneys'  Fees. In the event of any litigation  between the
                   ----------------
          parties arising out if the terms, conditions and obligations set forth
          in this Agreement,  each party in such  litigation  shall bear its own
          reasonable attorneys' fees and costs incurred in the litigation.

     13. Necessary Corporate Action. Company hereby represents and warrants that
         --------------------------
this Agreement has been approved, adopted and ratified by the Board of Directors
of the Company and that all necessary corporate action has been taken to legally
bind the Company to the terms and provisions of this Agreement.

                      [SIGNATURES APPEAR ON FOLLOWING PAGE]

                                       8
<PAGE>

         IN WITNESS  WHEREOF,  the Company and the Executive  have executed this
Agreement effective as of the date first above written.

INNOVATIVE GAMING CORPORATION               TOM FOLEY
OF AMERICA

By     / s /                                     / s /
  ---------------------------                 -------------------------------
Name: Andrew Tottenham
One of its Directors

                                       9
<PAGE>

                                    EXHIBIT A

                         Form of Stock Option Agreement
                         ------------------------------

                                       10THIS DEBENTURE,  AND THE SECURITIES INTO WHICH IT IS CONVERTIBLE  (COLLECTIVELY,
THE  "SECURITIES"),  HAVE NOT BEEN REGISTERED WITH THE UNITED STATES  SECURITIES
AND  EXCHANGE  COMMISSION  OR  THE  SECURITIES  COMMISSION  OF  ANY  STATE.  THE
SECURITIES ARE BEING OFFERED PURSUANT TO A SAFE HARBOR FROM  REGISTRATION  UNDER
REGULATION  D  PROMULGATED  UNDER THE  SECURITIES  ACT OF 1933,  AS AMENDED (THE
"ACT").  THE SECURITIES ARE  "RESTRICTED"  AND MAY NOT BE OFFERED OR SOLD UNLESS
THE  SECURITIES  ARE  REGISTERED  UNDER THE ACT,  PURSUANT  TO  REGULATION  D OR
PURSUANT TO AVAILABLE  EXEMPTIONS FROM THE REGISTRATION  REQUIREMENTS OF THE ACT
AND THE  COMPANY  WILL BE  PROVIDED  WITH  OPINION  OF  COUNSEL  OR  OTHER  SUCH
INFORMATION  AS IT MAY  REASONABLY  REQUIRE TO CONFIRM THAT SUCH  EXEMPTIONS ARE
AVAILABLE. FURTHER HEDGING TRANSACTIONS INVOLVING THE SECURITIES MAY NOT BE MADE
EXCEPT IN COMPLIANCE WITH THE ACT.

                                    DEBENTURE

                        INNOVATIVE GAMING CORP OF AMERICA

                            6% Convertible Debenture

                               Due May ____, 2004

No.  001                                                             $__________

         This  Debenture  is issued by  INNOVATIVE  GAMING  CORP OF  AMERICA,  a
Minnesota  corporation  (the  "Company"),  to  _____________  (together with its
permitted  successors  and assigns,  the "Holder")  pursuant to exemptions  from
registration under the Securities Act of 1933, as amended.

ARTICLE I.

     Section 1.01 Principal and Interest.  For value received, on May ___, 2004,
                  ----------------------
the Company hereby promises to pay to the order of the Holder in lawful money of
the United States of America and in  immediately  available  funds the principal
sum of ___________ Dollars (US $_________), together with interest on the unpaid
principal of this  Debenture at the rate of six percent (6%) per year  (computed
on the basis of a 365-day  year and the actual  days  elapsed)  from the date of
this Debenture until paid. At the Company's option,  the entire principal amount
and all  accrued  interest  shall be either (a) paid to the Holder on the second
(2nd) year  anniversary from the date hereof or (b) converted in accordance with
Section 1.02 herein.

     Section 1.02 Optional Conversion. The Holder is entitled, at its option, to
                  -------------------
convert,  and sell on the same  day,  at any time and from  time to time,  until
payment in full of this  Debenture,  all or any part of the principal  amount of
the Debenture,  plus accrued interest,  into shares (the "Conversion Shares") of
                                                          -----------------

<PAGE>

the Company's common stock, par value $0.01 per share ("Common  Stock"),  at the
                                                        -------------
price per share (the "Conversion  Price") equal to either (a) an amount equal to
                      -----------------
one hundred  twenty  percent (120%) of the closing bid price of the Common Stock
as listed on a Principal Market (as defined herein), as quoted by Bloomberg L.P.
(the "Closing Bid Price") as of the date hereof or (b) an amount equal to eighty
      -----------------
percent  (80%) of the average of the three (3) lowest  Closing Bid Prices of the
Common Stock for the five (5) trading days immediately  preceding the Conversion
Date (as  defined  herein).  Subparagraphs  (a) and (b) above  are  individually
referred to as a "Conversion  Price". As used herein,  "Principal  Market" shall
                  -----------------                     -----------------
mean  the  Nasdaq  SmallCap  Market.  If the  Common  Stock is not  traded  on a
Principal  Market,  the Closing Bid Price shall mean,  the reported  Closing Bid
Price  for the  Common  Stock,  as  furnished  by the  National  Association  of
Securities  Dealers,  Inc., for the applicable periods. No fraction of shares or
scrip  representing  fractions of shares will be issued on  conversion,  but the
number of shares  issuable  shall be  rounded to the  nearest  whole  share.  To
convert this Debenture,  the Holder hereof shall deliver written notice thereof,
substantially  in the form of Exhibit "A" to this  Debenture,  with  appropriate
                              -----------
insertions (the "Conversion Notice"), to the Company at its address as set forth
                 -----------------
herein.  The date upon which the conversion  shall be effective (the "Conversion
                                                                      ----------
Date") shall be deemed to be the date set forth in the Conversion Notice.
----

     Section 1.03  Reservation  of Common  Stock.  The Company shall reserve and
                   -----------------------------
keep available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the  conversion of this  Debenture,  such number of
shares of Common Stock as shall from time to time be  sufficient  to effect such
conversion, based upon the Conversion Price. If at any time the Company does not
have a sufficient number of Conversion Shares authorized and available, then the
Company shall call and hold a special meeting of its  stockholders  within sixty
(60)  days of that  time  for the sole  purpose  of  increasing  the  number  of
authorized shares of Common Stock.

     Section  1.04  Limitations  on  Conversion.  The Holder shall only have the
                    ---------------------------
right to convert the  Debenture  pursuant to Section 1.02 hereof,  to the extent
that the issuance of shares of Common Stock upon said conversion would result in
the  Holder  being  deemed  the  beneficial  owner  of 4.9% or less of the  then
outstanding shares of Common Stock.

     Section 1.05 Registration  Rights. The Company is obligated to register the
                  --------------------
resale of the  Conversion  Shares under the  Securities Act of 1933, as amended,
pursuant to the terms of a Registration  Rights  Agreement,  between the Company
and  the  Holder  of even  date  herewith  (the  "Investor  Registration  Rights
                                                  ------------------------------
Agreement").
---------

     Section 1.06 Interest Payments. The interest so payable will be paid at the
                  -----------------
time of maturity or  conversion  to the person in whose name this  Debenture  is
registered.  At the time such  interest is  payable,  the  Company,  in its sole
discretion,  may elect to pay  interest in cash (via wire  transfer or certified
funds) or in the form of Common Stock. In the event of default,  as described in
Article III Section  3.01  hereunder,  the Holder may elect that the interest be
paid in cash (via wire  transfer  or  certified  funds) or in the form of Common
Stock.  If paid in the form of Common  Stock,  the  amount of stock to be issued
will be calculated  as follows:  the value of the stock shall be the Closing Bid
Price on:  (i) the date the  interest  payment is due;  or (ii) if the  interest
payment is not made when due, the date the interest payment is made. A number of

                                       2
<PAGE>

shares of Common Stock with a value equal to the amount of interest due shall be
issued.  No fractional shares will be issued;  therefore,  in the event that the
value of the Common Stock per share does not equal the total  interest  due, the
Company will pay the balance in cash.

     Section 1.07 Paying Agent and Registrar. Initially, the Company will act as
                  --------------------------
paying agent and registrar.  The Company may change any paying agent, registrar,
or  Company-registrar by giving the Holder not less than ten (10) business days'
written notice of its election to do so, specifying the name, address, telephone
number and facsimile  number of the paying agent or  registrar.  The Company may
act in any such capacity.

     Section 1.08  Subordinated  Nature of  Debenture.  This  Debenture  and all
                   ----------------------------------
payments  hereon,  including  principal or interest,  shall be  subordinate  and
junior in right of payment to all  accounts  payable of the Company  incurred in
the  ordinary  course of business  and/or bank debt of the Company not to exceed
$600,000.

                                  ARTICLE II.

     Section 2.01 Amendments and Waiver of Default. The Debenture may be amended
                  --------------------------------
with the consent of the Holder. Without the consent of the Holder, the Debenture
may be amended to cure any ambiguity,  defect or  inconsistency,  to provide for
assumption of the Company  obligations  to the Holder or to make any change that
does not adversely affect the rights of the Holder.

                                  ARTICLE III.

     Section 3.01 Events of Default.  An Event of Default is defined as follows:
                  -----------------
(a) failure by the Company to pay amounts due hereunder within fifteen (15) days
of the date of maturity of this Debenture;  (b) failure by the Company to comply
with the terms of the Irrevocable  Transfer Agent  Instructions  attached to the
Securities  Purchase  Agreement  dated the date hereof among the Company and the
Buyers  listed  on  Schedule  I  attached  thereto  (the  "Securities   Purchase
                                                           ---------------------
Agreement");  (c) failure by the Company's  transfer agent to issue Common Stock
---------
to the Holder  within ten (10)  business  days of the  Company's  receipt of the
attached  Notice of  Conversion  from  Holder;  (d)  failure by the  Company for
fifteen (15) days after notice to it to comply with any of its other  agreements
in this Debenture;  (e) events of bankruptcy or insolvency;  (f) a breach by the
Company  of its  obligations  under the  Securities  Purchase  Agreement  or the
Investor  Registration  Rights Agreement dated the date hereof among the Company
and the Investors listed therein (the "Registration Rights Agreement"), which is
                                       -----------------------------
not cured by the Company  within ten (10) days after  receipt of written  notice
thereof.

     Section 3.02 Failure to Issue  Unrestricted  Common Stock.  As indicated in
                  --------------------------------------------
Article III Section 3.01, a breach by the Company of its  obligations  under the
Investor  Registration  Rights  Agreement  shall be deemed an Event of  Default,
which if not cured within ten (10) days,  shall  entitle the Holder  accelerated
full  repayment of all debentures  outstanding.  The Company  acknowledges  that
failure to honor a Notice of  Conversion  shall  cause  irreparable  harm to the
Holder.

                                       3
<PAGE>

                                  ARTICLE IV.

     Section 4.01 Rights and Terms of Conversion. This Debenture, in whole or in
                  ------------------------------
part, may be converted at any time following the date of closing, into shares of
Common  Stock at a price equal to the  Conversion  Price as described in Section
1.02 above.

     Section 4.02 Re-issuance of Debenture.  When the Holder elects to convert a
                  ------------------------
part of the  Debenture,  then the Company  shall  reissue a new Debenture in the
same form as this Debenture to reflect the new principal amount.

     Section 4.03  Termination  of  Conversion  Rights.  The  Holder's  right to
                   -----------------------------------
convert the Debenture  into the Common Stock in accordance  with  paragraph 4.01
shall terminate on the date that is the second (2nd) year  anniversary  from the
date hereof and this Debenture shall be automatically  converted on that date in
accordance  with  the  formula  set  forth  in  Section  4.01  hereof,  and  the
appropriate shares of Common Stock and amount of interest shall be issued to the
Holder.

     Section  4.04  Listing   Qualifications  of  the  National  Association  of
                    ------------------------------------------------------------
Securities  Dealers,  Inc. Market Place Rules.  Notwithstanding  anything to the
---------------------------------------------
contrary stated herein, if an event occurs or circumstances exist that, assuming
issuance of the full number of shares of Common Stock  issuable upon  conversion
of this Debenture (in whole or in part) in accordance  with Section 1.02 hereof,
would  result in a  violation  of the  Listing  Qualifications  of the  National
Association  of  Securities  Dealers,  Inc.,  Market Place Rules (or any similar
applicable section), then upon receipt of a Conversion Notice, the Company shall
not issue any shares of Common Stock that would  result in such a violation  and
shall:

          (1)  Promptly  issue the  maximum  number  of  shares of Common  Stock
allowable without resulting in such violation;

          (2) Promptly take all action  necessary in accordance  with applicable
law and the  Company's  certificate  of  incorporation  and  bylaws  to hold and
convene a meeting of the Company's  shareholders  (but not later than forty-five
(45) days after the date of receipt of the  Conversion  Notice)  and the Company
and its Board of Directors  shall not postpone or adjourn such meeting,  and the
Company and its Board of  Directors  shall take all other  actions  necessary or
advisable,  to secure  the vote or consent of the  shareholders  to approve  the
issuance in full of the shares of Common Stock issuable upon  conversion of this
Debenture;

          (3) If necessary  shareholder  approval or consent has been  received,
promptly issue the remaining  shares  issuable under the Conversion  Notice (the
"Nasdaq SmallCap Excess Shares"); and

          (4) If necessary shareholder approval or consent has not been received
and the meeting described in subsection (2) above has been convened, promptly to
pay to the Holder in cash the amount  equal to (A) the  Nasdaq  SmallCap  Excess
Shares  multiplied  by (B) the  Conversion  Price on the date of  receipt of the
Conversion Notice.

     In addition to the limitations  set forth above,  this Debenture may not be
converted  into more than 9.9% of the  Company's  outstanding  shares of capital
stock until the Company has (i) filed with Nasdaq,  Inc. an  application to list

                                       4
<PAGE>

the additional shares of common stock that will be issued upon conversion of the
Convertible  Debentures purchased in the Second Tranche, which application shall
have  been  accepted  and  approved  by the  Nasdaq,  Inc.,  and  (ii)  obtained
shareholder approval for the issuance of all Convertible Debentures to be issued
hereunder  in  accordance  with  the  Listing  Qualifications  of  the  National
Association  of  Securities  Dealers,  Inc.,  Market Place Rules (or any similar
applicable section). ARTICLE V.

     Section 5.01 Anti-dilution. In the event that the Company shall at any time
                  -------------
subdivide  the  outstanding  shares  of  Common  Stock,  or shall  issue a stock
dividend  on the  outstanding  Common  Stock,  the  Conversion  Price in  effect
immediately  prior to such subdivision or the issuance of such dividend shall be
proportionately  decreased,  and in the event that the Company shall at any time
combine the outstanding  shares of Common Stock,  the Conversion Price in effect
immediately  prior  to such  combination  shall  be  proportionately  increased,
effective at the close of business on the date of such subdivision,  dividend or
combination as the case may be.

     Section 5.02 Consent of Holder to Sell Common Stock.  Except for the Equity
                  --------------------------------------
Line of Credit  Agreement  dated the date hereof between the Company and Cornell
Capital  Partners,  LP. so long as any of the  principal  of or interest on this
Note remains unpaid and  unconverted,  the Company shall not,  without the prior
consent of the Holder, issue or sell (i) any Common Stock without  consideration
or for a consideration per share less than its bid price determined  immediately
prior to its issuance, (ii) issue or sell any warrant,  option, right, contract,
call, or other  security or instrument  granting the holder thereof the right to
acquire Common Stock without consideration or for a consideration per share less
than such Common Stock's fair market value determined  immediately  prior to its
issuance, or (iii) file any registration statement on Form S-8.

                                  ARTICLE VI.

     Section 6.01 Notice.  Notices regarding this Debenture shall be sent to the
                  ------
parties at the following  addresses,  unless a party notifies the other parties,
in writing, of a change of address:

             If to the Company, to:    Innovative Gaming Corp of America
                                       333 Orville Wright Court
                                       Las Vegas, NV 89119
                                       Attention:        Laus M. Abdo
                                                         President and CFO
                                       Telephone:        (702) 614-7199
                                       Facsimile:        (702) 614-7114

             With a copy to:           Kirkpatrick & Lockhart LLP
                                       201 South Biscayne Boulevard - Suite 2000
                                       Miami, FL  33131-2399
                                       Attention:        Clayton E. Parker, Esq.
                                       Telephone:        (305) 539-3300
                                       Facsimile:        (305) 358-7095

                                       5
<PAGE>

             With a copy to:            Maslon Edelman Borman & Brand, LLP
                                        3300 Wells Fargo Center
                                        Minneapolis, MN  55402
                                        Attention:        Douglas T. Holod
                                        Telephone:        (612) 672-8313
                                        Facsimile:        (612) 672-8397

             If to the Holder:

             With a copy to:            Butler Gonzalez LLP
                                        1000 Stuyvesant Avenue - Suite 6
                                        Union, NJ 07083
                                        Attention:        David Gonzalez, Esq.
                                        Telephone:        (908) 810-8588
                                        Facsimile:        (908) 810-0973

     Section 6.02 Governing Law. This Debenture shall be deemed to be made under
                  -------------
and shall be  construed  in  accordance  with the laws of the State of Minnesota
without giving effect to the principals of conflict of laws thereof. Each of the
parties consents to the  jurisdiction of the U.S.  District Court sitting in the
District  of the State of New  Jersey  or the  state  courts of the State of New
Jersey  sitting in Hudson  County,  New Jersey in  connection  with any  dispute
arising under this Debenture 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.

     Section 6.03 Severability.  The invalidity of any of the provisions of this
                  ------------
Debenture shall not invalidate or otherwise  affect any of the other  provisions
of this Debenture, which shall remain in full force and effect.

     Section 6.04 Entire Agreement and Amendments. This Debenture represents the
                  -------------------------------
entire  agreement  between the parties hereto with respect to the subject matter
hereof and there are no  representations,  warranties or commitments,  except as
set forth herein. This Debenture may be amended only by an instrument in writing
executed by the parties hereto.

     Section  6.05  Counterparts.  This  Debenture  may be  executed in multiple
                    ------------
counterparts,  each of which  shall be an  original,  but all of which  shall be
deemed to constitute on instrument.

                                       6
<PAGE>

         IN WITNESS  WHEREOF,  with the intent to be legally bound  hereby,  the
Company as executed this Debenture as of the date first written above.

                                            INNOVATIVE GAMING CORP OF AMERICA

                                            By:  _______________________
                                            Name:    Laus M. Abdo
                                            Title:   President and CFO

                                       7

<PAGE>

                                   EXHIBIT "A"
                                   -----------
                         TO TRANSFER AGENT INSTRUCTIONS
                         ------------------------------

                            FORM OF CONVERSION NOTICE

Reference is made to the Securities Purchase Agreement (the "Securities Purchase
Agreement")  between  Innovative  Gaming Corp of America  (the  "Company"),  and
Buyer(s) listed therein, dated May ___, 2002. In accordance with and pursuant to
the Securities  Purchase  Agreement,  the  undersigned  hereby elects to convert
convertible  debentures  into shares of common stock,  par value $0.01 per share
(the "Common  Stock"),  of the Company for the amount  indicated below as of the
date specified below.

    Conversion Date:
                               -------------------------------------------------

    Amount to be converted:    $
                                ------------------------------------------------

    Amount of Debenture unconverted:   $
                                        ----------------------------------------

    Conversion Price per share:        $
                                        ----------------------------------------

    Number of shares of Common Stock to be issued:

Please  issue  the  shares  of  Common  Stock in the  following  name and to the
following address:

         Issue to:
                  --------------------------------------------------------------
         Authorized Signature:
                    ------------------------------------------------------------
         Name:
                    ------------------------------------------------------------
         Title:
                    ------------------------------------------------------------
         Phone #:
                           -----------------------------------------------------
         Broker DTC Participant Code:
                                      ------------------------------------------
         Account Number*:
                          ------------------------------------------------------

*    Note that receiving broker must initiate transaction on DWAC System.

                                       8

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00039-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00039-of-00352.parquet"}]]