Document:

<PAGE>   1
                          REGISTRATION RIGHTS AGREEMENT

          THIS REGISTRATION RIGHTS AGREEMENT, dated as of October 13, 1999 (this
"AGREEMENT"), between Innovative Gaming Corporation of America, a Minnesota
corporation, with principal executive offices located at 4725 Aircenter Circle,
Reno, Nevada 89502 (the "COMPANY"), and The Shaar Fund Ltd. (the "INITIAL
INVESTOR").

          WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement dated as of October 13, 1999, between the Initial
Investor and the Company (the "SECURITIES PURCHASE AGREEMENT"), the Company has
agreed to issue and sell to the Initial Investor (i) 500 shares of its Series D
6% Convertible Preferred Stock, par value $0.01 per share (the "PREFERRED
SHARES") which, upon the terms of and subject to the conditions of the Company's
Certificate of Designation of Series D 6% Convertible Preferred Stock (the
"CERTIFICATE OF DESIGNATION"), are convertible into shares of the Company's
common stock, par value $0.01 per share (the "COMMON STOCK") and (ii) Common
Stock Purchase Warrants (the "WARRANTS") to purchase shares of Common Stock; and

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

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

          1.  DEFINITIONS

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

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

               (ii) "ASSIGNMENT AGREEMENT" means that certain Series B
     Convertible Preferred Stock Assignment Agreement, dated as of June 1, 1999,
     by and between the Company and Shaar, as the same may be amended and in
     effect from time to time.
<PAGE>   2

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

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

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

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

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

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

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

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

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

                                       2
<PAGE>   3

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

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

               (xiii) "SERIES B INVESTOR" means each of (a) Shaar as assignee
     under the Assignment Agreement, and its permitted successors and assigns
     thereunder and (b) any holder from time to time of any shares of the Series
     B Convertible Preferred Stock of the Company.

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

               (xv)   "SERIES C REGISTRATION RIGHTS AGREEMENT" means that
     certain Series C Registration Rights Agreement dated as of June 1, 1999 by
     and between the Company and Shaar, as the same may be amended and in effect
     from time to time.

               (xvii) "SHAAR" means The Shaar Fund Ltd.

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

          2.   REGISTRATION

          (a)  FILING AND EFFECTIVENESS OF REGISTRATION STATEMENT. The Company
shall prepare and file with the Commission not later than 90 days after the
Closing Date, a Registration Statement on Form S-3 relating to the offer and
resale of the Registrable Securities by the holders thereof and shall use its
best efforts to cause the Commission to declare such Registration Statement
effective under the Securities Act as promptly as practicable but not later than
180 days after the Closing Date, assuming for purposes hereof that an amount of
Registrable Securities of not more than 20% of the Company's issued and
outstanding stock is being registered. The Company shall promptly (and, in any
event, no more than 24 hours after it receives comments from the Commission),
notify the Buyer when and if it receives any comments from the Commission on the
Registration Statement and promptly forward a copy of such comments, if they are
in writing, to the Buyer. At such time after the filing of the Registration
Statement pursuant to this Section 2(a) as (i) the Commission indicates, either
orally or in writing, that it has no further comments with respect to such
Registration Statement or that

                                       3
<PAGE>   4

it is willing to entertain appropriate requests for acceleration of
effectiveness of such Registration Statement and (ii) the Company shall have
received all necessary Nevada gaming regulatory approvals, the Company shall
promptly, and in no event later than two business days after receipt of such
indication from the Commission, request that the effectiveness of such
Registration Statement be accelerated within 48 hours of the Commission's
receipt of such request. The Company shall not include any other securities in
the Registration Statement relating to the offer and sale of the Registrable
Securities. The Company shall notify the Initial Investor by written notice that
such Registration Statement has been declared effective by the Commission within
24 hours of such declaration by the Commission.

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

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

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

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

          (d) (i) If the Company proposes to register any of its warrants,
     Common Stock or any other shares of common stock of the Company under the
     Securities Act (other than a registration (A) on Form S-8 or S-4 or any
     successor or similar forms, (B) relating to Common Stock or any other
     shares of common stock of the Company issuable upon exercise of employee
     share options or in connection with any employee benefit or

                                       4
<PAGE>   5

     similar plan of the Company or (C) in connection with a direct or indirect
     acquisition by the Company of another Person or any transaction with
     respect to which Rule 145 (or any successor provision) under the Securities
     Act applies), whether or not for sale for its own account, it will each
     such time, give prompt written notice at least 20 days prior to the
     anticipated filing date of the registration statement relating to such
     registration to each Investor, which notice shall set forth such Investor's
     rights under this Section 3(e) and shall offer such Investor the
     opportunity to include in such registration statement such number of
     Registrable Securities as such Investor may request. Upon the written
     request of any Investor made within 10 days after the receipt of notice
     from the Company (which request shall specify the number of Registrable
     Securities intended to be disposed of by such Investor), the Company will
     use its best efforts to effect the registration under the Securities Act of
     all Registrable Securities that the Company has been so requested to
     register by such Investor, to the extent requisite to permit the
     disposition of the Registrable Securities so to be registered; provided,
     however, that (x) if such registration involves a Public Offering, the
     Investors must sell their Registrable Securities to the underwriters
     selected by the Company with the consent of each Investor on the same terms
     and conditions as apply to the Company and (y) if, at any time after giving
     written notice of its intention to register any Registrable Securities
     pursuant to this Section 3 and prior to the effective date of the
     registration statement filed in connection with such registration, the
     Company shall determine for any reason not to register such Registrable
     Securities, the Company shall give written notice to each Investor and,
     thereupon, shall be relieved of its obligation to register any Registrable
     Securities in connection with such registration. The Company's obligations
     under this Section 2(e) shall terminate on the date that the registration
     statement to be filed in accordance with Section 2(a) is declared effective
     by the Commission.

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

                                       5
<PAGE>   6

     Investors and any Third-Party Sellers on the basis of proration as set
     forth in the second sentence preceding.

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

          3.   OBLIGATIONS OF THE COMPANY

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

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

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

                                       6
<PAGE>   7

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

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

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

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

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

                                       7
<PAGE>   8

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

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

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

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

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

          (m) (i) Make reasonably available for inspection by Investors, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by such
Investors or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and (ii) cause the Company's officers, directors and employees to
supply all information reasonably requested by such Investors or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
provided, however, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material nonpublic information shall be kept
confidential by such Investors and any such underwriter, attorney, accountant or
agent (pursuant to an appropriate confidentiality agreement in the case of any
such holder or agent), unless such disclosure is made pursuant to judicial
process in a court proceeding (after first giving the Company an opportunity

                                       8
<PAGE>   9

promptly to seek a protective order or otherwise limit the scope of the
information sought to be disclosed) or is required by law, or such records,
information or documents become available to the public generally or through a
third party not in violation of an accompanying obligation of confidentiality;
and provided, further, that, if the foregoing inspection and information
gathering would otherwise disrupt the Company's conduct of its business, such
inspection and information gathering shall, to the maximum extent possible, be
coordinated on behalf of the Investors and the other parties entitled thereto by
one firm of counsel designed by and on behalf of the majority in interest of
Investors and other parties;

          (n) In connection with any underwritten offering, make such
representations and warranties to the Investors participating in such
underwritten offering and to the managers, in form, substance and scope as are
customarily made by the Company to underwriters in secondary underwritten
offerings;

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

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

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

          (r) In the event that any broker-dealer registered under the Exchange
Act shall be an "AFFILIATE" (as defined in Rule 2729(b)(1) of the rules and
regulations of the National Association of Securities Dealers, Inc. (the "NASD
RULES") (or any successor provision thereto)) of the Company or has a "CONFLICT
OF INTEREST" (as defined in Rule 2720(b)(7) of the NASD Rules (or any successor
provision thereto)) and such broker-dealer shall underwrite, participate as a
member of an underwriting syndicate or selling group or assist in the
distribution of any Registrable Securities covered by the Registration
Statement, whether as a holder of such Registrable Securities or as an
underwriter, a placement or sales agent or a broker or dealer in

                                       9
<PAGE>   10

respect thereof, or otherwise, the Company shall assist such broker-dealer in
complying with the requirements of the NASD Rules, including, without
limitation, by (A) engaging a "QUALIFIED INDEPENDENT UNDERWRITER" (as defined in
Rule 2720(b)(15) of the NASD Rules (or any successor provision thereto)) to
participate in the preparation of the Registration Statement relating to such
Registrable Securities, to exercise usual standards of due diligence in respect
thereof and to recommend the public offering price of such Registrable
Securities, (B) indemnifying such qualified independent underwriter to the
extent of the indemnification of underwriters provided in Section 5 hereof, and
(C) providing such information to such broker-dealer as may be required in order
for such broker-dealer to comply with the requirements of the NASD Rules.

          4.   OBLIGATIONS OF THE INVESTORS

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

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

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

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

                                       10
<PAGE>   11

          5.   EXPENSES OF REGISTRATION

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

          6.   INDEMNIFICATION AND CONTRIBUTION

          (a)  The Company shall indemnify and hold harmless each Investor and
each underwriter, if any, which facilitates the disposition of Registrable
Securities, and each of their respective officers and directors and each person
who controls such Investor or underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act (each such person being
sometimes hereinafter referred to as an "INDEMNIFIED PERSON") from and against
any losses, claims, damages or liabilities, joint or several, to which such
Indemnified Person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or an
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, not misleading, or
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Prospectus or an omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company hereby agrees to
reimburse such Indemnified Person for all reasonable legal and other expenses
incurred by them in connection with investigating or defending any such action
or claim as and when such expenses are incurred; provided, however, that the
Company shall not be liable to any such Indemnified Person in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or (ii) in the case
of the occurrence of an event of the type specified in Section 3(e), the use by
the Indemnified Person of an outdated or defective Prospectus after the Company
has provided to such Indemnified Person an updated Prospectus correcting the
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such loss, claim, damage or liability.

          (b)  INDEMNIFICATION BY THE INVESTORS AND UNDERWRITERS. Each Investor
agrees, as a consequence of the inclusion of any of its Registrable Securities
in a Registration Statement, and each underwriter, if any, which facilitates the
disposition of Registrable Securities shall agree, as a consequence of
facilitating such disposition of Registrable Securities, severally and not
jointly, to (i) indemnify and hold harmless the Company, its directors
(including any person who, with his or her consent, is named in the Registration
Statement as a director nominee of the Company), its officers who sign any
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any losses, claims, damages or liabilities to which the
Company or such other persons may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect

                                       11
<PAGE>   12

thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in such Registration Statement or
Prospectus or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in light of the circumstances under which they were
made, in the case of the Prospectus), not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such holder or
underwriter expressly for use therein; provided, however, that no Investor or
underwriter shall be liable under this Section 6(b) for any amount in excess of
the net proceeds paid to such Investor or underwriter in respect of shares sold
by it, and (ii) reimburse the Company for any legal or other expenses incurred
by the Company in connection with investigating or defending any such action or
claim as such expenses are incurred.

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

                                       12
<PAGE>   13

          (d) CONTRIBUTION. If the indemnification provided for in this Section
6 is unavailable to or insufficient to hold harmless an Indemnified Person under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and the Indemnified Party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such Indemnifying Party or by such Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 6(d) were determined by
pro rata allocation (even if the Investors or any underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 6(d).
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such Indemnified Party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations of the Investors and any underwriters in this
Section 6(d) to contribute shall be several in proportion to the percentage of
Registrable Securities registered or underwritten, as the case may be, by them
and not joint.

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

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

                                       13
<PAGE>   14

          7.   RULE 144

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

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

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

          8.   ASSIGNMENT

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

          9.   AMENDMENT AND WAIVER

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

          10.  CHANGES IN COMMON STOCK

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

                                       14
<PAGE>   15

          11.  MISCELLANEOUS

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

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

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

                           (i)      if to the Company, to:

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

                                    with a copy to:

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

                            (ii)    if to the Initial Investor, to:

                                       15
<PAGE>   16

                    The Shaar Fund Ltd.,
                    c/o Levinson Capital Management
                    2 World Trade Center, Suite 1820
                    New York, NY  10048
                    Attention:  Samuel Levinson
                    (212) 432-7711
                    (212) 432-7771 (Fax)

                    with a copy to:

                    Cadwalader, Wickersham & Taft
                    100 Maiden Lane
                    New York, NY 10038
                    Attention:  Dennis J. Block, Esq.
                    (212) 504-5555
                    (212) 504-5557 (Fax)

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

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

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

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

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

          (g)  The Company shall not enter into any agreement with respect to
its securities that is inconsistent with the rights granted to the holders of
Registrable Securities in

                                       16
<PAGE>   17

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

          (h) This Agreement, the Securities Purchase Agreement, the Escrow
Instructions, dated as of a date even herewith (the "ESCROW INSTRUCTIONS"),
between the Company, the Initial Investor and Cadwalader, Wickersham & Taft, the
Preferred Shares and the Warrants constitute the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement, the Securities Purchase Agreement, the
Escrow Instructions, the Certificate of Designation and the Warrants supersede
all prior agreements and undertakings among the parties hereto with respect to
the subject matter hereof.

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

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

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

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

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

                                       17

<PAGE>   18

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

                                   INNOVATIVE GAMING CORPORATION OF AMERICA

                                   By:  s/ Edward G. Stevenson
                                      ----------------------------------------
                                      Name:  Edward G. Stevenson
                                      Title: Chief Executive Officer

                                   THE SHAAR FUND LTD.

                                   By:  s/ Samuel Levinson
                                      ----------------------------------------
                                      Name:   Samuel Levinson
                                      Title:  Managing Director

                                       18<PAGE>   1

THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR
THE PROVISIONS OF THIS COMMON STOCK PURCHASE WARRANT.

                    Number of Shares of Common Stock: 50,000
                                 Warrant No. D-1

                          COMMON STOCK PURCHASE WARRANT

                           To Purchase Common Stock of

                    Innovative Gaming Corporation of America

                  THIS IS TO CERTIFY THAT The Shaar Fund Ltd., or registered
assigns, is entitled, at any time from the Closing Date (as hereinafter defined)
to the Expiration Date (as hereinafter defined), to purchase from Innovative
Gaming Corporation of America, a Minnesota corporation (the "COMPANY"), 50,000
shares of Common Stock (as hereinafter defined and subject to adjustment as
provided herein), in whole or in part, including fractional parts, at a purchase
price equal to $2.75 per share, subject to adjustment as provided herein, all on
the terms and conditions and pursuant to the provisions hereinafter set forth.

                  1. DEFINITIONS

                  As used in this Common Stock Purchase Warrant (this
"WARRANT"), the following terms have the respective meanings set forth below:

                  "ADDITIONAL SHARES OF COMMON STOCK" shall mean all shares of
Common Stock issued by the Company after the Closing Date, other than Warrant
Stock.

                  "BOOK VALUE" shall mean, in respect of any share of Common
Stock on any date herein specified, the consolidated book value of the Company
as of the last day of any month immediately preceding such date, divided by the
number of Fully Diluted Outstanding shares of Common Stock as determined in
accordance with GAAP (assuming the payment of the exercise prices for such
shares) by Kafoury, Armstrong & Co. or any other firm of independent certified
public accountants of recognized national standing selected by the Company and
reasonably acceptable to the Holder.

                                       1

<PAGE>   2

                  "BUSINESS DAY" shall mean any day that is not a Saturday or
Sunday or a day on which banks are required or permitted to be closed in the
State of New York.

                  "CLOSING DATE" shall have the meaning set forth in the
Securities Purchase Agreement.

                  "COMMISSION" shall mean the Securities and Exchange Commission
or any other federal agency then administering the Securities Act and other
federal securities laws.

                  "COMMON STOCK" shall mean (except where the context otherwise
indicates) the Common Stock, par value $0.01 per share, of the Company as
constituted on the Closing Date, and any capital stock into which such Common
Stock may thereafter be changed, and shall also include (i) capital stock of the
Company of any other class (regardless of how denominated) issued to the holders
of shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of the Company
and which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation received by or distributed to the holders of
Common Stock of the Company in the circumstances contemplated by Section 4.4.

                  "CONVERTIBLE SECURITIES" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
shares of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.

                  "CURRENT WARRANT PRICE" shall mean, in respect of a share of
Common Stock at any date herein specified, the price at which a share of Common
Stock may be purchased pursuant to this Warrant on such date, as set forth in
the first paragraph hereof.

                  "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934,
as amended, or any successor federal statute, and the rules and regulations of
the Commission thereunder, all as the same shall be in effect from time to time.

                  "EXERCISE PERIOD" shall mean the period during which this
Warrant is exercisable pursuant to Section 2.1.

                  "EXPIRATION DATE" shall mean October 13, 2004.

                  "FULLY DILUTED OUTSTANDING" shall mean, when used with
reference to Common Stock, at any date as of which the number of shares thereof
is to be determined, all shares of Common Stock Outstanding at such date and all
shares of Common Stock issuable in respect of this Warrant, outstanding on such
date, and other options or warrants to purchase, or securities convertible into,
shares of Common Stock outstanding on such date which would be deemed
outstanding in accordance with GAAP for purposes of determining Book Value or
net income per share.

                  "GAAP" shall mean generally accepted accounting principles in
the United States of America as from time to time in effect.

                                       2

<PAGE>   3

                  "HOLDER" shall mean the Person in whose name the Warrant or
Warrant Stock set forth herein is registered on the books of the Company
maintained for such purpose.

                  "OTHER PROPERTY" shall have the meaning set forth in Section
4.4.

                  "OUTSTANDING" shall mean, when used with reference to Common
Stock, at any date as of which the number of shares thereof is to be determined,
all issued shares of Common Stock, except shares then owned or held by or for
the account of the Company or any subsidiary thereof, and shall include all
shares issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.

                  "PERSON" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).

                  "REGISTRATION RIGHTS AGREEMENT" shall mean the Registration
Rights Agreement dated a date even herewith between the Company and The Shaar
Fund Ltd., as it may be amended from time to time.

                  "RESTRICTED COMMON STOCK" shall mean shares of Common Stock
which are, or which upon their issuance on their exercise of this Warrant would
be, evidenced by a certificate bearing the restrictive legend set forth in
Section 9.1(a).

                  "SECURITIES ACT" shall mean the Securities Act of 1933, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.

                  "SECURITIES PURCHASE AGREEMENT" shall mean the Securities
Purchase Agreement dated as of a date even herewith between the Company and The
Shaar Fund Ltd. as it may be amended from time to time.

                  "TRANSFER" shall mean any disposition of any Warrant or
Warrant Stock or of any interest in either thereof, which would constitute a
sale thereof within the meaning of the Securities Act.

                  "TRANSFER NOTICE" shall have the meaning set forth in Section
9.2.

                  "WARRANT PRICE" shall mean an amount equal to (i) the number
of shares of Common Stock being purchased upon exercise of this Warrant pursuant
to Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of
such exercise.

                  "WARRANT STOCK" shall mean the shares of Common Stock
purchased by the holders of the Warrants upon the exercise thereof.

                  "WARRANTS" shall mean this Warrant and all warrants issued
upon transfer, division or combination of, or in substitution for, any thereof.
All Warrants shall at all times be

                                       3

<PAGE>   4

identical as to terms and conditions and date, except as to the number of shares
of Common Stock for which they may be exercised.

                  2.  EXERCISE OF WARRANT

                  2.1 MANNER OF EXERCISE

                  From and after the Closing Date and until 5:00 p.m., New York
time, on the Expiration Date, Holder may exercise this Warrant, on any Business
Day, for all or any part of the number of shares of Common Stock purchasable
hereunder.

                  In order to exercise this Warrant, in whole or in part, Holder
shall deliver to the Company at its principal office at 4725 Aircenter Circle,
Reno, Nevada 89502, or at the office or agency designated by the Company
pursuant to Section 12, (i) a written notice of Holder's election to exercise
this Warrant, which notice shall specify the number of shares of Common Stock to
be purchased, (ii) payment of the Warrant Price in cash or wire transfer or
cashier's check drawn on a United States bank and (iii) this Warrant. Such
notice shall be substantially in the form of the subscription form appearing at
the end of this Warrant as Exhibit A, duly executed by Holder or its agent or
attorney. Upon receipt of the items referred to in clauses (i), (ii) and (iii)
above, the Company shall, as promptly as practicable, and in any event within
five Business Days thereafter, execute or cause to be executed and deliver or
cause to be delivered to Holder a certificate or certificates representing the
aggregate number of full shares of Common Stock issuable upon such exercise,
together with cash in lieu of any fraction of a share, as hereinafter provided.
The stock certificate or certificates so delivered shall be, to the extent
possible, in such denomination or denominations as Holder shall request in the
notice and shall be registered in the name of Holder or, subject to Section 9,
such other name as shall be designated in the notice. This Warrant shall be
deemed to have been exercised and such certificate or certificates shall be
deemed to have been issued, and Holder or any other Person so designated to be
named therein shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the notice, together with the cash or check or
checks and this Warrant, is received by the Company as described above and all
taxes required to be paid by Holder, if any, pursuant to Section 2.2 prior to
the issuance of such shares have been paid. If this Warrant shall have been
exercised in part, the Company shall, at the time of delivery of the certificate
or certificates representing Warrant Stock, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant, or, at the request of Holder, appropriate
notation may be made on this Warrant and the same returned to Holder.
Notwithstanding any provision herein to the contrary, the Company shall not be
required to register shares in the name of any Person who acquired this Warrant
(or part hereof) or any Warrant Stock otherwise than in accordance with this
Warrant.

                  2.2 PAYMENT OF TAXES AND CHARGES

                  All shares of Common Stock issuable upon the exercise of this
Warrant pursuant to the terms hereof shall be validly issued, fully paid and
nonassessable, freely tradable and without any preemptive rights. The Company
shall pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the issue or delivery

                                       4

<PAGE>   5

thereof, unless such tax or charge is imposed by law upon Holder, in which case
such taxes or charges shall be paid by Holder. The Company shall not be
required, however, to pay any tax or other charge imposed in connection with any
transfer involved in the issue of any certificate for shares of Common Stock
issuable upon exercise of this Warrant in any name other than that of Holder,
and in such case the Company shall not be required to issue or deliver any stock
certificate until such tax or other charge has been paid or it has been
established to the satisfaction of the Company that no such tax or other charge
is due.

                  2.3  FRACTIONAL SHARES

                  The Company shall not be required to issue a fractional share
of Common Stock upon exercise of any Warrant. As to any fraction of a share
which Holder would otherwise be entitled to purchase upon such exercise, the
Company shall pay a cash adjustment in respect of such final fraction in an
amount equal to the same fraction of the Current Warrant Price.

                  2.4  CONTINUED VALIDITY

                  A holder of shares of Common Stock issued upon the exercise of
this Warrant, in whole or in part (other than a holder who acquires such shares
after the same have been publicly sold pursuant to a Registration Statement
under the Securities Act or sold pursuant to Rule 144 thereunder), shall
continue to be entitled with respect to such shares to all rights to which it
would have been entitled as Holder under Sections 9, 10 and 14 of this Warrant.
The Company will, at the time of exercise of this Warrant, in whole or in part,
upon the request of Holder, acknowledge in writing, in form reasonably
satisfactory to Holder, its continuing obligation to afford Holder all such
rights; provided, however, that if Holder shall fail to make any such request,
such failure shall not affect the continuing obligation of the Company to afford
to Holder all such rights.

                  3.   TRANSFER, DIVISION AND COMBINATION

                  3.1  TRANSFER

                  Subject to compliance with Section 9, transfer of this Warrant
and all rights hereunder, in whole or in part, shall be registered on the books
of the Company to be maintained for such purpose, upon surrender of this Warrant
at the principal office of the Company referred to in Section 2.1 or the office
or agency designated by the Company pursuant to Section 12, together with a
written assignment of this Warrant substantially in the form of Exhibit B hereto
duly executed by Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall, subject to Section 9, execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be canceled. A Warrant, if properly
assigned in compliance with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new warrant issued.

                                       5

<PAGE>   6

                  3.2 DIVISION AND COMBINATION

                  Subject to Section 9, this Warrant may be divided or combined
with other Warrants upon presentation hereof at the aforesaid office or agency
of the Company, together with a written notice specifying the names and
denominations in which new Warrants are to be issued, signed by Holder or its
agent or attorney. Subject to compliance with Section 3.1 and with Section 9, as
to any transfer which may be involved in such division or combination, the
Company shall execute and deliver a new Warrant or Warrants in exchange for the
Warrant or Warrants to be divided or combined in accordance with such notice.

                  3.3 EXPENSES

                  The Company shall prepare, issue and deliver at its own
expense (other than transfer taxes) the new Warrants or Warrants under this
Section 3.

                  3.4 MAINTENANCE OF BOOKS

                  The Company agrees to maintain, at its aforesaid office or
agency, books for the registration and the registration of transfer of the
Warrants.

                  4.  ADJUSTMENTS

                  The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.

                  4.1 STOCK DIVIDENDS, SUBDIVISIONS AND COMBINATIONS

                  If at any time the Company shall:

                  (a) take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend payable in, or other
distribution of, Additional Shares of Common Stock;

                  (b) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock; or

                  (c) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock;

then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of

                                       6

<PAGE>   7

Common Stock for which this Warrant is exercisable immediately prior to the
adjustment divided by (B) the number of shares for which this Warrant is
exercisable immediately after such adjustment.

                  4.2 CERTAIN OTHER DISTRIBUTIONS

                  If at any time the Company shall take a record of the holders
of its Common Stock for the purpose of entitling them to receive any dividend or
other distribution of:

                  (a) cash;

                  (b) any evidences of its indebtedness, any shares of its stock
or any other securities or property of any nature whatsoever (other than cash,
Convertible Securities or Additional Shares of Common Stock); or

                  (c) any warrants or other rights to subscribe for or purchase
any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash, Convertible
Securities or Additional Shares of Common Stock);

then Holder shall be entitled to receive such dividend or distribution as if
Holder had exercised the Warrant. A reclassification of the Common Stock (other
than a change in par value, or from par value to no par value or from no par
value to par value) into shares of Common Stock and shares of any other class of
stock shall be deemed a distribution by the Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of this
Section 4.2 and, if the outstanding shares of Common Stock shall be changed into
a larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 4.1.

                  4.3 OTHER PROVISIONS APPLICABLE TO ADJUSTMENTS UNDER THIS
                      SECTION

                  The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price provided for in this Section 4:

                  (a) WHEN ADJUSTMENTS TO BE MADE. The adjustments required by
this Section 4 shall be made whenever and as often as any specified event
requiring an adjustment shall occur. For the purpose of any adjustment, any
specified event shall be deemed to have occurred at the close of business on the
date of its occurrence.

                  (b) FRACTIONAL INTERESTS. In computing adjustments under this
Section 4, fractional interests in Common Stock shall be taken into account to
the nearest 1/10th of a share.

                  (c) WHEN ADJUSTMENT NOT REQUIRED. If the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the

                                       7

<PAGE>   8

taking of such record and any such adjustment previously made in respect thereof
shall be rescinded and annulled.

                  (d) CHALLENGE TO GOOD FAITH DETERMINATION. Whenever the Board
of Directors of the Company shall be required to make a determination in good
faith of the fair value of any item under this Section 4, such determination may
be challenged in good faith by the Holder, and any dispute shall be resolved by
an investment banking firm of recognized national standing selected by the
Company and acceptable to Holder.

                  4.4 REORGANIZATION, RECLASSIFICATION, MERGER, CONSOLIDATION OR
                      DISPOSITION OF ASSETS

                  In case the Company shall reorganize its capital, reclassify
its capital stock, consolidate or merge with or into another corporation (where
the Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of the Company), or sell, transfer
or otherwise dispose of all or substantially all its property, assets or
business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("OTHER
PROPERTY"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of the Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, consolidation or disposition of assets by a holder of the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined by resolution of the Board of Directors of
the Company) in order to provide for adjustments of shares of Common Stock for
which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 4. For purposes of
this Section 4.4, "COMMON STOCK OF THE SUCCESSOR OR ACQUIRING CORPORATION" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 4.4 still similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.

                                       8

<PAGE>   9

                  4.5 OTHER ACTION AFFECTING COMMON STOCK

                  In case at any time or from time to time the Company shall
take any action in respect of its Common Stock, other than any action described
in this Section 4, which would have a materially adverse effect upon the rights
of Holder, the number of shares of Common Stock and/or the purchase price
thereof shall be adjusted in such manner as may be equitable in the
circumstances, as determined in good faith by the Board of Directors of the
Company.

                  4.6 CERTAIN LIMITATIONS

                  Notwithstanding anything herein to the contrary, the Company
agrees not to enter into any transaction which, by reason of any adjustment
hereunder, would cause the Current Warrant Price to be less than the par value
per share of Common Stock.

                  5.  NOTICES TO HOLDER

                  5.1 NOTICE OF ADJUSTMENTS

                  Whenever the number of shares of Common Stock for which this
Warrant is exercisable, or whenever the price at which a share of such Common
Stock may be purchased upon exercise of the Warrants, shall be adjusted pursuant
to Section 4, the Company shall forthwith prepare a certificate to be executed
by the chief financial officer of the Company setting forth, in reasonable
detail, the event requiring the adjustment and the method by which such
adjustment was calculated (including a description of the basis on which the
Board of Directors of the Company determined the fair value of any evidences of
indebtedness, shares of stock, other securities or property or warrants or other
subscription or purchase rights referred to in Section 4.2), specifying the
number of shares of Common Stock for which this Warrant is exercisable and (if
such adjustment was made pursuant to Section 4.4 or 4.5) describing the number
and kind of any other shares of stock or Other Property for which this Warrant
is exercisable, and any change in the purchase price or prices thereof, after
giving effect to such adjustment or change. The Company shall promptly cause a
signed copy of such certificate to be delivered to the Holder in accordance with
Section 14.2. The Company shall keep at its office or agency designated pursuant
to Section 12 copies of all such certificates and cause the same to be available
for inspection at said office during normal business hours by the Holder or any
prospective purchaser of a Warrant designated by Holder.

                  5.2 NOTICE OF CORPORATE ACTION

                  If at any time:

                  (a) the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend or other
distribution, or any right to subscribe for or purchase any evidences of its
indebtedness, any shares of stock of any class or any other securities or
property, or to receive any other right; or

                  (b) there shall be any capital reorganization of the Company,
any reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger of the

                                       9
<PAGE>   10

Company with, or any sale, transfer or other disposition of all or substantially
all the property, assets or business of the Company to, another corporation; or

                  (c) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company;

then, in any one or more of such cases, the Company shall give to Holder (i) at
least 30 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 30 days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 14.2.

                  6. NO IMPAIRMENT

                  The Company shall not by any action, including, without
limitation, amending its certificate of incorporation or through any
reorganization, transfer of assets, consolidation, merger, dissolution, issue or
sale of securities or other voluntary action, avoid or seek to avoid the
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the
rights of Holder against impairment. Without limiting the generality of the
foregoing, the Company will (a) not increase the par value of any shares of
Common Stock receivable upon the exercise of this Warrant above the amount
payable therefor upon such exercise immediately prior to such increase in par
value, (b) take all such action as may be necessary or appropriate in order that
the Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant, and (c) use its best efforts to
obtain all such authorizations, exemptions or consents from any public
regulatory body having jurisdiction thereof as may be necessary to enable the
Company to perform its obligations under this Warrant.

                  Upon the request of Holder, the Company will at any time
during the period this Warrant is outstanding acknowledge in writing, in form
satisfactory to Holder, the continuing validity of this Warrant and the
obligations of the Company hereunder.

                                       10

<PAGE>   11

                  7.  RESERVATION AND AUTHORIZATION OF COMMON STOCK

                  From and after the Closing Date, the Company shall at all
times reserve and keep available for issue upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock which shall be so issuable, when issued upon exercise of
any Warrant and payment therefor in accordance with the terms of such Warrant,
shall be duly and validly issued and fully paid and nonassessable and not
subject to preemptive rights.

                  Before taking any action which would cause an adjustment
reducing the Current Warrant Price below the then par value, if any, of the
shares of Common Stock issuable upon exercise of the Warrants, the Company shall
take any corporate action which may be necessary in order that the Company may
validly and legally issue fully paid and nonassessable shares of such Common
Stock at such adjusted Current Warrant Price.

                  Before taking any action which would result in an adjustment
in the number of shares of Common Stock for which this Warrant is exercisable or
in the Current Warrant Price, the Company shall obtain all such authorizations
or exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.

                  8.  TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS

                  In the case of all dividends or other distributions by the
Company to the holders of its Common Stock with respect to which any provision
of Section 4 refers to the taking of record of such holders, the Company will in
each case take such a record and will take such record as of the close of
business on a Business Day. The Company will not at any time, except upon
dissolution, liquidation or winding up of the Company, close its stock transfer
books or Warrant transfer books so as to result in preventing or delaying the
exercise or transfer of any Warrant.

                  9.  RESTRICTIONS ON TRANSFERABILITY

                  The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.

                  9.1 RESTRICTIVE LEGEND

                  (a) Holder, by accepting this Warrant and any Warrant Stock
agrees that this Warrant and the Warrant Stock issuable upon exercise hereof may
not be assigned or otherwise transferred unless and until (i) the Company has
received an opinion of counsel for Holder that such securities may be sold
pursuant to an exemption from registration under the Securities Act or (ii) a
registration statement relating to such securities has been filed by the Company
and declared effective by the Commission.

                                       11
<PAGE>   12

                  Each certificate for Warrant Stock issuable hereunder shall
bear a legend as follows until such securities have been sold pursuant to an
effective registration statement under the Securities Act:

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

                  (b) Except as otherwise provided in this Section 9, the
Warrant shall be stamped or otherwise imprinted with a legend in substantially
the following form:

                  "THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT
                  BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
                  AND MAY NOT BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES
                  AND REGULATIONS THEREUNDER OR THE PROVISIONS OF THIS WARRANT."

                  9.2 NOTICE OF PROPOSED TRANSFERS

                  Prior to any Transfer or attempted Transfer of any Warrants or
any shares of Restricted Common Stock, the Holder shall give ten days' prior
written notice (a "TRANSFER NOTICE") to the Company of Holder's intention to
effect such Transfer, describing the manner and circumstances of the proposed
Transfer, and obtain from counsel to Holder who shall be reasonably satisfactory
to the Company, an opinion that the proposed Transfer of such Warrants or such
Restricted Common Stock may be effected without registration under the
Securities Act. After receipt of the Transfer Notice and opinion, the Company
shall, within five days thereof, notify the Holder as to whether such opinion is
reasonably satisfactory and, if so, such holder shall thereupon be entitled to
Transfer such Warrants or such Restricted Common Stock, in accordance with the
terms of the Transfer Notice. Each certificate, if any, evidencing such shares
of Restricted Common Stock issued upon such Transfer shall bear the restrictive
legend set forth in Section 9.1(a), and the Warrant issued upon such Transfer
shall bear the restrictive legend set forth in Section 9.1(b), unless in the
opinion of such counsel such legend is not required in order to ensure
compliance with the Securities Act. Holder shall not be entitled to Transfer
such Warrants or such Restricted Common Stock until receipt of notice from the
Company under this Section 9.2(a) that such opinion is reasonably satisfactory.

                                       12
<PAGE>   13

                  9.3 REQUIRED REGISTRATION

                  Pursuant to the terms and conditions set forth in Registration
Rights Agreement, the Company shall prepare and file with the Commission not
later than the 90th day after the Closing Date, a Registration Statement
relating to the offer and sale of the Common Stock issuable upon exercise of the
Warrants and shall use its best efforts to cause the Commission to declare such
Registration Statement effective under the Securities Act as promptly as
practicable but no later than 180 days after the Closing Date.

                  9.4 TERMINATION OF RESTRICTIONS

                  Notwithstanding the foregoing provisions of Section 9, the
restrictions imposed by this Section upon the transferability of the Warrants,
the Warrant Stock and the Restricted Common Stock (or Common Stock issuable upon
the exercise of the Warrants) and the legend requirements of Section 9.1 shall
terminate as to any particular Warrant or share of Warrant Stock or Restricted
Common Stock (or Common Stock issuable upon the exercise of the Warrants) (i)
when and so long as such security shall have been effectively registered under
the Securities Act and disposed of pursuant thereto or (ii) when the Company
shall have received an opinion of counsel reasonably satisfactory to it that
such shares may be transferred without registration thereof under the Securities
Act. Whenever the restrictions imposed by Section 9 shall terminate as to this
Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive
from the Company upon written request of the Holder, at the expense of the
Company, a new Warrant bearing the following legend in place of the restrictive
legend set forth hereon:

                  "THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT
                  CONTAINED IN SECTION 9 HEREOF TERMINATED ON __________, _____,
                  AND ARE OF NO FURTHER FORCE AND EFFECT."

All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legend set forth in Section 9.1(a).

                  9.5 LISTING ON SECURITIES EXCHANGE

                  If the Company shall list any shares of Common Stock on any
securities exchange or quotation system, it will, at its expense, list thereon,
maintain and, when necessary, increase such listing of, all shares of Common
Stock issued or, to the extent permissible under the applicable securities
exchange rules, issuable upon the exercise of this Warrant so long as any shares
of Common Stock shall be so listed during any such Exercise Period.

                                       13
<PAGE>   14

                  10.  SUPPLYING INFORMATION

                  The Company shall cooperate with Holder in supplying such
information as may be reasonably necessary for Holder to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act for the
sale of any Warrant or Restricted Common Stock.

                  11.  LOSS OR MUTILATION

                  Upon receipt by the Company from Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of the Holder shall be sufficient
indemnity), and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant of like tenor
to Holder; PROVIDED, in the case of mutilation no indemnity shall be required if
this Warrant in identifiable form is surrendered to the Company for
cancellation.

                  12.  OFFICE OF THE COMPANY

                  As long as any of the Warrants remain outstanding, the Company
shall maintain an office or agency (which may be the principal executive offices
of the Company) where the Warrants may be presented for exercise, registration
of transfer, division or combination as provided in this Warrant.

                  13.  LIMITATION OF LIABILITY

                  No provision hereof, in the absence of affirmative action by
Holder to purchase shares of Common Stock, and no enumeration herein of the
rights or privileges of Holder hereof, shall give rise to any liability of
Holder for the purchase price of any Common Stock or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.

                  14.  MISCELLANEOUS

                  14.1 NONWAIVER AND EXPENSES

                  No course of dealing or any delay or failure to exercise any
right hereunder on the part of Holder shall operate as a waiver of such right or
otherwise prejudice Holder's rights, powers or remedies. If the Company fails to
make, when due, any payments provided for hereunder, or fails to comply with any
other provision of this Warrant, the Company shall pay to Holder such amounts as
shall be sufficient to cover any costs and expenses including, without
limitation, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto or
in otherwise enforcing any of its rights, powers or remedies hereunder.

                                       14

<PAGE>   15

                  14.2 NOTICE GENERALLY

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

                    (a) if to the Company, to:

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

                           with a copy to:

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

                    (b) if to the Holder, to:

                           The Shaar Fund Ltd.
                           c/o Levinson Capital Management
                           2 World Trade Center, Suite 1820
                           New York, NY 10048
                           Attention:  Samuel Levinson
                           (212) 432-7711
                           (212) 432-7771 (Fax)

                           with a copy to:

                           Cadwalader, Wickersham & Taft
                           100 Maiden Lane
                           New York, NY 10038
                           Attention:  Dennis J. Block, Esq.
                           (212) 504-5555
                           (212) 504-5557 (Fax)

The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.

                                       15

<PAGE>   16

                  14.3 INDEMNIFICATION

                  The Company agrees to indemnify and hold harmless Holder from
and against any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of
any kind which may be imposed upon, incurred by or asserted against Holder in
any manner relating to or arising out of any failure by the Company to perform
or observe in any material respect any of its covenants, agreements,
undertakings or obligations set forth in this Warrant; PROVIDED, HOWEVER, that
the Company will not be liable hereunder to the extent that any liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, attorneys' fees, expenses or disbursements are found in a final
nonappealable judgment by a court to have resulted from Holder's gross
negligence, bad faith or willful misconduct in its capacity as a stockholder or
warrantholder of the Company.

                  14.4 REMEDIES

                  Holder in addition to being entitled to exercise all rights
granted by law, including recovery of damages, will be entitled to specific
performance of its rights under Section 9 of this Warrant. The Company agrees
that monetary damages would not be adequate compensation for any loss incurred
by reason of a breach by it of the provisions of Section 9 of this Warrant and
hereby agrees to waive the defense in any action for specific performance that a
remedy at law would be adequate.

                  14.5 SUCCESSORS AND ASSIGNS

                  Subject to the provisions of Sections 3.1 and 9, this Warrant
and the rights evidenced hereby shall inure to the benefit of and be binding
upon the successors of the Company and the successors and assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all Holders
from time to time of this Warrant and, with respect to Section 9 hereof, holders
of Warrant Stock, and shall be enforceable by any such Holder or holder of
Warrant Stock.

                  14.6 AMENDMENT

                  This Warrant and all other Warrants may be modified or amended
or the provisions hereof waived with the written consent of the Company and
Holder.

                  14.7 SEVERABILITY

                  Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall only be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Warrant.

                  14.8 HEADINGS

                  The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.

                                       16

<PAGE>   17

                  14.9 GOVERNING LAW

                  This Warrant shall be governed by the laws of the State of New
York, without regard to the provisions thereof relating to conflicts of law.

                            [SIGNATURE PAGE FOLLOWS.]

                                       17

<PAGE>   18

                  IN WITNESS WHEREOF, the Company has caused this Warrant to be
duly executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.

Dated:  October [  ], 1999

                                       INNOVATIVE GAMING CORPORATION OF
                                           AMERICA

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

Attest:

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

                                       18

<PAGE>   19

                                                                       EXHIBIT A

                                SUBSCRIPTION FORM

                 [To be executed only upon exercise of Warrant]

          The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of        shares of Common Stock of Innovative
Gaming Corporation of America and herewith makes payment therefor, all at the
price and on the terms and conditions specified in this Warrant and requests
that certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the name
of and delivered to

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

whose address is

--------------------------------------------------------------------------------
and, if such shares of Common Stock shall not include all of the shares of
Common Stock issuable as provided in this Warrant, that a new Warrant of like
tenor and date for the balance of the shares of Common Stock issuable hereunder
be delivered to the undersigned.

                                             -----------------------------------
                                                 (Name of Registered Owner)

                                             -----------------------------------
                                                (Signature of Registered Owner)

                                             -----------------------------------
                                                       (Street Address)

                                             -----------------------------------
                                             (City)      (State)      (Zip Code)

                                             NOTICE: The signature on this
                                             subscription must correspond with
                                             the name as written upon the face
                                             of the within Warrant in every
                                             particular, without alteration or
                                             enlargement or any change
                                             whatsoever.

                                      A-1

<PAGE>   20
                                                                       EXHIBIT B

                                 ASSIGNMENT FORM

          FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:

                                                 No. of Shares of
   Name and Address of Assignee                    Common Stock
   ----------------------------                  ----------------

and does hereby irrevocably constitute and appoint

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

attorney-in-fact to register such transfer on the books of Innovative Gaming
Corporation of America maintained for the purpose, with full power of
substitution in the premises.

Dated:
      -----------------------------------

                                             -----------------------------------
                                                        (Print Name)

                                             -----------------------------------
                                                         (Signature)

                                             -----------------------------------
                                                    (Print Name of Witness)

                                             -----------------------------------
                                                    (Witness's Signature)

                                             NOTICE: The signature on this
                                             assignment must correspond with the
                                             name as written upon the face of
                                             the within Warrant in every
                                             particular, without alteration or
                                             enlargement or any change
                                             whatsoever.

                                      B-1

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00000-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00000-of-00352.parquet"}]]