UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
(Mark One)
X Annual Report Pursuant To Section 13 Or 15(d) Of The Securities
Exchange Act Of 1934
For the Fiscal Year Ended June 30, 1997
Transition Report Pursuant To Section 13 Or 15(d) Of The Exchange Act
Commission file number 0-27226
SPINTEK GAMING TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its charter)
California 33-0134823
(State or other jurisdiction of incorporation (IRS Employer Identification
or organization) No.)
901-B Grier Drive, Las Vegas, Nevada 89119 (702) 263 - 3660
(Address of principal executive offices) (Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
(Title of class) Name of exchange on which registered
None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $0.002 par value
(Title of Class)
Indicate by mark whether the issuer (1) filed all reports to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
Indicate by mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB.
The issuer's revenues for the fiscal year ended June 30, 1997 were: $0.
There were 15,786,443 outstanding shares of common stock, par value $0.002
per share, as of August 25, 1997. The aggregate market value of the voting
stock of the Registrant held by non-affiliates of the Registrant, as of August
25, 1997, was $3,114,034 based on the last sales price on such date.
DOCUMENTS INCORPORATED BY REFERENCE: The information
required by Part III of Form 10-KSB is incorporated herein by reference to the
registrant's definitive Proxy Statement relating to its 1997 Annual Meeting of
Stockholders which will be filed with the Commission within 120 days after
the end of the registrant's fiscal year.
Transitional Small Business Disclosure Format: Yes No X
<PAGE>
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Spintek Gaming Technologies, Inc. ("The Company" or
"Spintek") is a Las Vegas, Nevada based company whose
common stock trades on the OTC Bulletin Board, under the
symbol "SPTK". The Company was organized as GSA, Inc., and
incorporated in the State of California on September 11, 1984.
Until the completion of the fiscal year ended June 30, 1995, the
Company conducted its business under the trade name "TAGG
Industries" and distributed products in the medical first aid and
personal safety field from its corporate offices in Laguna Hills,
California.
On September 14, 1995, the stockholders of the Company
approved the acquisition of Spintek Gaming, Inc. ("Gaming"), a
Georgia corporation that was incorporated in December, 1993.
Such acquisition, effected by an exchange of the common stock
of the entities, was deemed to be effective as of July 1, 1995. As
part of the transaction whereby the Company acquired Gaming,
the medical, first aid and related safety product distribution
business of the Company, as well as substantially all of its assets,
together with its liabilities, were sold to and assumed by a
Limited Liability Company, owned by its former president and
former controlling stockholder for $150,000. This transaction
was also approved by the stockholders of the Company on
September 14, 1995. On September 26, 1995, the Company filed
an amendment to its articles of incorporation pursuant to which it
effected a reverse split on a 1 share for 2 share basis, changed the
value of its common stock from no par value to $.002 par value
per share and changed its name from GSA, Inc. to Spintek
Gaming Technologies, Inc. As a consequence of the above
described transactions, the Company became the holding
company of its wholly-owned subsidiary Gaming as well as
Gaming's wholly-owned subsidiary, Spinteknology, Inc.
("Spinteknology").
Equipment and Technology
The company's corporate mission calls for it to identify,
refine and then market and license proprietary gaming and non-
gaming technology on a worldwide basis. Since approximately
April 1996, the Company, through its subsidiaries, has devoted its
efforts to the development of a an off-line data collection and
accounting system for slot machines and a device that measures
the contents of a slot machine coin hopper. The Company has
focused its efforts on its coin hopper measurement device, which
it believes to be unique to the gaming industry. Packaged with
this coin hopper technology, the Company also incorporates all of
the hopper information into a Windows based, real-time data
collection system known as "AccuSystem " or sometimes
referred to as the "M.A.N.A.G.E.R.S. System".
AccuSystem was developed for the casino industry to
gather financial and security information into an easy to read
format which uses the latest standards in open database
technology, allowing access for custom reporting through third
party programs such as Crystal Reports or Report Smith .
AccuSystem is comprised of several separate components for
gathering accurate hopper level information, the primary
components of which are the "AccuHopper ", "AccuBoard ",
and "AccuView ". AccuHopper is a device that accurately
weighs the number of coins in a slot machine hopper, AccuBoard
is a device that communicates this information on a real-time
basis to a host computer from the AccuHopper, as well as game
active information, and door information for security.
AccuBoard includes data redundancy and time stamping of events
that comply with the minimum standards of the Nevada Gaming
Control Board including battery backup and non-volatile
memory. AccuView is a Windows based software module that
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visually displays the hopper levels and status of the games in an
easy to use graphical floor map of the casino. This module
provides hopper level variance reports that are date/time stamped
during periods when a slot machine's door is open and also
indicates the inventory level by machine, for all machines by
denomination, or for a user selected group of machines on a real-
time basis. Management believes no other product currently
exists in the market that has the ability to measure and report the
current contents of a slot hopper with reliability.
The coordination of all of these modules working in
concert allows a casino manager to set minimum and maximum
levels from the Windows software for allowing slot machines to
be pre-filled before a game reports a hopper empty signal, thus
reducing player down time due to hopper empty conditions. This
feature not only increases customer service, and reduces game
down time, but allows the casino manager to observe the amount
of the fill from his office as it is occurring.
Management is currently in discussions with major system
vendors for data collection and accounting systems to allow the
integration of the weighing technology into their software
applications. However, unless the individual system vendor can
generate what it considers to be sufficient revenue from such an
integration, there can be no assurance that such an integration
will take place. For this reason, and for the reason of providing a
complete turnkey system, the Company has dedicated its
Research and Development staff to refine the AccuSystem's data
collection and accounting systems to allow it to run independent
of any currently installed Slot Accounting system. (See
Competition below).
As of June 30, 1997, the Company had completed testing
of the AccuSystem at three locations for three separate route
operators in Las Vegas, Nevada, with what Management believes
were satisfactory results. However, to date there has been no
commitment from any of the route operators to purchase the
AccuSystem and there can be no assurance that the Company will
recognize any revenue from these trials. In addition, as of
September 10, 1997, the Company had installed the AccuSystem
at three major Las Vegas, Nevada casinos for testing. While
Management feels the tests are providing the necessary
information to the casinos, there can be no assurances that any of
the tests will ultimately result in sales of the AccuSystem.
Marketing
In July 1997, the Company hired Patrick Schmit, a
salesperson with substantial experience in marketing and selling
slot accounting systems and slot machines to the gaming industry.
It is the intent of Management to market the Company's products
through Mr. Schmit's, as well as other key employee's, contacts
in the gaming industry. Management believes there is a world
wide market for the AccuSystem and/or the components which
comprise the system and intends to market it's products either by
direct sales (United States), or through licensing arrangements
with manufacturers of slot machines, coin hoppers and the major
manufacturers of automated accounting systems for slot machines
(United States and worldwide).
Direct Sales. The Company has developed AccuHopper kits for
slot machines from all major manufacturers. The retrofit kits can
be installed on the hopper by either the operator or Company
personnel. Management plans to make direct contact to strategic
targets in the gaming industry to offer its products for sale in the
form of retrofit kits which can either be installed on hoppers by
the Company for a fee, or the Company will train the purchaser's
technicians to perform the procedure. Hoppers retrofitted with
the AccuSystem can either be installed by the Company, or once
again the Company will train the purchaser's technicians on
installation procedures.
<PAGE>
License Agreements. Management is attempting to forge
strategic alliances with companies that are already successful in
the gaming industry who are presently looking to enhance their
existing products and/or expand their presence in foreign markets
as opportunities for sales growth. As of June 30, 1997 the
Company had signed two technology licensing agreements, in
which the Company has given a nonexclusive license to two
separate companies for the AccuHopper. These two license
agreements are with SUZO International, (N.L.) B.V. ("SUZO")
and International Game Technology, Inc. ("IGT"). Each of the
agreements require a fee to be paid to the Company for each of
the AccuHoppers sold by the respective licensee. SUZO
International, (N.L.) B.V. has been conducting an extensive field
trial at a European casino since February 1997. While
Management is encouraged by the results from this trial, to date,
no sales have taken place by either of these companies, nor can
there be any assurance that the Company will recognize revenues
as a result of these agreements.
Competition
The Company currently has several principal competitors
in the market for data collection and accounting systems,
including, but not limited to, Mikohn Gaming Corporation,
Electronic Data Technologies, a subsidiary of IGT, Bally
Systems, a subsidiary of Bally Gaming International, Inc., Casino
Data Systems, and Acres Gaming, Inc. Management, however
believes that it currently is the only company that can market a
hopper weighing device and has a competitive advantage in the
gaming industry with regard to this product. (See Patents,
Licenses and Royalty Agreements below.)
The Company is currently conducting field trials for its
hopper weighing device with three major Las Vegas casinos, each
of whom currently utilizes a different competitor's data collection
and accounting system. The field trials are currently being
conducted parallel to each of the casino's existing slot accounting
on-line systems. Management believes its product is marketable as a
stand alone system, but also feels that it would be able to
penetrate the market sooner and in greater volume by interfacing
with its competitors data collection and accounting systems. In
this regard, Management has had preliminary discussion with
several of the above mentioned competitors to allow for an
interface to their systems. There can, however, be no assurances
that any of the vendors will agree to such an interface.
Raw Materials and Principal Suppliers
The components of the AccuSystem and the data
collection and accounting systems are made from currently
available materials. Such raw materials include steel, aluminum,
copper, brass, plastics, zinc, and silicon. All are currently widely
available to both the Company and its competitors. The
Company sometimes purchases the raw materials directly, which
it subcontracts to assemblers for assembly, and sometimes it
purchases completed sub-parts and subassemblies from suppliers.
There can be no assurance that certain raw materials used in the
Company's products will remain available in the future or that the
Company will be able to find alternate materials in the event that
such materials become unavailable.
The Company is dependent on various suppliers for the
components of its AccuSystem and data collection and
accounting systems. Although Management believes that there
are a number of alternative sources for most of these
components, the Company presently must obtain certain
components from a limited number of suppliers. The loss of any
significant supplier, in the absence of timely and satisfactory
<PAGE>
alternative arrangements, could adversely effect the Company's
ability to deliver its products in a timely manner, when, or if sales
occur. In addition, the Company could be adversely affected by
delays in delivery or an inability to obtain products from
suppliers.
The principal suppliers to the Company for the
components that make up its AccuSystem and data collection and
accounting systems are: All American Semiconductor, Arrow
Electronics, FAI Electronics Corporation and Hottinger Baldwin
Messtechnik.
Major Customers
Although Management believes the field trials mentioned
above are proceeding satisfactorily, there can be no assurances
that any of the trials will result in a sale. To date the Company
has not consummated any sales and therefore has no major
customers.
Patents, Licenses and Royalty Agreements
Although the Company currently has patent applications
for its hopper weighing technology pending with the United
States Patent Office, there can be no assurance that the patents
will be granted or, if granted, will be effective in preventing
competitors from developing similar systems. On August 2,
1996, the Company received correspondence from attorneys
representing Bally Gaming International, Inc. ("Bally"), that Bally
had been issued a patent on July 2, 1996 which may overlap and
be in conflict with Spinteknology's patent application for the
M.A.N.A.G.E.R.S. system. On October 7, 1996, Spinteknology
filed a Communication pursuant to C. F. R. 1.607 to Request an
Interference with the United States Patent and Trademark Office.
In its Communication, Spinteknology asked the Patent Office to
declare that a conflict exists between its patent application and
the patent issued to Bally. The United States Patent Office
declared an Interference between Bally and Spinteknology on
June 16, 1997 and named Spinteknology the "senior party".
Spinteknology has engaged in negotiations with Bally to settle
this matter and as of September 10, 1997, each entity has agreed
in principal to resolve this matter, but details have not been
finalized.
The Company has learned that its patent applications
pending in Europe for its hopper weighing technology may
conflict with patent applications filed in five European countries
by Azkoyan, a Spanish company. The Company has had
preliminary discussions regarding this matter with Azkoyan,
however, to date, there has been no resolution of this issue.
Although Management believes the Company's claims are valid
and intends to vigorously assert its rights, it is unable to estimate
the outcome of any potential proceedings regarding this matter
nor the ultimate financial effect it might have on the Company,
due to the preliminary nature of this matter.
The Company is obligated to pay royalty payments of
$100 per gaming apparatus for all licensed gaming apparatus
(embodying certain technology) sold by Gaming under a license
agreement, dated April 6, 1995, with Spintek International, Inc.
("International") a company which is neither a parent nor a
subsidiary of the Registrant. However, Lanier M. Davenport, the
Company's former Chairman and Chief Executive Officer and a current
shareholder of the Company, is a significant shareholder of International.
The term of the agreement is for the life of the last to expire of the existing
patent and copyright and such patents as may be granted on the applications
covered by the agreement. The agreement requires a minimum
royalty of $100,000 per year commencing one year after its
effective date. Whether the terms of the license agreements
which the Registrant has entered into with International are as
favorable as the Company may have obtained from unaffiliated
parties cannot be objectively ascertained because there is no other
source for the gaming technology developed by International.
<PAGE>
On October 14, 1995, the Company entered into a
technology assignment agreement in which it received all rights
and claims to an input/output circuit board ("I/O Board"), jointly
developed by the Company and one of its consultants, which is a
component of the Company's AccuSystem. The agreement
requires the Company to pay $5 for each I/O Board sold by the
Company, to be remitted on a quarterly basis net of any returns.
The I/O Board, as designed, has proven to be inefficient and
inaccurate. The Company does not anticipate the use of this I/O
Board in its products, and as a result does not expect to pay any
royalties pursuant to this agreement.
United States and worldwide patent applications have
been filed for the M.A.N.A.G.E.R.S. system. United States and
worldwide trademark applications have been filed for
AccuSystem, AccuHopper, AccuBoard, and AccuView.
As of June 30, 1997, the Company had no franchises nor
is it subject to any union labor contracts.
Government Approvals
The manufacture and distribution of associated gaming
equipment is subject to extensive federal, state and local
regulation. Although these regulations vary, for the most part,
permits, licenses, findings of suitability and other approvals are
required to be held by business entities and their key personnel in
connections with the manufacture and distribution of associated
gaming equipment. The Company and its key personnel has
applied or will apply for all government licenses, permits, findings
of suitability and other approvals necessary for the manufacture
and distribution of its associated gaming equipment in the
jurisdictions in which it intends to do business. However, no
assurance can be given that such licenses, permits or approvals
will be given or renewed in the future.
Regulation of Stockholders of Publicly Traded Corporations
In most jurisdictions, at the discretion of the gaming
regulatory authorities, a stockholder with a substantial position in
a company (i.e., owning 5% or more of available shares)can be required to file
an application for a license, finding of suitability or other approval,
and in the process to subject himself or herself to an investigation
by those authorities.
Nevada Regulation
The Company is subject to regulation by authorities in
most jurisdictions in which its products are anticipated to be sold
or used by persons or entities licensed to conduct gaming
activities, including but not limited to, Nevada. The gaming
regulatory requirements vary from jurisdiction to jurisdiction, and
licensing, other approval or finding of suitability processes with
respect to the Company, its personnel and its products can be
lengthy and expensive. Generally, gaming regulatory authorities
may deny applications for licenses, other approvals or findings of
suitability for any cause they deem reasonable. The Company's
AccuSystem as well as each of the individual components thereof,
are generally classified as "associated gaming equipment" which
is equipment that is not classified as a "gaming device", but which
has such an integral relationship to the conduct of licensed
gaming that regulatory authorities have discretion to require
manufacturers and distributors of "associated equipment" to meet
licensing or suitability requirements prior to or concurrent with
the use of such equipment in the respective jurisdiction. In
Nevada, manufacturers and distributors of "associated
<PAGE>
equipment" are not required to be licensed or found suitable,
unless the Nevada Gaming Commission ("Nevada Commission")
upon the recommendation of the Nevada State Gaming Control
Board ("Nevada Board") elects to require that such manufacturer
and distributor file an application for a finding of suitability to
manufacture and distribute associated equipment for use or play
in Nevada. However, associated equipment must be approved by
the Nevada Board and to date, the Company has complied with
the associated equipment approval process for each location at
which the AccuSystem is installed and on field trial in Nevada.
To date, the Company has not been required by the Nevada
Board or Nevada Commission to apply for a finding of suitability
as a manufacturer and distributor of "associated equipment". In
the event that the Company were required to apply for a finding
of suitability, it would have to file the required applications and
be found suitable by the Nevada Commission in order to continue
to manufacture and distribute the AccuSystem for use or play in
Nevada.
Other Jurisdictions
Many jurisdictions that have legalized gaming require
various licenses, permits and approvals for manufacturers and
distributors of associated equipment. In general, such
requirements involve restrictions similar to those of Nevada.
Federal Regulation
The federal Gambling Devices Act of 1962 (the "Federal
Act") makes it unlawful, in general, for a person to manufacture,
deliver, or receive gaming machines, gaming machine type
devices, and components across state lines or to operate gaming
machines unless that person has first registered with the Attorney
General of the United States. In addition, various record keeping
and equipment identification requirements are imposed by the
Federal Act. Violation of the Federal Act may result in seizure
and forfeiture of the equipment, as well as other penalties.
Present Licensing Status
The Company, acting through Gaming, applied for one
license with the Nevada Gaming Control Board for its
AccuHopper. Management contemplated that upon a successful
trial of the device conducted in the MGM Grand Hotel and
Casino in Las Vegas, Nevada, the AccuHopper would receive
approval as associated gaming equipment which could be sold in
Nevada. On October 13, 1995, this approval was received.
Subsequently, on December 13, 1995, the Company received
approval from the Nevada Gaming Commission of what is
described as an "AccuSystem" consisting of the following:
AccuHopper coin hopper, AccuTrack software program and
AccuBoard with portable interface, the TEK TOUCH PEN 2000,
for data collection and the AccuTrack database.
Subsequent to June 30, 1997, the Company developed new hardware and
software which were submitted to, and approved by, the Nevada Board. As
additional new elements, or enhancements to existing elements are developed,
each will be submitted to the Nevada Board for review and approval.
The Company and each of its subsidiaries has requested
and received registration under the Gambling Devices Act of
1962. Such registration is renewable annually, and the Company
intends to renew each year.
<PAGE>
Application of Future or Additional Regulatory Requirements
In the future, the Company intends to seek the necessary
licenses, approvals and findings of suitability for the Company, its
products and its personnel in other jurisdictions throughout the
world where significant sales are expected to be made. However,
there is no assurance that such licenses, approvals or findings of
suitability will be obtained and that they will not be revoked,
suspended or unsuitably conditioned or that the Company will be
able to timely obtain the necessary approvals for its future
products as they are developed, or at all. If a license, approval or
finding of suitability is required by a regulatory authority and the
Company fails to seek or does not receive the necessary license
or finding of suitability, the Company may be prohibited from
selling its products for use in that jurisdiction or may be required
to sell its products through other licensed entities at a reduced
profit to the Company.
Impact of Environmental Laws
The Company is not aware of any federal, state or local
environmental laws which would effect its operations.
Employees
As of August 22, 1997, the Company had twenty (20)
employees, eighteen (18) of which were full-time, at its corporate
facility in Las Vegas, Nevada. As anticipated sales begin, the
Company will be required to hire additional employees to
assemble the Company's products. The Company believes that
its relations with its employees are satisfactory.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's corporate headquarters are located in Las
Vegas, Nevada in a 15,182 square foot building. The Company
has a sublease for this facility from International Technical
Systems until August 31, 1997 for which it pays $7,892 per
month base rent plus approximately $2,250 per month additional
for common area maintenance fees. The Company recently
renewed the lease for this property with Howard Hughes
Properties for one year until August 31, 1998 and will pay a
monthly base rent of $8,350 plus an estimated additional $2,250
per month for common area maintenance fees. Minimum lease
commitments under these noncancellable operating leases at June
30, 1997 approximated $126,000 for the year ending June 30,
1998, and $21,200 thereafter. Approximately one-third of the
building is comprised of office space and the remainder is used
for warehouse, shop and product assembly. Presently there is
excess warehouse capacity at this location, which will diminish in
the event distribution and production activities increase because
of anticipated future sales.
Management anticipates that it will spend approximately
$15,000 in renovating the office space at this location to
accommodate the engineering, sales and marketing function. In
the opinion of Management, the above described property is
adequately covered by insurance.
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On August 2, 1996, the Company received
correspondence from attorneys representing Bally Gaming
International, Inc. ("Bally"), that Bally had been issued a patent
on July 2, 1996 which may overlap and be in conflict with
Spinteknology's patent application for the M.A.N.A.G.E.R.S.
system. On October 7, 1996, Spinteknology filed a
Communication pursuant to C. F. R. 1.607 to Request an
Interference with the United States Patent and Trademark Office.
In its Communication, Spinteknology asked the Patent Office to
declare that a conflict exists between its patent application and
the patent issued to Bally. The United States Patent Office
declared an Interference between Bally and Spinteknology on
June 16, 1997 and named Spinteknology the "senior party".
Spinteknology has engaged in negotiations with Bally to settle
this matter and as of September 10, 1997, each entity has agreed
in principal to resolve this matter, but details have not been
finalized.
On October 10, 1996, Richard M. Mathis of Reno,
Nevada filed a complaint in the Washoe County, Nevada Second
Judicial District Court. Named as defendants are Spintek;
Spintek International, Inc.; and Lanier M. Davenport, who, until
October 18, 1996, was Chairman and Chief Executive Officer of
Gaming and is still the beneficial owner of more than 5% of the
Company's common stock. In his suit, Mr. Mathis contends that
he was forced by the Company and Davenport to transfer to
Davenport his ownership and control of Spintek, and that, with
Spintek's assistance, Davenport defrauded him, breached a
fiduciary duty to him, and converted assets. Mr. Mathis seeks an
accounting of Spintek's financial affairs and demands actual
damages in excess of $500,000 and punitive damages in excess of
$500,000. On January 6, 1997, Gaming and Spintek
International, Inc. filed an answer denying any liability to Mr.
Mathis. The case is now in the discovery phase.
On February 14, 1997, the Company filed a complaint in
the Clark County, Nevada, Eighth Judicial District Court, against
Michael D. Fort, a former officer and director of Spintek, who
resigned on February 7, 1997. The complaint claims that Mr.
Fort must return $240,000 to Spintek that was paid to him in
anticipation of a change of control in the Company that did not
actually occur. Mr. Fort filed an answer denying liability. The
parties are now engaged in discovery.
The Company has filed suit against Sailfin Investments,
Ltd., a corporation organized under the laws of the Channel
Islands, seeking a declaratory judgement that it has already paid
Sailfin in full for services rendered in accordance with the terms
of a consulting services agreement. The Company also seeks to force
Sailfin to return certain shares of the Company's common stock that
were paid to Sailfin in accordance with the terms of the agreement on
the grounds that the services performed were so inadequate, that a failure of
consideration occurred entitling the Company to a return of the stock.
In the alternativeto returning the shares of common stock, the Company
alleges that Sailfin's inadequate and substandard performance of its
obligations under the agreement constitute a breach of contract and entitle
the Company to recover the damages it suffered as a result of said breach.
Sailfin has only recently been served with copies of the litigation
and has not yet filed an answer.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF
SECURITY HOLDERS
No matters were submitted to a vote of security holders
during the fourth quarter ended June 30, 1997.
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock of the Company, subsequent to the
acquisition of Spintek Gaming, Inc., began trading in September
1995 on the OTC Bulletin Board under the symbol "SPTK".
Previously, the common stock of the Company was traded on the
OTC Bulletin Board under the symbol "GSAC". The following
table sets forth the high and low quotations from the National
Quotation Bureau, Inc. The quotations shown reflect inter-dealer
prices, without retail mark-up, mark-down, or commission and
may not represent actual transactions. THESE FIGURES
HAVE BEEN ADJUSTED TO REFLECT A REVERSE
SPLIT OF 1 FOR 2 EFFECTIVE SEPTEMBER 21, 1995.
Common Stock Price
Bid Prices Ask Prices
High Low High Low
Fiscal 1996
1st Quarter 6.00 .25 8.00 1.25
2nd Quarter 6.63 1.44 7.50 3.38
3rd Quarter 4.13 1.88 4.38 1.91
4th Quarter 2.79 1.06 3.00 1.13
Fiscal 1997
1st Quarter 2.06 1.00 2.06 1.12
2nd Quarter 1.12 0.31 1.19 0.31
3rd Quarter 0.56 0.31 0.56 0.31
4th Quarter 0.65 0.19 0.65 0.19
As of August 25, 1997 the Company had approximately
850 holders of record of its Common Stock.
The Company has not paid any dividends on its common
stock, other than a dividend aggregating approximately $150,000
that was distributed to stockholders of record on August 22,
1995, a date which preceded the acquisition of Gaming. The
Company does not intend to pay any dividends on its common
stock in the foreseeable future.
ITEM 6. PLAN OF OPERATION
The following is Management's plan of operation for the
next twelve (12) months and analysis of certain significant factors
which have affected the Company's financial position and
operating results during the period included in the accompanying
consolidated financial statements which include the Company's
wholly-owned subsidiary, Spintek Gaming, Inc. and its wholly-
owned subsidiary Spinteknology, Inc. This plan of operation
should be viewed in conjunction with the accompanying financial
statements, including the notes thereto.
In April 1997, Management made a decision to reduce the
Company's reliance on consultants and outside contractors for
product development and design. During the fourth quarter of
fiscal 1997, Management actively recruited and hired Robert
Guinn, an engineer with substantial experience in the design and
installation of slot accounting and data collection systems. The
<PAGE>
Company has since hired two additional engineers with similar
backgrounds to assist in refining the capabilities of the
AccuSystem. Management believes that the AccuSystem has
been greatly improved by enhancements made by the newly
created in-house engineering function during the fourth quarter of
fiscal 1997. During this period, the AccuSystem was modified to
allow data transmission from remote locations via a telephone
modem as well as by radio frequency within the confines of a
casino in addition to several other software enhancements.
Management believes these technological advancements
to the AccuSystem will make it more appealing, not only in
Nevada but worldwide. During the next twelve months,
Management plans to market this product either by direct sales
(United States) or through licensing arrangements with
distributors of gaming related products, manufacturers of slot
machines, manufacturers of coin hoppers and the major
manufacturers of automated accounting systems for slot machines
(United States and world wide). In July 1997, the Company
hired Patrick Schmit, a salesperson with substantial experience in
selling and marketing slot accounting and data collection systems
to implement the Company's sales and marketing plan.
The Company has developed AccuHopper kits for slot
machines produced by all major manufacturers. The marketing
and sales plan has been designed for the Company to make direct
contact to strategic targets in the gaming industry within the
United States. It will offer its products for sale in the form of
retrofit kits which can either be installed on hoppers by Company
personnel for a fee, or the Company will train the purchaser's
technicians to perform the procedure. Once the hoppers have
been retrofitted with the weighing technology, they can either be
installed by the Company, or once again the Company will train
the purchaser's technicians on installation procedures. As of
September 10, 1997, the Company had commenced field trials for
its hopper weighing technology at three major Las Vegas casinos.
Although Management is encouraged by the preliminary results
of the trials and the interest in the product the Company has
received from other casinos as a result of these trials, there can be
no assurances that any of the trials will ultimately result in sales
or revenue to the Company. Additionally, should these trials
ultimately result in sales, a number of events over which the
Company will have no control could occur that might adversely
affect the cost of completion and installation. Such events
include shortages of, or inability to obtain, labor and/or materials,
inability of subcontractors to perform, acts of God and changes in
state or local laws or regulations. In addition the Company is
dependent upon third parties for the components needed to
complete the retrofit kits and systems. Although the Company
believes that it will be able to secure the components necessary to
complete the retrofit kits and systems in a timely manner, failure
to do so could adversely affect anticipated future sales to any of
these customers. Further, the Company expects to experience
significant fluctuations in its operating results due to anticipated
initial dependence upon a small number of major customers.
In addition to the Company's direct sales efforts,
Management is attempting to forge strategic alliances and enter
into licensing agreements with certain select companies that are
already successful in the gaming industry. Some of the
companies being considered by Management are presently
looking to enhance their existing products and/or wish to expand
their presence into foreign markets to maximize opportunities for
sales growth. As of September 10, 1997 the Company had
signed two technology licensing agreements, in which the
Company has given a nonexclusive license to two separate
companies for the AccuHopper. These two license agreements
are with SUZO International, (N.L.) B.V. ("SUZO") and
International Game Technology, Inc. ("IGT"). Each of the
agreements require a fee to be paid to the Company for each of
<PAGE>
the AccuHoppers sold by the respective licensee. The Company
has had discussions with several other companies in the United
States and abroad concerning additional licensing agreements,
however, to date no additional agreements have been
consummated, nor can there be any assurances that any will be
forthcoming. SUZO has been conducting an extensive field trial
at a European casino since February 1997. While Management is
encouraged by the results from this trial, to date, no sales have
taken place by SUZO or IGT and there can be no assurances that
the Company will recognize revenues as a result of these
agreements.
Results of Operation
For the fiscal years ended June 30, 1997 and 1996, the
Company incurred net losses of approximately $3,571,000 and
$4,281,000, respectively, and negative cash flows from operating
activities of nearly $3,563,000 and $3,494,000, respectively.
Cumulatively, for the twenty-seven months from inception
(March 31, 1995) to June 30, 1997, net losses and negative cash
flows from operating activities were approximately $8,509,000
and about $7,490,000, respectively. The losses for the twelve
months ended June 30, 1997 include approximately $691,000 in
legal fees, most of which were incurred in pursuit of perfecting
the Company's pending patent on its hopper weighing
technology, the settlement of a former employee lawsuit and
various other litigation including, but not limited to litigation
initiated by the Company against a former officer and director of
the Company. (See Item 3, Legal Proceedings above).
Inventory write down and/or write-off as well as allowances for
inventory obsolescence accounted for approximately $220,000,
$280,000, and $500,000 for the years ended June 30, 1997 and
1996 and from inception to date, respectively, due primarily to a
change in strategic direction for the Company. Amortization of
debt issuance costs accounted for nearly $395,000 for the twelve
months ended June 30, 1997.
As of June 30, 1997, the Company incurred
approximately $396,000 and $1,887,000 in research and
development expenses for the year ended June 30, 1997 and from
inception to date, respectively. A significant portion of research
and development expense prior to the fiscal year ended June 30,
1997 was incurred in conjunction with the Company's slot
machine and slot machine hopper projects. The efforts for these
two products was discontinued in April 1996 and the Company's
weighing technology has been the primary product for which such
research and development expenditures have been incurred since
that date. Managements plans to incur additional research and
development expenses of approximately $360,000 over the next
twelve months on both current and new products.
The Company currently has 18 full-time and 2 part time
employees and expects that it will employ 20-25 full-time
employees, dependent on the level and type of sales volume
achieved, by the end of the next twelve months. It also expects
to make capital expenditures of approximately $50,000 over the
next twelve months.
Liquidity and Working Capital
The Company had a negative working capital position of
approximately $4,000 as of June 30, 1997, and to date, absent
revenue from operations, has funded itself primarily through
equity and debt transactions.
On July 16, 1996, the Company reached an agreement
with the Malcolm C. Davenport, V Family Trust and the Lanier
M. Davenport, Sr. Family trust (hereinafter referred to
collectively as the "Trusts"), two separate entities, to convert
<PAGE>
$440,000 of $920,000 of debt owed to the Trusts into 401,140
shares of the Company's common stock. Such stock was
effectively issued on September 30, 1996 and bears a restrictive
legend. The trustees of the Malcolm C. Davenport, V Family
Trust are Malcolm C. Davenport, V, Director of the Company
and brother to Lanier M. Davenport, who, until his resignation on
October 18, 1996, was Chairman and Chief Executive Officer of
the Company, and Malcolm C. Davenport, Jr., a stockholder of
the Company and father of Malcolm C. Davenport, V and Lanier
M. Davenport. The sole trustee of the Lanier M. Davenport, Sr.
Family Trust is Malcolm C. Davenport, Jr. The remaining
$480,000 of debt to the Trusts, plus accrued interest of
approximately $15,000, was converted to notes payable to the
Trusts. Payments of $20,000 per month, including interest,
began on August 15, 1996, and will continue until the debt is
repaid. At June 30, 1997 the outstanding balance owed to the
Trusts was approximately $314,000.
Also on July 16, 1996, the Company issued a $7,143,000,
4% Convertible Debenture ("Debenture") due December 31,
1997. The Debenture was issued to an offshore investor pursuant
to Regulation S promulgated under the Act at a discount of 30%
and netted the Company $4,400,000 after discount and costs
associated with the offering. The Debenture, plus any accrued
interest, was issued with the intent that it was to be converted
into preferred stock after the Board of Directors received
authority to issue such shares from the stockholders of the
Company.
On August 6, 1996 the Board of Directors was granted
authority by a consent of a majority of the stockholders of the
Company to issue up to 100,000 shares of Series A 4% Preferred
Stock (the "preferred stock"), without nominal or par value per
share, in one or more series and to fix the number of shares
constituting any such series, the voting powers, designation,
preferences and relative participation, optional or other special
rights and qualifications, limitations or restrictions thereof,
including the dividend rights and dividend rate, terms of
redemption (including sinking fund provisions), redemption price
or prices, conversions rights and liquidation preferences of the
shares constituting any series, without any further vote or action
by the stockholders.
During fiscal year 1997, the Company issued (a) 7,202
shares of preferred stock on October 1, 1996 to the holder of the
Debenture (the "Holder") in satisfaction of the $7,202,000 debt
and accrued interest on the debt and (b) 1,429 shares of preferred
stock on April 21, 1997, pursuant to a Regulation S Securities
Subscription Agreement to the Holder for which the Company
received $880,000 after discount and commissions.
During the year ended June 30, 1997, the Company
received two (2) Notices of Conversion (the "Notice" or
"Notices") from the holder of the preferred shares to convert
preferred stock to common stock. The first Notice, dated
November 21, 1996, converted 360 of the 7,202 shares of
preferred stock into 1,113,883 shares of common stock at an
average price $0.325 per share. The second Notice, dated June
5, 1997, converted 958 shares of preferred stock into 4,919,658
shares of common stock at a conversion price of $0.20 per share.
Each of the conversion prices were based on the closing bid price
of the common stock for the five days ended immediately prior to
the Notices.
At June 30, 1997, there were 7,313 issued and
outstanding shares of preferred stock, all of which were in the
possession of the Holder. All such preferred stock plus any
accrued and unpaid dividends thereon can be converted to
common stock at any time at the discretion of the Holder and any
<PAGE>
preferred stock not converted prior to December 31, 1999 will
automatically be converted on that date based on an average of
the closing bid prices of the common stock for the five days
ended immediately prior to that date, but not to exceed $3 per
share. All common stock issued upon conversion of the preferred
stock is subject to Registration Rights Agreements.
At June 30, 1997, the 7,313 shares of preferred stock and
the unpaid dividends of approximately $188,000 would have
converted into approximately 13,214,000 additional shares of
common stock of the Company based on the average closing bid
price of the shares of the Company's common stock for the last
five trading days of June, 1997. Had such a conversion occurred,
the Holder would have owned approximately 19,248,000 shares
of common stock of the Company, or approximately 66.4% of
the common shares that would have been issued and outstanding
at June 30, 1997.
The Holder of the preferred stock has the right to cause
the Company to effect a reverse split of the common stock
outstanding of the Company since the five-day average bid price
of such stock did not attain a value of at least $3.00 per share by
October 13, 1996 pursuant to the terms and conditions of the
Company's July 16, 1996 Debenture. As of the date of this
document, the Holder has not caused the Company to reverse
split its common stock.
Financing Transactions Subsequent to June 30, 1997. On
August 14, 1997, the Malcolm C. Davenport V Family Trust
agreed to an additional loan of $500,000 to Spinteknology, to be
drawn as needed pursuant to an understanding with the trustees.
This loan is in the form of a demand note due and payable on the
earlier of September 14, 1998 or upon receipt of $500,000 or
more by the Company in net proceeds from the sale and issuance
of its common stock. This note bears interest at 12% from the
date funds are drawn and is secured by a pledge of the
Company's weighing technology. As of the date of this
document, the Company had drawn $400,000 of the $500,000
available.
Even with the receipt of the funds from the debt and
equity financing described above, the projected cost to finish
production of its weighing technology, combined with the lead
time before cash flow will begin to be received from anticipated
sales, dictates that the Company secure the availability of an
additional $1 million in net proceeds from other debt or equity
financing prior to October 31, 1997. Management is currently
negotiating with sources to secure such financing. However,
there can be no assurances that such additional financing can be
located. Should the Company fail to secure additional financing,
or fail to begin to generate sufficient revenues to support
operations, the Company will be unable to continue as a going
concern. In addition, should extensive litigation be required for
any of the current pending matters (see Item 3, Legal
Proceedings above), or should any of this litigation result in an
unfavorable outcome to the Company, either of these matters
could have a material detrimental effect on the Company.
<PAGE>
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
Index to Consolidated Financial Statements.
Page No.
Report of Independent Accountants F-1
Consolidated Balance Sheets at June 30, 1997 and June 30, 1996 F-2
Consolidated Statement of Operations -Year Ended June 30, 1996;
Year Ended June 30, 1997; March 31, 1995
(Inception) to June 30, 1997 F-3
Consolidated Statement of Changes in Stockholders'Equity (Deficit)
- March 31, 1995 (Inception) to June 30, 1997 F-4
Consolidated Statement of Cash Flows -Year Ended June 30, 1996;
Year Ended June 30, 1997; March 31, 1995
(Inception) to June 30, 1997 F-5
Notes to Consolidated Financial Statements F-7
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
Board of Directors and Stockholders
Spintek Gaming Technologies, Inc.
Las Vegas, Nevada
We have audited the accompanying consolidated balance sheets of Spintek Gaming
Technologies, Inc. and subsidiaries (a development stage enterprise) as of
June 30, 1997 and 1996, and the related consolidated statements of operations,
changes in stockholders' equity (deficit) and cash flows for the years then
ended and for the period from March 31, 1995 (inception) through June 30, 1997.
These financial statements are the responsibility of the company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Spintek Gaming
Technologies, Inc. and subsidiaries as of June 30, 1997 and 1996, and the
results of their operations and their cash flows for the years then ended and
the period from March 31, 1995 through June 30, 1997, in conformity with
generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the companies will continue as a going concerns As shown in the
consolidated financial statements, the companies have incurred net losses of
$8,508,519 since inception and have not begun to receive revenues from
operations. These facts raise substantial doubt about the companies ability to
continue as a going concern. Management's plans in regard to these matters are
described in the notes to the consolidated financial statements. The
consolidated financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts or the amounts and
classifications of liabilities that might be necessary should the companies be
unable to continue in existence.
\s\ JOSEPH DECOSIMO AND COMPANY, LLP
JOSEPH DECOSIMO AND COMPANY
A TENNESSEE REGISTERED LIMITED LIABILITY
PARTNERSHIP
Chattanooga, Tennessee
September 5, 1997
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
(a development stage company)
CONSOLIDATED BALANCE SHEETS
June 30, 1997 and 1996
1997 1996
ASSETS
Current assets:
Cash $ 404,048 $ 120,664
Receivables, net of allowance for doubtful
accounts of $60,000 and $0, respectively
at June 30, 1997 and June 30, 1996 190,033 25,166
Inventories, net 483,469 451,735
Total current assets 1,077,550 597,565
Furniture, fixtures and equipment - net 130,748 75,885
Licenses and patents 1,019,490 1,019,490
Note receivable from related company 88,278 159,910
Other assets 140,471 11,218
Total assets $ 2,456,537 $ 1,864,068
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Demand notes payable to affiliated parties $ 20,000 $ 1,573,006
Demand notes payable to stockholders 313,412 920,000
Accounts payable 425,900 412,731
Accrued liabilities 128,750 233,286
Interest payable 5,416 75,701
Dividends payable 187,884 0
Total current liabilities 1,081,362 3,214,724
Commitments and contingencies
Stockholders' equity (deficit)
Preferred stock, no par value, 100,000
shares authorized, 7,313 and 0 shares
issued and outstanding at June 30,1997
and June 30,1996, respectively 4,825,014 0
Common stock, $0.002 par value, 100,000,000
shares authorized, 17,103,772 and
10,669,091 shares issued at June 30,1997
and June 30,1996, respectively 34,208 21,338
Additional paid in capital 5,053,066 3,591,620
Deficit accumulated during development stage (8,508,519) (4,937,620)
Treasury stock - 1,317,329 and 17,329 shares
at cost June 30,1997 and June 30,1996,
respectively (28,594) (25,994)
Total stockholders' equity (deficit) 1,375,175 (1,350,656)
Total liabilities and stockholders' equity (deficit) $ 2,456,537 $ 1,864,068
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
SPINTEK GAMING TECHNOLOGIES, INC.
(a development stage company)
CONSOLIDATED STATEMENT OF OPERATIONS
Cumulative
March 31, 1995
Year Ended Year Ended (Inception) to
June 30, 1996 June 30, 1997 June 30, 1997
<S> <C> <C> <C>
Revenues:
Sales $ $ $
Cost of sales
Gross profit
Operating expenses:
Selling, general and administrative 2,857,011 2,755,900 5,923,817
Research and development 1,324,024 395,614 1,886,962
Total operating expenses 4,181,035 3,151,514 7,810,779
Operating loss (4,181,035) (3,151,514) (7,810,779)
Other income (expense):
Interest and other income 18,197 141,272 161,917
Depreciation and amortization (10,645) (26,999) (38,204)
Unrealized loss on marketable securities (83,304)
Loss on sale of securities (798) (95,669)
Interest expense (106,459) (533,658) (642,480)
Net loss $ (4,280,740) $ (3,570,899) $ (8,508,519)
Net loss per share of common stock $ (0.43) $ (0.34) $ (0.84)
Weighted average common shares outstanding 9,943,869 11,284,874 10,446,756
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
SPINTEK GAMING TECHNOLOGIES, INC.
(a development stage company)
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
MARCH 31, 1995 (INCEPTION) TO JUNE 30, 1997
Deficit
Accumulated
Treasury Preferred Additional During
Common Stock Stock Stock Paid in Development
Shares Amount Amount Shares Amount Capital Stage
<S> <C> <C> <C> <C> <C> <C> <C>
Inception, March 31,1995
Issuance of common stock for cash 3,324,383 $ 500 $ $ $ $
Issuance of common stock for employment
contacts and prepaid services 44,531 445 74,149
Issuance of common stock exchanged for
for debt 84,243 842 140,272
Issuance of common stock for marketable
equity securities 217,740 2,177 362,557
Issuance of common stock for cash 90,103 901 150,029
Net loss (656,880)
Balance, June 30, 1995 3,761,000 4,865 0 0 0 727,007 (656,880)
Transaction resulting from acquisition:
Cancellation of Spintek Gaming, Inc.
common stock (3,761,000)
Common stock acquired in acquisition 1,275,001
Issuance of common stock in acquisition
of Spintek Gaming, Inc. 8,000,000 13,685 (13,760)
Contribution of common stock to treasury (1,418,359) (2,127,539) 2,127,539
Issuance of treasury stock for
extinguishment of stock options 281,750 422,625 (169,050)
Issuance of treasury stock for
compensation 582,280 873,420 (349,368)
Issuance of treasury stock for services
related to acquisition of Spintek
Gaming, Inc. 392,000 588,000 (235,200)
Issuance of common stock for services
related to acquisition of Spintek
Gaming,Inc. 475,000 950 426,550
Costs related to acquisition of Spintek
Gaming, Inc. (1,014,275)
Issuance of treasury stock pursuant to
Rule 504 145,000 217,500 263,500
Issuance of common stock pursuant to
Regulation S 454,545 909 818,893
Issuance of common stock to repay debt
to stockholders 454,545 909 999,091
Issuance of common stock to repay note 10,000 20 10,693
Net loss for year ended June 30, 1996 (4,280.740)
Balance, June 30,1996 10,651,762 21,338 (25,994) 0 0 3,591,620 (4,937,620)
Issuance of common stock to repay debt
to stockholders 401,140 802 439,198
Issuance of preferred stock for
conversion of Convertible Debenture 7,202 4,828,687
Issuance of common stock for conversion
of preferred stock 1,113,883 2,229 (360) (241,368) 241,152
Contribution of common stock to treasury (1,300,000) (2,600) 2,600
Conversion of debt to additional paid-in
capital 335,435
Issuance of preferred stock 1,429 880,000
Issuance of common stock for conversion
of preferred stock 4,919,658 9,839 (958) (642,305) 658,397
Dividends - preferred stock (215,336)
Net loss for year ended June 30, 1997 (3,570,899)
Balance, June 30, 1997 15,786,443 $ 34,208 $ (28,594) 7,313 $ 4,825,014 $ 5,053,066 $ (8,508,519)
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
SPINTEK GAMING TECHNOLOGIES, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative
March 31, 1995
Year Ended Year Ended (Inception) To
June 30, 1996 June 30, 1997 June 30, 1997
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (4,280,740) $ (3,570,899) $ (8,508,519)
Adjustment to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 10,645 26,999 38,239
Non-cash interest expense 394,687 394,687
Provision for doubtful receivables 60,000 60,000
Allowance for inventory obsolescence 28,000 212,000 240,000
Loss on sale of securities 798 95,669
Unrealized loss on marketable securities 83,304
Non-cash operating expenses for common stock 597,146 597,146
Royalty expenses used to reduce note receivable
from related parties 75,632 75,632
Changes in operating assets and liabilities:
Increase in assets:
Inventories (464,235) (243,734) (723,469)
Receivables and other (3,967) (356,368) (390,502)
Increase (decrease) in liabilities:
Accounts payable 309,334 13,169 413,899
Accrued liabilities 233,287 (104,537) 128,750
Interest payable 75,701 (70,285) 5,416
Net cash used by operating activities (3,494,031) (3,563,336) (7,489,748)
Cash flows used by investing activities:
Purchase of furniture, fixtures and equipment (62,021) (81,722) (146,572)
Acquisition of licenses and patents (145,167) (157,492)
Proceeds from sale of securities 60,292 185,761
Note receivable from related company (42,820) (4,000) (186,009)
Other (925)
Net cash flows used by investing activities (189,716) (85,722) (305,237)
Cash flows from financing activities:
Proceeds from (repayments of)demand notes payable
to affiliated parties 184,899 (446,121) 20,000
Proceeds from (repayments of)demand notes payable
to stockholders 1,264,670 (1,004,588) 313,412
Proceeds-advances from stockholders 1,000,000 1,000,000
Proceeds from issuance of convertible debentures 4,503,151 4,503,151
Repurchase partial shares (75) (75)
Proceeds from issuance of common and treasury stock 1,331,115 1,482,545
Proceeds from issuance of preferred stock 880,000 880,000
Net cash provided by financing activities 3,780,609 3,932,442 8,199,033
Net increase in cash 96,862 283,384 404,048
Cash, beginning of period 23,802 120,664 0
Cash, end of period $ 120,664 $ 404,048 $ 404,048
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
<TABLE>
<CAPTION>
SPINTEK GAMING TECHNOLOGIES, INC.
(a development stage company)
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cumulative
March 31, 1995
Year Ended Year Ended (Inception) To
June 30, 1996 June 30, 1997 June 30, 1997
<S> <C> <C> <C>
Supplemental schedule of non-cash investing and
financing activities: $ $ $ 364,734
Issuance of common stock for marketable securities
Issuance of common stock for employment contracts
and prepaid services 74,594
Issuance of common stock exchanged for debt 10,693 440,000 591,807
Issuance of common stock and treasury stock for
advances from stockholders 1,000,000 1,000,000
Issuance of common stock and treasury stock for
services related to acquisition of public entity 1,014,275 1,014,275
Issuance of preferred stock in exchange for convertible
debenture, net of unamortized debt issuance costs 4,828,687 4,828,687
Issuance of common stock exchanged for preferred stock 911,617 911,617
Purchase of furniture, fixtures and equipment through
reduction in receivable from related parties 22,100
Notes and interest payable to stockholders converted to
additional paid in capital 335,435 335,435
License and patent cost acquired by issue of notes
payable 850,000 850,000
License and patent cost included in accounts payable 11,999
Dividends payable preferred stock (187,884) (187,884)
Supplemental disclosure of cash flow information:
Cash paid for interest $ 33,121 $ 119,737 $ 152,858
</TABLE>
The accompanying notes are an integral part of the financial statements.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS - The company's corporate mission calls for
it to identify, refine and then market and license proprietary gaming and non-
gaming technology on a worldwide basis. Since approximately April 1996,
the Company, through its subsidiaries, has devoted its efforts to the
development of a an off-line data collection and accounting system for slot
machines and a device that measures the contents of a slot machine coin
hopper. The Company has focused its efforts on its coin hopper
measurement device, which it believes to be unique to the gaming industry.
Since inception, the Company and its subsidiaries have been in the
development stage and have not yet consummated any sales of its products.
ORGANIZATION - Spintek Gaming Technologies, Inc., hereinafter referred
to as "The Company" or "Spintek", was organized as GSA, Inc.,
incorporated in the State of California on September 11, 1984. Until the
completion of the fiscal year ended June 30, 1995, the Company conducted
its business under the trade name "TAGG Industries" and distributed
products in the medical first aid and personal safety field from its corporate
offices in Laguna Hills, California.
On September 14, 1995, the stockholders of the Company approved the
acquisition of Spintek Gaming, Inc., a Georgia corporation, effected by an
exchange of the common stock of the entities, with the acquisition deemed
to be effective as of July 1, 1995. For accounting purposes, the acquisition
has been treated as an acquisition of Spintek Gaming Technologies, Inc.
(formerly GSA, Inc.) by Spintek Gaming, Inc. and as such constitutes a
recapitalization of Spintek Gaming, Inc. The historical financial statements
of the Company prior to September 14, 1995 are those of Spintek Gaming,
Inc. On September 26, 1995, the Company effected a reverse split on a 1
share for 2 share basis, changed the value of its common stock from no par
value to $.002 par value per share, and changed its name from GSA, Inc. to
Spintek Gaming Technologies, Inc. As a consequence of the above
described transactions, the Company became the holding company of its
wholly-owned subsidiary, Spintek Gaming, Inc., which in turn is the parent
company of Spinteknology, Inc.
Spintek Gaming, Inc. ("Gaming") was incorporated under the laws of the
State of Georgia in December, 1993, as a wholly-owned subsidiary of
Spintek International, Inc. ("International"), also a Georgia corporation. On
April 12, 1995, Gaming was spun off from International through a dividend
of Gaming s shares to stockholders of record of International, as of that
date. International is neither a parent nor a subsidiary of the Company.
However, Lanier M. Davenport, the Company's former Chairman and Chief
Executive Officer and current shareholder of the Company is a significant
shareholder of International.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
continued
In May 1995, Spinteknology, Inc. ("Spinteknology") was incorporated in the
State of Georgia as the wholly-owned subsidiary of Gaming.
As shown in the financial statements, since its inception, the Company has
incurred net losses of approximately $8,509,000 and negative cash flows
from operating activities of approximately $7,490,000. Absent significant
revenues, the Company has funded itself primarily through equity and debt
transactions. The Company's ability to continue as a going concern depends
on its ability to begin and sustain profitable operations.
PRINCIPLES OF CONSOLIDATION - The consolidated financial
statements include the accounts of the Company, its wholly-owned
subsidiary, Spintek Gaming, Inc., and Spintek Gaming, Inc. s wholly-owned
subsidiary, Spinteknology, Inc. All material inter-company accounts and
transactions have been eliminated in consolidation.
ESTIMATES AND UNCERTAINTIES - The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reporting period. Actual results could
differ from those estimates.
Certain significant estimates were made in the preparation of the financial
statements. While Management's estimates of the allowance for doubtful
accounts, allowance for inventory obsolescence and valuation allowance for
deferred taxes were based on the best information currently available, it is
reasonably possible that these estimates could change by a material amount
within one year.
CASH - The company maintains at financial institutions cash accounts which
may exceed federally insured amounts at times and which may at times
significantly exceed balance sheet amounts due to outstanding checks.
INVENTORIES - Inventories are stated at the lower of cost or market. Cost
is determined using the first-in, first-out (FIFO) method.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
continued
EQUIPMENT - Equipment is stated at cost. Expenditures for repairs and
maintenance are charged to expense as incurred and additions and
improvements that significantly extend the lives of assets are capitalized.
Upon sale or other retirement of depreciable property, the cost and
accumulated depreciation are removed from the related accounts and any
gain or loss is reflected in operations.
Depreciation is provided at the time equipment is placed in service using the
straight-line method over the estimated useful lives of the assets which range
from three to ten years.
ORGANIZATION COSTS - Organization costs are stated at unamortized
cost and are amortized using the straight-line method over five years.
DEFERRED PATENT COSTS - Spinteknology owns a patent application for
certain coin hopper technology. Deferred patent costs are recorded at cost
and will be amortized over the life of the patent when, and if, issued.
FINANCIAL INSTRUMENTS - The Company's financial instruments recorded on the
balance sheet anclude cash, accounts receivable, accounts payable and debt.
The carrying amount of cash, accounts receivable and accounts payable
approximates fair value because of their short term maturity. The carrying
amount of the Company's debt instruments approximates fair value based on
borrowing rates for similar types of debt arrangements.
INCOME TAXES - Income taxes are computed based on the provisions of
Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes." Deferred tax assets and liabilities, if significant, are
recognized for the estimated future tax effects attributed to temporary
differences between the book and tax bases of assets and liabilities and for
carryforward items. The measurement of current and deferred tax assets and
liabilities is based on enacted law. Deferred tax assets are reduced, if
necessary, by a valuation allowance for the amount of tax benefits that may
not be realized.
The Company and its wholly-owned subsidiaries file a consolidated federal
income tax return.
NET LOSS PER SHARE - Net loss per share is computed using the weighted
average number of shares of common stock outstanding, giving retroactive
recognition for the number of equivalent shares received by Spintek Gaming,
Inc. in conjunction with the acquisition on September 14, 1995, and giving
effect to the reverse split of one (1) share for two (2) shares on September
26, 1995.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -
continued
STOCK-BASED COMPENSATION - Accounting Principles Board Opinion
No. 25 ("APB 25") requires compensation cost for stock-based
compensation plans to be recognized based on the difference, if any, between
the fair market value of the stock on the date of grant and the option
exercise price. In October, 1995, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 123 - Accounting
for Stock-Based Compensation ("SFAS 123"). SFAS 123 established a fair
value-based method of accounting for compensation cost related to stock
options and other forms of stock-based compensation plans. However,
SFAS 123 allows an entity to continue to measure compensation costs using
the principles of APB Opinion 25 if certain pro forma disclosures are made.
SFAS 123 is effective for fiscal years beginning after December 15, 1995.
The Company has elected to continue to account for employee stock options
under APB 25. Accordingly, no compensation cost has been recognized.
CHANGES IN ACCOUNTING PRINCIPLES - In 1997, the Financial
Accounting Standards Board (FASB) issued the following Statements of
Financial Standards:
"Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities" (SFAS 125). The Company's required
adoption date is July 1, 1997.
"Earnings per Share" (SFAS 128). The Company's required adoption date
is July 1, 1997.
"Reporting Comprehensive Income" (SFAS 130). The Company's required
adoption date is July 1, 1997.
"Disclosures about Segments of an Enterprise and Related Information"
(SFAS 131). The Company's required adoption date is July 1, 1998.
The Company anticipates the adoption of the above Statements of Financial
Accounting Standards will not have a material impact on its results of
operation or financial position.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
INVENTORIES
Years ended June 30,
Inventories consist of the following: 1997 1996
Raw material $ 11,100 $ 7,500
Finished goods 712,369 472,235
Less:Allowance for obsolescence (240,000) (28,000)
$483,469 $ 451,735
FURNITURE, FIXTURES AND EQUIPMENT - NET
Years ended June 30,
Furniture, fixtures and equipment consists of the following: 1997 1996
Furniture and fixtures $ 20,909 $ 16,423
Equipment 147,763 70,526
168,672 86,949
Less:Accumulated depreciation (37,924) (11,064)
Furniture, fixtures and equipment - net
$130,748 $75,885
CONVERTIBLE DEBENTURES
On July 16, 1996, the Company issued a $7,143,000, 4% Convertible
Debenture ("Debenture") due December 31, 1997. The Debenture was
issued to an offshore investor pursuant to Regulation S promulgated
under the Act at a discount of 30% and netted the Company $4,375,000
after discount and costs associated with the offering. The Debenture, plus
any accrued interest, was issued with the intent that it was to be
converted into preferred stock after the Board of Directors received
authority to issue such shares from the stockholders of the Company. On
October 1, 1996, the Debenture plus accrued interest thereon was
converted to preferred shares as described in these notes to the financial
statements.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
STOCKHOLDERS' EQUITY, OPTIONS AND WARRANTS
Preferred Stock - On August 6, 1996 the Board of Directors was granted
authority by a consent of a majority of the stockholders of the Company to
issue up to 100,000 shares of Series A 4% Preferred Stock (the "preferred
stock"), without nominal or par value per share, in one or more series and
to fix
the number of shares constituting any such series, the voting powers,
designation, preferences and relative participation, optional or other special
rights and qualifications, limitations or restrictions thereof, including the
dividend rights and dividend rate, terms of redemption (including sinking
fund provisions), redemption price or prices, conversions rights and
liquidation preferences of the shares constituting any series, without any
further vote or action by the stockholders.
During fiscal year 1997, the Company issued (a) 7,202 shares of preferred
stock on October 1, 1996 to the holder of the Debenture (the "holder") in
satisfaction of the $7,202,000 debt and accrued interest on the debt and (b)
1,429 shares of preferred stock on April 21, 1997, pursuant to a Regulation
S Securities Subscription Agreement to the holder for which the Company
received $880,000 after discount and commissions.
During the year ended June 30, 1997, the Company received two (2) Notices
of Conversion (the "Notice" or "Notices") from the holder of the preferred
shares to convert preferred stock to common stock. The first Notice, dated
November 21, 1996, converted 360 of the 7,202 shares of preferred stock
into 1,113,883 shares of common stock at an average price $0.325 per share.
The second Notice, dated June 5, 1997, converted 958 shares of preferred
stock into 4,919,658 shares of common stock at a conversion price of $0.20
per share. Each of the conversion prices were based on the closing bid price
of the common stock for the five days ended immediately prior to the
Notices.
At June 30, 1997, there were 7,313 issued and outstanding shares of
preferred stock, all of which were in the possession of the holder. All such
preferred stock plus any accrued and unpaid dividends thereon can be
converted to common stock at any time at the discretion of the holder and
any preferred stock not converted prior to December 31, 1999 will
automatically be converted on that date based on an average of the closing
bid prices of the common stock for the five days ended immediately prior to
that date, but not to exceed $3 per share. All common stock issued upon
conversion of the preferred stock is subject to Registration Rights
Agreements.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
STOCKHOLDER'S EQUITY, OPTIONS AND WARRANTS -
continued
At June 30, 1997, the 7,313 shares of preferred stock and the unpaid
dividends of approximately $188,000 would have converted into
approximately 13,214,000 additional shares of common stock of the
Company based on the average closing bid price of the shares of the
Company's common stock for the last five trading days of June, 1997. Had
such a conversion occurred, the holder would have owned approximately
19,248,000 shares of common stock of the Company, or approximately
66.4% of the common shares that would have been issued and outstanding
at June 30, 1997.
Common Stock - The Company's Articles of Incorporation authorize the
issuance of up to 100,000,000 shares of stock. At June 30, 1997,
17,103,772 shares had been issued, of which 1,317,329 shares were held as
treasury shares by the Company. During fiscal year 1997, the Company
issued (a) 1,113, 883 shares on conversion of 360 shares of its preferred
stock on November 27, 1996 and (b) 4,919,658 shares on conversion of an
additional 958 shares of its preferred stock on June 5, 1997.
On October 30, 1995, the Company consummated a Rule 504 offering
whereby 70,000 shares of its common stock held in treasury were sold to an
accredited investor for $250,000 which netted the Company $218,500 after
costs and expenses of the transaction. On November 28, 1995, the
Company consummated a second Rule 504 offering whereby 75,000 shares
of its common stock held in treasury were sold to a different accredited
investor for $300,000 which after expenses netted the Company $262,500.
On December 22, 1995, the Company sold 454,545 shares of its common
stock to overseas investors pursuant to Regulation S for $1,000,000 which
after costs of the offering, netted the Company $820,000. Between January
12 and April 4, 1996, the Company received $1,000,000 in advances from
the Malcolm C. Davenport V Family Trust and the Lanier M. Davenport, Sr.
Family Trust (hereinafter referred to collectively as the "Davenport Trusts"),
two separate entities and, pursuant to an agreement signed on February 16,
1996, with Board of Directors approval, this debt was converted to 454,545
shares of the Company's common stock, which bear a restricted legend, at
a price of $2.20 per share. The trustees of these trusts are Malcolm C.
Davenport V, Director of the Company, and Malcolm C. Davenport, Jr., a
stockholder of the Company and father of Malcolm C. Davenport V.
In addition, these same sources loaned an additional $920,000. On July 16,
1996, pursuant to an understanding with the trustees, $440,000 of this
amount was converted to 401,140 shares of the Company's common stock,
which bear a restricted legend. The remaining $480,000, plus accrued
interest of approximately $15,000, was converted to notes payable to the
Davenport Trusts.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
STOCKHOLDER'S EQUITY, OPTIONS AND WARRANTS -
continued
The holder of the Company's preferred stock has the right to cause the
Company to effect a reverse split of the common stock outstanding of the
Company since the five-day average bid price of such stock did not attain a
value of at least $3.00 per share by October 13, 1996 pursuant to the terms
and conditions of the Company's July 16, 1996 Debenture. As of the date of
this document, the holder has not caused the Company to reverse split its
common stock.
Treasury Stock - On October 18, 1997, Mr. Lanier M. Davenport resigned
as Chairman of the Board of Directors and as Chief Executive Officer of the
Company. Mr. Davenport in conjunction with his resignation, contributed
1,300,000 of the shares of common stock he owned in the Company back to
the Company in an effort to enhance shareholder value. Such contribution
of shares was recorded as treasury at December 31, 1996 with a basis at par
value, or $2,600.
Additional Paid In Capital - On December 31, 1996, the Company recorded
approximately $335,000 additional paid in capital through conversion of debt
and interest payable by the Company. Malcolm C. Davenport, Jr., a
stockholder of the Company and father of Malcolm C. Davenport V,
Secretary and Director of the Company, and Lanier M. Davenport,
contributed approximately $310,000 and Lanier M. Davenport contributed
approximately $25,000. Such debt was contributed to the Company as
additional capital in an effort to enhance shareholder value.
Warrants - On July 16, 1996, the Company issued a Warrant for the
purchase of 250,000 shares of its common stock as part of the consideration
paid in conjunction with the funding provided to the Company from the
Debenture described above.
Stock Options - On December 10, 1996, the Company's stockholders
approved the Company's 1996 Stock Option Plan authorizing the granting
of incentive and nonqualified options to purchase up to a total of 1,500,000
shares of the Company's common stock at prices not less than the market
price on the date of the grant. The plan consists of two plans, one for the
benefit of key employees, independent directors and consultants and a second
solely for the benefit of independent directors. The shares of common stock
issuable upon exercise of such options may be either previously authorized
but unissued shares or treasury shares. Any employee, independent director
or consultant selected by the Company's employment committee is eligible
under the plan unless that person owns stock possessing more than ten
percent of the total combined voting power of all classes of stock of the
Company, any then existing subsidiary or parent corporation. The options
have maximum terms of ten years and vest at the discretion of the Board of
Directors of the Company at various times from immediately upon grant to
up to four years. The plan provides certain provisions that allow the
Company's employment
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
STOCKHOLDER'S EQUITY, OPTIONS AND WARRANTS -
continued
committee or the Board of Directors to adjust the total number of shares of
the Company's common stock available under the plan to avoid a potential
dilution or enlargement of the benefits or potential benefits intended to be
made available under the plan. Summarized stock option information
follows:
Weighted
Number of Average
Shares Exercise
Under Price Per
Option Share
Outstanding at beginning of year 50,000 $1.20
Granted 3,163,946 $0.36
Terminated 28,000 $0.50
Outstanding at end of year 3,185,946 $0.37
Options Outstanding Options Exercisable
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Range of Exercise Price Number of Contractual Price Per Number of Price Per
Per Share Shares Life (years) Share Shares Share
$0.20 - $0.28 1,352,446 9.91 $0.2072 624,305 $0.2032
$0.3125 250,000 9.63 $0.3125 250,000 $0.3125
$0.4375 - $0.50 1,533,500 9.49 $0.4878 1,146,980 $0.4920
$1.20 50,000 8.84 $1.2000 50,000 $1.2000
3,185,946 2,071,285
Stock options are accounted for under the provisions of APB Opinion No.
25. As a result, the Company has not recognized compensation expense in
its financial statements except under the bonus plan awarding stock
appreciation rights (SARs).
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
STOCKHOLDER'S EQUITY, OPTIONS AND WARRANTS - continued
The following disclosures are required for fiscal years 1997 and later periods
by Statement of Financial Accounting Standards No. 123 (SFAS No. 123).
Had grants under the plan been accounted for on the fair-value basis
promulgated by SFAS No. 123, the Company would have recorded
additional compensation expense of $742,129 in the year ended June 30,
1997 and $49,372 in the year ended June 30, 1996. On a pro forma basis,
net loss would have been increased by $742,129 ($0.066 per share) to
$4,313,028 ($0.401 per share) for fiscal 1997; by $49,372 ($0.005 per share)
to $4,330,112 ($0.435 per share) for fiscal 1996; and by $791,501 ($0.076
per share) to $9,300,020 ($0.911 per share) for the cumulative period March
31, 1995 (Inception) to June 30, 1997. The estimated fair values of the
options used in these computations were calculated as of the respective grant
dates using the Black-Scholes option pricing model. For purposes of these
computations, the options were estimated to have expected lives of 9.5 years.
A risk-free interest rate of 6% and an estimated volatility rate of 75% were
used for these calculations.
BONUS PLAN
Effective June 1, 1997, the Company adopted a bonus plan to provide
incentive compensation to certain key employees, directors and advisory
directors. The plan provides for stock appreciation rights to employees
covered by the plan. Compensation under the plan is based on the award of
performance units, which are defined as a percentage of the total market
value of the Company and which have a value related to the appreciation in
the value of the Company's common stock. The maximum number of
performance units that may be issued under the plan shall not exceed an
aggregate of twelve percent (12%) of the total market value of the Company.
Performance units are vested upon issuance and mature at a rate of 25% per
year over a four year period from the date granted. After the first
anniversary of any grant of performance units, participants may elect to
receive payments which represent the appreciation in value of the
performance unit form the date granted through the date such payment is
elected. A participant is entitled to receive payments following termination
if an election to receive such payments is made prior to the third anniversary
of termination; or, at the Company's discretion following the third
anniversary of termination if no such election is made by the participant.
Compensation expense of $15,458 was recognized for fiscal 1997.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
COMMITMENTS
The Company agreed to advance funds to International to satisfy certain of
International s obligations that existed as of March 31, 1995, the amount of
which was not expected to exceed $225,000. Such advances totaled
approximately $190,000 through June 30, 1997, approximately $5,000 of
which was advanced during fiscal 1997.
The Company is obligated to pay royalty payments of $100 per gaming
apparatus for all licensed gaming apparatus (embodying certain technology)
sold by Gaming under a license agreement, dated April 6, 1995, with
International. The term of the agreement is for the life of the last to expire
of the existing patent and copyright and such patents as may be granted on
the applications covered by the agreement. The agreement requires a
minimum royalty of $100,000 per year commencing one year after its
effective date. To date no gaming apparatus have been sold and royalty
payments thus far have been applied toward reducing the note receivable
from International the balance of which was approximately $88,000 and
$160,000 at June 30, 1997 and 1996, respectively.
On October 14, 1995, the Company entered into a technology assignment
agreement in which it received all rights and claims to an input/output circuit
board ("I/O Board"), jointly developed by the Company and one of its
consultants, which is a component of the Company's AccuSystem. The
agreement requires the Company to pay $5 for each I/O Board sold by the
Company, to be remitted on a quarterly basis net of any returns. The I/O
Board, as designed, has proven to be inefficient and inaccurate. The
Company has developed alternative means to perform the data collection
function and does not anticipate the use of this I/O Board in its products.
The Company does not expect to pay any royalties pursuant to this
agreement.
The Company subleases a 15,182 square foot facility in Las Vegas, Nevada
from International Technical Systems. The Company pays $7,892 per month
base rent plus approximately $2,250 per month additional for common area
maintenance fees for the lease which terminates August 31, 1997. The
Company recently renewed the lease for this property with Howard Hughes
Properties for one year until August 31, 1998 and will pay a monthly base
rent of $8,350 plus an estimated additional $2,250 per month for common
area maintenance fees. Minimum lease commitments under these
noncancellable operating leases as of June 30, 1997 approximate $126,000
for the year ending June 30, 1998, and $21,200 thereafter. Total rent and
lease expense, including equipment, for each applicable period is as follows:
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
COMMITMENTS - continued
Cumulative
March 31, 1995
Year Ended Year Ended (Inception) To
June 30, 1996 June 30, 1997 June 30, 1997
Rent and Lease Expense $ 141,797 $ 135,021 $ 290,548
RELATED PARTY TRANSACTIONS
The Lanier M. Davenport, Sr. Family Trust and the Malcolm C. Davenport
V Family Trust, the trustees of which are Malcolm C. Davenport V, Director
of the Company and brother of Lanier M. Davenport, former Chairman and
Chief Executive Officer of the Company and current shareholder, and
Malcolm C. Davenport, Jr., a stockholder of the Company and father of
Lanier M. Davenport and Malcolm C. Davenport V, made advances in the
amount of $70,000 during fiscal 1997 and $1,920,000 during the year ended
June 30, 1996. The $70,000 advanced in fiscal 1997 was received on July
12, 1996 and was repaid with interest on July 31, 1996. $1,000,000 of the
$1,920,000 advanced in fiscal 1996 was converted into 454,545 shares of
common stock of the Company on April 14, 1996 and an additional
$440,000 was converted into 401,141 shares of common stock of the
Company on July 16, 1996. All of the shares of common stock issued in
satisfaction of this debt were issued with restrictive legends.
The remaining $480,000 plus accrued interest of $15,542 was converted to
demand notes which bear an interest rate of 10% per annum and are being
paid at $20,000 per month including interest. The unpaid principal balance
on the notes at June 30, 1997 was $313,508, plus accrued interest of $1,278.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
RELATED PARTY TRANSACTIONS - continued
On October 18, 1996, Mr. Lanier M. Davenport resigned as Chairman of the
Board of Directors and as Chief Executive Officer of the Company. Mr.
Davenport, in conjunction with his resignation, contributed 1,300,000 of the
shares of common stock he owned in the Company back to the Company in
an effort to enhance shareholder value. Such contribution of shares was
recorded as treasury stock at December 31, 1996 with a basis at par value, or
$2,600. Prior to July 1, 1996, Mr. Lanier M. Davenport, or companies with
which he was affiliated, made loans and advances to the Company in the
aggregate amount of $356,000 at an annual interest rate of 10% in the form
of demand notes, of which $145,108, plus accrued and unpaid interest of
$10,951, remained outstanding as of June 30, 1996. During fiscal 1997, the
Company accrued additional interest in the amount of $2,964 and repaid
$123,694 and $10,612 for principal and interest, respectively. The remaining
$21,414 of principal and $3,304 of interest were contributed back to the
Company in an effort to enhance shareholder value. Such contribution was
recorded as additional paid in capital by the Company on December 31,
1996. At June 30, 1997 the Company did not owe any monies to Mr. Lanier
M. Davenport.
Malcolm C. Davenport, Jr., stockholder of the Company and father of both
Lanier M. Davenport and Malcolm C. Davenport V, made loans to the
Company during fiscal 1996 in the aggregate amount of
$418,500 at an annual interest rate of 10% in the form of demand notes. At
June 30, 1996, the balance
payable for principal and accrued interest on the notes was $323,000 and
$21,850, respectively. During fiscal 1997, the Company accrued additional
interest in the amount of $15,866 and paid $50,000 to Mr.
Malcolm C. Davenport, Jr., of which $30,000 was applied to principal with
the remaining $20,000 applied to interest payable on the notes. On
December 31, 1996 the unpaid principal and interest in the amount of
$303,000 and $7,717 were contributed back to the Company in an effort to
enhance shareholder value. Such contribution was recorded as additional
paid in capital by the Company. At June 30, 1997 the Company did not owe
any monies to Mr. Malcolm C. Davenport, Jr.
Sarah L. Davenport, stockholder of the Company and mother of both Lanier
M. Davenport and Malcolm C. Davenport V made loans in the aggregate
amount of $20,000 in the form of demand notes with an annual interest rate
of 10% during fiscal 1996. At June 30, 1997 none of the principal or interest
accrued on the notes had been repaid. During fiscal 1997, an additional
$2,200 of interest was accrued on the debt. At June 30, 1997 the unpaid
principal balance on the notes remained at $20,000, plus accrued
interest of $4,042.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
RELATED PARTY TRANSACTIONS - continued
Davenport Investments, Inc., a corporation controlled by Lanier M.
Davenport was party to an agreement whereby it received lease payments for
office space used by the Company for its corporate offices in Chattanooga,
Tennessee. Such agreement terminated September 30, 1996. During the
years ended June 30, 1997 and June 30, 1996, the Company made lease
payments to Davenport Investments, Inc. in the amount of $3,655 and
$19,346, respectively.
During April 1997, Mr. Malcolm C. Davenport V made loans in the
aggregate amount of $150,000 in the form of demand notes with an annual
interest rate of 9.5%. On May 7, 1997 the principal and accrued interest of
$1,015 on the notes was repaid.
Coulter & Davenport, Attorneys-at-Law, whose partners were Gary L.
Coulter, Chairman and Chief Executive Officer of the Company, and
Malcolm C. Davenport V, Director and Secretary of the Company, billed the
Company for legal fees and expenses in the aggregate amount of $162,754
in fiscal 1996, all of which has been paid as of June 30, 1997. These fees
were incurred prior to Mr. Coulter becoming an employee of the Company.
Interest expense to all related parties was $51,584, $65,418 and $117,002 for
the periods March 31, 1995(Inception) to June 30, 1996, the year ended
June 30, 1997, and March 31, 1995 (Inception) to June 30, 1997,
respectively.
INCOME TAXES
The provision for income taxes consists of the following:
Cumulative
March 31, 1995
Year Ended Year Ended (Inception) To
June 30, 1996 June 30, 1997 June 30, 1997
Deferred provision $ (64,900) $ (149,900) $ (223,200)
Tax benefit of net operating
loss carryforward (1,537,500) (1,138,000) (2,938,500)
(1,602,400) (1,287,900) (3,161,700)
Change in valuation allowance 1,602,400 1,287.900 3,161,700
$ - $ - $ -
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
INCOME TAXES - continued
The provision for income taxes differs from the amounts computed by
applying the federal statutory rate to income before provision for income
taxes as follows:
Cumulative
March 31, 1995
Year Ended Year Ended (Inception) To
June 30, 1996 June 30, 1997 June 30, 1997
Income tax at federal statutory rate $ 1,455,500 $ 1,214,000 $ 2,892,800
State income taxes, net of federal
benefit 171,200 142,800 340,300
Valuation allowance (1,602,400) (1,287,900) (3,161,700
Other (24,300) (68,900) (71,400)
$ - $ - $ -
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. A valuation
allowance has been recognized to offset the related deferred tax assets due
to the uncertainty of realizing the benefit of the loss carryforward.
As of June 30, 1997, the Company has $7,957,000 net operating loss carry-
forwards available to reduce future taxable income which will expire in future
periods as follows:
Fiscal Year Ending Amount
2010 $ 656,000
2011 4,046,000
2012 3,255,000
$ 7,957,000
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
INCOME TAXES - continued
The following is a summary of the significant components of the Company's
deferred tax assets for the years ended, June 30,:
1997 1996
Net operating loss carryforward $ 3,021,000 $ 1,786,800
Inventory 91,000 8,600
Receivables 53,000 -
Other 6,000 78,400
Valuation allowance (3,171,000) (1,873,800)
$ - $ -
LEGAL PROCEEDINGS
On August 2, 1996, the Company received correspondence from
attorneys representing Bally Gaming International, Inc. ("Bally"), that Bally
had been issued a patent on July 2, 1996 which may overlap and be in
conflict with Spinteknology's patent application for the M.A.N.A.G.E.R.S.
system. On October 7, 1996, Spinteknology filed a Communication pursuant
to C. F. R. paragraph 1.607 to Request an Interference with the United States
Patent and Trademark Office. In its Communication, Spinteknology asked the
Patent Office to declare that a conflict exists between its patent application
and the patent issued to Bally. The United States Patent Office declared an
Interference between Bally and Spinteknology on June 16, 1997 and named
Spinteknology the "senior party". Spinteknology has engaged in
negotiations with Bally to settle this matter and as of September 10, 1997,
each entity has agreed in principal to resolve this matter, but details have not
been finalized.
On October 10, 1996, Richard M. Mathis of Reno, Nevada filed a
complaint in the Washoe County, Nevada Second Judicial District Court.
Named as defendants are Spintek; Spintek International, Inc.; and Lanier M.
Davenport, who, until October 18, 1996, was Chairman and Chief Executive
Officer of Gaming and is still the beneficial owner of more than 5% of the
Company's common stock. In his suit, Mr. Mathis contends that he was
forced by the Company and Davenport to transfer to Davenport his
ownership and control of Spintek, and that, with Spintek's assistance,
Davenport defrauded him, breached a fiduciary duty to him, and converted
assets. Mr. Mathis seeks an accounting of Spintek's financial affairs and
demands actual damages in excess of $500,000 and punitive damages in
excess of $500,000. On January 6, 1997, Gaming and Spintek International,
Inc. filed an answer denying any liability to Mr. Mathis. The case is now in
the discovery phase.
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
(a development stage enterprise)
NOTES TO CONSOLIDATED FINANCIAL STATMENTS
SUBSEQUENT EVENTS
On August 14, 1997, Spinteknology, Inc. entered into a $500,000, 12%
promissory note agreement with the Malcolm C. Davenport V Family Trust,
a stockholder. The note matures on the earliest of September 14, 1998, or
upon receipt by Spintek Gaming Technologies, Inc. of $500,000 or more in
net proceeds from the issuance of its common stock and is secured by certain
intellectual property including patent applications and designations of rights
to file patent applications owned by the subsidiary.
<PAGE>
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS,
PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE
ACT
Incorporated by reference to the Company's Proxy
Statement for Annual Meeting of Stockholders to be filed with
the Securities and Exchange Commission within 120 days after
the close of the fiscal year ended June 30, 1997.
ITEM 10. EXECUTIVE COMPENSATION
Incorporated by reference to the Company's Proxy
Statement for Annual Meeting of Stockholders to be filed with
the Securities and Exchange Commission within 120 days after
the close of the fiscal year ended June 30, 1997.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to the Company's Proxy
Statement for Annual Meeting of Stockholders to be filed with
the Securities and Exchange Commission within 120 days after
the close of the fiscal year ended June 30, 1997.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Incorporated by reference to the Company's Proxy
Statement for Annual Meeting of Stockholders to be filed with
the Securities and Exchange Commission within 120 days after
the close of the fiscal year ended June 30, 1997.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a)Exhibits
The following exhibits are submitted herewith:
Number Description
3.1 Articles of Incorporation of the Registrant filed
September 11, 1984 (1)
3.2 Certificate of Amendment of the Articles of Incorporation
filed January 9, 1987 (1)
3.3 Certificate of Amendment of the Articles of Incorporation
filed May 11, 1987 (1)
3.4 Certificate of Amendment of the Articles of Incorporation
filed May 20, 1994 (1)
3.5 Certificate of Amendment of the Articles of Incorporation
filed September 26, 1995 (1)
3.6 Certificate of Amendment of the Articles of Incorporation
filed September 11, 1996 (6)
3.7 By-laws of the Registrant adopted April 12, 1985 (1)
<PAGE>
3.8 Amendment of By-laws dated April 9, 1987 (1)
4.1 Certificate of Designations, Numbers, Powers,
Preferences and Relative, Participating, Optional, and
Other Special Rights and the Qualifications, Limitations,
Restrictions, and Other Distinguishing Characteristics of
Series A Preferred Stock dated July 16, 1997 (5)
10.1 Premise Lease Dated September 1, 1995 (1)
10.2 Premise Lease Dated September 1, 1997
10.3 Employment Agreement with Gary L. Coulter dated
October 18, 1996
10.4 Employment Agreement with Robert E. Huggins dated
October 18, 1996 (7)
10.5 License Agreement dated April 6, 1994 between Spintek
International, Inc. and Spintek Gaming, Inc. (1)
10.6 Licensing Agreement dated May 26, 1995 between
Bitstream Technologies, Inc. and Spinteknology, Inc. (1)
10.7 Option/Purchase Agreement with Bitstream
Technologies, Inc. (3)
10.8 License Agreement between Spinteknology, Inc. and
SUZO International (N.L.) B.V. (4)
10.9 Debt Conversion and Securities Purchase Agreement with
Trusts (4)
10.10 Regulation S Securities Subscription Agreement dated
July 16, 1996 (5)
10.11 Warrant Agreement, dated as of July 16, 1996, relating to
warrants to purchase 250,000 shares of common stock (5)
10.12 Registrant's 1996 Stock Option Plan (8)
10.13 Agreement dated February 5, 1997 by and between
Registrant and Gary L. Coulter and Robert E. Huggins
10.14 Regulation S Securities Subscription Agreement dated
April 21, 1997 (9)
10.15 1997 Incentive Bonus Plan of Spintek Gaming
Technologies, Inc. effective June 1, 1997
10.16 Promissory Note, dated August 14, 1997, to Malcolm C.
Davenport V Family Trust
11.1 Computation of earnings per share
21.1 List of subsidiaries of the Registrant (1)
27.1 Financial Data Schedule
99.1 Patent - Reel-type Machine (1)
99.2 Patent Application (1)
99.3 Securities Purchase Agreement for Private Placement
Financing for the Registrant dated October 1995 (1)
99.4 Amendment to Securities Purchase Agreement for Private
Placement Financing for the Registrant, dated December 1995(2)
99.5 Approval by Nevada Gaming Commission of
"AccuSystem" marketed by the Registrant, dated
December 13, 1995. (2)
________________
(1)Incorporated by reference to the specific exhibit to Form
10-SB, filed November 9, 1995.
(2)Incorporated by reference to the specific exhibit to the
Amendment No. 1 to Form 10-SB, filed January 30,
1996.
(3)Incorporated by reference to the specific exhibit to the
Form 10-QSB for the period ended December 31, 1995.
(4)Incorporated by reference to the specific exhibit to the
Form 10-QSB for the period ended March 31, 1996.
(5)Incorporated by reference to the specific exhibit to the
Form 8-K, filed August 12, 1996.
(6)Incorporated by reference to the specific exhibit to the
Form 10-KSB for the period ended June 30, 1996.
<PAGE>
(7)Incorporated by reference to the specific exhibit to the
Form 10-QSB for the period ended September 30, 1996.
(8)Incorporated by reference to Exhibit A to Registrant's
definitive Proxy Statement dated November 5, 1996.
(9)Incorporated by reference to the specific exhibit to the
Form 8-K, filed April 30, 1997.
(b)Reports on Form 8-K
(1) On April 30, 1997, a Current Report on Form 8-K
was filed with the Securities and Exchange Commission,
reporting the completion of a Regulation S Securities
Subscription Agreement, whereby the Company issued 1,429
shares of its 4% Series A Preferred Stock. The Preferred Stock
was issued to RBB Bank Aktiengesellschaft, an offshore investor,
pursuant to Regulation S promulgated under the Securities Act
of 1933 at a discount of 30% and is convertible into Common
Stock of the Company on or before December 31, 1999.
(2) On June 5, 1997, a Current Report on Form 8-K was
filed with the Securities and Exchange Commission, reporting the
conversion of 958 shares of the Company's 4% Series A
Preferred Stock from RBB Bank Aktiengesellschaft. Such
conversion resulted in the issuance of 4,919,658 new shares of
the Company's Common Stock and resulted in RBB Bank
Aktiengesellschaft being the holder of 6,033,541 shares of
Common Stock, or approximately 38.2% of the total outstanding
shares.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of
the Securities Exchange Act of 1934, the Registrant caused this
report to be signed on its behalf by the undersigned, thereunto
duly authorized.
SPINTEK GAMING TECHNOLOGIES, INC.
By: /s/ GARY L. COULTER
Gary L. Coulter
Chairman of the Board
Pursuant to requirements of the Securities Exchange Act of
1934, this report has been duly signed below by the following
persons on behalf of the Registrant and in the capacities and on
the dates indicated.
Signature
/s/ GARY L. COULTER September 16, 1997
Gary L. Coulter
Chairman of the Board, Chief Executive
Officer, and Director (Principal
Executive Officer)
/s/ ROBERT E. HUGGINS September 16, 1997
Robert E. Huggins
Senior Vice President, Chief Financial
Officer (Principal Financial and
Accounting Officer)
/s/ Malcolm C. DAVENPORT, V September 16, 1997
Malcolm C. Davenport, V
Secretary and Director
EXHIBIT 10.2
INDUSTRIAL REAL ESTATE LEASE
between
HOWARD HUGHES PROPERTIES,
LIMITED PARTNERSHIP,
as Landlord
and
SPINTEK GAMING TECHNOLOGIES, INC.
as Tenant
Dated as of August 22, 1997
<PAGE>
INDUSTRIAL REAL ESTATE LEASE
TABLE OF CONTENTS
PAGE #
ARTICLE ONE. . . . . . . . . . . . . . . . . . . . . . . . . . .1
BASIC TERMS . . . . . . . . . . . . . . . . . . . . . . . .1
1.01 DEFINITIONS . . . . . . . . . . . . . . . . . . .1
1.02 BASE RENT . . . . . . . . . . . . . . . . . . . .6
1.03 RIDERS. . . . . . . . . . . . . . . . . . . . . .6
1.04 PARKING . . . . . . . . . . . . . . . . . . . . .6
ARTICLE TWO. . . . . . . . . . . . . . . . . . . . . . . . . . .6
LEASE TERM AND COMMON BUILDING AREAS. . . . . . . . . . . .6
2.01 LEASE OF PROPERTY FOR LEASE TERM. . . . . . . . .6
2.02 DELIVERY OF POSSESSION. . . . . . . . . . . . . .6
2.03 HOLDING OVER. . . . . . . . . . . . . . . . . . .7
2.04 COMMON BUILDING AREAS . . . . . . . . . . . . . .7
2.05 LANDLORD'S RIGHTS IN COMMON BUILDING AREAS. . . .7
ARTICLE THREE. . . . . . . . . . . . . . . . . . . . . . . . . .8
BASE RENT . . . . . . . . . . . . . . . . . . . . . . . . .8
3.01 TIME AND MANNER OF PAYMENT. . . . . . . . . . . .8
3.02 COST OF LIVING INCREASES. . . . . . . . . . . . .8
ARTICLE FOUR . . . . . . . . . . . . . . . . . . . . . . . . . .9
OTHER CHARGES PAYABLE BY TENANT . . . . . . . . . . . . . .9
4.01 ADDITIONAL RENT . . . . . . . . . . . . . . . . .9
4.02 OPERATING COSTS . . . . . . . . . . . . . . . . .9
4.03 PERSONAL PROPERTY TAXES . . . . . . . . . . . . 11
4.04 UTILITIES . . . . . . . . . . . . . . . . . . . 11
4.05 INSURANCE . . . . . . . . . . . . . . . . . . . 12
4.06 WAIVER OF SUBROGATION . . . . . . . . . . . . . 13
4.07 LATE CHARGES. . . . . . . . . . . . . . . . . . 13
4.08 INTEREST ON PAST DUE OBLIGATIONS. . . . . . . . 14
4.09 RETURN OF CHECK . . . . . . . . . . . . . . . . 14
4.10 SECURITY DEPOSIT; INCREASES . . . . . . . . . . 14
4.11 TERMINATION; ADVANCE PAYMENTS . . . . . . . . . 15
ARTICLE FIVE . . . . . . . . . . . . . . . . . . . . . . . . . 15
USE OF PROPERTY . . . . . . . . . . . . . . . . . . . . . 15
5.01 PERMITTED USES. . . . . . . . . . . . . . . . . 15
5.02 MANNER OF USE . . . . . . . . . . . . . . . . . 15
5.03 HAZARDOUS SUBSTANCES. . . . . . . . . . . . . . 15
(a) Reportable Uses Require Consent. . . . . . 15
(b) Duty to Inform Lessor. . . . . . . . . . . 16
(c) Indemnification. . . . . . . . . . . . . . 17
(d) Tenant's Compliance with Requirements. . . 17
(e) Inspection; Compliance with Law. . . . . . 18
5.04 SIGNS AND AUCTIONS. . . . . . . . . . . . . . . 18
5.05 INDEMNITY . . . . . . . . . . . . . . . . . . . 18
5.06 LANDLORD'S ACCESS . . . . . . . . . . . . . . . 19
<PAGE>
ARTICLE SIX. . . . . . . . . . . . . . . . . . . . . . . . . . 20
CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
. . . . . . . . . . . . . . . . . . . . . . . . . . 20
6.01 EXISTING CONDITIONS . . . . . . . . . . . . . . 20
6.02 EXEMPTION OF LANDLORD FROM LIABILITY. . . . . . 20
6.03 LANDLORD'S OBLIGATIONS. . . . . . . . . . . . . 20
6.04 TENANT'S OBLIGATIONS. . . . . . . . . . . . . . 21
6.05 ALTERATIONS, ADDITIONS, AND IMPROVEMENTS. . . . 22
6.06 CONDITION UPON TERMINATION. . . . . . . . . . . 23
ARTICLE SEVEN. . . . . . . . . . . . . . . . . . . . . . . . . 24
DAMAGE OR DESTRUCTION . . . . . . . . . . . . . . . . . . 24
7.01 PROPERTY DAMAGE . . . . . . . . . . . . . . . . 24
7.02 REDUCTION OF RENT . . . . . . . . . . . . . . . 24
7.03 WAIVER. . . . . . . . . . . . . . . . . . . . . 25
ARTICLE EIGHT. . . . . . . . . . . . . . . . . . . . . . . . . 25
CONDEMNATION. . . . . . . . . . . . . . . . . . . . . . . 25
8.01 CONDEMNATION. . . . . . . . . . . . . . . . . . 25
ARTICLE NINE . . . . . . . . . . . . . . . . . . . . . . . . . 26
ASSIGNMENT AND SUBLETTING . . . . . . . . . . . . . . . . 26
9.01 LANDLORD'S CONSENT REQUIRED . . . . . . . . . . 26
9.02 LANDLORD'S ELECTION . . . . . . . . . . . . . . 26
9.03 NO RELEASE OF TENANT. . . . . . . . . . . . . . 26
9.04 NO MERGER . . . . . . . . . . . . . . . . . . . 27
ARTICLE TEN. . . . . . . . . . . . . . . . . . . . . . . . . . 27
DEFAULTS; REMEDIES. . . . . . . . . . . . . . . . . . . . 27
10.01 COVENANTS AND CONDITIONS . . . . . . . . . 27
10.02 DEFAULTS . . . . . . . . . . . . . . . . . 27
10.03 REMEDIES . . . . . . . . . . . . . . . . . 28
10.04 CUMULATIVE REMEDIES. . . . . . . . . . . . 29
ARTICLE ELEVEN . . . . . . . . . . . . . . . . . . . . . . . . 30
PROTECTION OF LENDERS . . . . . . . . . . . . . . . . . . 30
11.01 SUBORDINATION. . . . . . . . . . . . . . . 30
11.02 ATTORNMENT . . . . . . . . . . . . . . . . 30
11.03 SIGNING OF DOCUMENTS . . . . . . . . . . . 30
11.04 ESTOPPEL CERTIFICATES. . . . . . . . . . . 31
11.05 TENANT'S FINANCIAL CONDITION . . . . . . . 31
<PAGE>
ARTICLE TWELVE . . . . . . . . . . . . . . . . . . . . . . . . 32
LEGAL COSTS . . . . . . . . . . . . . . . . . . . . . . . 32
12.01 LEGAL PROCEEDINGS. . . . . . . . . . . . . 32
12.02 LANDLORD'S CONSENT . . . . . . . . . . . . 32
ARTICLE THIRTEEN . . . . . . . . . . . . . . . . . . . . . . . 33
MISCELLANEOUS PROVISIONS. . . . . . . . . . . . . . . . . 33
13.01 NON-DISCRIMINATION . . . . . . . . . . . . 33
13.02 LANDLORD'S LIABILITY . . . . . . . . . . . 33
13.03 SEVERABILITY . . . . . . . . . . . . . . . 33
13.04 INTERPRETATION . . . . . . . . . . . . . . 33
13.05 INCORPORATION OF PRIOR AGREEMENTS;
MODIFICATIONS . . . . . . . 34
13.06 NOTICES. . . . . . . . . . . . . . . . . . 34
13.07 WAIVERS. . . . . . . . . . . . . . . . . . 34
13.08 NO RECORDATION . . . . . . . . . . . . . . 34
13.09 BINDING EFFECT; CHOICE OF LAW. . . . . . . 35
13.10 CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY
. . . . . . . . . . . . . . . . . . . . . 35
13.11 JOINT AND SEVERAL LIABILITY. . . . . . . . 35
13.12 FORCE MAJEURE. . . . . . . . . . . . . . . 35
13.13 EXECUTION OF LEASE . . . . . . . . . . . . 36
13.14 BROKERS AND LEASING AGENTS . . . . . . . . 36
13.15 RULES AND REGULATIONS. . . . . . . . . . . 36
13.16 BUILDING PLANNING. . . . . . . . . . . . . 36
13.17 LIENS. . . . . . . . . . . . . . . . . . . 37
<PAGE>
LIST OF EXHIBITS
Exhibit Lease Section
Designation Description Reference
"A" Building Depiction Indicating Location
of Premises . . . . . . . . . . . . . . . . 1.01(s)
"B" Legal Description of Building Site . . . . 1.01(b)
"C" Rules and Regulations. . . . . . . . . . . 13.16
<PAGE>
INDUSTRIAL REAL ESTATE LEASE
THIS INDUSTRIAL REAL ESTATE LEASE 9This "Lease") is made as of the
22 day of August, 1997, by and between HOWARD HUGHES PROPERTIES, LIMITED
PARTNERSHIP, a Delaware limited partnership ("Landlord") and SPINTEK
GAMING TECHNOLOGIES, INC., a California corporarion ("Tenant").
ARTICLE ONE
BASIC TERMS
Section 1.01 Definitions. For purposes of this lease,
the following terms shall have the following meanings:
(a)[Intentionally Omitted].
(b)Building: That certain parcel of real estate
located within the Hughes Airport Center as described on Exhibit
"B" attached hereto and incorporated herein by this reference and
the building and other improvements located thereon, all of which
is commonly known as 901 Grier Drive, Las Vegas, Nevada, 89119.
(c)Commencement Date: September 1, 1997.
(d)Common Building Areas: All areas and facilities
outside the Premises and within the exterior boundary line of the
Building and interior utility raceways within the Premises that are
provided and designated by the Landlord from time to time for the
general non-exclusive use of Landlord, Tenant and other tenants of
the Building and their respective employees, suppliers, shippers,
customers, contractors and invitees, including, without limitation,
trash areas, roadways, sidewalks, walkways, landscaped areas,
irrigation systems, lighting facilities, fences, gates, elevators,
roof, common entrances, common areas within the Building, common
pipes, conduits, wires and appurtenant equipment serving the
Premises, exterior signs, Tenant directories, fire detection
systems, sprinkler systems, security systems, and the parking
facilities for the Building. Landlord has the right to change the
Common Building Areas and to take other actions respecting these
areas in accordance with Section 2.05 below.
(e)Declaration: That certain Declaration of
Restrictions and Grant of Easements dated November 1, 1985 and
filed for record with the County Recorder of Clark County, Nevada
("County Recorder") as Document No. 2175093, as supplemented by the
Supplement to Declaration of Restrictions and Grant of Easements
dated June 1, 1988, filed with the County Recorder in Book 880602,
Instrument No. 00517, as amended from time to time. The
Declaration is filed on the Building and a larger real estate
development, of which the Building is a part, known as Hughes
Airport Center.
<PAGE>
(f)Initial Security Deposit: Sixteen Thousand Seven
Hundred and 20/100 Dollars ($16,700.20). The Initial Security
Deposit shall be paid to Landlord by Tenant contemporaneously with
Tenant's execution hereof.
(g)Laws: All applicable statutes, regulations,
requirements, ordinances and orders promulgated by any federal,
state, local or regional governmental authority whether prior to or
following the Commencement Date of this Lease.
(h)Landlord's Address: Howard Hughes Properties,
Limited Partnership, 3800 Howard Hughes Parkway, P.O. Box 14000,
Las Vegas, Nevada 89114, Attention: Property Management Division.
(i)Landlord's Broker: None.
(j)Lease Interest Rate: The lesser of (i) two
percentage points (2%) over that fluctuating rate of interest
announced from time to time by the Bank of America National Trust
and Savings Association as its prime or reference commercial
lending rate of interest (or in the event such bank is no longer
announcing such rate, by such other federally regulated banking
institution of comparable stature as Landlord shall determine), or
(ii) the maximum interest rate permitted by law.
(k)Lease Term: One (1) year beginning on the
Commencement Date and continuing until twelve (12) months after the
first day of the first full month following the Commencement Date.
(l)Leased Premises Address: 901 Grier Drive, Suite B,
Las Vegas, Nevada 89119.
(m)Mortgagee: The mortgagee under a mortgage or
beneficiary under a deed of trust holding a lien encumbering the
Building or any holder of a ground leasehold interest in the
Building or any part thereof.
<PAGE>
(n)Operating Costs: All costs of any kind paid or
incurred by Landlord because of or in connection with the
ownership, management, maintenance, repair, replacement,
restoration or operation of the Building (including all Common
Building Areas), including by way of illustration but not
limitation, all of the following: (i) all amounts charged to the
Building pursuant to the Declaration; (ii) Real Property Taxes;
(iii) all costs, charges and surcharges for utilities, water,
sewage, janitorial, waste disposal and refuse removal and all other
utilities and services provided to the Building which are not
separately metered or billed directly to tenants of the Building;
(iv) insurance costs for which Landlord is responsible under this
Lease or which Landlord or any Mortgagee deems necessary or
prudent; (v) any costs levied, assessed or imposed pursuant to any
applicable Laws; (vi) the cost (amortized over such period as
Landlord reasonably determines together with interest at the Lease
Interest Rate on the unamortized balance) of any capital
improvements to the Building or equipment replacements made by
Landlord after the Commencement Date that are intended to reduce
other Operating Costs or are required by any Laws or are necessary
in order to operate the Building at the same quality level as prior
to such replacement; (vii) costs and expenses of operation, repair
and maintenance of all structural and mechanical portions and
components of the Building including, without limitation, plumbing,
communication, heating, ventilating and air-conditioning ("HVAC"),
elevator, and electrical and other common Building systems; (viii)
utilities surcharges or any other costs levied, assessed or imposed
by, or at the direction of, or resulting from statutes or
regulations or interpretations thereof, promulgated by any federal,
state, regional, municipal or local government authority in
connection with the use or occupancy of the Building (including,
without limitation, energy conservation charges or surcharges);
(ix) all costs incurred in the management and operation of the
Building including, without limitation, gardening and landscaping,
maintenance, maintenance of signs, resurfacing and repaving,
painting, lighting, cleaning, and provision of Building security;
(x) all personal property taxes levied on or attributable to
personal property used in connection with the Building; (xi)
depreciation on personal property owned by Landlord which is
consumed in the operation or maintenance of the Building; (xii)
rental or lease payments paid by Landlord for rented or leased
personal property used in the operation or maintenance of the
Building; (xiii) management fees, wages, salaries and other labor
costs incurred in the management and operation of the Building;
(xiv) fees for required licenses and permits; (xv) reasonable
legal, accounting and other professional fees; (xvi) reasonable and
appropriate reserves for repair and replacement; and (xvii) any
other expenses which would reasonably or customarily be included in
the cost of managing, operating, maintaining and repairing
buildings similar to the Building. If the Building is not fully
occupied during any portion of the Lease Term, Landlord shall make
an appropriate adjustment to Operating Costs for such period
employing sound accounting and management principles, to determine
the amount of Operating Costs that would have been incurred had the
Building been fully occupied during such period. Operating Costs
shall not include depreciation of the Building or equipment
therein, commissions of real estate brokers and leasing agents, nor
any amounts paid by Landlord for tenant improvements.
<PAGE>
(o)Permitted Uses: General office/warehousing use.
(p)Premises: The office/warehouse space in the
approximate location within the Building as indicated on Exhibit
"A" attached hereto and incorporated herein by this reference.
(q)Real Property Taxes: Any form of tax, assessment,
license fee, license tax, business license fee, commercial rental
tax, levy, charge, penalty, tax or similar imposition, imposed by
any authority having the direct power to tax (including any city,
county, state or federal government, or any school, agricultural,
lighting, drainage, transportation, air pollution, environmental or
other improvement or special assessment district) as against any
legal or equitable interest of Landlord in the Building and/or the
Premises, including, but not limited to, the following:
(i)any tax on a landlord's "right" to rent or
"right" to other income from the Premises or against
Landlord's business of leasing the Premises;
(ii)any assessment, tax, fee, levy or charge
in substitution, partially or totally, of any assessment, tax,
fee, levy or charge previously included within the definition
of Real Property Taxes (it is the intention of Tenant and
Landlord that all such new and increased assessments, taxes,
fees, levies and charges be included within the definition of
"Real Property Taxes" for the purposes of this Lease);
(iii)any assessment, tax, fee, levy or charge
allocable to or measured by the area of the Premises or the
rent payable hereunder, including, without limitation, any
gross income tax or excise tax levied by the state, county,
city or federal government, or any political subdivision
thereof, with respect to the receipt of such rent, or upon or
with respect to the possession, leasing, operating, management
and maintenance, alteration, repair, use or occupancy of the
Building, or any portion thereof;
(iv)any assessment, tax, fee, levy or charge
upon this transaction creating or transferring an interest or
an estate in the Premises;
(v)any assessment, tax, fee, levy or charge
based upon the number of people employed, working at, or using
the Premises or the Building, or utilizing public or private
transportation to commute to the Premises or the Building; and
(vi)reasonable legal and other professional
fees, costs and disbursements incurred in connection with
proceedings to contest, determine or reduce Real Property
Taxes. Real Property Taxes shall not include federal or state
income, franchise, inheritance or estate taxes of Landlord or
any of the parties which comprise Landlord.
<PAGE>
(r)Rentable Square Feet in the Building: Thirty
thousand seven hundred fifty-five (30,755) rentable square feet.
The Building is stipulated for all purposes to contain said
Rentable Square Feet in the Building.
(s)Tenant's Address: 901 Grier Drive, Suite B, Las
Vegas, Nevada 89119, Attention: Robert E. Huggins, C.F.O.
(t)Tenant's Broker: None.
(u)Tenant's Guarantor: None.
(v)Tenant's Rentable Square Feet: Fifteen thousand one
hundred eighty-two (15,182) rentable square feet. The Premises are
stipulated for all purposes to contain said Tenant's Rentable
Square Feet.
(w)Tenant's Share: Forty-nine and thirty-six
hundredths percent (49.36%).
Section 1.02 BASE RENT. The "Base Rent" shall be Eight
Thousand Three Hundred Fifty and 10/100 Dollars ($8,350.10) per
month. The Base Rent due for the first full calendar month during
the Lease Term shall be paid to Landlord by Tenant
contemporaneously with Tenant's execution hereof.
Section 1.03 RIDERS. None.
Section 1.04 PARKING. Tenant shall be entitled to use up to
twenty-five (25) unreserved uncovered parking spaces.
ARTICLE TWO
LEASE TERM AND COMMON BUILDING AREAS
Section 2.01 LEASE OF PROPERTY FOR LEASE TERM. Landlord
hereby leases the Premises to Tenant and Tenant leases the Premises
from Landlord for the Lease Term. The Lease Term is for the period
stated in Section 1.01(k) above and shall begin and end on the
dates specified in Section 1.01(k) above. The "Commencement Date"
shall be the date specified in Section 1.01(c) above for the
beginning of the Lease Term.
Section 2.02 DELIVERY OF POSSESSION. Landlord will be
deemed to have delivered to Tenant possession of the Premises in
its "as is" condition as of the Commencement Date. Tenant
acknowledges that neither Landlord nor its agents or employees have
made any representations or warranties as to the suitability or
fitness of the Premises for the conduct of Tenant's business or for
any other purpose, nor has Landlord or its agents or employees
agreed to undertake any alterations or construct any tenant
improvements to the Premises. If for any reason, Landlord cannot
deliver possession of the Premises to Tenant on or before the fixed
date component of the Commencement Date, this Lease will not be
void or voidable, and Landlord will not be liable to Tenant for any
resultant loss or damage.
<PAGE>
Section 2.03 HOLDING OVER. Tenant shall vacate the Premises
upon the expiration or earlier termination of this Lease. Tenant
shall reimburse Landlord for and indemnify and hold Landlord
harmless against all damages, claims, losses, penalties, charges,
and expenses (including reasonable attorney's fees) incurred by
Landlord resulting from any delay by Tenant in vacating the
Premises. If Tenant does not vacate the Premises upon the
expiration or earlier termination of this Lease, Tenant's occupancy
of the Premises shall be a tenancy at sufferance, subject to all of
the terms of this Lease applicable to a tenancy at sufferance,
except that the Base Rent then in effect shall be equal to two
hundred percent (200%) of the Base Rent in effect immediately prior
to the expiration or earlier termination of this Lease. Nothing
contained in this Section 2.03 shall be construed as consent by
Landlord to any holding over of the Premises by Tenant, and
Landlord expressly reserves the right to require Tenant to
surrender possession of the Premises to Landlord upon the
expiration or earlier termination of this Lease.
Section 2.04 COMMON BUILDING AREAS. Tenant shall have the
nonexclusive right to the use in common with other tenants in the
Building, subject to the Rules and Regulations referred to in
Section 13.16 below, the Common Building Areas appurtenant to the
Premises, as they may change from time to time.
Section 2.05 LANDLORD'S RIGHTS IN COMMON BUILDING AREAS.
Landlord hereby reserves the right from time to time to do the
following provided it is done without unreasonable interference
with Tenant's use of the Premises:
(a) To install, use, maintain, repair and replace pipes,
ducts, conduits, wires and appurtenant meters and equipment for
service to other parts of the Building above the ceiling surfaces,
below the floor surfaces, within the walls and in the central core
areas, and to relocate any pipes, ducts, conduits, wires and
appurtenant meters and equipment included in the Premises which are
located in the Premises or located elsewhere outside the Premises,
and to expand the Building;
<PAGE>
(b) To make changes to the Common Building Areas,
including, without limitation, changes in the location, size, shape
and number of driveways, parking spaces, entrances, loading and
unloading areas, ingress, egress, direction of traffic, landscaped
areas, and walkways and the parking facilities for the Building;
(c) To close temporarily any of the Common Building
Areas for maintenance purposes or to prevent prescriptive easements
so long as access to the Premises remains available;
(d) To designate other land outside the boundaries of
the Building and/or the Hughes Airport Center to be a part of the
Common Building Areas;
(e) To add additional buildings and improvements to the
Common Building Areas, including, without limitation, the
construction of buildings, parking structures or surface parking
areas;
(f) To use the Common Building Areas while engaged in
making additional improvements, repairs or alterations to the
Building, or any portion thereof provided, however, that such use
of the Common Building Areas shall be reasonable, including without
limitation, the duration and extent of such use; and
(g) To do and perform such other acts and make such
other changes in, to or with respect to the Common Building Areas
and the Building as Landlord may, in the exercise of sound business
judgment, deem to be appropriate.
ARTICLE THREE
BASE RENT
Section 3.01 TIME AND MANNER OF PAYMENT. Upon execution of
this Lease, Tenant shall pay Landlord the Base Rent in the amount
stated in Section 1.02 above for the first full month of the Lease
Term. The Base Rent for the first month of the Lease Term shall be
prorated on the basis of the actual number of days in such month,
if such month is a fractional month. If such month is a fractional
month, then the Base Rent for such fractional month shall be due
and payable on the Commencement Date. Thereafter, on the first day
of the second month of the Lease Term (or, if the first full month
of the Lease Term is the second month, then the third month of the
Lease Term) and each month thereafter, Tenant shall pay Landlord
the Base Rent, in advance, without offset, deduction or prior
demand. The Base Rent shall be payable at Landlord's Address or at
such other place as Landlord may designate in writing. Base Rent
is due on or before the first (1st) day of each month.
Section 3.02 INTENTIONALLY OMITTED
<PAGE>
ARTICLE FOUR
OTHER CHARGES PAYABLE BY TENANT
Section 4.01 ADDITIONAL RENT. All charges payable by Tenant
hereunder other than Base Rent are called "Additional Rent." Unless
this Lease provides otherwise, all Additional Rent shall be paid
with the next monthly installment of Base Rent. The term "Rent"
shall mean Base Rent and Additional Rent.
Section 4.02 OPERATING COSTS.
(a) Tenant shall during the Lease Term pay as Additional
Rent Tenant's Share of the Operating Costs. The inclusion of the
improvements, facilities and services described in the definition
of Operating Costs set forth in Section 1.01(n) above, shall not be
deemed to impose an obligation upon Landlord to either have said
improvements or facilities or to provide any of said services
unless Landlord has agreed elsewhere in this Lease to provide the
specific improvement, facility or service.
(b) Tenant shall pay Tenant's Share of Operating Costs,
in advance, in monthly installments with the Base Rent based on
Landlord's good faith estimate of the Operating Costs. Landlord
may adjust such estimates from time to time as Landlord determines,
which adjustment will be effective as of the next rent payment date
after notice to Tenant. After the end of each calendar year,
Landlord shall deliver to Tenant a statement ("Actual Statement"),
in reasonable detail, of the actual Operating Costs incurred by
Landlord during the preceding calendar year and Tenant's Share of
such Operating Costs. Upon receipt of such statement, there shall
be an adjustment between Landlord and Tenant, with payment to
Landlord or credit given to Tenant, as the case may be, to reflect
the actual Operating Costs.
(c) Landlord shall have the right, from time to time, to
equitably allocate some or all of the Operating Costs for the
Building among different portions or occupants of the Building (the
"Cost Pools"), in Landlord's discretion. Such Cost Pools may
include, but shall not be limited to, the office space tenants of
the Building as a whole, and the industrial space tenants of the
Building as a whole. The Operating Costs within each such Cost
Pool shall be allocated and charged to the tenants within such Cost
Pool in an equitable manner.
(d) In the event of any dispute as to the amount of
Tenant's Share of Operating Costs as set forth in the Operating
Costs statement, Tenant shall have the right, after reasonable
notice and at reasonable times, to inspect and photocopy Landlord's
Operating Costs records at Landlord's offices. If, after such
inspection and photocopy, Tenant continues to dispute the amount of
<PAGE>
Tenant's Share of Operating Costs as set forth in the Operating
Costs statement, Tenant shall be entitled to retain a national,
independent, certified public accountant mutually acceptable to
landlord and Tenant to audit Landlord's Operating Costs records to
determine the proper amount of Tenant's Share of Operating Costs.
Landlord shall be entitled to review the results of such audit
promptly after completion of same. If such audit proves that
Landlord has overcharged Tenant, then within fifteen (15) days
after the results of the audit are made available to Landlord,
Landlord shall credit Tenant the amount of such overcharge toward
the payments of Base Rent and Additional Rent next coming due under
this Lease. If such audit proves that Landlord has undercharged
Tenant, then within fifteen (15) days after the results of the
audit are made available to Tenant, Tenant shall pay to Landlord
the amount of any such undercharge. Tenant agrees to pay the cost
of such audit, provided that Landlord shall reimburse Lessee the
amount of such cost if the audit proves that Lessor's determination
of Tenant's Share of Operating Costs (as set forth in the Operating
Costs statement) was in error by more than six percent (6%).
Landlord shall be required to maintain records of all Operating
Costs for three (3) years following the issuance of the Operating
Costs statement for such Operating Costs. The payment by Tenant of
any amounts pursuant to this Section shall not preclude Tenant from
questioning the correctness of any Operating Costs statement.
Section 4.03 PERSONAL PROPERTY TAXES.
(a)Tenant shall pay all taxes charged against trade
fixtures, utility installations, furnishings, equipment or any
other personal property belonging to Tenant. Tenant shall use its
best efforts to have personal property taxed separately from the
Premises.
(b)If any of Tenant's personal property is taxed with
the Premises, Tenant shall pay Landlord the taxes for the personal
property within fifteen (15) days after Tenant receives a written
statement from Landlord for such personal property taxes.
<PAGE>
Section 4.04 UTILITIES. The parties acknowledge that this
Lease is intended to be a fully net lease and that, except as
expressly provided in this Lease, Tenant shall be responsible for
all repairs required to the Premises and for the provision of all
utilities at the Premises, including but not limited to water,
sewage, trash removal, waste disposal, janitorial, electricity,
telephone, security, and cleaning of the Premises, together with
any taxes thereon. The costs of installing or otherwise bringing
any meters or utilities to the Premises shall be paid directly by
Tenant. Tenant shall contract with and pay, directly to the
appropriate supplier, the cost of all utilities and services
supplied to the Premises. All such contracts and suppliers will be
<PAGE>
subject to Landlord's prior, reasonable approval. If any such
utilities or services are not able to be separately metered or
separately billed to the Premises, Tenant shall pay to Landlord a
reasonable proportion to be determined by Landlord of all such
charges jointly metered or billed with other premises in the
Building to Landlord, together with a reasonable administrative
fee, immediately upon receipt of Landlord's bill therefor.
Notwithstanding the foregoing, Landlord may elect from time to time
and at any time during the term of this Lease to contract directly
with any supplier of utilities or services to the Premises and to
bill Tenant for such costs, which bill may include a reasonable
administrative fee to Landlord.
Section 4.05 INSURANCE.
(a)Landlord shall maintain property insurance on the
Building and appurtenant structures in such amounts as Landlord and
any Mortgagees may deem necessary or appropriate. The cost of such
insurance shall be included within the definition of Operating
Costs hereunder. Payments for losses thereunder shall be made
solely to Landlord or the Mortgagees as their respective interests
shall appear. In addition, Tenant shall obtain and keep in force
at all times during the Lease Term, a policy or policies of
insurance covering loss or damage to all of the improvements,
betterments, personal property, utility installations, trade
fixtures, furnishings, income and business contents located within
the Premises other than the Building Shell in the amount of one
hundred percent (100%) of the full replacement value thereof as
reasonably ascertained by the Tenant's insurance carrier against
risks of direct physical loss or damage, normally covered in an
"all risk" policy (including the perils of flood and surface
waters), as such term is used in the insurance industry; provided,
however, that Tenant shall have no obligation to insure against
earthquake. The proceeds of such insurance shall be used for the
repair or replacement of the property so insured.
(b)Tenant shall, at Tenant's expense, maintain a policy
of Commercial General Liability insurance insuring Tenant and as
additional insureds, Landlord and any Mortgagees, against liability
arising out of the ownership, use, occupancy or maintenance of the
Premises. Such insurance shall be on an occurrence basis providing
single-limit coverage in an amount not less than One Million
Dollars ($1,000,000) per occurrence. The initial amount of such
insurance shall be subject to periodic increase upon reasonable
demand by Landlord based upon inflation, increased liability
awards, recommendation of professional insurance advisers, and
other relevant factors. However, the limits of such insurance
shall not limit Tenant's liability nor relieve Tenant of any
obligation hereunder. Such policy shall contain the following
provision: "Such insurance as afforded by this policy for the
<PAGE>
benefit of Landlord shall be primary as respects any claims, losses
or liabilities arising out of the use of the Premises by the Tenant
or by Tenant's operation and any insurance carried by the Landlord
shall be excess and noncontributing." The policy shall insure
Tenant's performance of the indemnity provisions of Section 5.05.
(c)Tenant shall, from time to time, at Tenant's sole
expense, obtain and maintain other types of insurance as Tenant,
Landlord or the Mortgagees of Landlord may reasonably require in
form, in amounts and for insurance risks against which a prudent
tenant would protect itself.
(d)Insurance required to be maintained by Tenant
hereunder shall be in companies holding a "General Policyholders'
Rating" of B-plus or better and a "financial rating" of 10 or
better, as set forth in the most current issue of "Best's Insurance
Guide," or such comparable ratings as Landlord shall approve, in
its sole discretion. Tenant shall promptly deliver to Landlord,
within thirty (30) days of the Commencement Date, original
certificates evidencing the existence and amounts of such
insurance. No such policy shall be cancelable or subject to
reduction of coverage except after thirty (30) days prior written
notice to Landlord. Tenant shall, within thirty (30) days prior to
the expiration, cancellation or reduction of such policies, furnish
Landlord with renewals or "binders" thereof. Tenant shall not do
or permit to be done anything which shall invalidate the insurance
policies required under this Lease.
Section 4.06 WAIVER OF SUBROGATION. Tenant and/or Landlord
shall obtain from the issuers of the insurance policies referred to
in this Article Four a mutual waiver of subrogation provision in
said policies and Tenant and Landlord each hereby release and
relieve the other, and waive any and all rights of recovery against
the other, or against the employees, officers, agents and
representatives of the other, for loss or damage arising out of or
incident to the perils required to be insured against under this
Section 4 which perils occur in, on or about the Premises, whether
due to the negligence of Landlord or Tenant or their agents,
employees, contractors or invitees.
Section 4.07 LATE CHARGES. Tenant acknowledges that
Tenant's failure to pay Base Rent or Additional Rent promptly may
cause Landlord to incur unanticipated costs. The exact amount of
such costs are impractical or extremely difficult to ascertain.
Such costs may include, but are not limited to, processing and
accounting charges and late charges which may be imposed on
Landlord by any ground lease, mortgage or trust deed encumbering
the Premises. Therefore, if Landlord does not receive any Rent
payment within ten (10) days after it becomes due, Tenant shall pay
Landlord a late charge equal to ten percent (10%) of the overdue
<PAGE>
amount. The parties agree that such late charge represents a fair
and reasonable estimate of the costs Landlord will incur by reason
of such late payment. In the event that a late charge is payable
hereunder, whether or not collected, for three (3) consecutive
installments of Rent, the Rent shall automatically become due and
payable quarterly in advance, rather than monthly, notwithstanding
Section 3.01 above.
Section 4.08 INTEREST ON PAST DUE OBLIGATIONS. Any amount
owed by Tenant to Landlord which is not paid when due shall bear
interest at the rate of (i) fifteen percent (15%) per annum, or
(ii) the Prime Rate plus five (5) percentage points per annum,
whichever is greater, from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant
under this Lease. The payment of interest on such amounts shall
not excuse or cure any default by Tenant under this Lease. If the
interest rate specified in this Lease is higher than the rate
permitted by law, the interest rate is hereby decreased to the
maximum legal interest rate permitted by law.
Section 4.09 RETURN OF CHECK. If Base Rent or Additional
Rent is paid by check and the check is returned to Landlord for any
reason whatsoever without payment, Tenant shall be assessed a late
charge and interest on past due amount pursuant to Sections 4.07
and 4.08 as well as a Fifty Dollar ($50) fee. If payment is
returned for insufficient funds, Landlord has the right to demand
that such payment be in the form of a cashiers or certified check.
If Tenant has two (2) or more insufficient funds' payments in a
twelve (12) month period, Landlord will demand all subsequent
payments be in the form of a cashiers or certified check.
Section 4.10 SECURITY DEPOSIT; INCREASES. Upon the
execution of this Lease, Tenant shall deposit with Landlord a cash
security deposit (the "Security Deposit") in the amount of the
Initial Security Deposit set forth in Section 1.01(f) above.
Landlord may apply all or part of the Security Deposit to any
unpaid Rent or other charges due from Tenant or to cure any other
defaults of Tenant. If Landlord uses any part of the Security
Deposit, Tenant shall restore the Security Deposit to its full
amount within ten (10) days after Landlord's written request.
Tenant's failure to do so shall be a material default under this
Lease. No interest shall be paid on the Security Deposit.
Landlord shall not be required to keep the Security Deposit
separate from its other accounts and no trust relationship is
created with respect to the Security Deposit. Each time the Base
Rent is increased, Tenant shall, on or before the date that the
first increased Base Rent payment is due, deposit additional funds
with Landlord sufficient to increase the Security Deposit to an
amount which bears the same relationship to the adjusted Base Rent
as the Initial Security Deposit bore to the initial Base Rent.
<PAGE>
Section 4.11 TERMINATION; ADVANCE PAYMENTS. Upon expiration
of this Lease or other termination of this Lease not resulting from
Tenant's default, and after Tenant has vacated the Premises in the
manner required by this Lease, an equitable adjustment shall be
made concerning advance rent and other advance payments made by
Tenant to Landlord, and Landlord shall refund any unused portion of
the Security Deposit to Tenant, or, at Landlord's option, to
Tenant's assignee or sublessee.
ARTICLE FIVE
USE OF PROPERTY
Section 5.01 PERMITTED USES. Tenant may use the Premises
only for the Permitted Uses set forth in Section 1.01(o) above.
Section 5.02 MANNER OF USE. Tenant shall not cause or
permit the Premises to be used in any way (i) which constitutes (or
would constitute) a violation of any Laws, occupancy certificate,
the requirements of any board of fire underwriters or similar body,
as any of the same now or in the future may exist, or (ii) which
annoys or interferes with the rights of tenants or users of the
Building, or (iii) which constitutes a nuisance or waste, or (iv)
which is prohibited by the Declaration. Tenant, at its sole cost
and expense, shall comply with all Laws now in force or which may
hereafter be in force regulating the use, occupancy or alterations
by Tenant of the Premises. Landlord makes no representation or
warranty as to the suitability of the Premises for Tenant's
intended use or whether such use complies with all such Laws.
Section 5.03 HAZARDOUS SUBSTANCES.
(a) Reportable Uses Require Consent. The term
"Hazardous Substance" as used in this Lease shall mean any product,
substance, chemical, material or waste whose presence, nature,
quantity and/or intensity of existence, use, manufacture, disposal,
transportation, spill, release or effect, either by itself or in
combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or
welfare, the environment, or the Premises; (ii) regulated or
monitored by any governmental authority; or (iii) a basis for
potential liability of Landlord to any governmental agency or third
party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons,
petroleum, gasoline, crude oil or any products or by-products
thereof. Tenant shall not engage in any activity in or about the
Premises which constitutes a Reportable Use (as hereinafter
defined) of Hazardous Substances without the express prior written
consent of Landlord and compliance in a timely manner (at Tenant's
sole cost and expense) with all Applicable Requirements (as defined
in Section 5.03(d)). "Reportable Use" shall mean (i) the
<PAGE>
installation or use of any above or below ground storage tank, (ii)
the generation, possession, storage, use, transportation, or
disposal of a Hazardous Substance that requires a permit from, or
with respect to which a report, notice, registration or business
plan is required to be filed with, any governmental authority, and
(iii) the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Requirements require
that a notice be given to persons entering or occupying the
Premises or neighboring properties. Notwithstanding the foregoing,
Tenant may, without Landlord's prior consent, but upon notice to
Landlord and in compliance with all Applicable Requirements, use
any ordinary and customary materials reasonably required to be used
by Tenant in the normal course of the Permitted Uses, so long as
such use is not a Reportable Use and does not expose the Premises
or neighboring properties to any meaningful risk of contamination
or damage or expose Landlord to any liability therefor. In
addition, Landlord may (but without any obligation to do so)
condition its consent to any Reportable Use of any Hazardous
Substance by Tenant upon Tenant's giving Landlord such additional
assurances as Landlord, in its reasonable discretion, deems
necessary to protect itself, the public, the Premises and the
environment against damage, contamination or injury and/or
liability therefor, including but not limited to the installation
(and, at Landlord's option, removal on or before Lease expiration
or earlier termination) of reasonably necessary protective
modifications to the Premises (such as concrete encasements) and/or
the deposit of an additional Security Deposit.
(b) Duty to Inform Lessor. If Tenant knows, or has
reasonable cause to believe, that a Hazardous Substance has come to
be located in, on, under or about the Premises or the Building,
other than as previously consented to by Landlord, Tenant shall
immediately give Landlord written notice thereof, together with a
copy of any statement, report, notice, registration, application,
permit, business plan, license, claim, action, or proceeding given
to, or received from, any governmental authority or private party
concerning the presence, spill, release, discharge of, or exposure
to, such Hazardous Substance including but not limited to all such
documents as may be involved in any Reportable Use involving the
Premises. Tenant shall not cause or permit any Hazardous Substance
to be spilled or released in, on, under or about the Premises
(including, without limitation, through the plumbing or sanitary
sewer system).
(c)Indemnification. Tenant shall indemnify, protect,
defend and hold Landlord, its agents, employees, lenders and ground
lessor, if any, and the Premises, harmless from and against any and
all damages, liabilities, judgments, costs, claims, liens,
expenses, penalties, loss of permits and attorneys' and
consultants' fees arising out of or involving any Hazardous
<PAGE>
Substance brought onto the Premises by or for Tenant or by anyone
under Tenant's control. Tenant's obligations under this Section
5.03(c) shall include, but not be limited to, the effects of any
contamination or injury to person, property or the environment
created or suffered by Tenant, and the cost of investigation
(including consultants' and attorneys' fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any
contamination therein involved, and shall survive the expiration or
earlier termination of this Lease. No termination, cancellation or
release agreement entered into by Landlord and Tenant shall release
Tenant from its obligations under this Lease with respect to
Hazardous Substances, unless specifically so agreed by Landlord in
writing at the time of such agreement.
(d) Tenant's Compliance with Requirements. Tenant
shall, at Tenant's sole cost and expense, fully, diligently and in
a timely manner, comply with all "Applicable Requirements," which
term is used in this Lease to mean all laws, rules, regulations,
ordinances, directives, covenants, easements and restrictions of
record, permits, the requirements of any applicable fire insurance
underwriter or rating bureau, and the recommendations of Landlord's
engineers and/or consultants, relating in any manner to the
Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or
about the Premises, including soil and groundwater conditions, and
(iii) the use, generation, manufacture, production, installation,
maintenance, removal, transportation, storage, spill, or release of
any Hazardous Substance), now in effect or which may hereafter come
into effect. Tenant shall, within five (5) days after receipt of
Landlord's written request, provide Landlord with copies of all
documents and information, including but not limited to permits,
registrations, manifests, applications, reports and certificates,
evidencing Tenant's compliance with any Applicable Requirements
specified by Landlord, and shall immediately upon receipt, notify
Landlord in writing (with copies of any documents involved) of any
threatened or actual claim, notice, citation, warning, complaint or
report pertaining to or involving failure by Tenant or the Premises
to comply with any Applicable Requirements.
(e) Inspection; Compliance with Law. Landlord,
Landlord's agents, employees, contractors and designated
representatives, and any Mortgagees, shall have the right to enter
the Premises at any time in the case of an emergency, and otherwise
at reasonable times, for the purpose of inspecting the condition of
the Premises and for verifying compliance by Tenant with this Lease
and all Applicable Requirements, and Landlord shall be entitled to
employ experts and/or consultants in connection therewith to advise
Landlord with respect to Tenant's activities, including but not
limited to Tenant's installation, operation, use, monitoring,
maintenance, or removal of any Hazardous Substance on or from the
<PAGE>
Premises. The costs and expenses of any such inspections shall be
paid by the party requesting same, unless a default of this Lease
by Tenant or a violation of Applicable Requirements or a
contamination, caused or materially contributed to by Tenant, is
found to exist or to be imminent, or unless the inspection is
requested or ordered by a governmental authority as the result of
any such existing or imminent violation or contamination. In such
case, Tenant shall upon request reimburse Landlord or Landlord's
Mortgagee, as the case may be, for the costs and expenses of such
inspections.
Section 5.04 SIGNS AND AUCTIONS. Tenant shall not place any
signs on the Premises without Landlord's prior written consent.
Tenant shall not conduct or permit any auctions or sheriff's sales
at the Premises.
Section 5.05 INDEMNITY. Tenant shall indemnify and hold
harmless Landlord and all agents, servants and employees of
Landlord from and against all claims, losses, damages, expenses
(including reasonable attorneys' fees), penalties and charges
arising from or in connection with (i) Tenant's use of the Premises
during the Lease Term, or (ii) the conduct of Tenant's business, or
(iii) any activity, work or things done, permitted or suffered by
Tenant in or about the Premises during the Lease Term. Tenant
shall further indemnify and hold harmless Landlord from and against
any and all claims, loss, damage, expense (including reasonable
attorneys' fees), penalty or charge arising from any default in the
performance of any obligation on Tenant's part to be performed
under the terms of this Lease, or arising from any negligence of
Tenant, or any of Tenant's agents, contractors, or employees, and
from and against all costs, attorneys' fees, expenses and
liabilities incurred in the defense of any such claim or any action
or proceeding brought thereon. If any action or proceeding be
brought against Landlord by reason of any such claim, Tenant, upon
notice from Landlord, shall defend the same at Tenant's expense by
legal counsel reasonably satisfactory to Landlord. Tenant, as a
material part of its consideration to Landlord, hereby assumes all
risk of damage to property or injury to persons in or upon the
Premises arising from any cause and Tenant hereby waives all claims
in respect thereof against Landlord. Notwithstanding the
foregoing, Tenant shall not be required to defend, save harmless or
indemnify Landlord from any liability for injury, loss, accident or
damage to any person or property resulting from Landlord's
negligence or willful acts or omissions, or those of Landlord's
officers, agents, contractors or employees. Tenant's indemnity is
not intended to nor shall it relieve any insurance carrier of its
obligations under policies required to be carried by Tenant
pursuant to the provisions of this Lease to the extent that such
policies cover the results of negligent acts or omissions of
Landlord, its officers, agents, contractors or employees, or the
<PAGE>
failure of Landlord to perform any of its obligations under this
Lease.
Section 5.06 LANDLORD'S ACCESS. Landlord or its agents may
enter the Premises at all reasonable times to show the Premises to
potential buyers, investors or tenants or other parties, or for any
other purpose Landlord deems necessary. Landlord shall give Tenant
prior notice of such entry, except in the case of an emergency.
Landlord may place customary "For Sale" or "For Lease" signs on the
Premises.
ARTICLE SIX
CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6.01 EXISTING CONDITIONS. Tenant accepts the
Premises in its condition "AS IS" as of the date of execution of
this Lease, subject to all recorded matters and Laws. Tenant
acknowledges that neither Landlord nor any employee or agent of
Landlord has made any representation as to the condition of the
Premises or the suitability of the Premises for Tenant's intended
use.
Section 6.02 EXEMPTION OF LANDLORD FROM LIABILITY. Landlord
shall not be liable for and Tenant shall indemnify and hold
Landlord harmless from and against all claims, losses, damages,
expenses, penalties and charges arising from or in connection with
any damage or injury to the person, business (or any loss of income
therefrom), goods, wares, merchandise or other property of Tenant,
Tenant's employees, invitees, customers or any other person in or
about the Premises, whether such damage or injury is caused by or
results from: (a) fire, steam, electricity, water, gas or rain; (b)
the breakage, leakage, obstruction or other defects of pipes,
sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures or any other cause; (c) the failure, delay or
diminution in the quality or quantity of any utilities or services
supplied to the Premises or the Building, or (d) any conditions
arising in or about the Premises, or from other sources or places,
nor shall any of the same be construed as an eviction of Tenant,
nor, unless otherwise permitted under this Lease, work an abatement
of Rent, nor relieve Tenant from any obligation under this Lease.
Landlord shall not be liable for any such damage or injury even
though the cause of or the means of repairing such damage or injury
are not accessible to Tenant. The provisions of this Section 6.02
shall not, however, exempt Landlord from liability for Landlord's
gross negligence or willful misconduct.
Section 6.03 LANDLORD'S OBLIGATIONS. Landlord shall keep
the following in good order, condition and repair: the foundations,
exterior structural walls and structural roof of the Building.
Landlord shall not be obligated to maintain or repair windows,
<PAGE>
doors, plate glass or the interior surfaces of exterior walls.
Landlord shall have no obligation to make repairs under this
Section 6.03 until a reasonable time after Landlord receives
written notice from Tenant of the need of such repairs. Tenant
expressly waives the benefit of any statute in effect now or in the
future which might give Tenant the right to make repairs at
Landlord's expense or to terminate this Lease due to Landlord's
failure to keep the Premises in good order, condition and repair.
Section 6.04 TENANT'S OBLIGATIONS.
(a) Tenant shall, at Tenant's sole cost and expense,
keep all portions of the Premises in good order, condition and
repair, including, without limitation, all components of the
electrical, mechanical, plumbing, heating, air conditioning and
ventilation systems which serve the Premises and all other items
not expressly set forth as the responsibility of Landlord in
Section 6.03 above. If any portion of the Premises or any system
or equipment in the Premises which Tenant is obligated to repair
cannot be fully repaired, Tenant shall promptly replace such
portion of or system or equipment in the Premises, regardless of
whether the benefit of such replacement extends beyond the Lease
Term.
(b) Either Landlord or Tenant, at Tenant's option and at
Tenant's sole expense, shall enter into a preventative maintenance
contract ("Maintenance Contract") with a licensed heating and air
conditioning contractor providing for the regular inspection and
maintenance of the heating, air conditioning and ventilation system
utilized for the Premises. Landlord shall have the right to
approve the contractor and the Maintenance Contract prior to
Tenant's execution thereof. Thirty (30) days prior to the
Commencement Date, Tenant shall inform Landlord whether Tenant will
obtain the Maintenance Contract or whether Tenant wants Landlord to
obtain the Maintenance Contract. In the event Tenant elects to
obtain the Maintenance Contract, Tenant shall provide Landlord with
a copy of such Maintenance Contract at least fifteen (15) days
prior to the Commencement Date: the Maintenance Contract cannot be
canceled without providing Landlord with thirty (30) days prior
written notice. If Tenant elects not to obtain a Maintenance
Contract or if Tenant fails to provide Landlord with a copy of the
Maintenance Contract fifteen (15) days prior to the Commencement
Date, Landlord shall obtain the Maintenance Contract for Tenant's
benefit and Tenant shall be obligated to pay Landlord, as
Additional Rent, monthly, without demand, one-twelfth (1/12th) of
the annual cost of the Maintenance Contract. Regardless if
Landlord or Tenant obtains the Maintenance Contract, Landlord shall
have the right to enter Tenant's Premises to inspect the air
conditioning, heating and ventilation system utilized for Tenant's
Premises.
<PAGE>
(c) Either Landlord or Tenant, at Tenant's option and at
Tenant's sole expense, shall enter into a sewer and trash removal
contract ("Trash Removal Contract") with a contractor providing for
regular sewer and trash removal services for the Premises.
Landlord shall have the right to approve the contractor and the
Trash Removal Contract prior to Tenant's execution thereof. Thirty
(30) days prior to the Commencement Date, Tenant shall inform
Landlord whether Tenant will obtain the Trash Removal Contract or
whether Tenant wants Landlord to obtain the Trash Removal Contract.
In the event Tenant elects to obtain the Trash Removal Contract,
Tenant shall provide Landlord with a copy of such Trash Removal
Contract at least fifteen (15) days prior to the Commencement Date:
the Trash Removal Contract cannot be canceled without providing
Landlord with thirty (30) days prior written notice. If Tenant
elects not to obtain a Trash Removal Contract or if Tenant fails to
provide Landlord with a copy of the Trash Removal Contract fifteen
(15) days prior to the Commencement Date, Landlord shall obtain the
Trash Removal Contract for Tenant's benefit and Tenant shall be
obligated to pay Landlord, as Additional Rent, monthly, without
demand, one-twelfth (1/12th) of the annual cost of the Trash
Removal Contract. Regardless if Landlord or Tenant obtains the
Trash Removal Contract, Landlord shall have the right to enter
Tenant's Premises to inspect the services provided thereunder.
(d) If Tenant fails to maintain or repair the Premises
as required by this Section 6.04, Landlord may, upon ten (10) days
prior notice to Tenant (except that no notice shall be required in
the case of an emergency), enter the Premises and perform such
maintenance or repair on behalf of Tenant. In such case, Tenant
shall reimburse Landlord for all costs incurred in performing such
maintenance or repair, including twenty percent (20%) of such costs
for Landlord's supervision, immediately upon demand.
Section 6.05 ALTERATIONS, ADDITIONS, AND IMPROVEMENTS.
(a) Tenant shall not make any alterations, additions, or
improvements to the Premises without Landlord's prior written
consent. Tenant shall deliver to Landlord, for Landlord's approval
prior to any construction, a complete set of plans and
specifications for the proposed alterations, additions or
improvements, copies of contracts with general contractors,
evidence of contractor's insurance and bonds, and all necessary
permits for such construction. Landlord may require Tenant to
provide demolition and/or lien and completion bonds in form and
amount satisfactory to Landlord. Tenant shall promptly remove any
alterations, additions, or improvements constructed in violation of
this Section 6.05(a) upon Landlord's written request. All
alterations, additions, and improvements will be accomplished in a
good and workmanlike manner, in conformity with all applicable
Laws, and by a contractor approved by Landlord. Landlord's
<PAGE>
approval of the plans, specifications and working drawings for
Tenant's alterations shall create no responsibility or liability on
the part of Landlord for their completeness, design, sufficiency,
or compliance with all laws, rules and regulations of governmental
agencies or authorities. Upon completion of any such work, Tenant
shall provide Landlord with "as built" plans, copies of all
construction contracts, and proof of payment for all labor and
materials.
(b) Tenant shall pay when due all claims for labor and
material furnished to the Premises. Tenant shall give Landlord at
least ten (10) days prior written notice of the commencement of any
work on the Premises. Landlord may elect to record and post
notices of non-responsibility on the Premises.
Section 6.06 CONDITION UPON TERMINATION. Upon the
termination of this Lease, Tenant shall surrender the Premises to
Landlord, broom clean and in the same condition as received except
for ordinary wear and tear which Tenant was not otherwise obligated
to remedy under any provision of this Lease. In addition, Landlord
may require Tenant to remove any alterations, additions or
improvements (whether or not made with Landlord's consent) by
written notice to Tenant within thirty (30) days after the
termination of this Lease and to restore the Premises to its prior
condition, all at Tenant's expense. All alterations, additions and
improvements which Landlord has not required Tenant to remove shall
become Landlord's property and shall be surrendered to Landlord
upon the termination of the Lease, except that Tenant may remove
any of Tenant's machinery or equipment which can be removed without
material damage to the Premises. Tenant shall repair, at Tenant's
expense, any damage to the Premises caused by the removal of any
such machinery or equipment. In no event, however, shall Tenant
remove any of the following materials or equipment without
Landlord's prior written consent: any power wiring or power panels;
lighting or lighting fixtures; wall coverings; drapes, blinds or
other window coverings; carpets or other floor coverings; heaters,
air conditioners or any other heating or air conditioning
equipment; fencing or security gates; or other similar building
operating equipment and decorations.
ARTICLE SEVEN
DAMAGE OR DESTRUCTION
Section 7.01 PROPERTY DAMAGE. If the Premises or any part
thereof shall be damaged by fire or other peril, Tenant shall give
prompt written notice thereof to Landlord. In case the Building
shall be so damaged that substantial alteration, repair or
reconstruction of any portion of the Building shall, in Landlord's
sole opinion, be required (whether or not the Premises shall have
been damaged by such peril) or in the event any Mortgagee shall
<PAGE>
require that the insurance proceeds payable as a result of a peril
be applied to the payment of the mortgage debt or in the event of
any material uninsured loss to the Building, Landlord may, at its
option, terminate this Lease by notifying Tenant in writing of such
termination within ninety (90) days after the date of such
casualty. If Landlord does not thus elect to terminate this Lease,
Landlord shall, as Landlord's sole obligation, commence and proceed
with reasonable diligence to restore the Building Shell to
substantially the same condition in which it was immediately prior
to the occurrence of the peril. When the Building Shell has been
restored by Landlord, Landlord or Tenant, at Landlord's option,
shall complete the restoration of the Premises, including the
reconstruction of all improvements in order to complete the
Premises and restore the Premises to the same condition and build-
out as prior to the casualty. If Tenant is responsible for such
restoration of the Premises, any plans and specifications for such
restoration and reconstruction and the contractor retained by
Tenant for such restoration and reconstruction shall be subject to
the approval of Landlord. Any shortfall between the amount of
insurance proceeds and the actual costs of such reconstruction
shall be deposited by Tenant prior to the commencement of such
reconstruction and, if additional costs occur, immediately upon
demand therefor. All insurance proceeds payable pursuant to
policies maintained by Tenant pursuant to Section 4.05 shall be
applied by Tenant to such reconstruction. Landlord shall not be
liable for any inconvenience or annoyance to Tenant or injury to
the business of Tenant resulting in any way from such damage or the
repair thereof, except as set forth in Section 7.02 below.
Section 7.02 REDUCTION OF RENT. If the Premises is
destroyed or damaged and Landlord or Tenant repairs or restores the
Premises pursuant to the provisions of this Article Seven, any Base
Rent payable during the period commencing as of the date of the
casualty and continuing for the period of time, as determined by
Landlord, required for Tenant and Landlord to complete the repairs
described in this Article Seven, due to such damage, repair and/or
restoration shall be reduced according to the degree, if any, to
which Tenant's use of the Premises is impaired as of the date of
the casualty as determined by Landlord. If any casualty is the
result of the fault or negligence of Tenant or any of Tenant's
agents, employees or invitees, the Base Rent hereunder shall not be
diminished during the repair of such damage. Except for such
possible reduction in Base Rent, Tenant shall not be entitled to
any abatement, compensation, reduction, or reimbursement from
Landlord as a result of any damage, destruction, repair, or
restoration of or to the Premises. In the event this Lease is
terminated pursuant to this Article Seven, such termination shall
be effective as of the date of the casualty.
<PAGE>
Section 7.03 WAIVER. Tenant waives the protection of any
statute, code or judicial decision which grants a tenant the right
to terminate a lease in the event of the substantial destruction of
the leased property. Tenant agrees that the provisions of this
Article Seven above shall govern the rights and obligations of
Landlord and Tenant in the event of any casualty to the Premises.
ARTICLE EIGHT
CONDEMNATION
Section 8.01 CONDEMNATION. If the whole or substantially
the whole of the Building or the Premises shall be taken for any
public or quasi-public use, by right of eminent domain or otherwise
or shall be sold in lieu of condemnation, then this Lease shall
terminate as of the date when physical possession of the Building
or the Premises is taken by the condemning authority. If less than
the whole or substantially the whole of the Building or the
Premises is thus taken or sold, Landlord (whether or not the
Premises are affected thereby) may terminate this Lease by giving
written notice thereof to Tenant; in which event this Lease shall
terminate as of the date when physical possession of such portion
of the Building or Premises is taken by the condemning authority.
If the Lease is not so terminated upon any such taking or sale, the
Rent payable hereunder shall be diminished by an equitable amount,
and Landlord shall, to the extent Landlord deems feasible, restore
the Building and the Premises to substantially their former
condition, but such work shall not exceed the scope of the work
done by Landlord in originally constructing the Building and
installing improvements in the Premises, nor shall Landlord in any
event be required to spend for such work an amount in excess of the
amount received by Landlord as compensation for such taking. All
amounts awarded upon a taking of any part or all of the Building or
the Premises shall belong to Landlord, and Tenant shall not be
entitled to and expressly waives all claims to any such
compensation.
ARTICLE NINE
ASSIGNMENT AND SUBLETTING
Section 9.01 LANDLORD'S CONSENT REQUIRED. No portion of the
Premises or of Tenant's interest in this Lease may be acquired by
any other person or entity, whether by assignment, mortgage,
sublease, transfer, operation of law, or act of Tenant, without
Landlord's prior written consent. Any attempted transfer without
consent shall be void and shall constitute a non-curable breach of
this Lease. If Tenant is a partnership, any cumulative transfer of
more than twenty percent (20%) of the partnership interests shall
require Landlord's consent. If Tenant is a corporation, any change
in a controlling interest of the voting stock of the corporation
shall require Landlord's consent.
<PAGE>
Section 9.02 LANDLORD'S ELECTION. Tenant's request for
consent to any transfer described in Section 9.01 above shall be
accompanied by a written statement setting forth the details of the
proposed transfer, including the name, business and financial
condition of the prospective transferee, financial details of the
proposed transfer (e.g., the term of and rent and security deposit
payable under any assignment or sublease), and any other
information Landlord deems relevant. Landlord shall have the right
in Landlord's sole discretion (a) to withhold consent; (b) to grant
consent; or (c) if the transfer is a sublease of the Premises or an
assignment of this Lease, to terminate this Lease as of the
effective date of such sublease or assignment, in which case
Landlord may elect to enter into a direct lease with the proposed
assignee or subtenant. If Landlord consents to any assignment or
sublease and Tenant receives rent or other consideration, either
initially or over the term of the assignment or sublease, in excess
of the Rent called for hereunder, or, in case of the sublease of a
portion of the Premises, in excess of such Rent fairly allocable to
such portion ("Profits"), then Tenant shall pay Landlord, as
Additional Rent hereunder, promptly after its receipt, fifty
percent (50%) of such Profits.
Section 9.03 NO RELEASE OF TENANT. No transfer consented to
by Landlord, shall release Tenant or change Tenant's primary
liability to pay the rent and to perform all other obligations of
Tenant under this Lease. Upon the occurrence of any default under
this Lease, Landlord may proceed directly against Tenant without
the necessity of exhausting any remedies against any subtenant or
assignee. Upon termination of this Lease, any permitted subtenant
shall, at Landlord's option, attorn to Landlord and shall pay all
Rent directly to Landlord. Landlord's acceptance of Rent from any
other person shall not constitute a waiver of any provision of this
Article Nine. Consent to one transfer shall not constitute a
consent to any subsequent transfer. Landlord may consent to
subsequent assignments or modifications of this Lease by Tenant's
transferee, without notifying Tenant or obtaining its consent.
Such action shall not relieve Tenant of its liability under this
Lease.
Section 9.04 NO MERGER. No merger shall result from
Tenant's sublease of the Premises under this Article Nine, Tenant's
surrender of this Lease or the termination of this Lease in any
other manner. In any such event, Landlord may terminate any or all
subtenancies or succeed to the interest of Tenant as sublandlord
thereunder.
<PAGE>
ARTICLE TEN
DEFAULTS; REMEDIES
Section 10.01 COVENANTS AND CONDITIONS. Tenant's performance
of each of Tenant's obligations under this Lease is a condition as
well as a covenant. Tenant's right to continue in possession of
the Premises is conditioned upon such performance. Time is of the
essence in the performance of all covenants and conditions.
Section 10.02 DEFAULTS. Tenant shall be in material default
under this Lease:
(a) If Tenant abandons the Premises or if Tenant vacates
the Premises for thirty (30) consecutive days;
(b) If Tenant fails to pay Rent or any other charge
required to be paid by Tenant, as and when due;
(c) If Tenant fails to perform any of Tenant's
nonmonetary obligations under this Lease for a period of ten (10)
days after written notice from Landlord; provided that if more than
ten (10) days are required to complete such performance, Tenant
shall not be in default if Tenant commences such performance within
such ten (10) day period and thereafter diligently pursues its
completion;
(d)(i) If Tenant makes a general assignment or general
arrangement for the benefit of creditors; (ii) if a petition for
adjudication of bankruptcy or for reorganization or rearrangement
is filed by or against Tenant and is not dismissed within thirty
(30) days; (iii) if a trustee or receiver is appointed to take
possession of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease and possession is
not restored to Tenant within thirty (30) days; or (iv) if
substantially all of Tenant's assets located at the Premises or of
Tenant's interest in this Lease is subjected to attachment,
execution or other judicial seizure which is not discharged within
thirty (30) days. If a court of competent jurisdiction determines
that any of the acts described in this Section (d) is not a default
under this Lease, and a trustee is appointed to take possession (or
if Tenant remains a debtor in possession) and such trustee or
Tenant transfers Tenant's interest hereunder, then Landlord shall
receive, as Additional Rent, the difference between the rent (or
any other consideration) paid in connection with such assignment or
sublease and the rent payable by Tenant hereunder;
(e) Any representation or warranty made by Tenant or by
a subtenant or assignee in connection with this Lease shall have
been false or misleading as of the date such representation or
warranty was made; or
<PAGE>
(f) If Tenant fails to take substantial occupancy of the
Premises within a reasonable time after the Commencement Date.
Section 10.03 REMEDIES. On the occurrence of any default by
Tenant, Landlord may, at any time thereafter, with or without
notice or demand and without limiting Landlord in the exercise of
any right or remedy which Landlord may have:
(a) Terminate Tenant's right to possession of the
Premises by any lawful means, in which case this Lease shall
terminate and Tenant shall immediately surrender possession of the
Premises to Landlord. In such event, Landlord shall be entitled to
recover from Tenant all damages incurred by Landlord by reason of
Tenant's default, including without limitation (i) the worth at the
time of the award of the unpaid Base Rent, Additional Rent and
other charges which had been earned at the time of the termination;
(ii) the worth at the time of the award of the amount by which the
unpaid Base Rent, Additional Rent and other charges which would
have been earned after termination until the time of the award
exceeds the amount of such rental loss that Tenant proves could
have been reasonably avoided; (iii) the worth at the time of the
award of the amount by which the unpaid Base Rent, Additional Rent
and other charges which would have been paid for the balance of the
Lease Term after the time of award exceeds the amount of such
rental loss that Tenant proves could have been reasonably avoided;
and (iv) any other amount necessary to compensate Landlord for all
the detriment proximately caused by Tenant's failure to perform its
obligations under the Lease or which in the ordinary course of
things would be likely to result therefrom, including, but not
limited to, any costs or expenses incurred by Landlord in
maintaining or preserving the Premises after such default, the cost
of recovering possession of the Premises, expenses of reletting,
including necessary renovation or alteration of the Premises,
Landlord's reasonable attorneys' fees incurred in connection
therewith, and any real estate commission paid or payable. As used
in subparts (i) and (ii) above, the "worth at the time of the
award" is computed by allowing interest on unpaid amounts at the
rate of fifteen percent, or such lesser amount as may then be the
maximum lawful rate, accruing the date such payments are due until
paid. As used in subpart (iii) above, the "worth at the time of
the award" is computed by discounting such amount at the discount
rate of the Federal Reserve Bank of San Francisco at the time of
the award, plus one percent (1%);
(b) Maintain Tenant's right to possession, in which case
this Lease shall continue in effect whether or not Tenant shall
have abandoned the Premises. In such event, Landlord shall be
entitled to enforce all of Landlord's rights and remedies under
this Lease, including the right to recover Rent as it becomes due
hereunder. Landlord's election to maintain Tenant's right to
<PAGE>
possession shall not prejudice Landlord's right, at any time
thereafter to terminate Tenant's right to possession and proceed in
accordance with Section 10.03(a) above; or
(c) Pursue any other remedy now or hereafter available
to Landlord under the laws or judicial decisions of the State of
Nevada.
Section 10.04 CUMULATIVE REMEDIES. Landlord's exercise of
any right or remedy shall not prevent it from exercising any other
right or remedy.
ARTICLE ELEVEN
PROTECTION OF LENDERS
Section 11.01 SUBORDINATION. Landlord shall have the right
to subordinate this Lease to any ground lease, deed of trust or
mortgage encumbering the Premises, any advances made on the
security thereof and any renewals, modifications, consolidations,
replacements or extensions thereof, whenever made or recorded.
However, Tenant's right to quiet possession of the Premises during
the Lease Term shall not be disturbed if Tenant pays the rent and
performs all of Tenant's obligations under this Lease and is not
otherwise in default. If any ground lessor, beneficiary or
mortgagee elects to have this Lease prior to the lien of its ground
lease, deed of trust or mortgage and gives written notice thereof
to Tenant, this Lease shall be deemed prior to such ground lease,
deed of trust or mortgage whether this Lease is dated prior or
subsequent to the date of said ground lease, deed of trust or
mortgage or the date of recording thereof. If in connection with
obtaining construction, interim or permanent financing for the
Building, the lender shall request modifications to this Lease as
a condition to such financing, Tenant will not withhold or delay
its consent thereto, provided that such modifications do not
increase the obligations of Tenant hereunder and do not otherwise
materially adversely affect Tenant's rights hereunder. In the
event that Tenant should fail to execute any instrument described
in this Article Eleven promptly as requested, Tenant hereby
irrevocably constitutes Landlord as its attorney-in-fact to execute
such instrument in Tenant's name, place and stead, it being agreed
that such power is one coupled with an interest.
Section 11.02 ATTORNMENT. If Landlord's interest in the
Premises is acquired by any ground lessor, beneficiary under a deed
of trust, mortgagee, or purchaser at a foreclosure sale, Tenant
shall attorn to the transferee of or successor to Landlord's
interest in the Premises and recognize such transferee or successor
as Landlord under this Lease. Tenant waives the protection of any
statute or rule of law which gives or purports to give Tenant any
<PAGE>
right to terminate this Lease or surrender possession of the
Premises upon the transfer of Landlord's interest.
Section 11.03 SIGNING OF DOCUMENTS. Tenant shall sign and
deliver any instruments or documents necessary or appropriate to
evidence any such attornment or subordination or agreement to do
so. Such subordination and attornment documents may contain such
provisions as are customarily required by any ground lessor,
beneficiary under a deed of trust or mortgagee. If Tenant fails to
do so within ten (10) days after written request, Tenant hereby
makes, constitutes and irrevocably appoints Landlord, or any
transferee or successor of Landlord, the attorney-in-fact of Tenant
to execute and deliver any such instrument or document.
Section 11.04 ESTOPPEL CERTIFICATES.
(a) Upon Landlord's written request, Tenant shall
execute, acknowledge and deliver to Landlord a written statement
certifying; (i) that none of the terms or provisions of this Lease
have been changed (or if they have been changed, stating how they
have been changed); (ii) that this Lease has not been canceled or
terminated; (iii) the last date of payment of the Base Rent and
other charges and the time period covered by such payment; (iv)
that Landlord is not in default under this Lease (or, if Landlord
is claimed to be in default, stating why); and (v) such other
matters as may be reasonably required by Landlord or the holder of
a mortgage, deed of trust or lien to which the Premises is or
becomes subject. Tenant shall deliver such statement to Landlord
within ten (10) days after Landlord's request. Any such statement
by Tenant may be given by Landlord to any prospective purchaser or
encumbrancer of the Premises. Such purchaser or encumbrancer may
rely conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such statement to
Landlord within such ten (10) day period, Landlord, and any
prospective purchaser or encumbrancer, may conclusively presume and
rely upon the following facts: (i) that the terms and provisions of
this Lease have not been changed except as otherwise represented by
Landlord; (ii) that this Lease has not been canceled or terminated
except as otherwise represented by Landlord; (iii) that not more
than one month's Base Rent or other charges have been paid in
advance; and (iv) that Landlord is not in default under the Lease.
In such event, Tenant shall be estopped from denying the truth of
such facts.
Section 11.05 TENANT'S FINANCIAL CONDITION. Within ten (10)
days after written request from Landlord, Tenant shall deliver to
Landlord such financial statements as are reasonably required by
Landlord to verify the net worth of Tenant, or any assignee,
subtenant, or guarantor of Tenant. In addition, Tenant shall
<PAGE>
deliver to any lender designated by Landlord any financial
statements required by such lender to facilitate the financing or
refinancing of the Premises. Tenant represents and warrants to
Landlord that each such financial statement is a true and accurate
statement as of the date of such statement. All financial
statements shall be confidential and shall be used only for the
purposes set forth herein.
ARTICLE TWELVE
LEGAL COSTS
Section 12.01 LEGAL PROCEEDINGS. Tenants shall reimburse
Landlord, upon demand, for any costs or expenses incurred by
Landlord in connection with any breach or default of Tenant under
this Lease, whether or not suit is commenced or judgment entered.
Such costs shall include legal fees and costs incurred for the
negotiation of a settlement, enforcement of rights or otherwise.
Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the court in such action
shall award to the party in whose favor a judgment is entered, a
reasonable sum as attorneys' fees and costs. Such attorneys' fees
and costs shall be paid by the losing party in such action and
Tenant shall also indemnify Landlord against and hold Landlord
harmless from all costs, expenses, demands and liability incurred
by Landlord if Landlord becomes or is made a party to any claim or
action (a) instituted by Tenant, or by any third party against
Tenant, or by or against any person holding any interest under or
using the Premises by license of or agreement with Tenant; (b) for
foreclosure of any lien for labor or material furnished to or for
Tenant or such other person; (c) otherwise arising out of or
resulting from any act or transaction of Tenant or such other
person; or (d) necessary to protect Landlord's interest under this
Lease in a bankruptcy proceeding, or other proceeding under Title
11 of the United States Code, as amended. Tenant shall defend
Landlord against any such claim or action at Tenant's expense with
counsel reasonably acceptable to Landlord or, at Landlord's
election, Tenant shall reimburse Landlord for any legal fees or
costs incurred by Landlord in any such claim or action.
Section 12.02 LANDLORD'S CONSENT. Tenant shall pay
Landlord's reasonable attorneys' fees incurred in connection with
Tenant's request for Landlord's consent under Article Nine
(Assignment and Subletting), or in connection with any other act
which Tenant proposes to do and which requires Landlord's consent.
ARTICLE THIRTEEN
MISCELLANEOUS PROVISIONS
Section 13.01 NON-DISCRIMINATION. Tenant promises, and it is
a condition to the continuance of this Lease, that there will be no
<PAGE>
discrimination against, or segregation of, any person or group of
persons on the basis of race, color, sex, creed, national origin or
ancestry in the leasing, subleasing transferring, occupancy, tenure
or use of the Premises or any portion thereof.
Section 13.02 LANDLORD'S LIABILITY. As used in this Lease,
the term "Landlord" means only the current owner or owners of the
fee title to the Premises or the leasehold estate under a ground
lease of the Premises at the time in question. Each Landlord is
obligated to perform the obligations of Landlord under this Lease
only during the time such Landlord owns such interest or title.
Any Landlord who transfers its title or interest is relieved of all
liability with respect to the obligations of Landlord under this
Lease to be performed on or after the date of transfer. However,
each Landlord shall deliver to its transferee all funds previously
paid by Tenant if such funds have not yet been applied under the
terms of this Lease. The liability of Landlord to Tenant for any
default by Landlord under the terms of this Lease shall be limited
to the lesser of (i) the interest of Landlord in the Building, or
(ii) the interest Landlord would have in the Building if the
Building were encumbered by third party debt in an amount equal to
eighty percent (80%) of the value of the Building (as such value is
determined by Landlord) and Tenant agrees to look solely to such
amount for recovery of any judgment from Landlord, it being
intended that Landlord shall not be personally liable for any
judgment or deficiency.
Section 13.03 SEVERABILITY. A determination by a court of
competent jurisdiction that any provision of this Lease or any part
thereof is illegal or unenforceable shall not cancel or invalidate
the remainder of such provision or this Lease, which shall remain
in full force and effect.
Section 13.04 INTERPRETATION. The captions of the Articles
and Sections of this Lease are to assist the parties in reading
this Lease and are not a part of the terms or provisions of this
Lease. Whenever required by the context of this Lease, the
singular shall include the plural and the plural shall include the
singular. The masculine, feminine and neuter genders shall each
include the other. In any provision relating to the conduct, acts
or omissions of Tenant, the term "Tenant" shall include Tenant's
agents, employees, contractors, invitees, successors or others
using the Premises with Tenant's expressed or implied permission.
Section 13.05 INCORPORATION OF PRIOR AGREEMENTS; MODIFICATIONS.
This Lease is the only agreement between the parties
pertaining to the lease of the Premises and no other agreements are
effective. All amendments to this Lease shall be in writing and
<PAGE>
signed by all parties. Any other attempted amendment shall be
void.
Section 13.06 NOTICES. All notices required or permitted
under this Lease shall be in writing and shall be personally
delivered or sent by certified mail, return receipt requested,
postage prepaid. Notices to Tenant shall be delivered to Tenant's
Address specified in Section 1.01(s) above, except that upon
Tenant's taking possession of the Premises, the Premises shall be
Tenant's address for notice purposes. Notices to Landlord shall be
delivered to Landlord's Address specified in Section 1.01(h) above.
Notices deposited in the mail in the manner hereinabove described
shall be effective from and after the expiration of three (3)
calendar days after it is so deposited. All other notices shall be
effective upon delivery or attempted delivery in accordance with
this Section 13.06. Either party may change its notice address
upon written notice to the other party.
Section 13.07 WAIVERS. All waivers must be in writing and
signed by the waiving party. Landlord's failure to enforce any
provision of this Lease or its acceptance of rent shall not be a
waiver and shall not prevent Landlord from enforcing that provision
or any other provision of this Lease in the future. No statement
on a payment check from Tenant or in a letter accompanying a
payment check shall be binding on Landlord, and Landlord may, with
or without notice to Tenant, negotiate such check without being
bound to the conditions of such statement.
Section 13.08 NO RECORDATION. Tenant shall not record this
Lease without prior written consent from Landlord. However, either
Landlord or Tenant may require that a "short form" memorandum of
this Lease executed by both parties be recorded; provided that, in
such event, Tenant hereby covenants and agrees that, upon the
expiration or earlier termination of the Lease Term, Tenant will
execute and deliver a quitclaim deed to Landlord in form reasonably
satisfactory to Landlord, in favor of Landlord, or Landlord's
successor in interest releasing and conveying any and all right,
title, or interest of Tenant in the Premises, the Building, and the
Hughes Airport Center.
Section 13.09 BINDING EFFECT; CHOICE OF LAW. This Lease
binds any party who legally acquires any rights or interest in this
Lease from Landlord or Tenant. However, Landlord shall have no
obligation to Tenant's successor unless the rights or interests of
Tenant's successor are acquired in accordance with the terms of
this Lease. This Lease shall be governed by and construed in
accordance with the laws of the State of Nevada.
<PAGE>
Section 13.10 CORPORATE AUTHORITY; PARTNERSHIP AUTHORITY.
If Tenant is a corporation, each person signing this Lease on
behalf of Tenant represents and warrants that he has full authority
to do so and that this Lease binds the corporation. Within thirty
(30) days after this Lease is signed, Tenant shall deliver to
Landlord a certified copy of a resolution of Tenant's Board of
Directors authorizing the execution of this Lease or other evidence
of such authority reasonably acceptable to Landlord. If Tenant is
a partnership, each person signing this Lease for Tenant represents
and warrants that he is a general partner of the partnership, that
he has full authority to sign for the partnership and that this
Lease binds the partnership and all general partners of the
partnership. Tenant shall give written notice to Landlord of any
general partner's withdrawal or addition. Within thirty (30) days
after this Lease is signed, Tenant shall deliver to Landlord a copy
of Tenant's recorded statement of partnership or certificate of
limited partnership.
Section 13.11 JOINT AND SEVERAL LIABILITY. All parties
signing this Lease as Tenant shall be jointly and severally liable
for all obligations of Tenant.
Section 13.12 FORCE MAJEURE. If Landlord cannot perform any
of its obligations due to events beyond Landlord's control, the
time provided for performing such obligations shall be extended by
a period of time equal to the duration of such events. Events
beyond Landlord's control include, but are not limited to, acts of
God, war, civil commotion, labor disputes, strikes, fire, flood or
other casualty, shortages of labor or material, governmental
regulation or restriction and weather conditions.
Section 13.13 EXECUTION OF LEASE. This Lease may be executed
in counterparts, and, when all counterpart documents are executed,
the counterparts shall constitute a single binding instrument. The
delivery of this Lease by Landlord to Tenant shall not be deemed to
be an offer and shall not be binding upon either party until
executed and delivered by both parties.
Section 13.14 BROKERS AND LEASING AGENTS. Landlord represents
and warrants to Tenant, and Tenant represents and warrants to
Landlord, that no broker, leasing agent or finder has been engaged
by it other than Tenant's Broker (if any) specified in Section
1.01(t) in connection with any of the transactions contemplated by
this Lease, or to its knowledge is in any way connected with any of
such transactions. Subject to the terms and conditions of a
written commission agreement ("Commission Agreement") entered into
between Landlord and Tenant's Broker (if any), Landlord shall be
responsible for the payment of a commission to Tenant's Broker in
accordance with the Commission Agreement. In the event of any
claims for brokers' or finders' fees or commissions in connection
<PAGE>
with the negotiation, execution or consummation of this Lease other
than by the Tenant's Broker (if any), Tenant shall indemnify, save
harmless and defend Landlord from and against such claims if they
shall be based upon any statement or representation or agreement
made by Tenant, and Landlord shall indemnify, save harmless and
defend Tenant if such claims shall be based upon any statement,
representation or agreement made by Landlord.
Section 13.15 RULES AND REGULATIONS. Tenant shall faithfully
observe and comply with the "Rules and Regulations," a copy of
which is Exhibit "C" attached hereto and incorporated herein by
this reference and all reasonable modifications thereof and
additions thereto from time to time put into effect by Landlord.
Landlord shall not be responsible to Tenant for the violation or
non-performance by any other tenant or occupant of the Building of
any of said Rules and Regulations. Tenant shall be responsible for
the observance of all the foregoing rules by Tenant's employees,
agents, clients, customers, invitees and guests.
Section 13.16 BUILDING PLANNING. In the event Landlord
requires the Premises for use in conjunction with another suite or
for other reasons connected with the Building planning program,
upon notifying Tenant in writing, Landlord shall have the right to
move Tenant to another space in the Building at Landlord's sole
cost and expense, including all of Tenant's moving expenses,
telephone installation and stationery reprinting charges, and the
terms and conditions of the original Lease shall remain in full
force and effect, save and excepting that a revised Exhibit "A"
shall become part of this Lease and shall reflect the location of
the new space and this Lease shall be amended to include and state
all correct data as to the new space.
Section 13.17 LIENS. Tenant shall not permit any mechanic's,
materialmen's or other liens to be filed against the real property
of which the Premises form a part nor against the Tenant's
leasehold interest in the Premises. Landlord shall have the right
at all reasonable times to post and keep posted on the Premises any
notices which it deems necessary for protection from such liens.
If any such liens are filed and are not discharged by Tenant by
bond or otherwise within ten (10) days after the filing thereof,
Landlord may, without waiving its rights and remedies based on such
breach of Tenant and without releasing Tenant from any of its
obligations, cause such liens to be released by any means it shall
deem proper, including payment in satisfaction of the claim giving
rise to such lien. Tenant shall pay to Landlord at once, upon
notice by Landlord, any sum paid by Landlord to remove such liens,
together with interest at the maximum rate per annum permitted by
law from the date of such payment by Landlord.
<PAGE>
IN WITNESS WHEREOF, Landlord and Tenant have signed this Lease
in the State of Nevada on the day and year first above written and
have initialed all Riders which are attached to or incorporated by
reference in this Lease.
LANDLORD: TENANT:
HOWARD HUGHES PROPERTIES, SPINTEK GAMING TECHNOLOGIES,
LIMITED PARTNERSHIP, a INC., a California corporation
Delaware limited partnership
By its sole general partner: By: Robert E. Huggins /s/
THE HOWARD HUGHES CORPORATION,
a Delaware corporation Print Name: Robert E. Huggins
Print Title: CFO
By: John A. Kilduff /s/
Print Name: John A. Kilduff
Print Title: Executive V.P.
<PAGE>
EXHIBIT "A"
[Building Depiction Indicating Location of Premises]
<PAGE>
EXHIBIT "B"
[Legal Description of Building Site]
<PAGE>
EXHIBIT "C"
RULES AND REGULATIONS
1. No sign, placard, picture, advertisement, name or notice
shall be installed or displayed on any part of the outside or
inside of the Building without the prior written consent of
Landlord. Tenant shall not do any painting or marking on the
exterior of the Building or the Building Common Areas, including
without limitation, marking of parking areas. Landlord shall have
the right to remove, at Tenant's expense and without notice, any
sign installed or displayed in violation of this rule. All
approved signs or lettering on doors, windows and walls shall be
printed, painted, affixed or inscribed at the expense of Tenant,
using materials and in a style and format approved by Landlord.
2. Window coverings must be approved by Landlord which
approval shall not be unreasonably withheld. No awning shall be
permitted on any part of the Premises. Tenant shall not place
anything against or near glass partitions or doors or windows which
may appear unsightly from outside the Premises.
3. Tenant shall not obstruct any sidewalks, halls, passages,
exits, entrances, elevators, escalators or stairways of the
Building. The halls, passages, exits, entrances, elevators,
escalators are not for the general public, and Landlord shall in
all cases retain the right to control and prevent access thereto of
all persons whose presence in the judgment of Landlord would be
prejudicial to the safety, character, reputation and interests of
the Building and its tenants; provided that nothing herein
contained shall be construed to prevent such access to persons with
whom any tenant normally deals in the ordinary course of its
business, unless such persons are engaged in illegal activities.
No tenant and no employee or invitee of any tenant shall go upon
the roof of the Building, without the approval of Landlord.
4. Landlord will furnish Tenant, free of charge, with two
keys to each door lock in the Premises, provided, however, that
Landlord shall not be entitled to possess keys to any safes; files,
vaults, safe deposit boxes or keys to the Premises. Without
Landlord's consent, Tenant shall not make or have made additional
keys furnished by Landlord. Unless Landlord otherwise agrees,
Tenant shall not alter any lock or install a new additional lock or
bolt on any door of its Premises. Tenant, upon the termination of
its tenancy, shall deliver to Landlord the keys of all doors which
have been furnished to Tenant, and in the event of loss of any keys
furnished shall pay Landlord therefor.
<PAGE>
5. If Tenant requires telegraphic, telephonic, or similar
services, it shall first obtain, and comply with, Landlord's
instructions in their installation.
6. Tenant shall comply with all applicable regulations,
laws, and standards, including, but not limited, to OSHA rules and
regulation, if the Premises contains any kerosene, gasoline or
inflammable or combustible fluid or material other than those
limited quantities necessary for the operation or maintenance of
office equipment. Tenant shall not use or permit to be used in the
Premises any foul or noxious gas or substance, or permit or allow
the Premises to be occupied or used in a manner offensive or
objectionable to Landlord or other occupants of the Building by
reason of noise, odors or vibrations, nor shall Tenant bring into
or keep in or about the Premises any birds or animals.
7. Without the consent of Landlord, Tenant shall not use any
method of heating or air-conditioning other than that supplied by
Landlord.
8. Tenant shall not waste electricity, water or air-
conditioning and agrees to cooperate fully with Landlord to assure
the most effective operation of the Building's heating and air-
conditioning and to comply with any governmental energy-saving
rules, laws or regulations of which Tenant has actual notice, and
shall refrain from attempting to adjust controls other than room
thermostats installed for Tenant's use.
9. The toilet rooms, toilet urinals, wash bowls and other
apparatus shall not be used for any purpose other than that for
which they were constructed and no foreign substance of any kind
whatsoever shall be thrown therein.
10. Unless otherwise approved by Landlord, Tenant shall not
sell, or permit the sale of newspapers, magazines, periodicals,
theater tickets or any other goods or merchandise to the general
public in or on the Premises. Tenant shall not make any room-to-
room solicitation of business from other tenants in the Building.
Tenant shall not use the Premises for any business or activity
other than that specifically provided for in Tenant's Lease.
11. Unless approved by Landlord, Tenant shall not install any
radio or television antenna, microwave dishes, loudspeaker or other
device on the roof or exterior walls of the Building. Tenant shall
not interfere with radio or television broadcasting or reception
from or in the Building or elsewhere.
12. Tenant shall not cut or bore holes for wires without
Landlord's approval. Tenant shall not affix any floor covering to
the floor of the Premises in any manner except as approved by
Landlord.
<PAGE>
13. Landlord reserves the right to exclude or expel from the
Building any person who, in Landlord's judgment, is intoxicated or
under the influence of liquor or drugs or who is in violation of
any of the Rules and Regulations of the Building.
14. Tenant shall store all its trash and garbage within its
designated trash area. Tenant shall not place in any trash box or
receptacle any material which cannot be disposed of in the ordinary
and customary manner of trash and garbage disposal. All garbage
and refuse disposal shall be made in accordance with directions
issued from time to time by Landlord.
15. The Premises shall not be used for the storage of
merchandise held for sale to the general public except to the
extent incidental to Tenant's use of the Premises, or for lodging,
nor shall the Premises be used for any improper, immoral or
objectionable purpose. No cooking shall be done or permitted by
any tenant on the Premises, (except as permitted in these Rules and
Regulations as to operating an employee cafeteria). Use by Tenant
of equipment for brewing coffee, tea, hot chocolate and similar
beverages shall be permitted, and the use of a microwave shall be
permitted, provided that such equipment and use is in accordance
with all applicable federal, state, county and city laws, codes,
ordinances and regulations.
16. Without the written consent of Landlord, Tenant shall not
use the name of the Building in connection with or in promoting or
advertising the business of Tenant except as Tenant's address.
17. Tenant shall comply with all safety, fire protection and
evacuation procedures and regulations established by Landlord or
any governmental agency.
18. Tenant assumes any and all responsibility for protecting
its Premises from theft, robbery and pilferage, which includes
keeping doors locked and other means of entry to the Premises
closed.
19. Tenant shall comply with the system reasonably
established by Landlord from time to time for Tenant to report
cleaning, maintenance and repair, or other work which is required
under this Lease.
20. Tenant shall not park its vehicles in any parking areas
designated for parking by visitors to the Building. Tenant shall
not park any vehicles in the Building parking areas other than
automobiles, motorcycles, motor driven or non-motor driven bicycles
or four-wheeled trucks. Landlord may, in its sole discretion,
designate separate areas for bicycles and motorcycles.
<PAGE>
21. Landlord may waive any one or more of these Rules and
Regulations for the benefit of Tenant or any other tenant, but no
such waiver by Landlord shall be construed as a waiver of such
Rules and Regulations in favor of Tenant or any other tenant, nor
prevent Landlord from thereafter enforcing any such Rules and
Regulations against any or all of the tenants of the Building.
22. Landlord reserves the right to make such other and
reasonable Rules and Regulations as, in its judgment, may from time
to time be needed for safety and security, for care and cleanliness
of the Building and for the preservation of good order therein.
Tenant agrees to abide by all such Rules and Regulations
hereinabove stated and any additional rules and regulations which
are adopted.
23. Tenant shall be responsible for the observance of all of
the foregoing rules by Tenant's employees and agents.
24. Tenant shall maintain exterior loading docks and bay
areas in a neat and clean manner. Permanent outside storage of
pallets, packing crates, barrels, etc. is prohibited. Tenant shall
dispose of refuse in a manner which prevents littering and
dispersing of refuse by wind.
25. Landlord reserves the right, exercisable without
liability to Tenant, to change the name and street address of the
Building.
26. Landlord reserves the right to modify and/or adopt such
other reasonable and nondiscriminatory rules and regulations for
the parking areas as it deems necessary for the operation of the
parking area. Landlord may refuse to permit any person who
violates the within rules to park in the parking area, and any
violation of the rules shall subject the car to removal.
27. All directional signs and arrows must be observed. The
speed limit shall be 5 miles per hour. Parking is prohibited: (a)
in areas not striped for parking, (b) in aisles, (c) where "no
parking" signs are posted, (d) on ramps, (e) in cross hatched
areas, and (f) in such other areas as may be designated by Landlord
as reserved for the exclusive use of others. Washing, waxing,
cleaning or servicing of any vehicle by anyone is prohibited.
Tenant shall acquaint all persons to whom Tenant assigns parking
spaces for these Rules and Regulations.
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into this 18th day of October
1996 by and between Spintek Gaming Technologies, Inc., a California
corporation (the "Corporation"), and Gary L. Coulter, (the "Executive") with
reference to the following facts:
WHEREAS, the Corporation hired Executive in the position of Chief
Operating Officer of the Corporation on April 1, 1996; and
WHEREAS, there have been significant changes in the Corporation,
both in management and in purpose, since Executive's employment; and
WHEREAS, the Corporation now desires to hire Executive as its Chief
Executive Officer;
WHEREAS, in order to retain the services of the Executive as Chief
Executive Officer and to maximize the period of his continued availability, the
Corporation desires to enter into this Employment Agreement with Executive
as is more fully set forth herein.
NOW, THEREFORE, on the basis of the foregoing facts and in
consideration of the mutual covenants and agreements contained herein, the
parties hereto agree as follows:
1. Employment
The Corporation hereby agrees to, and does hereby, employ the
Executive and Executive hereby accepts employment with the Corporation as
Chairman of the Board of Directors and Chief Executive Officer on the terms
and conditions set forth in this Agreement (the "Agreement").
2. Term
The Employment of the Executive hereunder shall commence on
October 18, 1996 and shall continue for a period of two (2) years until October
17, 1998 (the "Term"). After the original Term, this Agreement shall continue
in effect and shall be deemed automatically renewed for a second Term unless
either party hereto shall notify the other in writing at least thirty (30) days
prior to the end of the Term of their intention of not renewing the same. The
Corporation agrees not to terminate the Executive during the Term except for
Cause. Executive shall be considered terminated, at the Executive's election,
if (i) there is a Change of Control of the Corporation or (ii) a reduction in
Executive's duties, title, salary or position with the Corporation.
3. Duties and Services
A. The Corporation and the Executive hereby agree that, subject
to the provisions of this Agreement, the Corporation will employ the Executive
and the Executive will serve the Corporation as Chairman and Chief Executive
Officer during the Term or any extension thereof.
<PAGE>
B. Executive agrees during the term of this Agreement not to usurp
a corporate opportunity for his own financial gain. A corporate opportunity
shall be defined as a business opportunity which the corporation is financially
able to undertake, is, from its nature, in the line of the Corporation's
business and is one in which the Corporation has an interest or a reasonable
expectancy. Executive agrees that he shall offer a corporate opportunity to the
Corporation. The Corporation shall have ten (10) days to either take the
opportunity for itself or to reject the opportunity in which case Executive
shall have the right to pursue such opportunity for himself. Failure to notify
Executive within such ten (10) day period shall be deemed a rejection of the
opportunity by the Corporation.
4. Definitions The following terms shall have the following
meanings when used herein
A. Change of Control
A Change of Control shall be deemed to have occurred at such time as:
(1) any person (other than the Corporation, any
Subsidiary of the Corporation or any employee benefit plan of the Corporation)
("Person") is or becomes the beneficial owner, directly or indirectly, through a
purchase, merger or other acquisition or transaction or series of transactions,
of shares of capital stock, whether presently issued or issued in the future, of
the Corporation entitling such Person to exercise forty (40%) percent or more of
the total voting power of all shares of capital stock of the Corporation
entitled to vote generally in the election of directors; or;
(2) any consolidation of the Corporation with, or merger
of the Corporation into, any other Person, any merger of another Person into
the Corporation (other than a merger (x) which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock or (y) which is effected solely to change the jurisdiction of
incorporation of the Corporation and results in a reclassification, conversion
or exchange of outstanding shares of Common Stock into solely shares of
Common Stock); or
(3) a change of Board of Directors of the Corporation in
which the individuals who constituted the Board of Directors of the Corporation
as of October 18, 1996 cease for any reason to constitute a majority of the
directors then in office.
B. Cause
Cause shall exist when and only when Executive (i) after written
notification by the Board of Directors or the CEO has willfully failed and
continues to fail to substantially perform his duties (other than failure
resulting from incapacity due to physical or mental illness), (ii) is convicted
of a crime constituting a felony, or (iii) has been proven to be dishonest, has
embezzled or has committed common law fraud.
5. Compensation.
A. As salary during the Term, the Corporation shall pay the
Executive, in accordance with its normal payroll, a minimum salary as follows:
<PAGE>
(1)One Hundred Twenty Thousand Dollars ($120,000) per
year from date through December 31, 1996;
(2)One Hundred Thirty-two Thousand Dollars ($132,000)
per year from January 1, 1997 through December 31, 1997; and
(3)One Hundred Fifty Thousand Dollars ($150,000) from
January 1, 1998 through October 17, 1998;
provided, however, such salary is to be paid no less than bimonthly during the
Term. The Executive shall receive such additional salary as the Board of
Directors of the Corporation may from time to time determine during the Term.
Unless expressly agreed in writing by the parties hereto, no such additional
compensation or benefits shall be deemed to modify or otherwise affect the
terms or conditions of this Agreement. Notwithstanding the foregoing if
Executive is terminated other than (1) for Cause, as defined herein, or (2) as a
result of a Change of Control, as defined herein, Executive shall be entitled to
two (2) years salary (based upon his annual salary at the time of termination)
as severance. Such payment shall serve as Executive's sole and exclusive rights
pursuant to this Agreement, provided; however, such payment shall not affect
Executive's rights as to options to purchase shares in accordance with paragraph
7 hereof In the event of a Change of Control, Executive shall be entitled to two
(2) years salary, as severance, provided Executive exercises his right pursuant
to this Agreement to treat such change of control as a termination of this
Agreement. In the event Executive resigns, except as a result of a Change of
Control, Executive shall be entitled to no further remuneration or benefits
pursuant to this Agreement. In the event Executive is terminated other than for
cause or their is a Change in Control all obligations to pay Executive shall be
due and owed in a lump sum payment exactly thirty days from the earlier of (i)
the date of termination, (ii) the date of the Change of Control and/or; (iii)
the date Executive elects termination pursuant to the provisions of Paragraph 2
hereof.
B. Executive shall receive an automobile for his use while in Las
Vegas and the use of a Corporate Apartment having a minimum of two
bedrooms.
C. The Corporation shall pay Executive additional compensation,
based upon sales of its M.A.N.A.G.E.R.S. Systems ("Systems"), the following
sums: 1. Upon sale of the first 10,000 Systems $10,000; 2. Upon sale of the
second 10,000 Systems the sum of $20,000; and 3. Upon the sale of the third
10,000 System's the sum of $30,000. All such additional compensation shall be
earned when the sale is made as evidenced by purchase orders and shall be paid
within thirty days of Corporation's receipt of payment for sales aggregating the
various numbers of Systems set forth above.
D. Executive shall be entitled to two (2) round trip tourist class
tickets per month for nonbusiness travel from Las Vegas/Atlanta for Executive
or his nominee.
E. Executive shall also be provided with a life insurance policy on
his life of not less than the greater of (i) $150,000, (ii) his then current
annual salary, or (iii) his total salary package for the immediately preceding
calendar year taking into consideration all bonuses and benefits paid to or
provided for Executive.
<PAGE>
6. Other Benefits
During the Term the Executive shall receive all rights and benefits for
which he is then eligible under any employee benefit plan or bonus plan which
the Corporation generally provides for its employees. Such benefits shall
include, but not be limited to, a bonus plan, which shall be explicitly set
forth by the Corporation's Board of Directors within ninety (90) days of the
execution of this Agreement, and full medical and health insurance for
Executive. In no event shall the bonus be less than the largest bonus (based on
percentage of salary) received by any member of the executive management team
other than the Chief Executive Officer of the Corporation and employees directly
employed in Sales and Marketing Division of Corporation.
7. Grant of Options to Acquire Stock
Corporation acknowledges that it currently has plans to adopt a
qualified stock option plan at the next annual meeting of shareholders and that
Executive will be covered under such plan. Further, Corporation guarantees
Executive will receive, whether such stock option plan is adopted or not, a
minimum of 100,000 options to acquire common shares of the Corporation for
each twelve (12) month period for which Executive is employed by
Corporation, that such options will vest subject only to the passage of time,
and that the exercise price will not be in excess of the closing price of the
publicly traded shares on the last day of any such twelve month period. The
parties further agree that a mutually satisfactory Agreement shall be entered
into between Corporation and Executive no later than thirty (30) days from the
date of the next annual meeting of Shareholders.
8. Death or Disability
In the event of the death of the Executive or the disability of the
Executive, this Agreement shall immediately terminate and the Corporation shall
pay to the Executive or his estate one (i) years salary in a single lump sum
payment which payment shall be due and payable upon the sooner of (i) thirty
(30) days of Executive's death or (ii) thirty (30) days after Executive is
declared by his physician incapable of performing his duties as specified in
this Agreement. The Corporation shall have the right to fund Executive's death
and/or disability benefit through insurance other than the insurance required by
Paragraph 5(d) hereof.
9. Place of Performance
In connection with his employment by the Corporation during the
Term, the Executive shall at all times be entitled to an office at the principal
executive offices of the Corporation, located in Las Vegas, Nevada, or at such
other office of the Corporation, in Las Vegas, Nevada, as the Chief Executive
Officer of the Corporation shall, in his reasonable discretion deem to be in the
best interest of the Corporation. In the event the Corporation moves its
principal place of business outside of Las Vegas, Nevada, other than at the
direction of executive, Executive at his option shall have the right to
terminate this Agreement and receive the greater of such salary due him for the
remaining Term of this Agreement but in no event less than twelve (12) months
salary.
<PAGE>
10. Notice
All Notices and other communications hereunder shall be in writing
and shall be deemed to have been validly served, given or delivered five (5)
days after deposit in the United States mail, by certified mail with return
receipt requested and postage prepaid, when delivered personally, one (1) day
after delivery to any overnight courier, or when transmitted by facsimile
transmission facilities, and addressed to the party to be notified as follows:
If to Corporation at: Spintek Gaming Technologies, Inc.
901 Grier Drive, Suite B
Las Vegas, Nevada, 89119
Attn: Chairman
Facsimile #: 702-263-3680
If to Executive at: Gary L. Coulter
901 Grier Drive, Suite B
Las Vegas, Nevada 891119
Facsimile #: 702-263-3680
The parties may from time to time and at any time supplement or
change the addresses herein by given Notice hereunder to the other party
hereto.
11. Miscellaneous
A. This Agreement shall inure to the benefit of and be binding
upon the Corporation, its successors and assigns. This Agreement may not be
assigned by the Corporation without the prior written consent of the Executive.
The obligations and duties of the Executive hereunder shall be personal and not
assignable.
B. Whenever possible, each provision of this Agreement shall
be interpreted in such a manner as to be valid and effective under applicable
law, but if any provision of this Agreement is found to be prohibited or invalid
under applicable law, such provision will be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
C. For purposes of this Agreement an "affiliate" of a person
shall include any person, firm, corporation, association, organization, or
unincorporated trade or business that, now or hereinafter directly or
indirectly, controls, or is controlled by, or practices is under common control
with such person.
D. Any waiver, alteration or modification of any terms of this
Agreement will be valid only if made in writing and signed by the parties
hereto. Each party hereto from time to time may waive any of his or its rights
hereunder without effecting a waiver with respect to any subsequent occurrences
or transactions hereunder.
E. Captions and paragraph heading used herein are for convenience only
are not a part hereof and shall not be used in construing this Agreement.
<PAGE>
F. This Agreement constitutes the entire understanding and
agreement of the parties and, except as otherwise provided hereunder, there are
no other agreements or understandings, written or oral, in effect between the
parties relating to the employment of the Executive by the Corporation during
the Term. All prior negotiations or agreements, if any, between the parties
relating solely to the employment of the Executive by the Corporation during
the Term are hereby superseded.
G. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Nevada.
H. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but both of which taken together shall
constitute one and the same instrument.
12. Arbitration
Any controversy between the parties hereto, including the
construction or application of any of the terms, covenants or conditions of this
Agreement, shall on written request of one party served on the other be settled
exclusively by arbitration in accordance with the rules of the American
Arbitration Association then in effect. The arbitrator selected must be a
member of the National Academy of Arbitrators and must have significant
experience in arbitrating labor disputes. Further, the Arbitrator must be an
attorney practicing labor law in the Southern California area. The cost of such
arbitration shall be borne by the losing party or in such proportions as the
Arbitrator(s) shall decide. Judgment may be entered on the arbitrator's award
in any court of competent jurisdiction.
13. The Executive's Employment
Nothing contained in this Agreement (i) obligates the Corporation or
any subsidiary of the Corporation to employ the Executive in any capacity
whatsoever, or (ii) prohibits or restricts the corporation (or any such
subsidiary) from terminating the employment, if any, of the Executive at any
time or for any reason whatsoever, with or without cause, subject to the terms
and conditions of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
Executive
/s/ GARY L. COULTER
Gary L. Coulter
Spintek Gaming Technologies, Inc.
By: /s/ LANIER M. DAVENPORT
Lanier M. Davenport, Chairman
By:/s/ MALCOLM C. DAVENPORT V
Malcolm C. Davenport V
Assistant Secretary
EXHIBIT 10.13
AGREEMENT
THIS AGREEMENT is entered into this 5th day of February, 1997 by and
between SPINTEK GAMING TECHNOLOGIES, INC., a California
corporation (the "Corporation"), and GARY L. COULTER, a resident of
Nevada, and ROBERT E. HUGGINS, a resident of Nevada (singularly, the
"Executive" or collectively, the "Executives").
WHEREAS, the Executives entered into Employment Agreements with
the Corporation dated April 1, 1996 and November 15, 1995, respectively, and
subsequently amended October 18, 1996, to perform certain services therefor
(the "Employment Agreement"), copies of which are attached hereto as Exhibit
"A"'
WHEREAS, the Executives are concerned about the present financial
condition of the Corporation and its ability to conduct operations throughout
calendar year 1997;
WHEREAS, the Executives are claiming, and the Corporation
acknowledges, that a scrivener's error occurred in redrafting the Employment
Agreement dated October 18, 1996;
WHEREAS, the Corporation desires to (i) continue Executives in the
employment of the Corporation, (ii) provide Executives with certain payment
and (iii) correct the scrivener's error existing in paragraph 4 of the
Employment Agreement;
WHEREAS, the Corporation acknowledges that Executives provide
crucial and valuable services to the Corporation, the loss of which would be
injurious to the Corporation;
WHEREAS, the Corporation acknowledges that Executives have or
could have other business opportunities available to them that they are
foregoing in order to provide their continued services to the Corporation;
WHEREAS, the Corporation acknowledges that it would be difficult to
replace the Executives, and the services they provide, under the present
circumstances; and
WHEREAS, the Corporation and Executives have agreed to execute
this Agreement in order to accomplish each of the foregoing items on the terms
and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto, intending to be
legally bound, agree as follows:
<PAGE>
1. The parties each acknowledge to the other that the Corporation
and the Executives did enter into an Employment Agreement dated April 1,
1996 and November 15, 1995, respectively, and subsequently amended October
18, 1996, and said Employment Agreements, as amended, are still in full force
and effect as of the execution of this Agreement and that none of the parties
hereto are in default or breach of the Employment Agreement.
2. (A) Upon the execution of this Agreement by all of the
parties hereto the
Corporation shall pay to each Executive the sum of SIXTY THOUSAND AND
NO/100 DOLLARS ($60,000.00) payable as follows:
(1)The sum of THIRTY THOUSAND AND NO/I
00 DOLLARS ($30,000.00) shall be paid to each Executive in cash before
February 7, 1997 (the "First Payment");
(2)The sum of SIXTY THOUSAND AND NO/100
DOLLARS ($60,000.00) shall be placed in a disbursement account immediately
upon the execution of this Agreement by all of the parties hereto pursuant to
the Disbursement Agreement attached hereto as Exhibit "B", to be applied by the
Disbursement Agent (as defined in the Disbursement Agreement) in accordance
with the terms of the Disbursement Agreement. From and after execution of
this Agreement and the Disbursement Agreement, the funds held in the
disbursement account will be owned by the Executives subject to the ten-ns and
conditions of the Disbursement Agreement.
(B)(1) Notwithstanding anything to the contrary in
subparagraph (A) (1) above, if the Executive (i) voluntarily terminates
employment with the Corporation (other than as a result of a Change of Control
as defined in the Employment Agreement) on or before March 1, 1997, then the
Executive agrees to repay the First Payment to the Corporation, immediately
upon such voluntary termination less any withholding deducted therefrom and
less any severance amount owedto
the Executive by the Corporation or agreed to between the Corporation and the
Executive, (ii) is terminated by the Corporation due to a Change of Control (as
defined in the Executive's Employment Agreement) prior to October 1, 1997,
then that First Payment shall be applied against and reduce the amount of any
severance compensation due under the terms of the Executive's Employment
Agreement, or (iii) is still employed by the Corporation between October 1,
1997 and until December 31, 1997, then the Executive hereby agrees that the
First Payment shall be offset on a pro rata basis against the Executive's
compensation to which he is otherwise entitled under the terms of his
Employment Agreement during the period between October 1, 1997 and
December 31, 1997. In the event Executive terminates his employment with the
Company or the Company terminates Executive after March 1, 1997 and prior
to December 31, 1997 then the First Payment shall automatically vest to the
Executive and shall not be considered as salary, either past or present, or
offset against any salary, severance or termination owed or to be owed to
Executive.
(2) Notwithstanding anything to the contrary in
subparagraph (B) (1) above, the First Payment shall automatically vest to the
Executive and shall not be considered salary, either present or past, or offset
against any salary, severance or termination owed or to be owed to the
Executive whether on said date or accruing thereafter, if the Executive is still
employed by the Corporation at anytime after the execution of this Agreement
and the Corporation should (i) have five (5) or less full time employees, (ii)
make an assignment for the benefit of creditors, (iii) files or is subject to a
petition in bankruptcy, whether voluntary or involuntary, or (iv) have a
receiver or trustee appointed with respect to a substantial amount of the
Corporation's property.
<PAGE>
3. In order to correct the aforementioned scrivener's error, each
party hereto agrees that the Employment Agreement shall be modified as set
forth in Exhibit "C" hereof. The Corporation and the Executive do each
acknowledge and agree that the purpose of the revision set forth therein is
solely to correct a scrivener's error occurring in the previously executed
Employment Agreement.
4. This Agreement, the documents referred to herein, and the
Exhibits attached hereto contains the entire agreement between the parties
relating to the subject matter hereof, and no representation, statement or
promise made by the Corporation, or its agent, that is not contained in this
Agreement shall be valid or binding. This Agreement shall inure to the benefit
to the Corporation, and its successors and assigns, and shall be binding upon
the Executives and their assigns, heirs, executors and representatives. This
Agreement may not be amended or modified except in a writing signed by the
parties hereto. This Agreement may be signed in one or more counterparts,
each of which will constitute an original.
5. All communications provided for hereunder shall be in writing
and shall be deemed to be given when delivered in person or when deposited in
the U.S. Mail, first class, certified or registered, with proper postage prepaid
and addressed as follows:
If to the Corporation:
Spintek Gaming Technologies, Inc.
Attention:Malcolm C. Davenport V, Director
409 West 10th
West Point, Georgia 31833
If to the Executives:
Gary L. Coulter, Esq.
650 Whitney Ranch Drive, No. 621
Henderson, Nevada 89014
Mr. Robert E. Huggins
9104 Crystal Lake Court
Las Vegas, Nevada 89134
<PAGE>
IN WITNESS WHEREOF, the parties hereto have set their hands
and affixed their seals as of the date and year first above written.
"CORPORATION" "EXECUTIVES"
SPINTEK GAMING TECHNOLOGIES,
INC., a California Corporation
By: /s/ MALCOLM C. DAVENPORT, V /s/ GARY L. COULTER
Gary L. Coulter
Its: Secretary/Director
/s/ ROBERT E. HUGGINS
Robert E. Huggins
<PAGE>
EXHIBIT "A-1"
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into this 18th day of October
1996 by and between Spintek Gaming Technologies, Inc., a California
corporation (the "Corporation"), and Gary L. Coulter, (the "Executive") with
reference to the following facts:
WHEREAS, the Corporation hired Executive in the position of Chief
Operating Officer of the Corporation on April 1, 1996; and
WHEREAS, there have been significant changes in the Corporation,
both in management and in purpose, since Executive's employment; and
WHEREAS, the Corporation now desires to hire Executive as its Chief
Executive Officer;
WHEREAS, in order to retain the services of the Executive as Chief
Executive Officer and to maximize the period of his continued availability, the
Corporation desires to enter into this Employment Agreement with Executive
as is more fully set forth herein.
NOW, THEREFORE, on the basis of the foregoing facts and in
consideration of the mutual covenants and agreements contained herein, the
parties hereto agree as follows:
1. Employment
The Corporation hereby agrees to, and does hereby, employ the
Executive and Executive hereby accepts employment with the Corporation as
Chairman of the Board of Directors and Chief Executive Officer on the terms
and conditions set forth in this Agreement (the "Agreement").
2. Term
The Employment of the Executive hereunder shall commence on
October 18, 1996 and shall continue for a period of two (2) years until October
17, 1998 (the "Term"). After the original Term, this Agreement shall continue
in effect and shall be deemed automatically renewed for a second Term unless
either party hereto shall notify the other in writing at least thirty (30) days
prior to the end of the Term of their intention of not renewing the same. The
Corporation agrees not to terminate the Executive during the Term except for
Cause. Executive shall be considered terminated, at the Executive's election,
if (i) there is a Change of Control of the Corporation or (ii) a reduction in
Executive's duties, title, salary or position with the Corporation.
3. Duties and Services
A. The Corporation and the Executive hereby agree that, subject
to the provisions of this Agreement, the Corporation will employ the Executive
and the Executive will serve the Corporation as Chairman and Chief Executive
Officer during the Term or any extension thereof.
<PAGE>
B. Executive agrees during the term of this Agreement not to usurp
a corporate opportunity for his own financial gain. A corporate opportunity
shall be defined as a business opportunity which the corporation is financially
able to undertake, is, from its nature, in the line of the Corporation's
business and is one in which the Corporation has an interest or a reasonable
expectancy. Executive agrees that he shall offer a corporate opportunity to the
Corporation. The Corporation shall have ten (10) days to either take the
opportunity for itself or to reject the opportunity in which case Executive
shall have the right to pursue such opportunity for himself. Failure to notify
Executive within such ten (10) day period shall be deemed a rejection of the
opportunity by the Corporation.
4. Definitions The following terms shall have the following
meanings when used herein
A. Change of Control
A Change of Control shall be deemed to have occurred at such time as:
(1) any person (other than the Corporation, any
Subsidiary of the Corporation or any employee benefit plan of the Corporation)
("Person") is or becomes the beneficial owner, directly or indirectly, through a
purchase, merger or other acquisition or transaction or series of transactions,
of shares of capital stock, whether presently issued or issued in the future, of
the Corporation entitling such Person to exercise forty (40%) percent or more of
the total voting power of all shares of capital stock of the Corporation
entitled to vote generally in the election of directors; or;
(2) any consolidation of the Corporation with, or merger
of the Corporation into, any other Person, any merger of another Person into
the Corporation (other than a merger (x) which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock or (y) which is effected solely to change the jurisdiction of
incorporation of the Corporation and results in a reclassification, conversion
or exchange of outstanding shares of Common Stock into solely shares of
Common Stock); or
(3) a change of Board of Directors of the Corporation in
which the individuals who constituted the Board of Directors of the Corporation
as of October 18, 1996 cease for any reason to constitute a majority of the
directors then in office.
B. Cause
Cause shall exist when and only when Executive (i) after written
notification by the Board of Directors or the CEO has willfully failed and
continues to fail to substantially perform his duties (other than failure
resulting from incapacity due to physical or mental illness), (ii) is convicted
of a crime constituting a felony, or (iii) has been proven to be dishonest, has
embezzled or has committed common law fraud.
5. Compensation.
A. As salary during the Term, the Corporation shall pay the
Executive, in accordance with its normal payroll, a minimum salary as follows:
<PAGE>
(1)One Hundred Twenty Thousand Dollars ($120,000) per
year from date through December 31, 1996;
(2)One Hundred Thirty-two Thousand Dollars ($132,000)
per year from January 1, 1997 through December 31, 1997; and
(3)One Hundred Fifty Thousand Dollars ($150,000) from
January 1, 1998 through October 17, 1998;
provided, however, such salary is to be paid no less than bimonthly during the
Term. The Executive shall receive such additional salary as the Board of
Directors of the Corporation may from time to time determine during the Term.
Unless expressly agreed in writing by the parties hereto, no such additional
compensation or benefits shall be deemed to modify or otherwise affect the
terms or conditions of this Agreement. Notwithstanding the foregoing if
Executive is terminated other than (1) for Cause, as defined herein, or (2) as a
result of a Change of Control, as defined herein, Executive shall be entitled to
two (2) years salary (based upon his annual salary at the time of termination)
as severance. Such payment shall serve as Executive's sole and exclusive rights
pursuant to this Agreement, provided; however, such payment shall not affect
Executive's rights as to options to purchase shares in accordance with paragraph
7 hereof In the event of a Change of Control, Executive shall be entitled to two
(2) years salary, as severance, provided Executive exercises his right pursuant
to this Agreement to treat such change of control as a termination of this
Agreement. In the event Executive resigns, except as a result of a Change of
Control, Executive shall be entitled to no further remuneration or benefits
pursuant to this Agreement. In the event Executive is terminated other than for
cause or their is a Change in Control all obligations to pay Executive shall be
due and owed in a lump sum payment exactly thirty days from the earlier of (i)
the date of termination, (ii) the date of the Change of Control and/or; (iii)
the date Executive elects termination pursuant to the provisions of Paragraph 2
hereof.
B. Executive shall receive an automobile for his use while in Las
Vegas and the use of a Corporate Apartment having a minimum of two
bedrooms.
C. The Corporation shall pay Executive additional compensation,
based upon sales of its M.A.N.A.G.E.R.S. Systems ("Systems"), the following
sums: 1. Upon sale of the first 10,000 Systems $10,000; 2. Upon sale of the
second 10,000 Systems the sum of $20,000; and 3. Upon the sale of the third
10,000 System's the sum of $30,000. All such additional compensation shall be
earned when the sale is made as evidenced by purchase orders and shall be paid
within thirty days of Corporation's receipt of payment for sales aggregating the
various numbers of Systems set forth above.
D. Executive shall be entitled to two (2) round trip tourist class
tickets per month for nonbusiness travel from Las Vegas/Atlanta for Executive
or his nominee.
E. Executive shall also be provided with a life insurance policy on
his life of not less than the greater of (i) $150,000, (ii) his then current
annual salary, or (iii) his total salary package for the immediately preceding
calendar year taking into consideration all bonuses and benefits paid to or
provided for Executive.
<PAGE>
6. Other Benefits
During the Term the Executive shall receive all rights and benefits for
which he is then eligible under any employee benefit plan or bonus plan which
the Corporation generally provides for its employees. Such benefits shall
include, but not be limited to, a bonus plan, which shall be explicitly set
forth by the Corporation's Board of Directors within ninety (90) days of the
execution of this Agreement, and full medical and health insurance for
Executive. In no event shall the bonus be less than the largest bonus (based on
percentage of salary) received by any member of the executive management team
other than the Chief Executive Officer of the Corporation and employees directly
employed in Sales and Marketing Division of Corporation.
7. Grant of Options to Acquire Stock
Corporation acknowledges that it currently has plans to adopt a
qualified stock option plan at the next annual meeting of shareholders and that
Executive will be covered under such plan. Further, Corporation guarantees
Executive will receive, whether such stock option plan is adopted or not, a
minimum of 100,000 options to acquire common shares of the Corporation for
each twelve (12) month period for which Executive is employed by
Corporation, that such options will vest subject only to the passage of time,
and that the exercise price will not be in excess of the closing price of the
publicly traded shares on the last day of any such twelve month period. The
parties further agree that a mutually satisfactory Agreement shall be entered
into between Corporation and Executive no later than thirty (30) days from the
date of the next annual meeting of Shareholders.
8. Death or Disability
In the event of the death of the Executive or the disability of the
Executive, this Agreement shall immediately terminate and the Corporation shall
pay to the Executive or his estate one (i) years salary in a single lump sum
payment which payment shall be due and payable upon the sooner of (i) thirty
(30) days of Executive's death or (ii) thirty (30) days after Executive is
declared by his physician incapable of performing his duties as specified in
this Agreement. The Corporation shall have the right to fund Executive's death
and/or disability benefit through insurance other than the insurance required by
Paragraph 5(d) hereof.
9. Place of Performance
In connection with his employment by the Corporation during the
Term, the Executive shall at all times be entitled to an office at the principal
executive offices of the Corporation, located in Las Vegas, Nevada, or at such
other office of the Corporation, in Las Vegas, Nevada, as the Chief Executive
Officer of the Corporation shall, in his reasonable discretion deem to be in the
best interest of the Corporation. In the event the Corporation moves its
principal place of business outside of Las Vegas, Nevada, other than at the
direction of executive, Executive at his option shall have the right to
terminate this Agreement and receive the greater of such salary due him for the
remaining Term of this Agreement but in no event less than twelve (12) months
salary.
<PAGE>
10. Notice
All Notices and other communications hereunder shall be in writing
and shall be deemed to have been validly served, given or delivered five (5)
days after deposit in the United States mail, by certified mail with return
receipt requested and postage prepaid, when delivered personally, one (1) day
after delivery to any overnight courier, or when transmitted by facsimile
transmission facilities, and addressed to the party to be notified as follows:
If to Corporation at: Spintek Gaming Technologies, Inc.
901 Grier Drive, Suite B
Las Vegas, Nevada, 89119
Attn: Chairman
Facsimile #: 702-263-3680
If to Executive at: Gary L. Coulter
901 Grier Drive, Suite B
Las Vegas, Nevada 891119
Facsimile #: 702-263-3680
The parties may from time to time and at any time supplement or
change the addresses herein by given Notice hereunder to the other party
hereto.
11. Miscellaneous
A. This Agreement shall inure to the benefit of and be binding
upon the Corporation, its successors and assigns. This Agreement may not be
assigned by the Corporation without the prior written consent of the Executive.
The obligations and duties of the Executive hereunder shall be personal and not
assignable.
B. Whenever possible, each provision of this Agreement shall
be interpreted in such a manner as to be valid and effective under applicable
law, but if any provision of this Agreement is found to be prohibited or invalid
under applicable law, such provision will be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
C. For purposes of this Agreement an "affiliate" of a person
shall include any person, firm, corporation, association, organization, or
unincorporated trade or business that, now or hereinafter directly or
indirectly, controls, or is controlled by, or practices is under common control
with such person.
D. Any waiver, alteration or modification of any terms of this
Agreement will be valid only if made in writing and signed by the parties
hereto. Each party hereto from time to time may waive any of his or its rights
hereunder without effecting a waiver with respect to any subsequent occurrences
or transactions hereunder.
E. Captions and paragraph heading used herein are for convenience only
are not a part hereof and shall not be used in construing this Agreement.
<PAGE>
F. This Agreement constitutes the entire understanding and
agreement of the parties and, except as otherwise provided hereunder, there are
no other agreements or understandings, written or oral, in effect between the
parties relating to the employment of the Executive by the Corporation during
the Term. All prior negotiations or agreements, if any, between the parties
relating solely to the employment of the Executive by the Corporation during
the Term are hereby superseded.
G. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Nevada.
H. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but both of which taken together shall
constitute one and the same instrument.
12. Arbitration
Any controversy between the parties hereto, including the
construction or application of any of the terms, covenants or conditions of this
Agreement, shall on written request of one party served on the other be settled
exclusively by arbitration in accordance with the rules of the American
Arbitration Association then in effect. The arbitrator selected must be a
member of the National Academy of Arbitrators and must have significant
experience in arbitrating labor disputes. Further, the Arbitrator must be an
attorney practicing labor law in the Southern California area. The cost of such
arbitration shall be borne by the losing party or in such proportions as the
Arbitrator(s) shall decide. Judgment may be entered on the arbitrator's award
in any court of competent jurisdiction.
13. The Executive's Employment
Nothing contained in this Agreement (i) obligates the Corporation or
any subsidiary of the Corporation to employ the Executive in any capacity
whatsoever, or (ii) prohibits or restricts the corporation (or any such
subsidiary) from terminating the employment, if any, of the Executive at any
time or for any reason whatsoever, with or without cause, subject to the terms
and conditions of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
Executive
/s/ GARY L. COULTER
Gary L. Coulter
Spintek Gaming Technologies, Inc.
By: /s/ LANIER M. DAVENPORT
Lanier M. Davenport, Chairman
By:/s/ MALCOLM C. DAVENPORT V
Malcolm C. Davenport V
Assistant Secretary
<PAGE>
EXHIBIT "A-2"
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into this 18th day of
October 1996 by and between Spintek Gaming Technologies, Inc., a California
corporation (the "Corporation"), and Robert E. Huggins, (the "Executive")
with reference to the following facts:
WHEREAS, the Corporation hired Executive in the position of Chief
Financial Officer of the Corporation on November 15, 1995; and
WHEREAS, there have been significant changes in the Corporation,
both in management and in purpose, since Executive's employment; and
WHEREAS, in order to retain the services of the Executive and to
maximize the period of his continued availability, the Corporation desires to
enter into a new Employment Agreement with Executive as is more fully set
forth herein.
NOW, THEREFORE, on the basis of the foregoing facts and in
consideration of the mutual covenants and agreements contained herein, the
parties hereto agree as follows:
1. Employment
The Corporation hereby agrees to, and does hereby, employ the
Executive and Executive hereby accepts employment with the Corporation on
the terms and conditions set forth in this Agreement (the "Agreement").
2. Term
The Employment of the Executive hereunder shall commence on
October 18, 1996 and shall continue for a period of two (2) years until October
17, 1998 (the "Term"). After the original Term, this Agreement shall continue
in effect and shall be deemed automatically renewed for a second Term unless
either party hereto shall notify the other in writing at least thirty (30) days
prior to the end of the Term of their intention of not renewing the same. The
Corporation agrees not to terminate the Executive during the Term except for
Cause. Executive shall be considered terminated, at the Executive's election,
if (i) there is a Change of Control of the Corporation or (ii) a reduction in
Executive's duties, salary or position with the Corporation.
3. Duties and Services
A. The Corporation and the Executive hereby agree that, subject to
the provisions of this Agreement, the Corporation will employ the Executive
and the Executive will serve the Corporation as Chief Financial Officer during
the Term.
B. Executive agrees during the term of this Agreement not to usurp
a corporate opportunity for his own financial gain. A corporate opportunity
shall be defined as a business opportunity which the corporation is financially
able to undertake, is, from its nature, in the line of the Corporation's
business and is one in which the Corporation has an interest or a reasonable
expectancy. Executive agrees that he shall offer a corporate opportunity to the
Corporation. The Corporation shall have ten (10) days to either take the
opportunity for itself or to reject the opportunity in which case Executive
shall have the right to pursue such opportunity for himself. Failure to notify
Executive within such ten (10) day period shall be deemed a rejection of the
opportunity by the Corporation.
<PAGE>
4. Definitions The following terms shall have the following
meanings when used herein:
A. Change of Control
A Change of Control shall be deemed to have occurred at such time as:
(a) any person (other than the Corporation, any
Subsidiary of the Corporation or any employee benefit plan of the Corporation)
("Person") is or becomes the beneficial owner, directly or indirectly, through a
purchase, merger or other acquisition or transaction or series of transactions,
of shares of capital stock, whether presently issued or issued in the future, of
the Corporation entitling such Person to exercise forty (40%) percent or more of
the total voting power of all shares of capital stock of the Corporation
entitled to vote generally in the election of directors; or;
(b) any consolidation of the Corporation with, or merger
of the Corporation into, any other Person, any merger of another Person into
the Corporation (other than a merger (x) which does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
Common Stock or (y) which is effected solely to change the jurisdiction of
incorporation of the Corporation and results in a reclassification, conversion
or exchange of outstanding shares of Common Stock into solely shares of
Common Stock); or
(c) a change of Board of Directors of the Corporation in
which the individuals who constituted the Board of Directors of the Corporation
as of October 18, 1996 cease for any reason to constitute a majority of the
directors then in office.
B. Cause
Cause shall exist when and only when Executive (i) after receipt of
written notification by the Board of Directors or the CEO has willfully failed
and continues to fail to substantially perform his duties (other than failure
resulting from incapacity due to physical or mental illness), (ii) is convicted
of a crime constituting a felony, or (iii) has been proven to be dishonest, has
embezzled or has committed common law fraud ("for Cause").
<PAGE>
5. Compensation
A. As salary during the Term, the Corporation shall pay the
Executive, in accordance with its normal payroll, a minimum annual salary of
One Hundred Twenty Thousand Dollars ($120,000) such salary to be paid no
less than bi-monthly during the Term. The Executive shall receive such
additional salary as the Board of Directors of the Corporation may from time
to time determine during the Term. Unless expressly agreed in writing by the
parties hereto, no such additional compensation or benefits shall be deemed to
modify or otherwise affect the terms or conditions of this Agreement.
Notwithstanding the foregoing if Executive is terminated other than (1) for
Cause, as defined herein, or (2) as a result of a Change of Control, as defined
herein, Executive shall be entitled to twelve (12) months salary as severance as
Executive's sole and exclusive rights pursuant to this Agreement. In the event
of a Change of Control, Executive shall be entitled to two (2) years salary, as
severance, provided Executive exercises his right pursuant to Agreement to
treat such change of control as a termination of this Agreement. In the event
Executive is terminated other than for cause or there is a Change in Control,
all obligations to pay Executive shall be due and owed in a lump sum payment
exactly thirty (30) days from the earlier of the date of termination, the date
of the Change of Control and/or the date Executive elects termination pursuant
to the provisions of Paragraph 2 hereof.
B. Executive shall receive an automobile and living
allowance in the amount of Seven Hundred Fifty Dollars ($750) per month
during the Term.
C. The Corporation shall purchase a country club
membership at the Tournament Players Course located in Summerlin after the
sale of Thirty Thousand (30,000) of the Corporation's M.A.N.A.G.E.R.S.
Systems. Such country club membership shall be held in the name of the
Corporation for the benefit of Executive in his capacity as an executive with
the Corporation. Upon any termination of Executive's employment the country
club membership described in this paragraph shall be transferred to Executive.
6. Other Benefits
During the Term the Executive shall receive all rights and benefits for
which he is then eligible under any employee benefit plan or bonus plan which
the Corporation generally provides for its employees. Such benefits shall
include, but not be limited to, a bonus plan, which shall be explicitly set
forth by the Corporation's Board of Directors within ninety (90) days of the
execution of this Agreement, and full medical and health insurance for
Executive. In no event shall the bonus be less than the largest bonus (based on
percentage of salary) received by any member of the executive management team
other than the Chief Executive Officer of the Corporation and employees directly
employed in Sales and Marketing Division of Corporation.
7. Grant of Options to Acquire Stock
Corporation acknowledges that it currently has plans to adopt a
qualified stock option plan at the next annual meeting of shareholders and that
Executive will be covered under such plan. Further, Corporation guarantees
Executive will receive, whether such stock option plan is adopted or not, a
minimum of 50,000 options in addition to any options to acquire common
shares of the Corporation for each twelve (12) month period for which
Executive is employed by Corporation, that such options will vest subject only
to the passage of time, and that the exercise price will not be in excess of the
closing price of the publicly traded shares on the last day of any such twelve
month period. The parties further agree that a mutually satisfactory agreement
shall be entered into between Corporation and Executive no later than thirty
(30) days from the date of the next annual meeting of Shareholders.
<PAGE>
8. Death or Disability
In the event of the death of the Executive or the disability of the
Executive, this Agreement shall immediately terminate and the Corporation shall
pay to the Executive or his estate one (1) years salary in a single lump sum
payment which payment shall be due and payable upon the sooner of (i) thirty
(30) days of Executive's death or (ii) thirty (30) days after Executive is
declared by his physican incapable of performing his duties as specified in this
Agreement. The Corporation shall have the right to fund Executive's death
and/or disability benefit through life insurance.
9. Place of Performance
In connection with his employment by the Corporation during the
Term, the Executive shall at all times be entitled to an office at the principal
executive offices of the Corporation, located in Las Vegas, Nevada, or at such
other office of the Corporation, in Las Vegas, Nevada, as the Chief Executive
Officer of the Corporation shall, in his reasonable discretion deem to be in the
best interest of the Corporation. In the event the Corporation moves its
principal place of business outside of Las Vegas, Nevada, Executive at his
option shall have the right to terminate this Agreement and receive the greater
of such salary due him for the remaining Term of this Agreement but in no event
less than twelve (12) months salary.
10. Notice
All Notices and other communications hereunder shall be in writing
and shall be deemed to have been validly served, given or delivered five (5)
days after deposit in the United States mail, by certified mail with return
receipt requested and postage prepaid, when delivered personally, one (1) day
after delivery to any overnight courier, or when transmitted by facsimile
transmission facilities, and addressed to the party to be notified as follows:
If to Corporation at: Spintek Gaming Technologies, Inc.
901 Grier Drive, Suite B
Las Vegas, Nevada, 89119
Attn: Chairman
Facsimile #: 702-263-3680
If to Executive at: Robert E. Huggins
9104 Crystal Lake Court
Las Vegas, Nevada 89134
Facsimile #: 702-341-7424
<PAGE>
11. Miscellaneous
A. This Agreement shall inure to the benefit of and be binding
upon the Corporation, its successors and assigns. This Agreement may not be
assigned by the Corporation without the prior written consent of the Executive.
The obligations and duties of the Executive hereunder shall be personal and not
assignable.
B. Whenever possible, each provision of this Agreement shall
be interpreted in such a manner as to be valid and effective under applicable
law, but if any provision of this Agreement is found to be prohibited or invalid
under applicable law, such provision will be ineffective to the extent of such
prohibition or invalidity without invalidating the remainder of such provision
or the remaining provisions of this Agreement.
C. For purposes of this Agreement an "affiliate" of a person
shall include any person, firm, corporation, association, organization, or
unincorporated trade or business that, now or hereinafter directly or
indirectly, controls, or is controlled by, or practices is under common control
with such person.
D. Any waiver, alteration or modification of any terms of this
Agreement will be valid only if made in writing and signed by the parties
hereto. Each party hereto from time to time may waive any of his or its rights
hereunder without effecting a waiver with respect to any subsequent occurrences
or transactions hereunder.
E. Captions and paragraph heading used herein are for
convenience only are not a part hereof and shall not be used in construing this
Agreement.
F. This Agreement constitutes the entire understanding and
agreement of the parties and, except as otherwise provided hereunder, there are
no other agreements or understandings, written or oral, in effect between the
parties relating to the employment of the Executive by the
Corporation during the Term. All prior negotiations or agreements, if any,
between the parties relating solely to the employment of the Executive by the
Corporation during the Term are hereby superseded.
G. This Agreement shall be governed by and interpreted in
accordance with the laws of the State of Nevada.
H. This Agreement may be executed in counterparts, each of
which shall be deemed an original, but both of which taken together shall
constitute one and the same instrument.
12. Arbitration
Any controversy between the parties hereto, including the construction
or application of any of the terms, covenants or conditions of this Agreement,
shall on written request of one party served on the other be settled exclusively
by arbitration in accordance with the rules of the American Arbitration
Association then in effect. The arbitrator selected must be a member of the
National Academy of Arbitrators and must have significant experience in
arbitrating labor disputes. Further, the Arbitrator must be an attorney
practicing labor law in the Southern California area. The cost of such
arbitration shall be borne by the losing party or in such proportions as the
Arbitrator(s) shall decide. Judgment may be entered on the arbitrator's award
in any court of competent jurisdiction.
<PAGE>
13. The Executive's Employment
Nothing contained in this Agreement (i) obligates the Corporation or
any subsidiary of the Corporation to employ the Executive in any capacity
whatsoever, or (ii) prohibits or restricts the corporation (or any such
subsidiary) from terminating the employment, if any, of the Executive at any
time or for any reason whatsoever, with or without cause, subject to the terms
and conditions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year first above written.
Executive
/s/ ROBERT E. HUGGINS
Robert E. Huggins
Spintek Gaming Technologies, Inc.
By: /s/ LANIER M. DAVENPORT
Lanier M. Davenport, Chairman
By:/s/ MALCOLM C. DAVENPORT V
Malcolm C. Davenport V
Assistant Secretary
<PAGE>
EXHIBIT "B"
DISBURSEMENT AGREEMENT
THIS DISBURSEMENT AGREEMENT is entered into this 5th day of
February, 1997 between Spintek Gaining Technologies, Inc., a California
corporation (the "Corporation"), and Gary L. Coulter, a resident of Nevada, and
Robert E. Huggins, a resident of Nevada (singularly, the "Executive", or
collectively, the "Executives"), and Streich Lang or its successors, a
professional association (the "Payment Agent'), nominated by the Corporation
and the Executive to serve as the Payment Agent pursuant to the agreement
dated February 5th, 1997.
WHEREAS, the Corporation and the Executives have entered into an
Agreement contemporaneously herewith for the revision to certain terms of the
Employment Agreement, as amended, of each Executive (the "Agreement")-,
and
WHEREAS, the Corporation and the Executives have agreed that the
Corporation shall deposit certain funds in an account to be held by the Payment
Agent pursuant to the terms herein.
NOW, THEREFORE, in consideration of the mutual covenants,
agreements, and payments contained herein, the parties hereto, intending to be
legally bound, agree as follows:
1. Establishment of Disbursement-Fund. The Payment Agent
acknowledges upon signing this Disbursement Agreement, that it has received
from the Corporation the sum of SIXTY THOUSAND AND NO/100
DOLLARS ($60,000.00) in the aggregate, and that such sum together with any
income or interest earned thereon is hereinafter referred to as the
"Disbursement Fund". The Disbursement Fund is to be allocated among the
Executives as THIRTY THOUSAND AND NO/100 DOLLARS ($30,000.00) each (the
"Individual Payment Accounts" collectively and "Disbursement Account-
Coulter" and "Disbursement Account-Huggins" individually). The
Disbursement Fund and the Individual Payment Accounts shall be held by the
Payment Agent subject to the terms and conditions hereinafter set forth.
2. Disbursement Fund. Payment Agent shall immediately place the
Disbursement Fund in an interest-bearing bank account. Any interest earned on
the Disbursement Fund shall be netted against any expenses of the account. The
net interest earnings shall be divided equally between the Individual
Disbursement Accounts and added thereto. Any deficit on expenses shall be
billed monthly to the Corporation and shall be the sole responsibility and
liability of the Corporation-
3. Disbursements. The Payment Agent shall distribute the Individual
Disbursement Accounts to the Executives, prior to the termination of this
Disbursement Agreement as provided in paragraph 5 below, or if there is a
Change in Control of the Corporation as defined in paragraph 4 below.
4. Change of Control. For purposes of this Disbursement Agreement,
"Change of Control" shall be deemed to have occurred at such time as:
(1) any person or an affiliated group of persons, other than
the Corporation or any employee benefit plans of the Corporation, ("Person")
is or becomes the beneficial owner, directly or indirectly, through a purchase,
merger or other acquisition or other transaction or series of transactions, of
shares of capital stock, whether presently issued or issued in the future, of
the Corporation entitling such Person to exercise forty percent (40%) or more of
the total voting power of all shares of capital stock of the Corporation
entitled to vote generally in the election of directors; or
<PAGE>
(2) any consolidation of the Corporation with, or merger of
the Corporation into, any other Person, any merger of another Person into the
Corporation (other than a merger which (a) does not result in any
reclassification, conversion, exchange or cancellation of outstanding shares of
common stock, or (b) is effected solely to change the jurisdiction of the
incorporation of the common stock and results in a reclassification, conversion
or exchange of outstanding shares of common stock into solely shares of
common stock); or
(3) a change in the composition of the Board of Directors of
the Corporation in which the individuals who constituted the Board of Directors
of the Corporation as of October 18, 1996 cease for any reason to constitute a
majority of the directors then in office; or
(4) the Corporation shall have five (5) or less full time
employees; or
(5) the Corporation makes an assignment for the benefit of
creditors; or
(6) the Corporation files or is subject to a petition in
bankruptcy, whether voluntary or involuntary, or
(7) the Corporation has a receiver or trustee appointed with
respect to a substantial amount of the Corporation's property.
5. Termination of Disbursement Account. If the Disbursement Fund or
Individual Disbursement accounts are not sooner applied pursuant to paragraph
3 above, then this Agreement will terminate and the Disbursement Fund is to be
dispersed as follows:
5.1 Corporation. The Individual Disbursement Accounts of each
Executive shall be returned to the Corporation upon the termination of the
respective Executive for cause, as defined in the Employment Agreement of
such Executive, on or prior to December 31, 1997.
5.2 Executives. Provided the Individual Disbursement Account has
not been returned to the Corporation pursuant to Section 5.1 of this Agreement,
the Individual Disbursement Account on an individual basis shall be distributed
to the respective Executive as follows:
(a) Upon the Corporation receiving additional funding,
equity, debt or otherwise, of $2 million or more; or
(b) on January 1, 1998.
6. Payment Agent. The undersigned agree that the following
provisions shall control with respect to the rights, duties, liabilities,
privileges and immunities of the Payment Agent while acting as Payment Agent.
<PAGE>
6.1 Until such time as all monies have been disbursed pursuant to
this Disbursement Agreement, it is the intention of the parties to this
Disbursement Agreement that the Payment Agent shall act solely at all times in
accordance with the terms hereof and for so acting the Corporation and the
Executives hereby expressly release and relieve the Payment Agent of any and
all liability for any actions taken hereunder. The Payment Agent shall have a
prior lien on said funds, however, for any and all costs or expenses incurred by
it (including court costs and reasonable attorneys' fees) by reason of acting as
Payment Agent.
6.2 The Payment Agent acts hereunder as a depository only, and is
not responsible orliable in any manner whatsoever for the sufficiency,
correctness, genuineness or validity of the subject matter of the escrow, or any
part hereof. Further, the Payment Agent shall not be responsible
for determining (i) the accuracy of any notices or instructions delivered
hereunder, or the form of execution thereof, or (ii) the identity or authority
of any person executing or delivering this Disbursement Agreement, any property
delivered hereunder or any instructions delivered in connection herewith.
6.3 Payment Agent is authorized to invest the amounts deposited in
the Disbursement Fund in any suitable money market mutual funds or interest-
bearing deposit account. A proportional amount of interest earned on the
amounts deposited in the Disbursement Fund (calculated at the time of
disbursement less expenses of Payment Agent through date) shall be paid along
with any disbursements.
6.4 The Payment Agent shall be protected in acting upon any written
notice, request, waiver, consent, certificate, receipt, authorization, power of
attorney or other paper or document which the Payment Agent in good faith
believes to be genuine and what it purports to be.
6.5 In the event of any disagreement between any of the parties to
this Disbursement Agreement, or between them or either or any of them, and
any other person, resulting in adverse claims or demands being made in
connection with the subject matter of the escrow, in the event that
the Payment Agent in good faith is in doubt as to what action it should take
hereunder, then the Payment Agent may, at its option, refuse to comply with
any claims or demands on it, or doubts exist, and in such event, the Payment
Agent shall not be or become liable in any way or to any person for its failure
or refusal to act, and the Payment Agent shall be entitled to continue to
refrain from acting until (i) the rights of all parties shall have been fully
and finally adjudicated by a court of competent jurisdiction, or (ii) all
differences shall have been settled and all doubts resolved by agreement by all
interested persons, and the Payment Agent shall have been notified thereof in
writing signed by all such persons. The rights of the Payment Agent under this
paragraph are cumulative of all other rights which it may have by law or
otherwise.
6.6 Notwithstanding any other provision of this Disbursement
Agreement, should any controversy arise between the Corporation and the
Executives with respect to this Disbursement Agreement or with respect to the
right to receive the Individual Disbursement Account held by the Payment
Agent under this Disbursement Agreement, then the Payment Agent shall have
the right to institute a bill of interpleader in a court of competent
jurisdiction to determine the rights of the parties and to deposit such property
or funds into the registry of the court.
<PAGE>
7. Miscellaneous.
7.1 Binding Effect. This Disbursement Agreement shall inure to the
benefit of and be binding upon each of the parties hereto, and their respective
successors, personal representatives, executors, heirs, beneficiaries and
assigns.
7.2 Headings. The section and paragraph headings contained in this
Disbursement Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Disbursement Agreement.
7.3 Notices. All communication provided for hereunder shall be in
writing and shall be deemed to be given when delivered in person or when
deposited in the U.S. Mail, first class, certified or registered with proper
postage prepaid, and addressed as follows:
If to Corporation:
Spintek Gaming Technologies, Inc.
Attention: Malcolm C. Davenport V, Director
409 West 10th
West Point, Georgia 31833
If to the Executives:
Gary L. Coulter, Esq.
650 Whitney Ranch Drive, No. 621
Henderson, Nevada 89014
Mr. Robert E. Huggins
9104 Crystal Lake Court
Las Vegas, Nevada 89134
If to Payment Agent:
Attn: IRA S. LEVINE
Name
3773 Howard Hughes Pkwy., Suite 290-N
Address
Las Vegas, NV 89109
City, State, Zip
By giving prior written notice thereof, any party shall have the right from time
to time and at any time to change its respective address.
<PAGE>
7.4 Modification. This Disbursement Agreement may be modified
only by a written instrument signed by each of the parties hereto.
7.5 Miscellaneous. It is understood by the parties hereto that these
terms and conditions are for the benefits of the Corporation and the Executives
only, and are not intended to constitute an assignment, either legal or
equitable, to or in favor of any person not a party hereto, or any interest in
the Disbursement Fund. If the terms herein are in any way in conflict with the
terms of the Agreement, then the terms of the Agreement shall control.
IN WITNESS WHEREOF, the parties have set their hands and
affixed their seals all done on the day and year first above written.
"CORPORATION" "EXECUTIVES"
SPINTEK GAMING TECHNOLOGIES,
INC., a California corporation
By: /s/ MALCOLM C. DAVENPORT, V /s/ GARY L. COULTER
Gary L. Coulter
Its: Secretary / Director
/s/ ROBERT E. HUGGINS
Robert E. Huggins
"PAYMENT AGENT"
STREICH LANG, a
Professional Association
<PAGE>
EXHIBIT "C-1"
MODIFICATION
OF EMPLOYMENT AGREEMENT
THIS MODIFICATION OF EMPLOYMENT AGREEMENT (the
"Modification") is entered into this 5th day of February, 1997 by and between
SPINTEK GAMING TECHNOLOGIES, INC., a California corporation (the
"Corporation") and GARY L. COULTER, a resident of Nevada (the
"Executive").
WHEREAS, the Executive entered into an Employment Agreement with
the Corporation dated April 1, 1996, and subsequently amended October 18,
1996, to perform certain services therefor (the "Employment Agreement"),
copies of which are attached hereto as Exhibit "A";
WHERE AS, the Executive is claiming, and the Corporation
acknowledges, that a scrivener's error occurred in redrafting the Employment
Agreement dated October 18, 1996;
WHEREAS, the Corporation desires to (i) continue Executive in the
employment of the Corporation pursuant to such Employment Agreement and
(ii) correct the scrivener's error existing in paragraph 4 of the Employment
Agreement; and
WHEREAS, the Corporation and Executive have agreed to execute this
Modification in order to accomplish each of the foregoing items on the terms
and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto, intending to be
legally bound, agree as follows:
1. The parties each acknowledge to the other that the Corporation
and the Executive did enter into an Employment Agreement dated April 1,
1996, and subsequently amended October 18, 1996, and said Employment
Agreement, as amended is still in full force and effect as of the execution of
this Modification and that neither party hereto is in default or breach of the
Employment Agreement.
2. In order to correct the scrivener's error existing in paragraph 4
of the Employment Agreement, each party hereto agrees that the Employment
Agreement shall be modified as follows:
(a)by deleting (a) of subparagraph A.
(b)by inserting in lieu thereof the following new (a) of
subparagraph A., "(a) any person or affiliated group of
persons (other than the Corporation, or any employee
benefit plan of the Corporation ("Person") is or becomes
the beneficial owner, directly or indirectly through a
purchase, merger or other acquisition or transaction or
series of transactions, of shares of capital stock, whether
presently issued or issued in the future, of the
Corporation entitling such person to exercise forty
percent (40%) or more of the total voting power
of all shares of capital stock of the Corporation entitled
to vote generally in the election of directors; or"
<PAGE>
3. Each of the parties hereto agree with each other party that the
revision to paragraph 4 of the Employment Agreement as provided above shall
be the only change, amendment or modification to the Employment Agreement
and, except for and with said change, the Employment Agreement shall remain
in full force and effect.
"CORPORATION"
SPINTEK GAMING TECHNOLOGIES, INC.
By: /s/ GARY L. COULTER
Gary L. Coulter, CEO
Attest: /s/ MALCOLM C. DAVENPORT, V
Malcolm C. Davenport V, Secretary
"EXECUTIVE"
/s/ GARY L. COULTER
Gary L. Coulter
<PAGE>
EXHIBIT"C-2"
MODIFICATION
OF EMPLOYMENT AGREEMENT
THIS MODIFICATION OF EMPLOYMENT AGREEMENT (the
"Modification") is entered into this day of February, 1997 by and between
SPINTEK GAMING TECHNOLOGIES, INC., a California corporation (the
"Corporation") and ROBERT E. HUGGINS, a resident of Nevada (the
"Executive").
WHEREAS, the Executive entered into an Employment Agreement with
the Corporation dated November 15, 1995, and subsequently amended October
18, 1996, to perform certain services therefor (the "Employment Agreement"),
copies of which are attached hereto as Exhibit "A";
WHEREAS, the Executive is claiming, and the Corporation
acknowledges, that a scrivener's error occurred in redrafting the Employment
Agreement dated October 18, 1996;
WHEREAS, the Corporation desires to (i) continue Executive in the
employment of the Corporation pursuant to such Employment Agreement and
(ii) correct the scrivener's error existing in paragraph 4 of the Employment
Agreement; and
WHEREAS, the Corporation and Executive have agreed to execute this
Modification in order to accomplish each of the foregoing items on the terms
and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants
contained herein, and other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto, intending to be
legally bound, agree as follows:
1. The parties each acknowledge to the other that the Corporation and
the Executive did enter into an Employment Agreement dated November 15,
1995, and subsequently amended October 18, 1996, and said Employment
Agreement, as amended is still in full force and effect as of the execution of
this Modification and that neither party hereto is in default or breach of the
Employment Agreement.
2. In order to correct the scrivener's error existing in paragraph 4
of the Employment Agreement, each party hereto agrees that the Employment
Agreement shall be modified as follows:
(a)by deleting (a) of subparagraph A.
(b)by inserting in lieu thereof the following new (a) of
subparagraph A., "(a) any person or affiliated group of
persons (other than the Corporation, or any employee
benefit plan of the Corporation "(Person") is or becomes
the beneficial owner, directly or indirectly through a
purchase, merger or other acquisition or transaction or
series of transactions, of shares of capital stock, whether
presently issued or issued in the future, of the
Corporation entitling such person to exercise forty
percent (40%) or more of the total voting power
of all shares of capital stock of the Corporation entitled
to vote generally in the election of directors; or"
<PAGE>
3. Each of the parties hereto agree with each other party that the
revision to paragraph 4 of the Employment Agreement as provided above shall
be the only change, amendment or modification to the Employment Agreement
and, except for and with said change, the Employment Agreement shall remain
in full force and effect.
"CORPORATION"
SPINTEK GAMING TECHNOLOGIES, INC.
By: /s/ GARY L. COULTER
Gary L. Coulter, CEO
Attest: /s/ MALCOLM C. DAVENPORT, V
Malcolm C. Davenport, V, Secretary
"EXECUTIVE"
/s/ ROBERT E. HUGGINS
Robert E. Huggins
EXHIBIT 10.15
SPINTEK GAMING TECHNOLOGIES, INC.
BONUS PLAN
1. PURPOSE
The purpose of the Spintek Gaming Technologies, Inc. Bonus
Plan (the "Bonus Plan") is to provide incentive compensation to
certain key employees (the term "employee" as used herein shall
include officers, directors and advisory directors) of Spintek
Gaming Technologies, Inc. (the "Company"). This Bonus Plan is also
intended to benefit the Company by creating incentives to
participating key employees. Compensation under this Bonus Plan
shall be based upon the grant of Performance Units that will
provide cash compensation to the grantee employee based on
increases in the market value of the Company's common stock as set
forth below in this Bonus Plan.
2. ADMINISTRATION
This Bonus Plan shall be administered by the Compensation
Committee (the "Committee") of the Board of Directors of the
Company. Subject to the provisions of this Bonus Plan, the
Committee shall have exclusive power to select the key employees to
be granted Performance Units, to determine the number of
Performance Units to be granted to each key employee selected and
to determine the time or times when Performance Units will be
granted.The Committee shall have authority to interpret this
Bonus Plan, to adopt and revise rules and regulations relating to
this Bonus Plan, to determine the conditions subject to which any
grants may be made or be payable, including conditions relating to
vesting or maturity and to make any other determinations which it
believes necessary or advisable for the administration of this
Bonus Plan. The authority granted to the Committee will be
exercised based upon recommendations received from the management
of the Company. Determinations by the Committee shall be made by
majority vote and shall be final and binding on all parties with
respect to all matters relating to this Bonus Plan.
3. PERFORMANCE UNITS.
Each "Performance Unit" granted shall represent 1/10th of one
percent of the "Total Market Value" (as defined in Section 7(b)
below). The maximum number of Performance Units that may be
granted under this Bonus Plan shall not exceed an aggregate of
twelve percent (12%) of the Total Market Value (i.e., not more than
120 Performance Units). If any Performance Units granted under
this Bonus Plan shall be forfeited or cancelled, such Performance
Units may again be granted under this Bonus Plan. Performance
Units that are redeemed may not again be granted under this Bonus
Plan. Performance Units do not entitle the grantee employee to
payment equal to the percentage of Company market value represented
by the Performance Units; instead, Performance Units are redeemable
for a cash payment (subject to the limitations in the Bonus Plan
<PAGE>
and in the particular grant) based on appreciation in value of the
Performance Unit after the date of grant, i.e., the excess of the
"Ending Value" (as defined below) over the "Beginning Value" (as
defined below) of the respective Performance Unit.
4. GRANTS
(a) Participants. Performance Units shall be granted to such
key employees of the Company as the Committee shall determine, who
shall hereafter be referred to as "Participants". Performance
Units shall be granted at such time or times and shall be subject
to such terms and conditions, in addition to the terms and
conditions set forth in this Bonus Plan, as the Committee shall
determine.
(b) Grant Notices. Each grant of Performance Units under
this Bonus Plan to a Participant shall be communicated by the
Committee in writing to the Participant within (30) days after the
date of grant, noting the Beginning Value assigned to each
Performance Unit by the Committee and the time at which the Ending
Value will be determined (each such notice being referred to herein
as a "Grant Notice").
(c) Accounts. Performance Units granted to a Participant
shall be credited to a Performance Unit Account (the "Account")
established and maintained for such Participant. The Account of a
Participant shall be the record of the Performance Units granted to
the Participant under this Bonus Plan, is solely for accounting
purposes and shall not require a segregation of any Company assets.
5. VESTING AND MATURITY OF PERFORMANCE UNITS
(a) Vesting. Performance Units shall fully vest in all
respects upon the date of the respective Grant Notice unless
otherwise provided by the Committee in the Grant Notice.
Notwithstanding that Performance Units have vested, no compensation
shall be paid with respect to the same until the Performance Units
have matured (i.e. have become "Mature Performance Units") in
accordance with the terms of this Bonus Plan unless otherwise
provided in the respective Grant Notice.
(b) Maturity. Performance Units granted to a Participant
shall mature according to the following schedule:
Anniversary of Grant Percentage of
Date Mature Units
First 25%
Second 50%
Third 75%
Fourth 100%
<PAGE>
(c) Acceleration/Deferral of Maturity. Notwithstanding the
provisions of paragraph (b) all Performance Units granted to a
Participant may become fully matured upon such terms and conditions
as may be set forth in the Grant Notice by the Committee if the
Participant's Performance Units are not forfeited under section
6(e) hereof.
6. PAYMENT FOR REDEEMED PERFORMANCE UNITS
(a) Unit Appreciation. At such time as a Participant is
entitled to receive compensation with respect to Performance Units,
the Participant shall be entitled upon his or her election to
receive from the Company cash payment(s) (the "Unit Appreciation"),
with respect to each Performance Unit redeemed, determined as
follows: (i) the Ending Value as determined by the Committee
pursuant to Section 7(a) of each Performance Unit to be redeemed,
(ii) reduced by the Beginning Value as determined pursuant to
Section 7(a) of such Performance Unit. If the Ending Value is
equal to or less than the Beginning Value, then the Unit
Appreciation will be zero.
(b) Redemption Notice. After the first anniversary of any
Grant Notice, the Participant shall be entitled upon his or her
election communicated to the Committee in writing (such writing
being referred to herein as a "Redemption Notice") to receive from
the Company the Unit Appreciation of each then Mature Performance
Unit in the Participant's Account.
(c) Required Redemption. If the Participant does not elect
to redeem his or her Performance Units on or before the third
anniversary date of termination of such Participant's employment by
the Company, the Company may at any time after the third
anniversary make the election to redeem such Participants's
Performance Units and the Participant shall be required to accept
payment for the Unit Appreciation of the Performance Units.
(d) Payment. Payment to a Participant of the Unit
Appreciation for redeemed Performance Units shall be made in cash
either in a lump sum or in equal annual installments over a period
not to exceed 3 years (without interest and without decrease or
increase in Unit Appreciation over the period of deferred payment).
The Committee shall have the sole discretion to determine the
method of payment under this Bonus Plan and the period over which
such payment shall be made, such determination to be made by the
Committee upon receipt of the Redemption Notice unless otherwise
provided in a respective Grant Notice for the Performance Units
being redeemed. Payment will be made or commence within sixty (60)
days after the Company's receipt of the Participant's Redemption
Notice.
<PAGE>
(e) Cancellation. Notwithstanding any other provision of
this Bonus Plan (but subject to any contrary provisions of a
particular Grant Notice), all rights to any payments hereunder to
a Participant will be discontinued and forfeited and a
Participant's Performance Units will be cancelled, and the Company
will have no further obligation hereunder to such Participant, if
any of the following circumstances occur:
(i) The Participant is discharged from employment with
the Company for cause (the term "cause" to refer to willful failure
to perform assigned duties, criminal conviction, or dishonesty
unless such term is otherwise defined in the Participant's
employment agreement, if any, in which case the term shall be
defined in accordance with such Participant's employment
agreement);
(ii) The Participant engages in competition with the
Company during, or within two years following termination of the
Participant's employment with the Company; or
(iii) The Participant performs acts of willful malfeasance
or gross negligence in a matter of material importance to the
Company.
Subject to any limitations in a particular Grant Notice, the
Committee shall have sole discretion with respect to the
application of the provisions of this paragraph and such exercise
of discretion shall be conclusive and binding upon the Participant,
and all other persons.
7. VALUATION OF PERFORMANCE UNITS
(a) Beginning/Ending Values. For all purposes of this Bonus
Plan, the "Beginning Value" of each Performance Unit will be an
amount equal to the greater of (i) such amount as shall be
determined by the Committee in its sole discretion or (ii) 1/10th
of one percent (1%) of the Total Market Value of the Company as of
the date that the Committee determines to grant the respective
Performance Unit. The "Ending Value" of a Performance Unit shall
equal 1/10th of the Total Market Value as of the date specified in
the respective Grant Notice for determination of the Ending Value
for such Performance Unit.
(b) Total Market Value. "Total Market Value" shall refer to
the total market value of all of the issued and outstanding common
stock of the Company determined by the average "asked" price
reported in the NASDAQ "Pink Sheets" or elsewhere for the common
stock of the Company for the thirty (30) days immediately prior to
the date Total Market Value is determined. The thirty (30) day
<PAGE>
period shall be a period of thirty (30) calendar days regardless of
the number of business days, but the average "asked" price shall be
computed by only taking into account days for which trades of the
Company's common stock are reported.
8. CHANGES IN CAPITAL AND CORPORATE STRUCTURE
In the event of any change in the number of outstanding shares
of common stock of the Company by reason of an issuance of
additional shares, recapitalization, reclassification,
reorganization, stock split, reverse stock split, combination of
shares, common stock dividend or similar transaction, the number of
Performance Units held by Participants under this Bonus Plan will
stay the same since Performance Units represent percentage
interests in the Total Market Value. Market value, if any, of
preferred stock of the Company will not be taken into account to
determine Unit Appreciation even if such preferred stock is issued
as a dividend on common stock.
9. NONTRANSFERABILITY
Performance Units granted under this Bonus Plan, and any
rights and privileges pertaining thereto, may not be transferred,
assigned, pledged or hypothecated in any manner, by operation of
law or otherwise, other than by will or by the laws of descent and
distribution, and shall not be subject to execution, attachment or
similar process. In the event of a Participant's death, payment of
any redemption price due under this Bonus Plan shall be made to the
duly appointed and qualified executor or other personal
representative of the Participant to be distributed in accordance
with the Participant's will or applicable intestacy law; or in the
event that there shall be no such representative duly appointed and
qualified within six (6) months after the date of death of such
deceased Participant, then to such persons as, at the date of his
death, would be entitled to share in the distribution of such
deceased Participant's personal estate under the provisions of the
applicable statute then in force governing the descent of intestate
property, in the proportions specified in such statute.
10. WITHHOLDING
The Company shall have the right to deduct from all amounts
paid pursuant to this Bonus Plan any taxes required by law to be
withheld with respect thereto.
11. VOTING AND DIVIDEND RIGHTS
No Participant shall be entitled to any voting rights, to
receive any dividends, or to have his Account credited or increased
as a result of any dividends or other distribution with respect to
the common or preferred stock of the Company.
<PAGE>
12. MISCELLANEOUS PROVISIONS
(a) No Implied Rights. No employee or other person shall
have any claim or right to receive a grant under this Bonus Plan
unless specified by a written agreement of employment by the
Company. Neither this Bonus Plan nor any action taken hereunder
shall be construed as giving any employee any right to be retained
in the employ of the Company.
(b) Unfunded Plan. This Bonus Plan shall at all times be
entirely unfunded and no provision shall at any time be made with
respect to segregating assets of the Company for payment of any
benefits hereunder. No Participant or other person shall have any
interest in any particular assets of the Company by reason of the
right to receive a benefit under this Bonus Plan, and any such
Participant or other person shall have only the rights of a general
unsecured creditor of the Company with respect to any rights under
this Bonus Plan.
(c) Interpretation. Except when otherwise required by the
context, any masculine terminology in this document shall include
the feminine, and any singular terminology shall include the
plural. Captions and headings are included only for convenience of
reference and shall not be consulted for interpretation of any
provision hereof.
13. AMENDMENT OF THIS BONUS PLAN
The Board of Directors of the Company may alter or amend this
Bonus Plan from time to time without obtaining the approval of the
stockholders of the Company. No amendment to this Bonus Plan may
alter, impair or reduce the number of Performance Units granted
under this Bonus Plan prior to the effective date of such amendment
without the written consent of any affected Participant.
14. EFFECTIVENESS AND TERMS OF PLAN
The effective date of this Bonus Plan shall be June 1, 1997.
The Committee may at any time terminate this Bonus Plan and unless
sooner terminated by the Committee, this Bonus Plan shall terminate
on May 31, 2006. No Performance Units shall be granted pursuant to
this Bonus Plan after the date of termination of this Bonus Plan,
although after such date payments shall be made with respect to
Performance Units granted prior to the date of termination.
EXHIBIT 10.16
PROMISSORY NOTE
U. S. $500,000.00 August 14, 1997
FOR VALUE RECEIVED, the undersigned, SPINTEKNOLOGY, INC., a
Georgia corporation (hereinafter referred to as "Maker"), promises
to pay to the order of THE MALCOLM C. DAVENPORT, V FAMILY TRUST
(hereinafter, together with his heirs and assigns, referred to as
"Holder"), at 409 West 10th Street, West Point, Georgia 31833 or
such other place as Holder hereof may from time to time designate
in writing, in lawful money of the United States of America, the
principal sum of Five Hundred Thousand and No/100 Dollars
($500,000.00) together with interest on the principal balance from
time to time outstanding during the term of this Note at a rate of
Twelve percent (12%) per annum.
This Note shall mature and the entire principal balance,
together with all accrued and unpaid interest and late charges, if
any, shall be due and payable on the earliest of September 14, 1998
or upon receipt by Maker's parent corporation (Spintek Gaming
Technologies, Inc., a California corporation) of $500,000 or more
in net proceeds from such parent's issuance of its common stock.
This Note may be prepaid at any time in whole or in part. All
payments made hereon shall be applied first to accrued and unpaid
late charges, then to accrued and unpaid interest and the remainder
to principal.
Upon the occurrence of an Event of Default as defined in that
certain Security Agreement between Holder and Maker of even date
herewith (the "Security Agreement"), at the Holder's option, the
entire unpaid principal balance of this Note, together with all
accrued and unpaid interest thereon shall immediately become due
and payable, without notice or demand, and Holder shall have all
rights and remedies stated in this Note or the documents which now
or hereafter evidence or secure the loan evidenced by this Note
(collectively, "Loan Documents"). Holder shall have, in addition
to the rights provided herein and therein, the rights and remedies
available to it pursuant to the Uniform Commercial Code and other
applicable laws. Such rights or remedies shall be cumulative, and
the exercise of any right or remedy shall not preclude the exercise
of any other right or remedy. From and after maturity, whether by
acceleration or otherwise, the principal balance hereunder shall,
at Holder's option, bear interest at the Default Rate stated below.
In the event that Holder institutes legal proceedings to
enforce this Note or refers the same to an attorney-at-law for
enforcement or collection after default or maturity, Maker agrees
<PAGE>
to pay to Holder, in addition to any indebtedness due and unpaid,
all reasonable costs and expenses of such proceedings, including
reasonable attorneys' fees.
Holder shall not by an act of omission or commission be deemed
to waive any of its rights or remedies hereunder unless such waiver
be in writing and signed by an authorized officer of Holder and
then only to the extent specifically set forth therein; a waiver on
one occasion shall not be construed as continuing or as a bar to or
waiver of such right or remedy on any other occasion. All remedies
conferred upon Holder by this Note or any other instrument or
agreement connected herewith or related hereto shall be cumulative
and none is exclusive, and such remedies may be exercised
concurrently or consecutively at Holder's option.
This Note is hereby expressly limited so that in no
contingency or event whatsoever, whether by acceleration of
maturity of the debt evidenced hereby or otherwise, shall the
amount paid or agreed to be paid to Holder for the use, forbearance
or retention of the money advanced or to be advanced hereunder
exceed the highest lawful rate permissible under applicable laws
("Maximum Rate") in accordance with the written agreement of the
parties. Determination of the rate of interest for the purpose of
determining whether this Note is usurious under applicable law
shall be made by amortizing, prorating, allocating and spreading in
equal parts during the period of the full stated term of this Note,
all interest or other sums deemed to be interest at any time
contracted for, charged or received from Maker in connection with
this Note. Maker or any endorsers or other parties now or
hereafter becoming liable for payment of this Note shall never be
required to pay interest on this Note at a rate in excess of the
Maximum Rate, and the provisions of this paragraph shall control
over all other provisions of this Note and any other instruments
now or hereafter executed in connection herewith which may be in
apparent conflict herewith. If, from any circumstances whatsoever,
fulfillment of any provision hereof or of any other agreement
evidencing or securing the debt, at the time performance of such
provisions shall be due, shall involve the payment of interest in
excess of that authorized by law, the obligation to be fulfilled
shall be reduced to the limit so authorized by law, and if from any
circumstances Holder shall ever receive as interest an amount which
would exceed the Maximum Rate applicable to Maker, such amount
which would be excessive interest shall, at the option of Holder,
be applied against the unpaid principal balance on this Note or, if
this Note has been paid in full, be repaid by Holder to Maker.
<PAGE>
This Note is given and accepted as evidence of indebtedness
and not in payment or satisfaction of any indebtedness or
obligation.
If the principal balance of this Note is accelerated, or if
the principal balance of this Note is not paid at maturity, then
Holder shall have the option to increase the interest rate, as
defined hereunder, to eighteen percent (18%) per annum (the
"Default Rate"). The Default Rate shall apply to the entire unpaid
principal balance of this Note effective as of the earlier of (i)
the due date of the first payment due hereunder not timely paid, or
(ii) the date of acceleration.
If any payment is not received within ten (10) days after its
due date, and Holder elects to waive the delinquency by accepting
the payment, Maker shall, at Holder's option and without notice or
further grace period, pay a late charge equal to four percent (4%)
of the late payment, such payment to be due with the succeeding
monthly payment. The late charge is an amount which the parties
agree is appropriate to compensate Holder for the cost of handling
delinquent payments and is in addition to Holder's right to impose
a default interest rate and to exercise any other right or remedy
for default under this Note or any Loan Document.
Maker hereby consents and agrees that Holder may at any time,
and from time to time, without notice to or further consent from
Maker, either with or without consideration, release, surrender or
impair any property or other security of any kind or nature
whatsoever held by Holder securing this Note; grant releases,
compromises and indulgences with respect to this Note or the other
Loan Documents as to any persons or entities now or hereafter
liable thereunder or hereunder; release any endorser of this Note,
the Loan Documents or any other of the Loan Documents; or take or
fail to take any action of any type whatsoever. No such action
which Holder shall take or fail to take in connection with this
Note or the Loan Documents, or any of them, nor any course of
dealing with or any other person, shall be deemed to release
Maker's obligations hereunder, affect this Note in any way or
afford any Maker any recourse against Holder.
Maker hereby waives and agrees not to assert or take advantage
of (a) any defense that may arise by reason of the lack of
authority of any other person or entity, or the failure of Holder
to file or enforce a claim against the estate (either in
bankruptcy, or any other proceeding) of said Maker; (b) any defense
based upon failure of Holder to commence an action against Maker
(other than a defense based on a statute of limitations); (c) any
duty on the part of Holder to disclose to Maker any facts it may
<PAGE>
now or hereafter know regarding Maker; (d) demand for payment of
any of the indebtedness or performance of any of the obligations
hereby evidenced; (e) protest and notice of dishonor or of default
to Maker or to any other party with respect to the indebtedness;
(i) any and all other notices whatsoever to which Maker might
otherwise be entitled; and (j) any defense based on lack of due
diligence by Holder in collection, protection, perfection or
realization upon any collateral securing the indebtedness evidenced
by this Note.
The liability of Maker under this Note shall be direct and
immediate and not conditional or contingent upon the pursuit of any
remedies against any other person, nor against security or liens
available to Holder, its successors, successors-in-title, endorsees
or assigns. Maker waives any right to require that an action be
brought against any other person or to require that resort be had
to any security held by Holder.
In the event of any dispute, misunderstanding, suit or claim
related to this Note or any of the Loan Documents, and if Maker and
Holder are unable to resolve said dispute and it becomes necessary
to enter into any litigation to resolve such dispute or claim,
Maker hereby waives its right to trial by jury in any suit or legal
action of any kind or nature brought by Holder against Maker
related to this Note or any of the Loan Documents. Maker further
agrees that any such litigation shall be heard by a court of
appropriate jurisdiction sitting without a jury.
Time is of the essence with respect to all of Maker's
obligations and agreements under this Note.
This Note and all provisions, conditions, promises and
covenants hereof shall be binding in accordance with the terms
hereof upon Maker, its successors and assigns, provided nothing
herein shall be deemed a consent to any assignment or conveyance
which is restricted or prohibited by the terms of this Note or the
Loan Documents.
All notices to Maker and Holder hereunder shall be deemed to
have been sufficiently given or served for all purposes when sent
pursuant to the notice requirements in the Security Agreement.
This Note shall be governed and construed under the laws of
the State of Georgia.
<PAGE>
IN WITNESS WHEREOF, Maker has signed, sealed and delivered
this Note on the date first hereinabove written.
MAKER:
SPINTEKNOLOGY, INC., a Georgia corporation
By: /s/ GARY L. COULTER
Title: President
Attest: /s/ ROBERT E. HUGGINS
Title: Assistant Secretary
(CORPORATE SEAL)
<PAGE>
COLLATERAL ASSIGNMENT AND SECURITY AGREEMENT
THIS AGREEMENT (the "Agreement") is made and entered into this
14TH day of AUGUST, 1997, by and between SPINTEKNOLOGY, INC., a
Georgia corporation (hereinafter referred to as "Debtor"), and THE
MALCOLM C. DAVENPORT, V FAMILY TRUST (hereinafter referred to as
"Secured Party").
W I T N E S S E T H:
WHEREAS, Debtor holds certain intellectual property rights for
development of gaming technology (the "Business");
WHEREAS, Debtor has borrowed from Secured Party the sum of
$500,000.00 evidenced by a Promissory Note (the "Note") in favor of
Secured Party, dated of even date herewith, in the face principal
amount of $500,000.00; and
WHEREAS, in order to secure the obligations of Debtor under
the Note and all other obligations now or hereafter owing from
Debtor to Secured Party, the Debtor desires to grant a security
interest in the collateral described below.
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged and
confessed, the parties hereto agree as follows:
1. Security Interest. To provide security for the due and
punctual performance of all of the Debtor's obligations under the
Note, including, without limitation, payment in full of the
principal and interest on the Note, costs and attorneys' fees, all
indebtedness to be incurred by Debtor to Secured Party with respect
to the Note and further to secure any other indebtedness and
obligations now or hereafter owing by Debtor to Secured Party
(hereinafter the "Obligations"), the Debtor hereby mortgages,
pledges, assigns, transfers, sets over, conveys and delivers to
Secured Party and grants to Secured Party security interests (the
"Security Interests") in all of the following rights, interests and
properties:
<PAGE>
All of the Debtor's patents, unpatented inventions,
patent applications, patent interference proceedings,
trade secrets, rights under technology licenses, choices-
in-action, information contained in computer media (such
as data bases, source and object codes, and information
therein) and derivatives thereof (including those covered
by the Patent Applications identified on Schedule "A"
attached hereto), including the right to make, use, and
vend goods utilizing any of the foregoing, together with
all cash and non-cash proceeds and products thereof (all
of which are collectively hereinafter referred to as the
"Collateral").
Until payment in full of all Obligations, the Secured Party's
Security Interests in the Collateral granted hereby shall continue
in full force and effect.
2. Representations and Warranties.
Debtor represents and warrants to Secured Party that:
(a)Debtor has all requisite authority to execute and deliver
this Agreement and this Agreement is enforceable in accordance with
its terms;
(b)Debtor's books and records concerning the Collateral are
kept at the principal office of Debtor;
(c)No financing statement covering the Collateral, or any
part thereof, is currently on file with any filing officer;
(d)No other security agreement is currently in effect and no
security interest, other than the Security Interests herein
granted, has attached to or has been perfected in the Collateral or
in any part thereof;
(e)No dispute, right of setoff, counterclaim, or defenses
exist with respect to Debtor's title to any part of the Collateral;
(f) the principal place of business of Debtor is 901-B Grier
Drive, Las Vegas, Nevada 89119;
(g) Debtor has not acquired any of the Collateral in the past
twelve (12) months from any third party outside of the ordinary
course of business or as part of a bulk sale.
<PAGE>
3. Covenants.
(a) Debtor covenants and agrees to:
(i) comply with all covenants and agreements set forth
herein;
(ii) deliver to Secured Party, at such intervals as
Secured Party reasonably may require, such documents, lists,
descriptions, certificates, and other information as may be
necessary or proper to keep Secured Party fully informed with
respect to the description of the Collateral;
(iii) from time to time promptly execute and deliver to
Secured Party all such other assignments, certificates,
supplemental documents, and financing statements, and do all other
acts or things, as Secured Party may reasonably request in order to
more fully evidence and perfect the Security Interests;
(iv) promptly notify Secured Party of any claim, action
or proceeding which could affect Debtor's title to or materially
and adversely affect the value of the Collateral, or any part
thereof, or the effectiveness of the Security Interests, and, at
the request of Secured Party, appear in and defend, at Debtor's
expense, any such action or proceeding;
(v) promptly, after being requested by Secured Party, pay
to Secured Party the amount of all expenses, including attorneys'
fees and other legal expenses, reasonably incurred by Secured Party
in enforcing the Security Interests; and
(vi) do all things reasonably necessary or appropriate to
enable Secured Party to fully exercise its rights under this
Agreement;
(b) Debtor covenants and agrees that without the prior
written consent of Secured Party, Debtor will not:
(i) sell, assign, lease or transfer any of the
Collateral;
(ii) create in favor of anyone, except Secured Party,
any other security interest in any of the Collateral, or in any
part thereof, or otherwise encumber or permit the same to become
subject to any lien, attachment, execution, sequestration, or other
legal or equitable process which is not removed within sixty (60)
days, provided Debtor has commenced signification curative actions
within thirty (30) days;
<PAGE>
(iii) permit any part of the Collateral to be subjected
to any unpaid charge, including rent and taxes, or any subsequent
interest of a third party, whether such interest is created
voluntarily or involuntarily, which is not cured within sixty (60)
days, provided Debtor has commenced significant curative actions
within thirty (30) days; or
(iv) remove, or permit to be removed, Debtor's records
concerning the Collateral from Debtor's offices; or
(c) without prior written notice to Secured Party and without
filing any amendments to any UCC Financing Statements as may be
required to retain Secured Party's perfected security interest in
the Collateral:
(i) change the name of the Debtor; or
(ii) conduct business under any name other than in the
name of the Debtor.
4. Default. The occurrence of one or more of the following
events shall, at the option of Secured Party, constitute an "Event
of Default" hereunder:
(a) if Debtor defaults in the payment of the Note or
any installment thereof or interest thereon or any other payment
due Secured Party within five (5) days after its due date;
(b) if any warranty or representation of Debtor
contained herein shall be materially false or misleading when made;
(c) if Debtor shall cease to do business as a going
concern, or generally fail to meet its obligations as they mature;
(d) an event of default occurs under and as defined in
the Note or Collateral Document, Warrant Certificate or other Loan
Document;
(e) if any material litigation or claim is commenced
against Debtor or wherein Debtor is a party defendant or defendant
in counterclaims or cross-claims, and the claims against Debtor are
not dismissed within forty-five (45) days thereafter;
(f) the occurrence of any transaction in which control
of the Debtor would be transferred regardless of whether such
transaction is entered into with the consent or agreement of the
Debtor.
<PAGE>
5. Default Remedies. Upon the occurrence of an Event of
Default, in addition to any and all other rights and remedies which
Secured Party may then have hereunder, herein, or under the Uniform
Commercial Code of the State of Nevada, or any other pertinent
jurisdiction (the "Code"), or otherwise, Secured Party may, at its
option:
(a) reduce its claim to judgment or foreclose or otherwise
enforce the Security Interests, in whole or in part, by any
available judicial procedure;
(b) require Debtor, upon the receipt of any revenue, income,
profits or other sums in which a security interest is granted by
this Agreement or of any check, draft, note, trade acceptance or
other instrument evidencing an obligation to pay any such sum, to
hold the same in trust for Secured Party in precisely the form
received, and to forthwith, endorse, transfer and deliver any such
sums or instruments, or both, to Secured Party for prompt
application to the payment of the Obligations in a manner
satisfactory to Secured Party;
(c)require Debtor to assemble and make available to Secured
Party, at the expense of Debtor, the Collateral at any place
mutually convenient to Debtor and Secured Party;
(d)enter upon the premises wherever any evidence of the
Collateral may be, freely and without being deemed to disrupt the
peace, and take possession of any evidence of the Collateral, and
demand and receive such possession from any person or organization
which has possession thereof, and to take such measures as it may
deem necessary or proper for the care or protection thereof,
including the right to remove all or any portion of the Collateral,
and with or without taking such possession may sell or cause to be
sold, whenever Secured Party shall decide, in one or more sales or
parcels, at such price as Secured Party may deem adequate, and for
cash or, on credit or for future delivery, without assumption of
any credit risk, all or any portion of the Collateral, at any
broker's board or at public or private sale (whether such sale is
conducted by Secured Party or a private auction company hired by
Secured Party), without demand of performance or notice of
intention to sell or of time or place of sale (except ten [10] days
prior written notice to Debtor of the time and place of any public
sale or sales or of the time after which any private sale or sales
or other intended disposition is to be made and only such other
notice as may be required by applicable statute and cannot be
waived, which notice Debtor hereby acknowledges, shall be
considered commercially reasonable for all purposes), and Secured
Party or any other person may be the purchaser of all or any
<PAGE>
portion of the Collateral so sold and thereafter hold the same
absolutely, free from any claim or right of whatsoever kind,
including any equity of redemption, of Debtor, and such demand,
notice, claim, right or equity being hereby expressly waived and
released. In any action hereunder, Secured Party shall be entitled
to the appointment of a receiver without notice, to take possession
of all or any portion of the Collateral and to exercise such powers
as the court shall confer upon the receiver. Without limiting the
scope or definition of commercial reasonableness, Debtor agrees
that any disposition of any Collateral pursuant hereto shall be
commercially reasonable within the meaning of Section 9-504 of the
Code as in effect in the jurisdiction or jurisdictions where such
Collateral is located.
(e) at its discretion, retain the Collateral in satisfaction
of the Obligations whenever the circumstances are such that Secured
Party is entitled to do so under the Code;
(f) exercise any and all other rights, remedies, and
privileges it may have under the Note or any document or instrument
evidencing or securing the Note (collectively, "Loan Documents");
and
Debtor hereby irrevocably makes, constitutes and appoints
Secured Party or any of its officers or designees its true and
lawful attorney-in-fact, upon the occurrence of an Event of Default
(A) to enforce all rights of Debtor under and pursuant to any
agreements relating to the Collateral, all for the sole benefit of
Secured Party, or (B) to enter into and perform such agreements as
may be necessary in order to carry out the provisions of this
Agreement, or to carry out the terms, covenants and conditions of
this Agreement which are required to be observed or performed by
Debtor, or (C) to execute such other and further grants, mortgages,
pledges and assignments of the Collateral as Secured Party may
reasonably require for the protecting or maintaining of the
Security Interests granted to Secured Party by this Agreement.
Debtor hereby ratifies and confirms all that Secured Party, as such
attorney-in-fact, or its substitutes, shall do by virtue of this
power of attorney. Debtor hereby waives all rights to marshalling
of assets or sale in inverse order of alienation, including any
such rights with respect to the Collateral.
Secured Party shall not be responsible or liable for any
shortage, discrepancy, damage, loss or destruction of any part of
the Collateral, wherever the same may be located and regardless of
the cause thereof, unless the same shall happen through the gross
negligence or willful misconduct of Secured Party. Secured Party
shall not, under any circumstances or in any event whatsoever, have
any liability for any error or omission or delivery of any kind
incurred with respect to any instrument received in payment for the
Collateral or for any damage resulting therefrom. In no event
shall Secured Party be liable in any manner or for anything in
connection with this Agreement other than to account for moneys
actually received by it in accordance with the terms hereof.
<PAGE>
6. Application of Proceeds. If an Event of Default shall
have occurred and be continuing, all proceeds received from the
sale or other disposition of any of the Collateral shall be applied
by Secured Party as follows:
First: to the payment of all costs and expenses incurred in
connection with any such sale of the Collateral, including, without
limitation, all court costs and the reasonable fees and expenses of
agents and of counsel for Secured Party in connection therewith,
and to the payment of all costs and expenses reasonably paid or
incurred by Secured Party hereunder, to the extent that such
advances, costs and expenses shall not have been paid to Secured
Party upon its demand therefor;
Second: to the payment or reduction of any late fees on the
Note, then the payment of interest on the Note then due and
payable, then the payment of all principal on the Note whether at
the stated maturity thereof or by acceleration or otherwise in such
order as Secured Party elects;
Third: to the payment in full of all other Obligations; and
Fourth: the balance, if any, of such proceeds remaining after
payment in full of the foregoing items shall be remitted to Debtor
or as a court of competent jurisdiction may otherwise direct.
7. Taxes; Financing Statements; Certificates of Title. At
its option, Secured Party may discharge past due sales, use or
property (but not income), taxes, liens, or security interests,
registration title and license fees, assessments or other
encumbrances at any time levied or placed on any of the Collateral
and may pay for the maintenance and preservation thereof, and
Debtor agrees to reimburse Secured Party on demand for any payment
made or any expense reasonably incurred by Secured Party pursuant
to the foregoing authorization; provided, however, that nothing in
this Section or its exercise may be interpreted as excusing Debtor
from performance of any covenants or other promises with respect to
such past due taxes, liens, security interests or other
encumbrances, nor shall it be interpreted as an assumption by
Secured Party of such obligations.
Debtor hereby authorizes Secured Party to file financing
statements and any amendments thereto or continuations thereof.
<PAGE>
8. Remedies Cumulative, Etc. The rights, remedies and
benefits of Secured Party herein expressly specified are cumulative
and not exclusive of any other rights, remedies or benefits which
Secured Party may have under this Agreement, the Note, any other
Loan Document or at law, in equity, by statute or otherwise.
Without limiting the generality of the foregoing, Secured Party
shall have all rights and remedies of a secured creditor under
Article 9 of the Uniform Commercial Code in the jurisdiction or
jurisdictions where any of the Collateral is located.
9. Expenses, Etc. Debtor will pay to Secured Party all
reasonable expenses (including reasonable attorneys fees and court
costs) of, or incidental to, the enforcement of any of the
provisions of this Agreement or any actual or attempted sale, or
any exchange, enforcement, collection, compromise or settlement of
any of the Collateral or receipt of the proceeds thereof, and the
care of the Collateral and defending or asserting the rights and
claims of Secured Party in respect thereof, by litigation or
otherwise, including expenses of insurance; and all such expenses
shall be secured by this Agreement.
10. No Delay, Waiver, Etc. No delay on the part of Secured
Party in exercising any power or right hereunder shall operate as
a waiver thereof; nor shall any single or partial exercise of any
power or right hereunder preclude other or further exercise thereof
or the exercise of any other power or right. Debtor hereby waives
presentment, notice of dishonor and protest of all instruments
included in or evidencing the liability of Debtor and any and all
other notices and demands whatsoever (except notices specifically
provided for herein), whether or not relating to such instruments.
11. Modification, Successors and Assigns, Etc. No amendment
hereof shall be effective unless contained in a written instrument
signed by the parties hereto. This Agreement shall be binding upon
the successors and assigns of Debtor and shall inure to the benefit
of the successors and assigns of Secured Party.
12. Notices, Etc. Any notices, requests or demands hereunder
shall be deemed to have been sufficiently given when received by
the addressee if sent by prepaid certified mail, return receipt
requested, or by Federal Express or other similar overnight
delivery service where a return receipt is available, to Debtor or
Secured Party at their respective addresses as follows:
<PAGE>
Debtor:
901-B Grier Drive
Las Vegas, Nevada 89119
Secured Party:
409 West 10th Street
West Point, Georgia 31833
With a copy to:
901-B Grier Drive
Las Vegas, Nevada 89119
13. Governing Law. This Agreement shall be deemed to be a
contract made under the laws of the State of Nevada, and shall be
governed by and construed in accordance with the laws of the State
of Nevada.
14. Severability. If any provision of this Agreement is held
to be illegal, invalid, or unenforceable under present or future
laws effective during the term of this Agreement, such provision
shall be fully severable; this Agreement shall be construed and
enforced as if such illegal, invalid, or unenforceable provision
had never comprised a part of this Agreement; and the remaining
provisions of this Agreement shall remain in full force and effect
and shall not be affected by the illegal, invalid, or unenforceable
provision or by its severance from this Agreement. Furthermore, in
lieu of each such illegal, invalid, or unenforceable provision
there shall be added automatically as a part of this Agreement a
provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid, and
enforceable.
15. Counterparts. This Agreement may be executed in a number
of identical counterparts, each of which for all purposes is to be
deemed an original, and all of which constitute collectively, one
agreement; but in making proof of this Agreement, it shall not be
necessary to produce or account for more than one such counterpart.
16. Binding Agreement. This Agreement shall be binding upon
and inure to the benefit of Debtor, its successors and assigns, and
shall inure to the benefit of Secured Party, its successors and
assigns.
<PAGE>
17. Waiver of Trial by Jury. In the event of any dispute,
misunderstanding, suit or claim related to this Agreement or any of
the Loan Documents, and if Debtor and Secured Party are unable to
resolve said dispute and it becomes necessary to enter into any
litigation to resolve such dispute or claim, Debtor hereby waives
its right to trial by jury in any suit or legal action of any kind
or nature brought by Secured Party against the Debtor related to
this Agreement or any of the Loan Documents. Debtor further agrees
that any such litigation shall be heard by a court of appropriate
jurisdiction sitting without a jury.
18. Assignment by Secured Party. This Agreement and the Note
or Loan Documents may be assigned by Secured Party without the
approval of the Debtor and the Debtor may not raise a defense to
its obligations under this Agreement, the Note or any of the Loan
Documents on the grounds that these documents have been transferred
by Secured Party to a third party.
IN WITNESS WHEREOF, Debtor has caused this Agreement to be
duly executed (by its authorized officers, where applicable), all
as of the day and year first above written.
DEBTOR:
SPINTEKNOLOGY, INC., a Georgia
corporation
By: /s/ GARY L. COULTER
Title: President
Sworn to and subscribed
before me this ____ day
of _______________, 1997.
_________________________
NOTARY PUBLIC
My Commission Expires:________
EXHIBIT 11.1
COMPUTATION OF LOSS PER SHARE
March 31,
1995
Year Ended Year Ended (Inception)
June 30, June 30, to June 30,
1996 1997 1997
Net Loss $(4,280,740) $(3,570,899) $(8,508,519)
Preferred Stock Dividends - ( 215,336) ( 215,336)
Net Loss with Preferred Dividends $(4,280,740) $(3,786,235) $(8,723,855)
Earnings Per Share $ (0.43) $ (0.34) $ (0.84)
Weighted Average Common Shares
Outstanding 9,943,869 11,284,874 10,446,756
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SPINTEK
GAMING TECHNOLOGIES, INC. FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30, 1997
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<CASH> 404
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 60
<INVENTORY> 483
<CURRENT-ASSETS> 1078
<PP&E> 169
<DEPRECIATION> 38
<TOTAL-ASSETS> 2457
<CURRENT-LIABILITIES> 1081
<BONDS> 0
4825
0
<COMMON> 34
<OTHER-SE> (3484)
<TOTAL-LIABILITY-AND-EQUITY> 2457
<SALES> 0
<TOTAL-REVENUES> 0
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3152
<LOSS-PROVISION> 60
<INTEREST-EXPENSE> 534
<INCOME-PRETAX> (3571)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3571)
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<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3571)
<EPS-PRIMARY> (.34)
<EPS-DILUTED> (.34)
