UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-KSB
_X_ Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year --- ended June 30, 1998 or
Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
Commission File Number: 0-27226
SPINTEK GAMING TECHNOLOGIES, INC.
(Exact name of small business issuer as specified in its Charter)
Nevada 33-0134823
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
901-B Grier Drive, Las Vegas, Nevada 89119 (702) 263-3660
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(Address of principal executive offices) (Issuer's telephone number)
Securities registered under Section 12(b) of the Exchange Act:
Title of each class: Name of Exchange on which registered:
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None None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, par value $0.002 per share
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(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, 1998 were: $444,011.
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There were 18,673,055 outstanding shares of common stock, par value $0.002 per
share, as of August 31, 1998. The aggregate market value of the voting stock of
the Registrant held by non-affiliates of the Registrant, as of August 31, 1998,
was $4,624,570 based on the last sales price on such date.
DOCUMENTS INCORPORATED BY REFERENCE: None
Transitional Small Business Disclosure Format: Yes ___ No _X_
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CAUTIONARY NOTICE
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Certain information included herein contains statements that may be considered
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934, such as
terms expressing future expectations, enthusiasm about future potential and
anticipated growth in sales, revenues and earnings, and like expressions
typically identify such statements. All forward-looking statements, although
made in good faith, are subject to important risks and uncertainties that could
significantly affect anticipated results in the future and, accordingly, results
may differ from those expressed in any forward-looking statements made herein.
Such statements are necessarily speculative, and factors including, but not
limited to, unusual production or supply problems, unusual risks attending
foreign transactions, year 2000 problems, competitive pressures, unanticipated
problems in obtaining approvals and/or licenses from governmental authorities as
to products or the ability to sell products in any jurisdiction, a general
deterioration in domestic or global economic conditions, and changes in federal
or state tax laws or laws permitting legalized gaming in any jurisdiction within
which gaming is currently conducted or the administration of such laws could
cause results to differ materially from those projected.
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
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General
Spintek Gaming Technologies, Inc., referred to herein as the "Company" or
"Spintek" was originally incorporated in the State of California on September
11, 1984. Pursuant to a vote of the shareholders approving a merger at the
Company's annual meeting on January 21, 1998, the Company was merged with and
into a newly-formed corporation solely for effecting a change in the legal
domicile of the Company. Upon acceptance of articles of merger filed with the
States of California and Nevada, the Company was reincorporated as a Nevada
corporation on August 24, 1998. The Company is based in Las Vegas, Nevada. The
Company is authorized to issue 100,000,000 shares of Common Stock and 100,000
shares of preferred stock. Its $0.002 par value Common Stock trades on the
Bulletin Board under the symbol "SPTK." The Company markets and licenses
worldwide certain proprietary gaming and nongaming technology.
The Company originally 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 basis, changed the value of its
common stock from no par value to $0.002 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 April 1996, the Company, through its subsidiaries, has devoted its
efforts to the development of proprietary technology for determining the
contents of a slot machine hopper and an on-line data collection system that
allows a casino to utilize this financial and security information
("AccuSystem"). The Company believes this proprietary technology is unique in
the gaming industry. Trademark applications on the Company's proprietary
trademarks are currently pending with the United States Patent Office and
certain foreign patent authorities.
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 the following products: "AccuHopper(TM)," "AccuBoard," "AccuDrop," and the
AccuSystem software. Some of these products can be used independently or they
can be combined together to offer a level of coin control that has been
non-existent in the casino industry.
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The heart of the system is the AccuHopper, which utilizes proprietary
technology for weighing hopper contents. AccuHopper can be calibrated for any
denomination of coin or token and, once calibrated, is accurate within three one
hundredths of one percent. Management believes that no other product currently
exists in the market that can give the current contents of a slot hopper with
reliability. Any other system that attempts to provide this information relies
on at least four separate components: beginning hopper balance, coin traveling
from the coin receptor into the hopper, fills placed into the hopper, and coin
diverted from the hopper. An error in any one of the four components results in
an error that continues indefinitely (and can increase due to cumulative meter
errors unless corrected manually). The Company has developed AccuHopper, which
relays the hopper contents electronically to AccuBoard or to other on-line
accounting systems currently on the market.
AccuDrop, which is being tested in a Nevada casino, is similar to the
AccuHopper but relays the number of coins currently in the drop compartment. By
allowing the casino operator to always know the amount of money in the drop
compartment on a real-time basis, it can be used to determine when drop buckets
need to be emptied. With the proliferation of bill acceptors in slot machines,
coin drop has been reduced to only about ten to twenty percent of the total
drop. Currently, most casinos waste a lot of time emptying and tracking drop
buckets that are either empty or would not necessarily require emptying due to
insignificant contents.
AccuBoard is capable of collecting data from AccuHopper and AccuDrop along
with other types of data from a slot machine (i.e. "Door Open", "Door Close",
meter information, and "In Play" status). The AccuBoard is powered by a
micro-controller which includes a real-time clock to timestamp events that occur
at the slot machine. Up to two hundred and fifty-five events can be recorded and
maintained until a system requests them. AccuBoard also adds the ability to
monitor external switches which have been used for monitoring activity in a
casino's auxiliary fill containers. AccuBoard will create an event when either
an auxiliary fill container door is opened or a fill bag of coins is removed
from the compartment. AccuBoard is configurable such that low hopper levels can
be assigned and used to illuminate an indicator to show that the hopper is
currently low, thus potentially avoiding a hopper empty condition and play
interruption.
AccuSystem software includes the following programs: AccuPoller, AccuView,
AccuReports, and AccuAdministrator.
o AccuPoller is a real-time polling system program that retrieves the
data from the AccuBoard and stores it into the SQL database.
o AccuView is a real-time floor display that provides the casino with an
easy to use graphic display of the hopper, drop, and fill bag
inventory.
o AccuAdministrator allows the user to define application level security
for all AccuSystem software. Security setup includes designating user
groups and assigning features and functions applicable to that group.
An unlimited number of different used groups may be setup.
AccuSystem offers the operator control features that are not available from
any other product currently available in the market. Some knowledgeable members
of the gaming industry have estimated that employee theft from slot machines
could be in excess of two percent of the house win. Theft can occur any time a
slot machine door is open and an employee has access to funds in the hopper
while performing normal duties such as clearing a coin jam, replacing a burned
out light bulb, or making a routine hopper fill. AccuSystem can accurately
report the amount of coins in the hopper before the machine door is opened, and
the amount of coins in the hopper after the employee closes the machine door
securing the slot machine. With this information any coin discrepancies can be
reported to the operator for further investigation.
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In addition to the added controls which reduce the amount of employee
theft, it is Management's belief that use of AccuHopper in connection with
existing on-line slot accounting systems will also result in payroll savings to
the operator. Some jurisdictions require that the contents of slot hoppers be
counted on a routine basis, a cumbersome and costly process. AccuHopper provides
this information continuously and accurately to within a tolerance which
management anticipates will be acceptable to gaming regulators in substantially
all jurisdictions, domestic and international, thus eliminating the need to
count the hopper contents manually. AccuHopper can also notify the operator of
the need for a fill before the hopper goes empty and the slot machine shuts
down, thereby interrupting a customer's play. A fill can interrupt the play of a
customer for an average of fifteen minutes but can take more than thirty minutes
during times of heavy play. By using AccuHopper the operator will be able to
schedule some fills during slower periods of play, thereby reducing the number
of slot machines that shut down due to an empty hopper condition.
The Company has conducted tests on the AccuHopper at various casinos in Las
Vegas, Nevada and Atlantic City, New Jersey during the past several months.
During the tests the product continued to be refined to meet the requests and
needs of the operators at those casinos testing the product. Management believes
that the changes incorporated as a result of input from the tests have enhanced
the product.
Although the AccuHopper is capable of operating on a stand-alone basis,
either by means of hard wire or radio frequency transmission of data, many of
the casinos participating in the field tests of the system have indicated that
they would prefer to have it interface with their existing slot accounting
systems. Two of the primary developers and vendors of slot machine accounting
systems, Bally Systems and Casino Data Systems, have completed the interface
process which allows for the data received from the AccuSystem to be
incorporated into their accounting reports. The interface with the Bally SDS
system is, as of September 9, 1998, undergoing field trial as required by the
Nevada gaming authorities. Should the field trial not result in any significant
operational problems, management anticipates Bally Systems will submit the
interface for approval as required by the gaming authorities in the various
worldwide jurisdictions in which they operate. The interface with Casino Data
Systems was recently submitted for approval to the gaming authorities in various
jurisdictions in the United States in which they operate. Management is also
currently in discussions with other slot accounting software vendors who have
expressed an interest in completing an interface for their online software
accounting systems with AccuHopper.
In addition to working with various slot accounting software companies to
incorporate the AccuHopper into their systems, the Company is also engaged in
discussions with several of the slot machine manufacturing companies to
encourage them to incorporate the AccuHopper as an option for factory
installation in their newly manufactured slot machines. Although discussions
with those companies continue, to date only two slot machines manufacturers have
entered into license agreements with the Company for AccuHopper (see "Marketing"
below).
Marketing
The Company has initiated a comprehensive sales and marketing program for
its product. Management believes there is a worldwide market for the AccuSystem
and/or the components which comprise the system and intends to market its
products either by direct sales or through licensing arrangements with
manufacturers of slot machines, coin hoppers and the major domestic and
worldwide manufacturers of automated accounting systems for slot machines.
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
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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.
License Agreements. Management is attempting to forge strategic alliances
with companies that are already successful in the gaming industry which are
presently looking to enhance their existing products and/or expand their
presence in foreign markets as opportunities for sales growth. In January 1998,
Spinteknology entered into a joint venture with Kinsale Development Proprietary
Limited ("Kinsale"), an Australian company, to form a company named "Spintek
Gaming Pty Ltd. ("SGPL") which will distribute the Company's products in
Australia, New Zealand, Macao, Singapore, Hong Kong, China, Indonesia,
Philippines, South Korea, Guam, Brunei, Thailand, Noumea, Vanuatu, Taiwan, Laos,
Cambodia, Kampuchea, Vietnam, Samoa, Fiji, Nauru, Kiribati, and Tonga (the
"Territory"). Spinteknology, a twenty percent (20%) joint venture participant in
SGPL, will receive a royalty of US$50 per unit sold by SGPL in the Territory in
addition to twenty percent (20%) of the net profits of SGPL.
As of May 31, 1998, the Company had signed four technology licensing
agreements, in which the Company has given a nonexclusive license to four
separate companies for the AccuHopper. These four license agreements are with
SGPL, SUZO International, (N.L.) B.V. ("SUZO"), International Gaming Technology,
Inc. ("IGT") and Alliance/Bally Gaming, Inc. ("Bally"). Each of the agreements
requires a fee to be paid to the Company for each AccuHopper sold by the
licensee. SUZO has completed a field trial at a European casino. While
management is optimistic about its international opportunities, to date no sales
have taken place by any of these companies, nor can there be any assurance that
the Company will recognize revenues as a result of these agreements.
Competition
Management does not believe there is currently any competition for its
hopper-weighing technology. The Company's principal product, AccuSystem, is
capable of operating on a stand-alone basis. In addition, management has adopted
a policy of forming alliances with accounting system manufacturer with a focus
on writing interfaces to incorporate the data generated by AccuSystem into their
systems. Management is diligently working toward solidifying those relationships
in the belief that once a working interface has been written the Company will
benefit from access to the existing customers of the accounting system
manufacturers. Those manufacturers who have completed an interface have a more
complete product to market. Management therefore no longer considers the Company
to be in direct competition with existing data collection and accounting systems
manufacturers.
Raw Materials and Principal Suppliers
The components of AccuSystem and associated products are made from
currently available materials. Such raw materials include steel, aluminum,
copper, brass, plastics, zinc, and silicon, and are currently widely available
to the Company. 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
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suppliers. The principal suppliers to the Company for the components that make
up its AccuSystem and data collection and accounting systems are; ESS
Electronics, GMD Multitek Ltd and American Laser.
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. As of September 19, 1998, the Company has consummated
sales to five casinos for approximately 1,375 AccuHoppers and is in the process
of installing 2,672 AccuHoppers in three other casinos for which it has signed
sales contracts. Once these current installations are completed, the Company
will have recorded sales of over 4,000 AccuHoppers for a total of approximately
$2,000,000, with sales having occurred in Nevada, New Jersey, Minnesota,
Connecticut and Iowa.
Patents, Trademarks, Licenses and Royalty Agreements
The Company currently has patent applications for its hopper weighing
technology pending with the United States Patent Office as well as applications
pending in other countries. Patents have been awarded and the Company feels that
more patents will be issued. However, 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 July 30, 1997, Spinteknology received a patent for proprietary
slot/amusement/vending machine coin-weighing technology from the Department of
Trade and Industry, Republic of South Africa. This patent encompasses hopper
weighing technology used by the Company to thwart technician and player fraud as
well as drop-box counting and weighing of coins. The Company has filed numerous
applications for other countries worldwide under the auspices of the of
international patent treaty guidelines.
On June 3, 1998, Spinteknology was awarded its first patent by the European
Patent Organization (E.P.O.). Another patent received its second publication on
August 26, 1998. Patents issued by the E.P.O. are applicable for eighteen
contracting European states and four designated extension European states. In
regard to the patent issued June 3, 1998, the Company is currently expediting
validation for each of these states and it is anticipated that the validated
patents will be forthcoming. The issued E.P.O. patent, as well as the patent
having been given a second publication, are applicable for the five European
states in which Azkoyen, a Spanish company, has pending patent applications that
may be deemed similar to the Company's E.P.O. patent. Though the granting of a
patent to the Company in the E.P.O. states is considered a mandate of
intellectual property rights, and management believes the Company's claims are
valid and intends to vigorously assert its rights, it is unable to estimate the
possible outcome of any potential proceedings regarding this matter nor the
ultimate financial effect it might have on the Company.
The Company has applied for trademarks for corporate and product
identification in the United States and worldwide. To date, some trademarks have
been issued in various countries and the Company anticipates further trademark
publications in the coming fiscal year.
As of June 30, 1998, the Company had no franchises.
Federal Gaming Regulation
The federal Gambling Devices Act of 1962 (the "Federal Act") makes it
unlawful, in general, for a person to manufacture, deliver, or receive slot
machines (or devices defined as "gaming-type" units, e.g., video poker
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games). The Federal Act also makes it illegal to ship certain slot game
components across state lines as well as operating gaming machines unless that
person or company 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 can
result in seizure and forfeiture of the equipment, as well as other penalties.
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 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/or
distributor file an application for a finding of suitability to manufacture
and/or distribute associated equipment for use or play in Nevada. However,
associated equipment must be approved by the Nevada Board. To date, the Company
has complied with the associated equipment approval process for each location at
which the AccuSystem is installed and/or on field trial in Nevada. 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.
Currently, the Company's product line of hopper assessment technology is
considered "non-gaming" in many US jurisdictions. However, the Company maintains
its registration with the US Attorney General so that any shipments of product,
regardless of destination, are legal under the Federal Act.
Present Gaming Compliance Status
Compliance with United States and international gaming jurisdiction
regulations falls within two distinct areas; suitability of the product (i.e.,
certification that the product meets the standards of the jurisdiction) and
suitability of the corporation and its directors/officers to do business in the
jurisdiction. The Company has achieved compliance standards in both of these
areas.
The Company currently produces a product line that is, in the majority of
gaming jurisdiction, considered "non-gaming". Since AccuSystem does not affect
game outcome in slot machines and does not directly affect revenue reporting, it
is not a gaming device. Generally, such products are defined as "associated
equipment".
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Since the Company does not make a gaming device it has not been required by
most jurisdictions to obtain a "gaming license" (i.e., corporate suitability).
However, since AccuSystem is installed in gaming devices, most jurisdictions
have required certification of the product.
In 1995, the Company submitted a combination of products to the Electronic
Services division of the State of Nevada Gaming Control Board ("SNGCB") for
assessment and certification. The AccuSystem at that time comprised the
AccuHopper weighing technology, AccuTrack user interface software, AccuBoard
machine/coin data acquisition PCB (Printed Circuit Board) and the TEK TOUCH PEN
2000, a data acquisition device that extracted stored data from the AccuBoard.
On October 13, 1995, the SNGCB found that the AccuSystem was suitable and
issued a product approval for use in Nevada. Subsequent approvals by that entity
have been granted up to and including 1998 for hardware, firmware and software
modifications to the original AccuSystem product line.
In September 1997, the Company was given the opportunity to install
AccuSystem into slot machines of Bally's Park Place Casino in Atlantic City, New
Jersey. Again, the Company was not required to obtain a gaming license1, but
certification of AccuSystem by the Division of Gaming Enforcement ("DGE") was
required. The Company submitted AccuSystem to the DGE and the product was found
suitable on October 16, 1997.
In September 1997, the Mohegan Sun Resort Casino, located in Uncasville,
Connecticut, requested the Company to initiate endeavors for product
certification so that that facility could purchase AccuSystem2. The Company
submitted AccuSystem for testing and certification by Gaming Laboratories
International, Inc. ("GLI"), an independent testing facility3 for gaming devices
and associated equipment based in Toms River, New Jersey. GLI found AccuSystem
suitable and issued a certification letter on October 10, 1997 to the Mohegan
tribal gaming commission and the State of Connecticut Department of Revenue
Services. Subsequently, GLI approved hardware/firmware/software upgrades and
issued a second certification letter on February 20, 19984.. Since then,
approvals for AccuSystem by G.L.I. have extended to other gaming jurisdictions,
and modifications to software/firmware have been certified. Independently of the
GLI's findings, on April 15, 1998, the State of Connecticut, Department of
Revenue Service/Division of Special Revenue notified the Mohegan Tribal Gaming
Commission that there had been a reassessment of AccuSystem by that authority.
Because of the possibility of fundamental changes in slot accounting systems
that could be precipitated by the use of AccuSystem, it was the determination of
the state authority that the Company must be registered as a gaming services
entity as defined by the Tribal-State Compact. Registration requires
applications filed for the Company, its directors and officers. It was
stipulated that further business between the company and the Mohegan Sun Casino
was to be suspended pending completion of applications, review of application
material and background investigations.
The Company intends to have all applications submitted in the near future.
The Mohegan Tribal Gaming Commission, pursuant to amended conditions defined by
the Tribal-State Compact can petition the State of Connecticut, Department of
Revenue Service/Division of Special Revenue, to expedite the review of the
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1 The Company was required to obtain a "Vendor Registration" with the customer
casino, which is a document filed with the gaming authorities in New Jersey. A
Vendor Registration allows a company to do business in Atlantic City, but is not
a "gaming license". Each sale in that jurisdiction will require a Vendor
Registration complete for each property/customer.
2 As was the case with New Jersey, the Company was required to obtain a "Vendor
Registration" with the Mohegan tribe. This was accomplished in October 1997.
3 Only four (4) US gaming jurisdictions maintain testing/certification
facilities; Nevada, New Jersey, Mississippi and Montana. Most other US and
Canadian gaming jurisdictions rely on GLI for testing and product certification.
4 GLI can and will issue product approval/certification letters to other
jurisdictions based on a request by a casino and/or Amerindian tribal gaming
commission.
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submitted applications.
In November 1997, the Company was asked to begin licensing procedures by
the Shakopee Mdewakanton Sioux Community Gaming Commission, which is the tribal
entity that oversees compliance matters for the tribal property Mystic Lake
Casino in Minnesota. Due to the compact that tribe has with the state under the
auspices of the National Indian Gaming Act of 1988, all vendors of any gaming
devices and associated equipment are required to be licensed by the tribal
gaming commission. The Company completed its application and a Class C Vendor
gaming license was issued to the Company on January 29, 1998.
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 or suitability will be obtained and that they will not be
revoked, suspended or unsuitably conditioned. There is no assurance that the
Company will be able to obtain in a timely manner the necessary approvals for
its future products as they are developed nor is there assurance that such
approval can be obtained 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
The Company is not subject to any union labor contracts or collective
bargaining agreements, and relations with its employees are satisfactory. As of
September 19, 1998, the Company had thirty-three full time employees at its
corporate facilities in Las Vegas, Nevada.
Research and Development
During the years ended June 30, 1998, 1997 and 1996, the Company expended
approximately $1,327,000, $880,000 and $1,352,000, respectively, on research and
development activities. From inception on March 31, 1995 through the third
quarter of fiscal 1998, the Company and its subsidiaries reported operating
activities as a development stage enterprise. With the development of marketable
product and the commencement of active marketing and sales activities in the
last four months of fiscal 1998, management feels that the Company has emerged
from reporting its financial activities as a development stage enterprise. The
cost of research is not borne directly by the Company's customers.
The Company will incur certain research and development expenses in the
refinement of certain AccuSystem related products currently being researched,
and into the development of new products that utilize the Company's
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proprietary technology that is incorporated into its current products.
Management does not intend to commit significant resources to the development of
products or technologies outside of its current focus until the Company has
achieved positive cash flow from the sales of its existing products.
ITEM 2. DESCRIPTION OF PROPERTIES
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The Company's corporate headquarters are located in Las Vegas, Nevada in a
15,182 square foot building. On August 31, 1998, the Company's lease on the
facility expired, and the Company currently occupies the facility on a
month-to-month basis for a net monthly rental to the Company of $8,350 plus
$2,250 for common area maintenance fees. The Company has entered into a
sixty-two month lease agreement for a 16,903 square foot facility located in the
same general area as the current facility. Approximately three quarters of the
new building will be utilized for office space and the remainder for warehouse,
shop and product assembly. The commencement date of the lease will be the date
when construction is completed and the Company acquires possession of the
premises. Management anticipates that possession will occur in November 1998.
The monthly base rent for the new facility will be $13,130 in the first year
with annual increases to $18,655 for the final twelve months of the lease, plus
$1,690 in estimated monthly common area maintenance fees and landlord operating
expense reimbursement which may increase during the term of the lease based on
possible increases in expenses incurred by the landlord as defined in the lease.
The minimum lease commitment for this noncancellable operating lease will
approximate $92,000 for the year ended June 30, 1999 and will total
approximately $1,125,000 during the sixty-two month term of the lease.
ITEM 3. LEGAL PROCEEDINGS
-----------------
On October 1, 1997, the Company entered into an Interference Settlement
Agreement with Bally Gaming International, Inc./Alliance Gaming Corporation and
filed same with the United States Patent and Trademark Office in Washington,
D.C. In settlement, both parties have agreed to grant to one another
non-exclusive licensing of the coin weighing patent claims that they own,
including the grant of those rights to affiliates. "... Bally acknowledges
Spintek's exclusive right, priority and entitlement to TECHNICIAN FRAUD patent
claims wherever Spintek has patents or patent applications containing such
claims ... Spintek acknowledges Bally's exclusive right, priority and
entitlement to PLAYER FRAUD patent claims wherever Bally has patent or patent
applications containing such claims."
On September 25, 1996, Unique Entertainment, a Nevada Corporation
("Unique"), filed a complaint in Clark County (Las Vegas), Nevada District Court
against Spintek asserting breach of contract and related claims. Unique is an
entertainment agency. It alleges that on November 22, 1995, Unique and the
Company entered into a written contract whereby the agency agreed to provide two
magicians to perform on the Company's behalf at various gaming shows. The
contract price is $80,000. The magicians never in fact performed. The Company
has filed an answer denying liability, specifically asserting that no Company
agent or employee signed the contract and no such signature was or would ever
have been authorized by the Company. The Company further contends that because
the magicians never in fact performed, its liability, if any, would be extremely
limited, and not the full contract price which the plaintiff seeks. To date, the
Unique has conducted virtually no discovery and has done little to pursue the
case. It is anticipated that the case will be tried or settled within the next
few months.
On October 10, 1996, Richard M. Mathis of Reno, Nevada ("Mathis") filed a
complaint in the Washoe County (Reno), Nevada District Court against the
Company, 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, Mathis contends that he was
11
<PAGE>
forced by the Company and Davenport to transfer to Davenport his ownership and
control of the Company, and that, with the Company's assistance, Davenport
defrauded him, breached a fiduciary duty to him and demands actual damages in
excess of $500,000 and punitive damages in excess of $500,000. On January 6,
1997, the Company and Spintek International, Inc. filed a motion to dismiss. On
April 14, 1998, the trial court granted in part the Company's motion to dismiss
and dismissed two of the eleven claims in Mathis' complaint. On July 8, 1998,
the court granted summary judgment to co-defendant Lanier Davenport. Still
pending before the court is the Company's separated motion for summary judgment,
which essentially asserts, among other things, that because the court ruled that
Davenport had committed no wrongdoing, the Company could not be found to have
committed any wrongdoing, as all of Mathis' allegations against the Company are
based solely upon the acts or omissions of Davenport. The Company expects a
ruling on its motion by the end of the calendar year.
The Company has compromised and settled all of the litigation and
binding arbitration between itself, Michael D. Fort ("Fort"), and Sailfin
Investments, Ltd ("Sailfin") , a company that the Company believed to be under
the control of Fort. The Company filed suit on February 14, 1997 against Fort, a
former officer and director of the Company, claiming that Fort must return
$240,000 to the Company that was paid to him in anticipation of a change in
control of the Company that did not actually occur. In addition, the Company
filed suit against Sailfin seeking a declaratory judgment that the Company had
already paid Sailfin in full for services rendered in accordance with the terms
of a consulting services agreement, and was, therefore, not required to make
quarterly royalty payments. The Company also sought the return of certain shares
of the Company's stock that were paid to Sailfin in accordance with the terms of
the consulting services agreement. As a result of the global settlement of the
Fort and Sailfin litigation, each party dismissed all of its claims against the
other. The Company removed the Rule 144 restrictive legend from the certificate
representing the shares of the Company's common stock at issue in the Sailfin
case. Further, each party has agreed to bear its own costs and expenses incurred
in the litigation. Finally, Sailfin dismissed its claim to any royalties on all
past and future sales.
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, 1998.
12
<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.
<TABLE>
<CAPTION>
Common Stock Price
------------------
Bid Prices Ask Prices
---------- ----------
High Low High Low
---- --- ---- ---
<S> <C> <C> <C> <C>
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
Fiscal 1998
1st Quarter 0.56 0.45 0.59 0.45
2nd Quarter 1.14 0.43 1.23 0.45
3rd Quarter 0.73 0.39 0.78 0.39
4th Quarter 0.69 0.42 0.75 0.43
</TABLE>
As of August 31, 1998, the Company had approximately 320 holders of record
of its common stock, representing approximately 6,260,000 shares. Approximately
12,413,000 additional shares were held by Cede & Co. for street name holders of
the Company's common stock. The Company estimates there were approximately 2,000
additional beneficial holders of the Company's common stock.
The Company has not paid any dividends on its common stock, other than a
dividend aggregating approximately $150,000 distributed to stockholders of
record on August 22, 1995. This dividend preceded the acquisition of Gaming. The
Company does not intend to pay any dividends on its common stock in the
foreseeable future.
13
<PAGE>
ITEM 6. MANAGEMENTS' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
----------------------------------------------------------------------
Background Information
Since its inception in March 1995, the Company's business plan has been to
develop and market proprietary gaming and nongaming technology, patent such
technology nationally and internationally, and obtain all necessary governmental
approvals and/or licenses to sell products developed with this exclusive
technology not only in the United States, but worldwide. The Company has focused
its efforts on a slot machine hopper weighing system and certain ancillary
products specifically for the gaming industry ("AccuSystem" or "AccuHopper")
that Spintek began to actively market in the second half of the Company's fiscal
1998. With sales of AccuHopper having occurred in the third and fourth quarters
of fiscal 1998, and continuing into the first quarter of fiscal 1999, the
Company is no longer considered to be a development stage enterprise for
financial reporting purposes. The Company is currently focused on developing
revenues and income from sales of the AccuSystem on both a stand alone basis,
and, as described below, through association with various slot machine
manufacturers and through the interface of AccuSystem with slot machine
accounting systems utilized in the gaming industry. Based on this current
philosophy, management does not intend to commit significant resources to the
development of products or technologies outside of its current focus until it
has achieved positive cash flow from sales of its initial products.
During fiscal 1998, the Company, after various field trials, received
approval of its stand alone AccuSystem product from Gaming Laboratories
International, from the states of Nevada, Mississippi and New Jersey, and from
Native American tribal authorities in the states of Connecticut and Minnesota.
Two of the primary developers and vendors of slot machine accounting systems,
Bally Systems and Casino Data Systems, have completed the interface process
which allows for the data received from the AccuHopper to be incorporated into
their accounting reports. The interface with the Bally SDS system is, as of
September 9, 1998, undergoing field trial as required by the Nevada gaming
authorities. Should the field trial not result in any significant operational
problems, management anticipates Bally Systems will submit the interface for
approval as required by the gaming authorities in the various worldwide
jurisdictions in which they operate. The interface with Casino Data Systems was
recently submitted for approval to the gaming authorities in various
jurisdictions in the United States in which they conduct business operations.
The Company is currently working with other manufacturers of slot machine
accounting systems on the interface of AccuSystem with their systems. No
assurance can be given that any of the above interfaces will ultimately be
successful, or that the various governmental agencies overseeing gaming
activities in jurisdictions where gaming is legal will approve of the
interfacing of the Company's AccuSystem with the above noted vendors of slot
machine accounting systems.
The Company has license agreements with IGT, Bally, SUZO and SGPL that
permits each of them to incorporate the AccuHopper technology in new machines
they produce with a license fee payment to the Company. To date, none of these
companies has produced any slot machines that incorporate the Company's system.
The accompanying financial statements for prior periods reflect certain
reclassifications, which have no effect on net losses or cash flow in those
periods, to conform with classifications in the current period.
14
<PAGE>
Year 2000 Considerations
The approach of the year 2000 has become a potential problem for businesses
utilizing computers in their operations since many computer programs are date
sensitive and will only recognize the last two digits of the year, thereby
recognizing the year" 2000" as the year "1900" or not at all (the "Year 2000
Issue"). Management has made a comprehensive assessment of the Company's
exposure to the Year 2000 Issue and what will be required to ensure that the
Company is Year 2000 compliant.
Spintek's hopper weighing technology is date sensitive and has been
programmed to be Year 2000 compliant. The Company's primary customers are
hotel/casinos who utilize slot machines and/or slot machine accounting systems
into which the Company's product is either installed or interfaced. Although the
Company has not received assurances from the primary slot machine manufacturers
or the slot system manufacturers as to the Year 2000 Issue, the Company expects
that at least a majority of these manufacturers will be Year 2000 compliant.
Spintek is preparing to contact its primary suppliers of key components of
its hopper weighing system to receive assurance that the Year 2000 Issue will
not directly impact their ability to supply the Company with product. The
Company will request that such assurances be received by the end of calendar
1998 which will provide for a one year period to locate alternative suppliers.
Now that the Company has commenced sales of its product, management is in
the process of researching the purchase of an enhanced software system that will
meet its manufacturing, inventory control and accounting needs. The Company will
receive assurance from each supplier that the new system is Year 2000 compliant.
Maintenance or modification costs associated with the Year 2000 Issue will
be expensed as incurred, while the costs of any new software will be capitalized
and amortized over the software's useful life. The Company does not expect to
incur costs in connection with the Year 2000 Issue that would have a material
impact on operations.
Results of Operation
Years Ended June 30, 1998 and 1997
During the third and fourth quarters of 1998, the Company recorded its
initial sales of approximately $444,000. The Company offered sales discounts
from the listed sales price to those casinos who have assisted the Company in
perfecting AccuHopper through field tests. These sales discounts, coupled with
higher initial cost of product due to the initial relatively small quantities of
inventory ordered, negatively impacted the Company's gross margin which was 37%
on these initial sales. On June 30, 1998, the Company reported as a current
liability approximately $247,000 in deposits received from customers for future
sales. As of September 9, 1998, the Company has recorded sales of 1,375
AccuHoppers and is in the process of installing 2,672 additional AccuHoppers in
three casinos in Nevada, Iowa and Minnesota pursuant to the terms of sales
contracts with those casinos.
Research and development expenses increased approximately $446,000, or 51%,
to $1,327,000 for the year ended June 30, 1998 from just over $880,000 in the
prior year. In addition to research and development costs incurred in perfecting
the AccuHopper to operate on a stand alone basis, in fiscal 1998 the Company
significantly increased its focus on enhancing the AccuSystems's ability to
interface with the predominant slot accounting systems currently utilized in the
casino industry. Additional research and development expenses were
15
<PAGE>
incurred in developing ancillary products that will be marketable in conjunction
with the AccuHopper.
Selling, general and administrative expenditures increased approximately
$1,225,000, or 54%, from $2,271,000 in fiscal 1997 to $3,496,000 in fiscal 1998.
An increase in payroll and payroll related expenses of approximately $409,000,
$280,000 of which was for sales and marketing personnel, was the most
significant contributor to the increase. Legal fees for the year ended June 30,
1998 were $898,000 compared to $551,000 in the prior year, an increase of
$347,000 or 63%. Legal expenses incurred in jurisdictional product licensing
activities, debt and equity financing activities, the joint venture with the
Australian company and various litigation matters accounted for this increase in
legal expenses. Other significant increases in selling, general and
administrative expenses were (i) bonus compensation associated with the
Company's SAR Plan implemented on June 1, 1997 increased to $195,000 in fiscal
1998 compared to $15,000 in the prior year; (ii) bad debt expense increased to
$180,000 from $60,000 when comparing the two years in connection with a $240,000
receivable from a former officer and director of the Company that was written
off during the year ended June 30, 1998; and (iii) an increase of $67,000 in
advertising expense.
Interest and other income decreased from $141,000 for the year ended June
30, 1997 to $13,000 for the year ended June 30, 1998, primarily due a $74,000
deposit that was forfeited to the Company in fiscal 1997. Interest expense
decreased from $534,000 for the year ended June 30, 1997 to $71,000 in fiscal
1998 as a result of the expensing of debt discount and issuance costs incurred
in connection with the debenture issued in July 1996 being converted into
preferred stock in October 1996.
Depreciation and amortization expense increased $18,000, or 67%, to $45,000
if fiscal 1998 from $27,000 in the prior year. The increase was primarily due to
purchases of depreciable assets used in the Company's business operations.
As detailed in the accompanying Notes to Financial Statements, valuation
allowances have been established for deferred tax assets due to the Company's
historical results of operations. Therefore, the income statement does not
reflect any income tax benefit that would potentially be realized through net
operating loss carry forwards.
Years Ended June 30, 1997 and 1996
Research and development expenses decreased from $1,352,000 for the year
ended June 30, 1996 to $880,000 for the year ended June 30, 1997. A significant
portion of the research and development expenses incurred in fiscal 1996 were
associated with the Company's slot machine and slot machine hopper projects
which were abandoned in April 1996.
Selling, general and administrative expenses decreased $558,000, or 20%,
from $2,829,000 for the year ended June 30, 1996 to $2,271,000 for the year
ended June 30, 1997. Trade show expenses decreased $336,000, from $363,000 for
the year ended June 30, 1996 to $27,000 in fiscal 1997. In addition, fiscal 1996
included $524,000 in expense which resulted from the extinguishment of employee
contracts which was paid in the form of common stock of the Company to certain
key employees and/or their designees. Legal expenses increased $272,000 to
$551,000 in fiscal 1997 from $279,000 in fiscal 1996, primarily due to legal
fees incurred in in pursuit of perfecting the Company's pending patent on its
hopper weighing technology; legal fees incurred in conjunction with the
Company's various financing and equity transactions; and legal expenses incurred
in various litigation.
Interest and other income increased $123,000, to $141,000 for the year
ended June 30, 1997 from $18,000 in fiscal 1996, primarily due to a $74,000
deposit to the Company that was forfeited in fiscal 1997. Interest expense was
$534,000 for the year ended June 30, 1997 compared to $106,000 for the year
ended June 30, 1996,
16
<PAGE>
an increase of $427,000. The increase was primarily due to the write off of debt
discount and issuance costs associated with the debenture that was issued in
July 1996 and converted into common stock in October, 1996.
Depreciation and amortization expense increased $16,000 or 154%, from
$11,000 in fiscal 1996 to $27,000 in fiscal 1997, primarily due to purchases of
depreciable assets used by the Company in its business operations.
Liquidity and Capital Resources
Since its inception on March 31, 1995 through the third quarter of fiscal
1998, the Company and its subsidiaries have filed their financial statements as
a development stage enterprise, with no sales until the third quarter of fiscal
1998. With additional sales occurring in the fourth quarter of fiscal 1998 and
into the first quarter of fiscal 1999, management feels that the Company has
commenced its principal business operations and is no longer considered to be a
development stage enterprise for financial reporting purposes. The Company has
incurred approximately $13,296,000 in operating losses and $11,092,000 in
negative cash flows from operations during the thirty-nine month period ended
June 30, 1998. Absent significant revenues from operations, the Company has
funded itself primarily through equity and debt transactions.
On June 30, 1998, the Company's working capital deficit was approximately
$1,012,000, which included approximately $190,000 in demand liabilities to
stockholders and affiliates and $484,000 in dividends on preferred stock. Net
cash used in operating activities for the year ended June 30, 1998 was
approximately $3,6002,000.
During the first quarter of fiscal 1998, the Malcolm C. Davenport V Family
Trust (the "Trust"), Malcolm C. Davenport V being a director of the Company and
co-trustee of the Trust with certain beneficial control though no economic
interest, loaned $500,000 to Spinteknology, with such loan being evidenced by a
note and secured by a pledge of the Company's weighing technology. On October 1,
1997, the Trust elected to convert the note, plus accrued interest of
approximately $4,000 thereon, into 1,400,880 shares of the Company's $0.002 par
value common stock. The conversion price of $0.36 per share reflects a 32%
discount from the closing price of $0.53 per share on October 1, 1997. These
shares of common stock were issued at a discount because they are not
registered, were issued with a restrictive legend and the Trust can not
currently sell these shares in the market.
On October 22, 1997, the Company completed a Regulation S Securities
Subscription Agreement ("Agreement") for 1,428 shares of its 4% Convertible
Preferred Stock ("Preferred") in the aggregate amount of $1,428,000 with RBB
Bank Aktiengesellschaft ("RBB"), an offshore bank representing investors
pursuant to Regulation S promulgated under the Act. The Preferred was issued at
a discount of 30%, the net proceeds of which, after discount and before
expenses, was $1,000,000 to the Company. Expenses incurred in conjunction with
the placement of the Preferred totaled $134,000, which consisted solely of
commissions of $110,000 and escrow fees of $24,000. The Company elected to pay
the commissions by issuing 200,000 shares of its $0.002 par value common stock
which bears a restrictive legend.
On May 1, 1998 the Company received a Notice of Conversion ("Conversion")
to convert 500 shares of the Preferred from RBB. Such Conversion resulted in the
company issuing 1,000,690 new shares of the Company's $0.002 common stock to
RBB. The Conversion price was based on the five day average closing bid price of
the common stock for the five days ended April 30, 1998. At June 30, 1998,
management believes that RBB owned approximately 1,101,890 shares of the
Company's common stock, or approximately 6.3% of the total outstanding shares.
At June 30, 1998, there were 8,241 issued and outstanding shares of
Preferred, all of which were held by
17
<PAGE>
RBB. All Preferred plus any accrued and unpaid dividends thereon can be
converted to common stock at any time at the discretion of RBB and any Preferred
not converted prior to December 31, 1999 will automatically be converted on that
date. The conversion to common stock will be based on an average of the closing
bid prices of the common stock for the five days ended immediately prior to the
date of conversion, but not to exceed $3.00 per share. All common stock issued
upon conversion of the Preferred is subject to Registration Rights Agreements.
As of June 30, 1998, the 8,241 shares of preferred stock and the unpaid
dividends of approximately $485,000 would have converted into approximately
18,179,000 shares of additional 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, 1998. Had such a conversion occurred, management believes
that RBB would have owned approximately 19,280,810 shares of the Company's
common stock, or 54.3% of the total outstanding shares assuming no conversion of
the 6% Convertible Notes described below. If both a conversion of the Preferred
and the 6% Convertible Notes had occurred on June 30, 1998, RBB would have owned
19,280,810 shares of common stock of the Company, or approximately 41.2% (see
"Security Ownership of Certain Beneficial Owners and Management").
RBB, the holder of the Preferred, 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 31, 1996 pursuant to the terms and conditions of a
Subscription Agreement entered into by RBB and the Company on July 16, 1996. As
of the date of this document, RBB has not caused the Company to reverse split
its common stock.
On January 21, 1998, the Company issued a Warrant for the purchase of
277,778 shares of the Company's common stock for $0.36 per share to NAC
Investments Properties, Inc. ("NAC") in association with a secured loan from NAC
in the amount of $100,000. The Warrant was exercised by the holder and converted
into the Company's common stock on April 24, 1998 with the issuance of 277,778
shares in settlement of the $100,000 debt.
On February 27, 1998, the Company initiated the private placement of
certain 6% Secured Convertible Notes ("the "Notes") in two separate filings with
identical terms due February 28, 2008 in the aggregate principal amount of a
maximum of $5,000,000 to a limited number of investors with interest payable
annually commencing February 28, 1999. The Notes are secured by a security
interest and collateral assignment of all of the Company's and its subsidiaries
patents, patent applications, trade secrets and all other intellectual rights of
the Company existing or developed prior to the repayment or other settlement of
the Notes. The Notes are convertible by the holders of the Notes at any time
through February 28, 2001 into shares of the Company's $0.002 common stock in a
number equal to 0.8% of the then outstanding shares of the Company's common
stock for each $100,000 in principal amount of the Notes. In addition, the
Company may require conversion at certain times through February 28, 2001 under
certain circumstances. As of June 30, 1998 and July 31, 1998, $2,350,000 and
$4,450,000 of the Notes had been purchased, respectively. Of the $4,450,000 of
Notes issued and outstanding as of July 31, 1998, the Malcolm C. Davenport V
Family Trust (the "Trust") had purchased $4,000,000. An additional $100,000 of
the Notes had been purchased by a member of the Company's board of directors.
As of June 30, 1998, $1,900,000 of the $2,350,000 in principal amount of
the Notes were held by the Trust. If the Trust would have converted the Notes
into common stock on that date based on the average bid price of the shares for
the last five trading days of June, the Trust would have received approximately
6,606,000 shares of additional common stock of the Company. Had such a
conversion occurred, management believes that Malcolm C. Davenport V would have
beneficially owned approximately 9,402,000 shares of the Company's common stock,
or 36.7% of the outstanding shares assuming no conversion of the Preferred
Stock. If both a
18
<PAGE>
conversion of the Preferred Stock and the Notes had occurred on June 30, 1998,
Malcolm C. Davenport V would have owned 9,402,000 shares of common stock of the
Company, or approximately 21.5% (see "Security Ownership of Certain Beneficial
Owners and Management").
As of September 9, 1998, the Company was negotiating with other sources to
secure investors for the remaining $550,000 of principal amount of the Notes.
Upon completion of the installation of approximately 2,672 AccuHoppers at
three casinos which were in process on September 9, 1998, the Company will have
recorded sales of over 4,000 AccuHoppers for a total of approximately
$2,000,000, with sales having occurred in Nevada, New Jersey, Minnesota,
Connecticut and Iowa. In addition, the Company is pursuing other sales
opportunities and, as previously noted in the Results of Operations section
above, has recently obtained the capability to interface with certain slot
machine accounting systems.
Should the Company fail to generate sufficient revenues to support
operations, the Company would have to secure additional debt or equity
financing. If this additional debt or equity financing should not be available,
and no assurances can be given that such additional debt or equity financing can
be located, and if the Company can not generate sufficient revenues to support
operations, the Company will be unable to continue as a going concern.
19
<PAGE>
ITEM 7. CONSOLIDATED FINANCIAL STATEMENTS
---------------------------------
<TABLE>
<CAPTION>
Index to Consolidated Financial Statements Page No.
--------
<S> <C>
Report of Independent Accountants F-1
Consolidated Balance Sheets as of June 30, 1998 and June 30, 1997 F-2
Consolidated Statements of Operations for the Years Ended June 30, 1998,
1997 and 1996 F-3
Consolidated Statement of Changes in Stockholders' Equity (Deficit) for the
Years Ended June 30, 1998, 1997 and 1996 F-4 Consolidated Statement of
Cash Flows for the Years Ended June 30, 1998,
1997 and 1996 F-5
Notes to Consolidated Financial Statements F-7
</TABLE>
<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 as of June 30, 1998 and 1997 and the related
consolidated statements of operations, changes in stockholders' equity (deficit)
and cash flows for each of the three years in the period ended June 30,
1998.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, 1998 and 1997, and the
results of their operations and their cash flows for each of the three years in
the period ended June 30, 1998, in conformity with generally accepted accounting
principles.
The accompanying consolidated financial statements have been prepared assuming
the companies will continue as a going concern. As shown in the consolidated
financial statements, the companies have incurred net losses $13,295,100 since
inception and a net loss of $4,786,581 during the year ended June 30, 1998, and
has a working capital deficit of $1,012,656. 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 and classifications of liabilities that might be necessary should the
companies be unable to continue in existence.
JOSEPH DECOSIMO AND COMPANY, LLP
/s/ JOSEPH DECOSIMO AND COMPANY, LLP
Chattanooga, Tennessee
August 7, 1998
F-1
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
June 30,
--------
1998 1997
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash .................................................... $ 499,551 $ 404,048
Accounts receivables, net ............................... 229,245 186,707
Inventories, net ........................................ 679,445 483,469
Prepaid expenses and other current assets ............... 45,922 3,326
------ -----
Total current assets ................................ 1,454,163 1,077,550
Furniture, fixtures and equipment, net .................... 144,397 130,748
Licenses and patents ...................................... 1,019,490 1,019,490
Note receivable from related company ...................... -- 88,278
Other assets .............................................. 125,542 140,471
------- -------
Total assets .............................................. $ 2,743,592 $ 2,456,537
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable ........................................ $ 851,775 $ 425,900
Demand notes payable to stockholders .................... 170,188 313,412
Demand notes payable to affiliated party ................ 20,000 20,000
Accrued liabilities ..................................... 639,679 128,750
Accrued interest ........................................ 53,084 5,416
Customer deposits ....................................... 247,211 --
Dividends payable ....................................... 484,882 187,884
------- -------
Total current liabilities ........................... 2,466,819 1,081,362
--------- ---------
Long-term debt ............................................ 2,350,000 --
--------- ---------
Stockholders' equity (deficit):
Convertible preferred stock, no par value, 100,000 shares
authorized, 8,241 and 7,313 shares issued and
outstanding ........................................... 5,355,182 4,825,014
Common stock, $0.002 par value, 100,000,000 shares
authorized, 19,990,384 and 17,103,772 shares issued
and outstanding ....................................... 39,982 34,208
Additional paid-in capital .............................. 5,855,303 5,053,066
Accumulated deficit ..................................... (13,295,100) (8,508,519)
Treasury stock, 1,317,329 shares, at cost ............... (28,594) (28,594)
--------- ------- -------
Total stockholders' equity (deficit) .................. (2,073,227) 1,375,175
---------- ---------
Total liabilities and stockholders' equity ................ $ 2,743,592 $ 2,456,537
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-2
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Year Ended June 30,
---------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Sales ....................................... $ 444,011 $ -- $ --
Cost of sales ............................... 280,375 -- --
------- ------ ------
Gross profit .............................. 163,636 -- --
Selling, general and administrative expenses 3,496,315 2,271,161 2,829,010
Research and development expenses ........... 1,326,698 880,353 1,352,025
--------- ------- ---------
Operating loss ............................ (4,659,377) (3,151,514) (4,181,035)
Other income (expense):
Interest and other income ................. 13,454 141,272 18,197
Depreciation and amortization ............. (45,132) (26,999) (10,645)
Interest expense .......................... (70,928) (533,658) (106,459)
Other ..................................... (24,598) -- (798)
------- ------ ----
Net loss .................................... (4,786,581) (3,570,899) (4,280,740)
Dividends on convertible preferred stock .... (328,614) (215,336) --
-------- -------- -------
Net loss applicable to common shares ........ $ (5,115,195) $ (3,786,235) $ (4,280,740)
============ ============ ============
Earnings (loss) per common share information:
Weighted average common shares:
Basic ................................... 18,268,423 11,284,874 9,943,869
========== ========== =========
Diluted ................................. 18,268,423 11,284,874 9,943,869
========== ========== =========
Net loss per common share:
Basic ................................... $ (0.28) $ (0.34) $ (0.43)
============ ============ ============
Diluted ................................. $ (0.28) $ (0.34) $ (0.43)
============ ============ ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-3
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Treasury Additional
Common Stock Stock Preferred Stock Paid-In Accumulated
Shares Amount Amount Shares Amount Capital Deficit
------ ------ ------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, July 1, 1995 3,761,000 $ 4,865 $ - - $ - $ 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 compensation
and for extinguishment of stock options 864,030 1,296,045 (518,418)
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 475,000 950 426,550
Gaming, Inc.
Costs related to acquisition of Spintek (1,014,275)
Gaming, Inc.
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 464,545 929 1,009,784
Net loss (4,280,740)
---------- ------- -------- ------ ---------- ---------- ------------
Balance, June 30, 1996 10,651,762 21,338 (25,994) - - 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 6,033,541 12,068 (1,318) (883,673) 899,549
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
Dividends on preferred stock (215,336)
Net loss (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)
Issuance of common stock to repay
debt 1,678,658 3,358 596,642
Issuance of common stock for conversion
of preferred stock 1,000,690 2,001 (500) (335,232) 364,847
Exercise of stock options 7,264 15 1,488
Stock options issued to nonemployees 58,274
Issuance of preferred stock 200,000 400 1,428 865,400 109,600
Dividends on preferred stock (328,614)
Net loss (4,786,581)
---------- ------- --------- ----- ----------- ----------- ------------
Balance, June 30, 1998 18,673,055 $39,982 $ (28,594) 8,241 $ 5,355,182 $ 5,855,303 $(13,295,100)
========== ======= ========= ===== =========== =========== ============
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-4
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended June 30,
---------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (4,786,581) $ (3,570,899) $ (4,280,740)
Adjustments to reconcile net loss to net cash
used by operating activities:
Depreciation and amortization 45,272 26,999 10,645
Provision for doubtful receivables (60,000) 60,000 -
Allowance for inventory obsolescence 10,000 212,000 28,000
Non-cash interest expense - 394,687
Non-cash operating expenses for common
stock or common stock options 58,274 - 597,146
Other - - 798
Royalty expense used to reduce note
receivable from related company 88,278 75,632 -
(Increase) decrease in assets:
Inventories (205,976) (243,734) (464,235)
Receivables and other 16,871 (356,368) (3,967)
Increase (decrease) in liabilities:
Accounts payable 425,871 13,169 309,334
Accrued liabilities 510,929 (104,537) 233,287
Interest payable 47,668 (70,285) 75,701
Customer deposits 247,212 - -
------- -------- ---------
Net cash used in operating activities (3,602,182) (3,563,336) (3,494,031)
---------- ---------- ----------
Net cash used by investing activities:
Purchases of furniture, fixtures and equipment (85,377) (81,722) (62,021)
Acquisition of licenses and patents - - (145,167)
Proceeds from sale of securities - - 60,292
Note receivable from related company - (4,000) (42,820)
Other (617) - -
---- ------ -------
Net cash used in investing activities (85,994) (85,722) (189,716)
------- ------- --------
Net cash provided by financing activities:
Proceeds from (repayment of) demand notes
payable to related parties 357,176 (446,121) 184,899
Proceeds from (repayment of) advances from
stockholders - (1,004,588) 2,264,670
Proceeds from issuance of convertible debentures 2,350,000 4,503,151 -
Proceeds from issuance of common and treasury
stock 101,503 - 1,331,040
Proceeds from issuance of preferred stock 975,000 880,000 -
------- ------- ---------
Net cash provided by financing activities 3,783,679 3,932,442 3,780,609
--------- --------- ---------
Net increase in cash and cash equivalents 95,503 283,384 96,862
Cash and cash equivalents, beginning of period 404,048 120,664 23,802
------- ------- ------
Cash and cash equivalents, end of period $ 499,551 $ 404,048 $ 120,664
========= ========= =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-5
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Year Ended June 30,
---------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Supplemental schedule of non-cash investing and
financing activities:
Issuance of common stock in exchange for debt ......... $ 500,000 $ 440,000 $ 10,693
=========== =========== ===========
Issuance of common stock and treasury stock for
advances from stockholders .......................... $ -- $ -- $ 1,000,000
=========== =========== ===========
Issuance of common stock and treasury stock
for services ........................................ $ 110,000 $ -- $ 1,014,275
=========== =========== ===========
Issuance of preferred stock in exchange for convertible
debenture, net of unamortized debt issuance costs ... $ -- $ 4,828,687 $ --
=========== =========== ===========
Issuance of common stock in exchange for preferred
stock and dividends payable ......................... $ 366,848 $ 911,617 $ --
=========== =========== ===========
Notes and interest payable to stockholders converted
to additional paid-in capital ....................... $ -- $ 335,435 $ --
=========== =========== ===========
License and patent costs acquired by issue of notes
payable ............................................. $ -- $ -- $ 850,000
=========== =========== ===========
Dividends payable on preferred stock .................. $ (328,614) $ (187,884) $ --
=========== =========== ===========
Supplemental disclosure of cash flow information:
Cash paid for interest ................................ $ 23,259 $ 119,737 $ 33,121
=========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements
F-6
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. ORGANIZATION
Spintek Gaming Technologies, Inc., referred to herein as the "Company" or
"Spintek", was originally incorporated in the State of California on September
11, 1984 and reincorporated in Nevada on August 24, 1998 pursuant to a vote of
the shareholders approving the reincorporation at the Company's annual meeting
on January 21, 1998.. The Company is located in Las Vegas, Nevada. The Company
is authorized to issue 100,000,000 shares of common stock and 100,000 shares of
preferred stock. Its $0.002 par value common stock trades on the over the
counter Bulletin Board under the symbol "SPTK". Until the completion of the
fiscal year ended June 30, 1995, the Company distributed products in the medical
first aid and personal safety field from its corporate offices in Laguna Hills,
California.
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 a
current shareholder of the Company is a significant shareholder of
International. In September 1995, Gaming became a wholly owned subsidiary of the
Company effected by an exchange of common stock of the entities.
In May 1995, Spinteknology, Inc. ("Spinteknology") was incorporated in the
State of Georgia as the wholly-owned subsidiary of Gaming.
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 proprietary technology for
determining the contents of a slot machine hopper and an on-line data collection
system that allows a casino to utilize this financial and security information.
The Company believes this proprietary technology is unique in the gaming
industry.
From inception on March 31, 1995 through the third quarter of 1998, the
Company and its subsidiaries reported operating activities as a development
stage enterprise. With the commencement of active marketing and sales activities
in the fourth quarter of 1998, management feels that the Company is no longer
considered to be a development stage enterprise for financial reporting
purposes. During the thirty-nine month period from inception on March 31, 1995
through the year ended June 30, 1998, the Company incurred net losses of
approximately $13.3 million and negative cash flows from operating activities of
approximately $11.1 million
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
F-7
<PAGE>
Reclassifications. The financial statements for prior periods reflect certain
reclassifications, which have no effect on losses incurred in those periods, to
conform with classifications adopted in the current year.
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 and Cash Equivalents. The Company maintains cash and investment accounts at
financial institutions which may exceed federally insured amounts at times and
which may at times significantly exceed balance sheet amounts due to outstanding
checks. The Company classifies as cash equivalents all highly liquid debt
instruments with a maturity of three months or less when purchased.
Inventories. Inventories are stated at the lower of cost or market. Cost is
determined using the first-in, first-out method.
Furniture, Fixtures and Equipment. Furniture, fixtures and 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.
Licenses and Patent Costs. Spinteknology holds various international patents and
has other patent applications pending in the United States and elsewhere
regarding its coin hopper technology. Deferred patent costs are recorded at cost
and will be amortized over the life of the patents. Management requires that
licenses, patents, other intangible assets and long-lived assets be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of the assets may not be recoverable.
Financial Instruments. The Company's financial instruments recorded on the
balance sheet include 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. (See note 11).
The Company and its wholly-owned subsidiaries file a consolidated federal
income tax return.
F-8
<PAGE>
3. ACCOUNTS RECEIVABLE
<TABLE>
<CAPTION>
Accounts receivable at June 30, 1998 and 1997 consist of the following:
1998 1997
---- ----
<S> <C> <C>
Trade Accounts .......................... $ 224,188 $ --
Other ................................... 5,057 246,707
- ----------------------------------------- --------- ---------
Subtotal ........................... 229,245 246,707
Less allowance for doubtful accounts .... -- (60,000)
--------- ---------
Net ..................................... $ 229,245 $ 186,707
========= =========
</TABLE>
<TABLE>
<CAPTION>
Changes in the allowance for doubtful accounts for the years ended June 30,
1998, 1997 and 1996 are summarized as follows:
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Allowance for doubtful accounts, beginning .. $ (60,000) $ -- $ --
Provision for bad debts ..................... (180,000) (60,000) --
--------- --------- -------
Allowance for doubtful accounts, ending ..... $ -- $(60,000) $ --
========= ========= =======
</TABLE>
4. INVENTORIES
<TABLE>
<CAPTION>
Inventories at June 30, 1998 and 1997 consist of the following:
1998 1997
---- ----
<S> <C> <C>
Raw materials ................................ $ 693,504 $ 483,309
Finished goods
235,941 240,160
Less allowance for obsolescence .............. (250,000) (240,000)
--------- ---------
Net .......................................... $ 679,445 $ 483,469
========= =========
</TABLE>
<TABLE>
<CAPTION>
Changes in the allowance for obsolescence for the years ended June 30,
1998, 1997 and 1996 are summarized below:
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Allowance for obsolescence, beginning .. $(240,000) $ (28,000) $ --
Provision for obsolete inventory ....... (205,130) (212,000) (28,000)
Write-offs ............................. 195,130 -- --
--------- --------- ---------
Allowance for obsolescence, ending ..... $(250,000) $(240,000) $ (28,000)
========= ========= =========
</TABLE>
F-9
<PAGE>
5. FURNITURE, FIXTURES AND EQUIPMENT
<TABLE>
<CAPTION>
Furniture, fixtures and equipment at June 30, 1998 and 1997 consists of the
following:
1998 1997
---- ----
<S> <C> <C>
Furniture and fixtures ................................ $ 29,889 $ 20,909
Equipment ............................................. 174,185 147,763
--------- ---------
204,074 167,672
Less accumulated depreciation ......................... (59,677) (37,924)
--------- ---------
Furniture, fixtures and equipment - net ............... $ 144,397 $ 130,748
========= =========
</TABLE>
6. CONVERTIBLE LONG-TERM DEBT
On July 16, 1996, the Company issued a $7,143,000, 4% Convertible Debenture
(the "Debenture") due December 31, 1997. The Debenture was issued to an offshore
investor pursuant to Regulation S promulgated under the Securities Act of 1933
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.
On February 27, 1998, the Company initiated the private placement of
certain 6% Secured Convertible Notes (the "Notes") in two separate filings with
identical terms due February 28, 2008 in the aggregate principal amount of a
maximum of $5,000,000 to a limited number of investors with interest payable
annually commencing February 28, 1999. The Notes are secured by a security
interest and collateral assignment of all of the Company's patents, patent
applications, trade secrets and all other intellectual rights of the Company
existing or developed prior to the repayment or other settlement of the Notes.
The Notes are convertible by the holders at any time through February 28, 2001
into shares of the Company's $0.002 par value common stock in a number equal to
0.8% of the then outstanding shares of the Company's common stock for each
$100,000 in principal amount of the Notes. In addition, the Company may require
conversion at certain times through February 28, 2001 under certain
circumstances. As of June 30, 1998 and July 31, 1998, $2,350,000 and $4,450,000
of the Notes had been purchased, respectively. Of the $4,450,000 of Notes issued
and outstanding as of July 31, 1998, the Malcolm C. Davenport Family Trust,
Malcolm C. Davenport being a director of the Company and co-trustee of the trust
with certain beneficial control though no economic interest, had purchased
$4,000,000.
7. 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% Convertible 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.
F-10
<PAGE>
The Company has issued 10,059 shares of preferred stock to RBB Bank
Aktiengesellschaft (the "Holder"), an offshore bank representing investors
pursuant to Regulation S promulgated under the Securities Act of 1933, including
7,202 shares on October 1, 1996 in exchange for $7,143,000 principal amount of
the Debenture plus accrued interest; and, pursuant to Regulation S Securities
Subscription Agreements (a) 1,429 shares of preferred stock on April 21, 1997
for which the Company received $880,000 after discount and commissions; and (b)
1,428 shares of preferred stock on October 22, 1997 for which the Company
received approximately $1,000,000 after discount. In conjunction with the
October 1997 transaction, the Company incurred commission expense of $100,000
which was paid through the issuance of 200,000 shares of the Company's $0.002
par value common stock.
The Holder has converted a total of 1,818 shares of preferred stock into
common stock in three transactions since the initial issuance of the preferred
stock, as follows: (a) on November 21, 1996, 360 shares of preferred stock were
converted into 1,113,883 shares of common stock at an average price of $0.325
per share; (b) on June 5, 1997, 958 shares of preferred stock were converted
into 4,919,658 shares of common stock at a conversion price of $0.20 per share;
and (c) on May 1, 1998, 500 shares of preferred stock were converted into
1,000,690 shares of common stock at a conversion price of $0.53 per share. Each
of the conversion prices was based on the closing bid price of the common stock
for the five days ended immediately prior to the date of the notices of
conversion.
At June 30, 1998, there were 8,241 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.
At June 30, 1998, the 8,241 shares of preferred stock and the unpaid
dividends of approximately $485,000 would have converted into approximately
18,179,000 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, 1998. Had such a conversion occurred, management believes
that the Holder would have owned approximately 19,281,000 shares of common stock
of the Company, or approximately 54.3% of the common shares that would have been
issued and outstanding at June 30, 1998 assuming no conversion of the Notes. If
a conversion of both the Notes and the preferred stock into common stock had
occurred on June 30, 1998, the Holder of the preferred stock would have owned
approximately 19,281,000 shares of common stock of the Company, or approximately
41.2%.
6% Secured Convertible Notes - On February 27, 1998, the Company initiated the
issuance of a maximum of $5,000,000 of 6% Secured Convertible Notes (the
"Notes"), with $2,350,000 having been issued as of June 30, 1998 and a total of
$4,450,000 as of July 31, 1998, $4,000,000 of which are held by the Malcolm C.
Davenport V Family Trust. The Notes are convertible by the holders at any time
through February 28, 2001 into shares of the Company's $0.002 per value common
stock in a number equal to 0.8% of the then outstanding shares of the Company's
common stock for each $100,000 in principal amount of the Notes.
At June 30, 1998, the $2,350,000 principal amount of the Notes would have
converted into approximately 7,982,000 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, 1998.
Common Stock - The Company's Articles of Incorporation authorize the issuance of
up to 100,000,000 shares of $0.002 par value common stock. At June 30, 1998,
19,990,384 shares had been issued, of which 1,317,329 shares were held as
treasury shares by the Company. As noted above, a total of 7,034,231 shares of
common stock
F-11
<PAGE>
have been issued to the Holder when it elected to convert a portion of its
preferred stock.
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.
On January 20, 1998, the Company issued a Warrant for the purchase of
277,778 shares of the Company's common stock for $0.36 per share to NAC
Investments Properties, Inc. N.V ("NAC") in association with a secured loan from
NAC in the amount of $100,000. On April 24, 1998, NAC exercised the Warrant and
was issued 277,778 shares of common stock in settlement of the loan.
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 stock at December 31, 1996 with a basis at par value,
or $2,600.
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. In addition, as noted in Common Stock above, the Company issued
a Warrant for the purchase of 277,778 shares of its common stock on January 20,
1998 that was exercised by the holder on April 24, 1998.
Stock Options - On January 21,1998, the Company's stockholders approved an
increase in the number of shares of common stock available under the Company's
1996 Stock Option Plan from 1,500,000 shares to 4,000,000.shares. Under the
Plan, incentive and nonqualified options may be issued to purchase 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 component 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 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.
F-12
<PAGE>
<TABLE>
<CAPTION>
Summarized stock option information follows:
Weighted
Number of Average
Shares Exercise
Under Price Per
Option Share
------ -----
<S> <C> <C>
Outstanding at beginning of year 3,185,946 $0.36
Granted 1,353,006 0.50
Exercised (7,264) 0.21
Forfeited (21,790) 0.21
----------
Outstanding at end of year 4,509,898 0.21
==========
</TABLE>
<TABLE>
<CAPTION>
Options
Options Outstanding Exercisable
------------------- -----------
Weighted Weighted Weighted
Average Average Average
Remaining Exercise Exercise
Range of Exercise Number of Contractual Price Per Number of Price Per
Price Per Share Shares Life (years) Share Shares Share
--------------- ------ ------------ ----- ------ -----
<S> <C> <C> <C> <C> <C>
Employees:
$0.20 - $0.3125 1,147,032 8.87 $0.2231 961,019 $ 0.2221
$0.43 - $0.62 2,094,563 9.10 0.4945 1,336,413 0.4812
$0.75 - $1.20 95,372 8.56 0.9989 56,715 1.1467
--------- ---------
3,336,967 2,354,147
--------- ---------
Non-employees:
$0.20 - $0.3125 426,360 8.86 0.2264 426,360 0.2264
$0.43 - $0.65 746,751 9.02 0.4665 746,571 0.4665
--------- ---------
1,172,931 1,172,931
--------- ---------
Totals 4,509,898 3,572,078
========= =========
</TABLE>
F-13
<PAGE>
The Company applies APB Opinion No. 25 and related interpretations in
accounting for the stock option plan. Accordingly, no compensation expense has
been recognized for stock options issued to employees. FASB Statement 123
"Accounting for Stock-Based Compensation" ("SFAS 123") was issued in 1995 and,
if fully adopted, changes the methods for recognition of cost on plans similar
to those of the Company. Had compensation cost for the Company's stock-based
compensation plans been determined based on the fair market value of options on
the dates of grant in 1998, 1997 and 1996 using the Black-Scholes option-pricing
model with the following assumptions: (a) no dividends, (b) expected volatility
of 33%, 75% and 75% for 1998, 1997 and 1996, respectively, (c) risk free
interest rates of 6%, 6% and 6% for 1998, 1997 and 1996, respectively, and (d)
expected lives of 9.75 years, 9.5 years and 9.5 years, respectively, the effect
on net income and earnings per share would be as follows:
<TABLE>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Net loss:
As reported $(4,786,581) $(3,570,899) $(4,280,740)
============ ============ ============
Pro-forma $(5,072,386) $(4,313,028) $(4,330,112)
============ ============ ============
Loss per common share:
As reported $ (0.28) $ (0.34) $ (0.43)
============ ============ ============
Pro-forma $ (0.30) $ (0.40) $ (0.44)
============ ============ ============
</TABLE>
The weighted average fair market values of options granted in 1998, 1997
and 1996 were $0.50, $0.35 and $1.20, respectively.
Although the Company has not recognized compensation expense in its
financial statements for stock options issued to employees, expense has been
recognized in the financial statements for stock options issued to non-employees
in the amount of $58,274 for the year ended June 30, 1998 .
8. 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 $194,998 and $15,458 was recognized for the years
ended June 30, 1998 and 1997, respectively.
F-14
<PAGE>
9. COMMITMENTS
The Company was obligated to pay royalty payments of $100 per gaming
apparatus for all licensed slot machines manufactured and sold by the Company
embodying certain technology under a license agreement, dated April 6, 1995,
with International. The term of the agreement was 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 required a minimum
royalty of $100,000 per year commencing one year after its effective date. The
Company did not sell any gaming apparatus subject to this agreement. The Company
advanced a total of $190,000 to International, $5,000 of which was advanced in
fiscal 1997 with the balance having been advanced prior to that year. The
minimum 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, and had been reduced to
zero as of June 30, 1998. The Company and International entered into a
Termination of Agreement and Reciprocal Release in September 1998 that cancelled
the royalty agreement effective June 30, 1998.
The Company was obligated to pay one of its consultants, Sailfin
Investments, Ltd ("Sailfin") a $5 royalty for each input/output board ("I/O
Board") the Company sold, the technology for which was jointly developed by the
Sailfin and the Company. The I/O Board, as designed, proved to be inefficient
and inaccurate. In connection with certain other litigation, Sailfin dismissed
its claim to any royalties on all past or future sales of the I/O Board.
The Company's lease on its 15,182 square foot facility in Las Vegas, Nevada
expired on August 31, 1998, and converted to a month to month tenancy at a net
to the Company base rent of $8,350 plus an additional $2,250 per month for
common area maintenance fees. The Company has entered into a sixty-two month
lease agreement for a 16,903 square foot facility located in the same general
area as the current facility. The commencement date of the lease will be the
date when construction is finished and the Company acquires possession which is
expected to occur in November 1998. Rent on the new facility will be $13,130 in
the first year of the lease with increases each year to a maximum of $18,655 for
the fifth year. The following is a schedule of future minimum rent payments due
under the new lease for the years ended June 30:
1999 $ 92,300
2000 201,796
2001 229,139
2002 236,013
2003 243,094
2004 123,343
----------
Total $1,125,685
==========
Rent expense for the years ended June 30, 1998, 1997 and 1996 was $123,829,
$135,021, and $141,797, respectively.
10. 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
F-15
<PAGE>
$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. On June 30, 1998, the unpaid principal
balance was $170,188 with accrued interest of $732. These amounts were repaid in
July 1998.
During the first quarter of 1998, the Malcolm C. Davenport V Family Trust,
(the "Trust") loaned $500,000 to Spinteknology, with such loan being evidenced
by a note and secured by a pledge of the Company's weighing technology. On
October 1, 1997, the Trust elected to convert the note, plus accrued interest of
approximately $4,000 thereon, into 1,400,880 shares of the Company's $0.002 par
value common stock. The conversion price of $0.36 per share reflects a 32%
discount from the closing price of $0.53 per share on October 1, 1997. These
share of common stock were issued at a discount because they are not registered,
were issued with a restrictive legend and the Trust can not currently sell these
shares in the market.
As discussed in Note 6 to these financial statements, on February 27, 1998
the Company initiated the private placement of certain 6% Secured Convertible
Notes in the amount of $5,000,000. The Malcolm C. Davenport V Family Trust
purchased $1,000,000 of the Company's Notes in March, 1998, an additional
$900,0000 in April, 1998, and subsequent to June 30, 1998, an additional
$2,100,000 of the Notes in July 1998. In addition, Patrick W. McGrath, a member
of the Company's board of directors, purchased $100,000 of the Company's Notes
in June 1998.
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, 1998 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, 1998 the Company did not
owe any monies to Mr. Malcolm C. Davenport, Jr.
F-16
<PAGE>
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, 1998 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. There was no accrual during fiscal 1998. At June 30, 1998
the unpaid principal balance on the notes remained at $20,000, plus accrued
interest of $4,042. It is the intent of Sarah L. Davenport and the Company to
convert this debt plus accrued interest at the time of the conversion into
Common Stock of the Company on or about September 30, 1998.
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.
F-17
<PAGE>
11. INCOME TAXES
<TABLE>
<CAPTION>
The provision for income taxes for the years ended June 30, 1998, 1997 and
1996 are summarized as follows:
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Deferred provision $ 76,000 $ (149,900) $ (64,900)
Tax benefit of net operating loss carryforward
(1,765,000) (1,138,000) (1,537,500)
----------- ----------- -----------
(1,689,000) (1,287,900) (1,602,400)
Change in valuation allowance 1,689,000 1,287.900 1,602,400
----------- ----------- -----------
$ -- $ __ $ --
=========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
The provision for income taxes for the years ended June 30, 1998, 1997 and
1996 differs from the amounts computed by applying the federal statutory rate to
income before provision for income taxes as follows:
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Income tax at federal statutory rate $ 1,627,000 $ 1,214,000 $ 1,455,500
State income tax, net of federal benefit 191,500 142,800 171,200
Valuation allowance (1,689,000) (1,287,900) (1,602,400)
Other (129,500) (68,900) (24,300)
-------------- ------------- --------------
$ -- $ -- $ --
============== ============= ==============
</TABLE>
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, 1998, the Company has $6,786,200 net operating loss
carry-forwards available to reduce future taxable income which will expire in
future periods as follows:
Fiscal Year Ending Amount
------------------ ------
2010 $ 49,000
2011 1,311,000
2012 235,200
2013 5,191,000
---------
$ 6,786,200
===========
F-18
<PAGE>
<TABLE>
<CAPTION>
The following is a summary of the significant components of the Company's
deferred tax assets for the years ended, June 30, 1998 and 1997:
1998 1997
---- ----
<S> <C> <C>
Net operating loss carryforward $ 2,307,000 $ 3,021,000
Inventory 146,000 91,000
Receivables - 53,000
Deferred start-up costs (2,399,000) -
Other 8,000 6,000
Valuation allowance (4,860,000) (3,171,000)
----------- ----------
$ -- $ --
=========== =============
</TABLE>
12. LEGAL PROCEEDINGS
On October 1, 1997, the Company entered into an Interference Settlement
Agreement with Bally Gaming International, Inc./Alliance Gaming Corporation and
filed same with the United States Patent and Trademark Office in Washington,
D.C. In settlement, both parties have agreed to grant to one another
non-exclusive licensing of the coin weighing patent claims that they own,
including the grant of those rights to affiliates. "... Bally acknowledges
Spintek's exclusive right, priority and entitlement to TECHNICIAN FRAUD patent
claims wherever Spintek has patents or patent applications containing such
claims ... Spintek acknowledges Bally's exclusive right, priority and
entitlement to PLAYER FRAUD patent claims wherever Bally has patent or patent
applications containing such claims."
On September 25, 1996, Unique Entertainment, a Nevada Corporation
("Unique"), filed a complaint in Clark County (Las Vegas), Nevada District Court
against Spintek asserting breach of contract and related claims. Unique is an
entertainment agency. It alleges that on November 22, 1995, Unique and the
Company entered into a written contract whereby the agency agreed to provide two
magicians to perform on the Company's behalf at various gaming shows. The
contract price is $80,000. The magicians never in fact performed. The Company
has filed an answer denying liability, specifically asserting that no Company
agent or employee signed the contract and no such signature was or would ever
have been authorized by the Company. The Company further contends that because
the magicians never in fact performed, its liability, if any, would be extremely
limited, and not the full contract price which the plaintiff seeks. To date, the
Unique has conducted virtually no discovery and has done little to pursue the
case. It is anticipated that the case will be tried or settled within the next
few months.
On October 10, 1996, Richard M. Mathis of Reno, Nevada ("Mathis") filed a
complaint in the Washoe County (Reno), Nevada District Court against the
Company, 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, Mathis contends that he was forced by the Company and Davenport to
transfer to Davenport his ownership and control of the Company, and that, with
the Company's assistance, Davenport defrauded him, breached a fiduciary duty to
him and demands actual damages in excess of $500,000 and punitive damages in
excess of $500,000. On January 6, 1997, the Company and Spintek International,
Inc. filed a motion to dismiss. On April 14, 1998, the trial court granted in
part the Company's motion to dismiss and dismissed two of the eleven claims in
Mathis' complaint. On July 8, 1998, the court granted summary judgment to
co-defendant Lanier Davenport. Still pending before the court is the Company's
separated motion for summary judgment, which essentially asserts, among other
things, that because the court ruled that Davenport had committed no wrongdoing,
the Company could not be found to have committed any wrongdoing, as all of
Mathis' allegations against the Company are based solely upon the acts or
F-19
<PAGE>
omissions of Davenport. The Company expects a ruling on its motion by the end of
the calendar year.
The Company has compromised and settled all of the litigation and
binding arbitration between itself, Michael D. Fort ("Fort"), and Sailfin
Investments, Ltd ("Sailfin"), a company that the Company believed to be under
the control of Fort. The Company filed suit on February 14, 1997 against Fort, a
former officer and director of the Company, claiming that Fort must return
$240,000 to the Company that was paid to him in anticipation of a change in
control of the Company that did not actually occur. In addition, the Company
filed suit against Sailfin seeking a declaratory judgment that the Company had
already paid Sailfin in full for services rendered in accordance with the terms
of a consulting services agreement, and was, therefore, not required to make
quarterly royalty payments. The Company also sought the return of certain shares
of the Company's stock that were paid to Sailfin in accordance with the terms of
the consulting services agreement. As a result of the global settlement of the
Fort and Sailfin litigation, each party dismissed all of its claims against the
other. The Company removed the Rule 144 restrictive legend from the certificate
representing the shares of the Company's common stock at issue in the Sailfin
case. Further, each party has agreed to bear its own costs and expenses incurred
in the litigation. Finally, Sailfin dismissed its claim to any royalties on all
past and future sales.
F-20
<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
------------------------------------------------------------------------
Directors and Executive Officers
The following table sets forth the names and ages of the directors and
executive officers of the Company, all positions held with the Company as of
September 1, 1998 and a description of the business experience of each
individual for at least the past five years.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Gary L. Coulter 52 Chairman of the Board and Chief Executive Officer
Malcolm C. Davenport V 46 Director and Secretary
Patrick W. McGrath 44 Director
Robert E. Huggins 51 President and Chief
Operating Officer
George P. Miller 54 Chief Financial Officer
Erik R. Batzloff 45 Vice President - Compliance and Administration
Robert G. Guinn, Jr. 32 Vice President - Research and Development
Patrick J. Schmit 28 Vice President - Sales
</TABLE>
Mr. Coulter has been a member of the Board of Directors of the Company since
April 1996. He was elected Vice Chairman of the Board and Chief Operating
Officer in April 1996, and became Chairman of the Board and Chief Executive
Office in October 1996. He was elected President in October 1996 and served in
that capacity until June 30, 1998. Beginning July 1, 1998, Mr. Coulter will
relinquish his duties as President and Chief Operating Officer to Mr. Huggins.
Mr. Coulter serves on the Board of Directors of Tapistron International, Inc., a
publicly traded company which produces specialty carpet manufacturing machines.
Immediately prior to joining Spintek, Mr. Coulter was in the private practice of
law with Malcolm C. Davenport V. From April 1986 to November 1995, Mr. Coulter
served as President, Chief Executive Officer and Chief Operating Officer of
various corporations. He was President, Chief Executive Officer and a Director
of Omega International, Inc., a developer and distributor of natural health
products from August 1992 until December 1994; President, Chief Operating
Officer, and Director from April 1986 until August 1992 of Woodruff Investment
Company, a developer, manager, and financier of real estate investments. Prior
to joining the Woodruff Investment Company, Mr. Coulter was in the private
practice of law from June 1971 until April 1986. Mr. Coulter obtained his
graduate degree from Emory University, his Juris Doctorate, cum laude, from the
University of Georgia School of Law and his Master of Laws (Taxation) from New
York University School of Law.
Mr. Davenport has been a member of the Board of Directors of the Company
since September 1995 and Secretary since October 1996. Mr. Davenport was a
partner in the law firm of Ponder and Davenport, P.C. from
21
<PAGE>
1990 through November 1992 and has practiced law in West Point, Georgia from
December 1992 through the present. From October 1995 until April 1996, he and
Mr. Coulter were partners in the law firm of Coulter & Davenport located in
Atlanta, Columbus and West Point, Georgia. Mr. Davenport is a member of both the
Alabama and Georgia Bar Associations and is a Certified Public Accountant and a
member of the Alabama CPA Society. From January 1995 to June 1998, he was a
partner in the firm of Davenport & Sikes, Certified Public Accountants in
Roanoke, Alabama. He is a director of several companies, including public
companies American Artists Film Corporation, a public company, ITC DeltaCom,
Inc., and ITC Holdings and several of its affiliates. Mr. Davenport earned his
Juris Doctorate from Cumberland School of Law at Sanford University in
Birmingham, Alabama.
Mr. McGrath has been a director of the Company since December 1997. From
January 1992 through the present, he has been an investor on his own behalf and
served as a corporate financial advisor to various public and private
corporations. From 1974 through December 1978, he was Special Assistant to the
C.E.O. of Waterford Crystal and served as Executive Director of Waterford Glass,
P.L.C. from 1981 through December 1986. He was a Director of Crest Investment
Trust, Ltd. from 1984 through December 1992 and also Executive Vice President,
Saint George Crystal Glass from 1986 through December 1988. Mr. McGrath is a
citizen of the U.K. but is currently residing in Newport Beach, California. He
holds a Bachelor of Business Science degree from Trinity College, Dublin,
Ireland, and a Masters in Business Administration from Harvard University.
Mr. Huggins served as Senior Vice President of the Company since April 1997,
and Chief Financial Officer since November 1995. As of August 1, 1998, Mr.
Huggins yielded his positions as Senior Vice President and Chief Financial
Officer, and was named President and Chief Operating Officer. Mr. Huggins is a
Certified Public Accountant who from February 1992 until February 1995 served as
the Chief Accounting Officer and Secretary for Elsinore Corporation , a publicly
traded company. Prior to February 1992, Mr. Huggins served in various capacities
with other gaming companies, including, Vice President, Finance and Chief
Financial Officer for United Gaming, Inc. (now Alliance Gaming, Inc.), as well
as President of two of its casino subsidiaries, Controller for Caesars Palace in
Las Vegas, and Controller for M&R Investments, Inc. (Dunes Hotel and Country
Club). Prior to his experience in the gaming industry, Mr. Huggins was with the
firm of Haskins & Sells (now Deloitte & Touche, LLP) for four years, where he
was responsible for planning and supervising casino audit engagements. Mr.
Huggins received a Bachelor of Science degree with Honors in Accounting at the
University of Nevada, Las Vegas, in 1973.
Mr. Miller joined the Company on August 1, 1998 as Chief Financial Officer.
From July 1996 through July 1998, Mr. Miller was Director of Finance for Rio
Hotel & Casino, Inc., where he was responsible for financial reporting
activities, including SEC filings, and the coordination of internal/external
audit functions. From February 1996 through June 1996, he served as assistant
treasurer and corporate controller for Mikohn Gaming Corporation where he was
responsible for financial reporting and SEC filings for operations that included
multiple manufacturing/distribution facilities in the U.S. and internationally.
From 1991 to 1994, Mr. Miller was vice president and corporate controller of
Sahara Gaming Corporation, a public company that operated four hotel/casino
facilities in Las Vegas and Laughlin, Nevada. Mr. Miller served on the board of
directors of Sahara Gaming Corporation, now known as Santa Fe Gaming
Corporation, until he resigned due to his employment with the Rio Hotel & Casino
in July 1996. Mr. Miller, a Certified Public Accountant, received a Bachelor of
Science degree from California State University at Long Beach.
Mr. Batzloff joined the Company in November 1996 as Vice President of
Compliance and as Vice President of Administration since 1997. His duties
include, among other items, compliance, marketing, documentation and quality
assurance. Mr. Batzloff has been in gaming in California and Nevada for over
fourteen years. From September 1992 until November 1996, he was compliance
officer with Mikohn, Inc., a publicly traded manufacturer of gaming devices,
online accounting systems and associated equipment. From July 1985 until
September 1992, Mr. Batzloff worked for United Gaming, Inc. (now Alliance
Gaming), serving first as
22
<PAGE>
a technical writer and ending his tenure as the investor relations officer. Mr.
Batzloff received a Bachelor of Arts degree in History and English Literature,
with honors, from San Diego State University in 1975. He also obtained a post
graduate teaching certificate.
Mr. Guinn has been Vice President of Product & Research Development since
April 1997. From January 1992 until joining the Company, Mr. Guinn was Vice
President of Engineering for Casino Data Systems, a publicly traded manufacturer
of slot machines, on line slot information and management systems ("Systems"),
and associated equipment. Mr. Guinn joined CSDS when it was a research and
development company and assisted in the development of Systems and oversaw
Systems installation in over 100,000 slot machines at over 90 locations around
the United States and Canada. Mr. Guinn has also assisted in the development and
patenting of certain slot machine games. Prior to joining CSDS, he was Southern
Region Support Manager for Bally Systems from August 1987 until January 1992. In
1987, Mr. Guinn graduated from Ganzaga University with a Bachelor of Science
degree in Computer Science, minoring in Business Administration.
Mr. Schmit has been Vice President of Sales since July 1997. Prior to
joining the Company, Mr. Schmit was with Casino Data Systems from February 1994
until June 1997 and was serving as an Account Executive at Casino Data Systems
when he joined the Company. In such capacity, he coordinated sales activities
with major corporate customers, and worked extensively with casino operators and
CDS's research and development group to develop innovative software and gaming
equipment. He holds a Bachelor of Arts degree in Business Administration with a
major in marketing from the University of Iowa.
Compliance with Section 16 of the Securities Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires directors,
executive officers and 10% or greater shareholders of the Company ("Reporting
Persons") to file with the Securities and Exchange Commission initial reports of
ownership (Form 3), reports of changes in ownership of equity securities of the
Company (Form 4) and annual reports of ownership (Form 5). To the Company's
knowledge, based solely on its review of the copies of such reports furnished to
the Company and written representations that certain reports were not required,
during the fiscal year ended June 30, 1998. Reporting Persons have complied with
all applicable Section 16(a) filing requirements with one exception. The October
1, 1997 transaction reported on Form 4 on May 7, 1998 whereby the Malcolm C.
Davenport V Family Trust (the "Trust") was issued 1,400,880 shares of the
Company's common stock with restrictive legend in exchange for a $500,000 debt
owed to the Trust by the Company (see "Related Party Transactions" elsewhere in
this Form 10-KSB). The Company has listed RBB Bank Aktiengesellschaft ("RBB") as
a beneficial owner of more than ten percent (10%) of a class of stock, but RBB
disputes beneficial ownership. RBB has represented to the Company that it holds
stock for the true beneficial owners and that none of these owners hold ten
percent (10%) or more of the Company's stock.
ITEM 10. EXECUTIVE COMPENSATION
----------------------
Compensation of Directors
For service on the Board of Directors, directors who are not employees of
the Company currently receive no compensation for each meeting of the Board of
Directors other than options to purchase common stock of the Company and
reimbursement for expenses which are related to attending the board meetings.
During fiscal 1998 Mr. McGrath, one of the two directors who are not employees,
received options to purchase 100,000 shares of common stock at the closing
market price on the dates of the grants. In addition, Mr. Davenport and Mr.
McGrath received additional options to purchase 54,852 and 9,440 shares of
common stock, respectively, to
23
<PAGE>
avoid dilution of options they previously had been issued. All of these options
were vested as of June 30, 1998. Directors who are employees of the Company
receive no additional compensation for serving on the Board of Directors.
Executive Compensation
The following table sets forth information for the years ended June 30,
1998, 1997 and 1996 concerning compensation of the chief executive officer and
all other executive officers of the Company whose salary and bonus exceeded
$100,000 during the last fiscal year ("Named Executive Officers"):
<TABLE>
<CAPTION>
Summary Compensation Table
Long Term
Compensation
Annual Compensation Awards
Other Securities
Fiscal Annual Underlying
Name Year Salary($)(1) Bonus($)(2) Compensation ($) Options
---- ---- ------------ ----------- ---------------- -------
<S> <C> <C> <C> <C> <C>
Gary L. Coulter (1)(3) 1998 248,067 0 39,346 (4) 338,289
Chairman of the Board of 1997 156,000 0 18,206 (4) 1,162,176
Directors, Chief Executive 1996 28,615 0 0 0
Officer
Lanier M. Davenport (5) 1997 72,923 0 8,432 (6) 0
(formerly Chairman of the 1996 65,640 0 68,483 (6) 0
Board
Of Directors and Chief
Executive Officer)
Robert E. Huggins (1)(7) 1998 170,670 0 9,000 (8) 155,431
President and Chief 1997 150,000 0 10,015 (8) 508,452
Operating Officer 1996 72,680 0 21,538 (8) 0
Robert G. Guinn, Jr. 1998 110,000 0 2,077 (9) 27,426
Vice President, Research and 1997 23,269 0 0 145,272
Development
<FN>
- --------------
(1) Salaries in fiscal 1998 and 1997 includes $30,000 for each year paid to Mr.
Coulter and $30,000 for each year paid to Mr. Huggins in lump sums in
November 1997 and February 1997, as an incentive to remain with the Company
as a result of a possible change in control situation which occurred in
November 1996.
(2) In June 1997, the Board of Directors approved a bonus plan based on stock
price performance for the executive officers, directors and advisory
directors of the Company. (see the "Other Long-Term Incentive Awards" below
for a description of the plan.
(3) Mr. Coulter joined the Company as Vice Chairman and Chief Operating Officer
in April 1996 and assumed the positions of Chairman of the Board, Chief
Executive Officer and President in October 1996. He relinquished his
position as President and Chief Operating Officer to Mr. Huggins in July
1998.
(4) Represents taxable fringe benefits for a leased car and housing allowance
which were provided to Mr. Coulter during fiscal 1997 and 1998.
24
<PAGE>
(5) In October 1996, Mr. Davenport resigned as Chairman of the Board and Chief
Executive Officer and Mr. Coulter became Chairman and Chief Executive
Officer.
(6) Includes taxable fringe benefits for automobile allowance and health
insurance of $8,432 and $17,504 for fiscal 1997 and 1996, respectively. In
addition, fiscal 1996 includes $50,979 of consulting for the Company's
subsidiary, Spintek Gaming, Inc., and the conversion of options to purchase
4,000 common shares of Spintek Gaming, Inc. into actual shares of the
common stock of the Company in conjunction with the acquisition of Spintek
Gaming, Inc. on September 14, 1995.
(7) Mr. Huggins relinquished his roles as Senior Vice President in July 1998
and Chief Financial Officer in August 1998 to become President and Chief
Operating Officer of the Company.
(8) Includes taxable fringe benefits for automobile allowance and health
insurance of $9,000, $10,015 and $6,238 for fiscal 1998, 1997 and 1996,
respectively. In addition, fiscal 1996 includes $15,300 of consulting fees
for services rendered to the Company prior November 15, 1995, the date he
was hired as Chief Financial Officer by the Company.
(9) Represents the taxable fringe benefit of an automobile allowance.
</FN>
</TABLE>
Employment Agreements
Gary L. Coulter was named Chairman of the Board of Directors and Chief
Executive Officer on October 18, 1996. In conjunction with his appointment as
Chairman and CEO, Mr. Coulter's employment agreement was modified and extended
for two years, until October 17, 1998. Mr. Coulter's annual base salary was
$200,000, plus additional salary in an amount to offset his federal income tax
liability on the taxable value of the leased automobile and a housing allowance
as noted below, at June 30, 1998. For the year ended June 30, 1998, his salary,
including the $30,000 paid in November 1997 as noted in footnote (1) immediately
above and the income tax reimbursement, was $248,067. Pursuant to the terms of
his employment agreement he is entitled to receive two years' severance pay if
there is a change in control of the Company or if he is terminated for any
reason other than for failure to perform his duties, conviction of a felony,
dishonesty or illegal acts. In addition, the Company pays for a leased
automobile and a house for Mr. Coulter together with an additional amount of
salary to offset the federal income tax on the taxable value of the house. Mr.
Coulter is also entitled to options to purchase a minimum of at least 100,000
shares of common stock of the Company at the closing market price on the date(s)
of grant each year of his employment agreement and is eligible to participate in
employee benefits or a bonus plan provided by the Company pursuant to the terms
of such agreement.
Robert E. Huggins, Senior Vice President and Chief Financial Officer until
June 30, 1998 when he was named President and Chief Operating Officer, has an
employment agreement with the Company extending through June 30, 2000. Mr.
Huggins' annual base salary was $186,000 on July 1, 1998 and pursuant to the
terms of his employment agreement is entitled to receive two years' severance
pay if there is a change in control of the Company. Further, if he is terminated
for any reason other than for failure to perform his duties, conviction of a
felony, dishonesty or illegal acts, he is entitled to receive one years pay as
severance. The Company pays $750 per month to Mr. Huggins for an automobile
allowance and to reimburse him for the cost of a country club membership not to
exceed $35,000. Mr. Huggins is also entitled to options to purchase a minimum of
at least 50,000 shares of common stock of the Company at the closing market
price on the date(s) of grant each year of his employment agreement and is
eligible to participate in employee benefits or a bonus plan provided by the
Company pursuant to the terms of such agreement.
Change in Control Severance Agreements
For the purpose of certain employment agreements of the Company, a "Change
in Control" generally is deemed to occur if: (i) any person or group of
affiliated persons (other than the Company, subsidiary of the
25
<PAGE>
Company or any employee benefit plan of the Company) becomes the owner of 40% or
greater of the voting securities of the Company; or (ii) the Company is involved
in a merger or consolidation (with exceptions for certain events); or (iii) the
persons who constituted a majority of the Board of Directors on October 18, 1996
cease to constitute the majority. As part of Mr. Coulter's and Mr. Huggins'
employment agreements, in the event of a Change in Control, each may elect to
consider themselves immediately terminated and entitled to two years' salary as
severance, to be paid in a lump sum in no less than thirty (30) days from the
earlier of the date of the Change in Control or the date each of them elects
termination. No Change in Control has occurred under those agreements.
In addition to the Change in Control provisions in the respective
employment agreements discussed above, incentives granted to Mr. Coulter and Mr.
Huggins pursuant to the Company's Long-Term Incentive Plan mature immediately
upon Change in Control or termination for any reason.
26
<PAGE>
Options
The tables below set forth certain information regarding options granted to
the Named Executive Officers during fiscal 1998.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Individual Grants
--------------------------
Percent of
Number of Total
Securities Options Exercise
Underlying Granted to or Base
Options Employees in Price Expiration
Name Granted (1) Fiscal Year Per Share Date
---- ----------- ----------- --------- ----
<S> <C> <C> <C> <C>
Gary L. Coulter 100,000 7.39% $ 0.52 4/15/08
238,289 17.61% 0.43 6/22/08
Robert E. Huggins 50,000 3.70% 0.52 4/15/08
105,431 7.79% 0.43 6/22/08
Erik R. Batzloff 27,426 2.03% 0.43 6/22/08
Robert G. Guinn, Jr. 27,426 2.03% 0.43 6/22/08
Patrick J. Schmit 100,000 7.39% 0.52 7/08/07
18,879 1.40% 0.43 6/22/08
- --------------------
<FN>
(1) The options elected herein have a ten year term and vest at the discretion
of the Board of Directors. There are three primary vesting schedules
including (i) 100% of the option shares becoming exercisable on the date of
the grant; (ii) 25% of the option shares becoming exercisable on the date
of grant with an additional 25% of the shares covered thereby becoming
exercisable on each successive anniversary date, with full vesting
occurring on the third anniversary date; and (iii) 25% of the option shares
vesting on each of the first, second, third and fourth anniversary dates.
</FN>
</TABLE>
27
<PAGE>
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year End Option
Values
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised In-The-Money Options
Options at June 30, 1998 at June 30, 1998
Shares Value ------------------------ ----------------
Name Acquired Realized Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gary L. Coulter -- $ -- 1,381,676 118,789 $207,907 $ 81,446
Robert E. Huggins -- $ -- 604,444 59,439 90,821 40,732
Erik R. Batzloff -- $ -- 86,349 86,349 7,912 18,345
Robert G. Guinn, Jr. -- $ -- 86,349 86,349 34,835
Patrick J. Schmit -- $ -- 29,720 89,159 8,405 25,214
</TABLE>
Other Long-Term Incentive Awards
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 generally are vested upon issuance and mature at a rate
of 25% per year over a four year period from the date granted, but the schedule
may be varied by the terms of the specific grant. After the first anniversary of
any grant of performance units, or earlier maturity, participants may elect to
receive payments which represent the appreciation in value of the performance
unit from 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.
28
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
--------------------------------------------------------------
The following table sets forth certain information with respect to the
beneficial ownership of the Company's common stock as of the Filing Date of the
10-KSB as to (a) each director, (b) each executive officer identified in the
Summary Compensation Table, (c) all officers and directors of the Company as a
group, and (d) each person known to the Company to beneficially own five percent
(5%) or more of the outstanding shares of common stock.
<TABLE>
<CAPTION>
Name and Address of Amount of Percent of
Title of Class Beneficial Owner (1) Shares Class(2)(3)(4)
- -------------- -------------------- ------ --------------
Directors and Executive Officers:
- ---------------------------------
<S> <C> <C> <C>
Common ....... Malcolm C. Davenport V (1) 25,691,153(4) 61.38%
Common ....... Gary L. Coulter (1) 1,173,176(5) 5.91%
Common ....... Robert E. Huggins (1) 558,452(6) 2.91%
Common ....... Robert G. Guinn, Jr. 97,136 0.52%
Common ....... All directors and executive officers
as a group (7 persons) (1) 27,692,553(7) 63.26%
Five Percent (5%) or Greater Shareholders:
Common .... RBB Bank Aktiengesellschaft
Burgring 16, 8010 Graz, Austria 31,029,724 63.78%
Common .... Lanier M. Davenport, Sr.
P. O. Box 178
Lookout Mtn., TN 37350 892,500 4.78%
Common .... Starr S. Davenport
P. O. Box 187
Lookout Mtn. TN 37350 1,096,953(8) 5.87%
----------------
<FN>
(1) The address of all directors and executive officers is c/o the Company,
901-B Grier Drive, Las Vegas, Nevada 89119.
(2) Percent of class is based on the number of shares outstanding on September
11, 1998. Percent of class includes the following: (a) for RBB,
approximately 29,979,000 additional shares pursuant to RBB's right to
acquire common stock through conversion privileges attached to the
Company's preferred stock held by RBB (see Footnote (3) below regarding
RBB's conversion rights); (b) for Malcolm C. Davenport approximately
22,895,000 additional shares pursuant to Mr. Davenport's right to acquire
common stock through conversion privileges attached to the Company's 6%
Convertible Notes; and (c) with respect to each named person, the number of
shares of common stock, if any, which the stockholder has the right to
acquire within 60 days of such date. RBB disputes its designation as a
beneficial owner. RBB takes the position that it does not control or direct
the distribution or voting of the shares and that RBB only holds the shares
29
<PAGE>
for the true beneficial owners. RBB has represented to the Company that
none of the beneficial owners it holds shares for has beneficial ownership
of five percent (5%) or greater of the class.
(3) The percentage for RBB has been computed after giving effect to certain
rights to acquire common stock arising out of the Company's issuance of its
Series A 4% Convertible Preferred Stock. At September 11, 1998, RBB Bank
was the holder of all of the Company's 8,241 outstanding preferred shares.
Had RBB converted its preferred shares, including approximately $513,000
unpaid dividends, as of this date, there would be substantial dilution of
the percentage of class held by the named shareholder. RBB would have
received an additional approximate 29,979,000 shares based on the five day
average of the closing bid price of the Company's common stock (the five
days used for this calculation for computational purposes only was the five
trading days ended September 11, 1998; changes in the Company's closing bid
price of its common stock will effect the number of shares subject to
conversion.) Such a conversion, had it occurred September 11, 1998, would
have given RBB control of approximately 64% of the outstanding common
stock. Percent of class for RBB includes the above mentioned 29,979,000
additional shares. (See Footnote (2) for RBB representations that it does
not beneficially own the above stock).
(4) Includes an additional approximate 22,895,000 shares that the Malcolm C.
Davenport V Family Trust ("Trust") would have received if the Trust would
have converted the $4,000,000 in 6% Secured Convertible Notes it held on
September 11, 1998 based on the five day average of the closing bid price
of the Company's common stock for the five trading days ended September 11,
1998. In addition, includes 313,416 shares owned and 290,544 shares subject
to options that are currently exercisable or will become exercisable within
60 days, 313,416 shares held by Mr. M. Davenport's spouse, and 1,875,723
shares by the Trust. Mr. Davenport has certain beneficial control, though
no economic interest in the Trust.
(5) Includes 11,000 shares owned and 1,162,176 shares subject to options that
are currently exercisable or will become exercisable within 60 days.
(6) Includes 50,000 shares owned and 508,452 shares subject to options that are
currently exercisable or will become exercisable within 60 days.
(7) Includes 2,206,444 shares subject to options that are currently exercisable
or will become exercisable within 60 days.
(8) Includes 470,121, shares held by the minor children of Lanier M. Davenport
and Starr S. Davenport, with respect to which each disclaims any beneficial
ownership. As custodial parent, Ms. Davenport has the authority to vote the
minor children's shares on their behalf.
</FN>
</TABLE>
Changes in Control
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 preferred stock, without nominal or par value per share. Pursuant to
the provisions of the terms of a $7,143,000, 4% Convertible Debenture with RBB,
the Board of Directors issued shares of the preferred stock (the "Preferred
Stock") to satisfy the underlying debt of said debenture while incorporating
certain rights of the debenture holder into the Preferred Stock. RBB currently
holds 8,241 shares of Preferred Stock.
30
<PAGE>
Certain mandatory and optional redemption provisions apply to the Preferred
Stock. The Company has the right, in its sole discretion, to redeem some or all
of the preferred stock in the event that the shareholder's optional conversion
rights are exercised. The Company, if it chooses to redeem, shall redeem a
pro-rata amount from each shareholder submitting shares of preferred stock for
conversion. The Company has the obligation to redeem the preferred stock in the
event that the Company transfers substantially all of its assets or if a change
in control occurs (i.e., (i) anyone other than the Company, any subsidiary of
the Company or any employee benefit plan of the Corporation beneficially owns a
majority of the voting stock of the Company, or (ii) the Company is involved in
certain mergers or consolidations not effected solely to change the jurisdiction
of incorporation of the Company).
On February 27, 1998, the Company initiated the private placement of
certain 6% Secured Convertible Notes (the "Notes") in two separate offerings
with identical terms due February 28, 2008 in the aggregate principal amount of
a maximum of $5,000,000 to a limited number of investors. The Notes are secured
by a security interest and collateral assignment of all of the Company's
patents, patent applications, trade secrets and all other intellectual rights of
the Company existing or developed prior to the repayment or other settlement of
the Notes. The Notes are convertible by the holders at any time through February
28, 2001 under certain circumstances. As of September 11, 1998, $4,450,000 of
the Notes had been purchased, with the Malcolm C. Davenport V Family Trust
holding $4,000,000 of the Notes. The second offering expires September 30, 1998
(unless the Company elects to extend the offering until October 31, 1998).
In addition, the Company has issued warrants to Third World Investments,
Ltd. to acquire 250,000 shares of common stock of the Company at an exercise
price that ranges from $1 to $2 per share exercisable in the whole or part
between October 1, 1996 and September 30, 2001 (the "Warrants"). No other
warrants are outstanding as of September 11, 1998.
The effect of the convertibility of the Preferred Stock and the Notes into
common stock and the outstanding Warrants is to create the possibility of a
Change in Control of the majority of the common stock of the Company.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED 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 fiscal 1996. The $70,000 advanced in fiscal 1997 was received
on July 12, 1996 and was repaid with interest on July 31, 1996. Of the
$1,920,000 advanced in fiscal 1996, $1,000,000 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
on June 30, 1998 was $170,188, plus accrued interest of $732 which was repaid in
July 1998.
31
<PAGE>
During the first quarter of 1998, the Malcolm C. Davenport V Family Trust,
(the "Trust") loaned $500,000 to Spinteknology, with such loan being evidenced
by a note and secured by a pledge of the Company's weighing technology. On
October 1, 1997, the Trust elected to convert the note, plus accrued interest of
approximately $4,000 thereon, into 1,400,880 shares of the Company's $0.002 par
value common stock. The conversion price of $0.36 per share reflects a 32%
discount from the closing price of $0.53 per share on October 1, 1997. These
shares of common stock were issued at a discount because they are not
registered, were issued with a restrictive legend and the Trust cannot currently
sell these shares in the market.
As discussed in Note 6 to the Financial Statements, on February 27, 1998
the Company initiated the private placement of the Notes in the amount of
$5,000,000. The Malcolm C. Davenport V Family Trust purchased $1,000,000 of the
Company's Notes in March 1998, an additional $900,000 in April 1998, and
subsequent to June 30, 1998, an additional $2,100,000 of the Notes in July 1998.
In addition, Patrick W. McGrath, a member of the Company's board of directors,
purchased $100,000 of the Company's Notes in June 1998.
On October 18, 1996, 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,
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, 1998 the Company did not owe any monies to 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 Malcolm C. Davenport, Jr., of which
$30,000 was applied to principal and 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, 1998 the Company did not
owe any monies to 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, 1998 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. There was no accrual during fiscal 1998. At June 30, 1998
the unpaid principal balance on the notes remained at $20,000, plus accrued
interest of $4,042.
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
32
<PAGE>
$3,655 and $19,346, respectively.
During April 1997, 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
were repaid.
The lawfirm of Coulter & Davenport, 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.
33
<PAGE>
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
--------------------------------
(a) Exhibits
The following exhibits are submitted herewith:
No. Description
- ---- -----------------------------------------------------------------------
2.1 Agreement of Merger and Plan of Reorganization, effective August 24, 1998
3.1 Articles of Incorporation of the Registrant
3.2 By-laws of the Registrant
4.1 Certificate of Determination, 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, restated effective August 24,
1998
4.21 6% Secured Convertible Notes dated February 27, 1998
4.22 6% Secured Convertible Notes dated June 30, 1998
4.23 Patent Assignment and Collateral Agreement dated February 27, 1998
4.24 Form of Registration Rights Agreement Premise Lease dated September 1, 1997
(8)
10.2 Premise Lease dated June 9, 1998
10.3 Employment Agreement with Gary L. Coulter dated October 18, 1996 (10)
10.4 Employment Agreement with Robert E. Huggins dated July 1, 1998
10.5 Option/Purchase Agreement with Bitstream Technologies, Inc. (3)
10.6 License Agreement between Spinteknology, Inc. and SUZO International (N.L.)
B.V. (4)
10.7 Debt Conversion and Securities Purchase Agreement with Trusts (4)
10.8 Regulation S Securities Subscription Agreement dated July 16, 1996 (5)
10.9 Warrant Agreement, dated as of July 16, 1996, relating to warrants to
purchase 250,000 shares of common stock (5)
10.10 Registrant's 1996 Stock Option Plan, as amended (6)
10.11 Agreement dated February 5, 1997 by and between Registrant and Gary L.
Coulter and Robert E. Huggins (8)
10.12 Regulation S Securities Subscription Agreement dated April 21, 1997 (7)
10.13 1997 Incentive Bonus Plan of Spintek Gaming Technologies, Inc.
effective June 1, 1997 (8)
10.14 Promissory Note, dated August 14, 1997, to Malcolm C. Davenport V Family
Trust (8)
10.15 Regulation S Securities Subscription Agreement dated October 22, 1997 (9)
10.16 Spintek Gaming PTY LTD Shareholders Agreement (10)
10.17 Spintek Gaming PTY LTD Distribution Agreement (10)
10.18 Spintek Gaming PTY LTD Articles of Association (10)
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 Exhibit A to Registrant's definitive Proxy
Statement dated November 5, 1996.
(7) Incorporated by reference to the specific exhibit to the Form 8-K, filed
April 30, 1997.
(8) Incorporated by reference to the Form 10-KSB for the period ended June 30,
1997
(9) Incorporated by reference to the Form 10-QSB for the period ended September
30, 1997
(10) Incorporated by reference to the Form 10-QSB for the period ended December
31, 1997
(b) Reports on Form 8-K
On May 4, 1998, a Current Report on Form 8-K was filed with the
Securities and Exchange Commission, reporting the conversion of 500 shares
of the Company's 4% Series A Preferred Stock from RBB Bank
Aktiengesellschaft. Such conversion resulted in the issuance of 1,000,690
new shares of the Company's Common Stock and resulted in RBB Bank
Aktiengesellschaft being the holder of approximately 1,230,000 shares of
common stock, or approximately 6.6% of the total outstanding shares.
35
<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 and
Chief Executive Officer
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 23, 1998
- -------------------
Gary L. Coulter
Chairman of the Board, Chief Executive
Officer, and Director (Principal
Executive Officer)
/s/ GEORGE P. MILLER September 23, 1998
- ------------------------------------
George P. Miller
Chief Financial Officer
(Principal Financial and
Accounting Officer)
/s/ MALCOLM C. DAVENPORT V September 23, 1998
- --------------------------
Malcolm C. Davenport V
Secretary and Director
/s/ PATRICK W. McGRATH September 23, 1998
- -----------------------
Patrick W. McGrath
Director
36
AGREEMENT OF MERGER AND PLAN OF REORGANIZATION
THIS AGREEMENT OF MERGER ("Agreement") is entered into as of this ____
day of _________________, 1997, between Spintek Gaming Technologies, Inc., a
California corporation ("Old Spintek") and Spintek Gaming Technologies, Inc., a
Nevada corporation ("New Spintek").
WHEREAS, the Boards of Directors of Old Spintek and New Spintek have
resolved that Old Spintek be merged pursuant to the Nevada Revised Statutes and
the California Corporations Code into a single corporation existing under the
laws of the State of Nevada, to wit, New Spintek, which shall be the surviving
corporation ("Surviving Corporation") in a transaction qualifying as a
reorganization within the meaning of Section 368(a)(1)(F) of the Internal
Revenue Code; and
WHEREAS, the authorized capital stock of Old Spintek consists of One
Hundred Million (100,000,000) shares of common stock with a par value of $.002
per share (hereinafter referred to as "Old Spintek Common Stock"), of which
17,187,232 shares are issued and outstanding, and One Hundred Thousand (100,000)
shares of preferred stock (hereinafter referred to as "Old Spintek Preferred
Stock"), of which 8,741 shares are issued and outstanding; and
WHEREAS, the authorized capital stock of New Spintek consists of One
Hundred Million (100,000,000) shares of common stock with a par value of $.002
per share (hereinafter referred to as "New Spintek Common Stock"), 100 shares of
which are issued and outstanding, and One Hundred Thousand (100,000) shares of
preferred stock (hereinafter referred to as "New Spintek Preferred Stock"), of
which no shares are issued and outstanding; and
WHEREAS, the respective Boards of Directors of Old Spintek and New
Spintek have approved the merger upon the terms and conditions hereinafter set
forth and have approved this Agreement;
NOW, THEREFORE, in consideration of the promises and the mutual
agreements, provisions, and covenants herein contained, the parties hereto agree
as follows:
ARTICLE I
MERGER
1.1 THE MERGER. In accordance with the Nevada Revised Statutes and the
California Corporations Code, Old Spintek shall be, at the Effective Date (as
hereinafter defined), merged (hereinafter called "Merger") into a single
corporation existing under the laws of the State of Nevada, to wit, New Spintek,
which shall be the Surviving Corporation.
1.2 OLD SPINTEK STOCKHOLDERS' MEETING. Old Spintek shall call a meeting
of its stockholders to be held in accordance with the California Corporations
Code at the earliest practicable date, upon due notice thereof to its
stockholders to consider and vote upon, among other matters, adoption of this
Agreement.
<PAGE>
1.3 ACTION BY OLD SPINTEK AS SOLE STOCKHOLDER OF NEW SPINTEK. On or
before ________________, Old Spintek, as the sole stockholder of New Spintek,
shall adopt this Agreement in accordance with the Nevada Revised Statutes.
1.4 FILING OF CERTIFICATE OF MERGER; EFFECTIVE DATE. If this Agreement
is adopted by the stockholders of Old Spintek in accordance with the California
Corporations Code, adopted by Old Spintek as the sole stockholder of New Spintek
in accordance with the Nevada Revised Statutes, and this Agreement is not
thereafter, and has not theretofore been, terminated or abandoned as permitted
by the provisions hereof, then a Certificate of Merger shall be filed and
recorded in accordance with the Nevada Revised Statutes and Articles of Merger
shall be filed in accordance with the California Corporations Code. The Merger
shall become effective on the date both of the above filings are completed
("Effective Date").
1.5 CERTAIN EFFECTS OF MERGER. On the Effective Date, the separate
existence of Old Spintek shall cease, and Old Spintek shall be merged into New
Spintek which, as the Surviving Corporation, shall succeed Old Spintek, without
other transfer, to all the rights and property of Old Spintek and shall be
subject to all the debts, obligations and liabilities of Old Spintek in the same
manner as if the Surviving Corporation had itself incurred them; all rights of
creditors and all liens upon the property of Old Spintek and New Spintek shall
be preserved unimpaired.
ARTICLE II
THE SURVIVING CORPORATION
2.1 NAME OF SURVIVING CORPORATION. The name of the Surviving
Corporation from and after the Effective Date shall be Spintek Gaming
Technologies, Inc.
2.2 CERTIFICATE OF INCORPORATION. The Certificate of Incorporation of
New Spintek, as in effect on the date hereof, shall from and after the Effective
Date be, and continue to be, the Certificate of Incorporation of the Surviving
Corporation until changed or amended as provided by law.
2.3 BYLAWS. The Bylaws of New Spintek, as in effect immediately before
the Effective Date, shall from and after the Effective Date be, and continue to
be, the Bylaws of the Surviving Corporation until amended as provided therein.
2.4 DIRECTORS AND OFFICERS. The Directors and officers of Old Spintek
on the Effective Date shall be and become Directors and officers, holding the
same titles and positions, of New Spintek on the Effective Date, and after the
Effective Date shall serve in accordance with the Bylaws of New Spintek.
2.5 FURTHER ASSURANCES. The officers and Directors of Old Spintek shall
execute and deliver such deeds and other instruments, and there shall be taken
or cause to be taken by them such further and other action, as shall be
appropriate or necessary in order to vest or perfect in or to confer of record
or otherwise in New Spintek the title to and possession of all the property
interests, assets, rights, privileges, immunities, powers, franchises and
authority of Old Spintek, and otherwise
<PAGE>
to carry out the purposes and intent of this Agreement, and the officers and
Directors of New Spintek are fully authorized in the name and on behalf of Old
Spintek or otherwise to take any and all such actions and to execute and deliver
any and all such deeds and other instruments.
ARTICLE III
STATUS AND CONVERSION OF SECURITIES
3.1 OLD SPINTEK COMMON STOCK. Each share of Old Spintek Common Stock
which shall be issued and outstanding immediately before the Effective Date
shall, by virtue of the Merger and without any action on the part of the holders
thereof, be converted at the Effective Date into one fully paid share of New
Spintek Common Stock, and outstanding certificates representing shares of Old
Spintek Common Stock shall thereafter represent shares of New Spintek Common
Stock.
3.2 OLD SPINTEK PREFERRED STOCK. Each share of Old Spintek Preferred
Stock which shall be issued and outstanding immediately before the Effective
Date shall, by virtue of the Merger and without any action on the part of the
holder thereof, be converted at the Effective Date into one fully paid share of
New Spintek Preferred Stock, and outstanding certificates representing shares of
Old Spintek Preferred Stock shall thereafter represent shares of New Spintek
Preferred Stock.
3.3 STOCK CERTIFICATES. On and after the Effective Date, all of the
outstanding certificates which prior to that time represented shares of Old
Spintek shall be deemed for all purposes to evidence ownership of and to
represent shares of New Spintek and to which the shares of Old Spintek
represented by such certificates have been converted as herein provided. The
registered owner on the books and records of Old Spintek or its transfer agent
of any such outstanding stock certificate shall have and shall be entitled,
until such certificate shall have been surrendered for transfer or otherwise
accounted for to New Spintek or its transfer agent, to exercise any voting or
other rights with respect to and receive any dividend or other distributions
upon the shares of New Spintek evidenced by such outstanding certificate as
provided above.
3.4 OPTIONS AND WARRANTS. Each option or warrant to purchase shares of
Old Spintek Common Stock granted by Old Spintek which is outstanding on the
Effective Date shall, by virtue of the Merger and without any action on the part
of the holder, be converted into and become an option or warrant to purchase the
same number of shares of New Spintek Common Stock at the same option or warrant
price per share, and upon the same terms and subject to the same conditions as
set forth in the Old Spintek option plan or warrant agreements under which such
options or warrants were granted, as in effect on the Effective Date. As of the
Effective Date, the Old Spintek stock option plan shall become the New Spintek
stock option plan and all obligations of the Old Spintek under the Old Spintek
stock option plan shall be assumed by New Spintek including all outstanding
options granted pursuant to the stock option plan. Upon approval of this
Agreement by stockholders of Old Spintek and New Spintek, the shareholders of
Old Spintek and New Spintek shall be deemed to have adopted and approved the
assumption of the Old Spintek stock option plan and warrant agreements granted
by Old Spintek by New Spintek under the same terms and conditions of Old
Spintek's stock option plan and warrant agreements.
<PAGE>
3.5 OTHER EMPLOYEE BENEFIT PLANS. Upon the Effective Date, the
obligations of Old Spintek under or with respect to every plan, trust, program
and benefit then in effect or administered by Old Spintek on behalf or for the
benefit of the officers and employees of Old Spintek, including plans, trust,
programs and benefits administered by Old Spintek in which subsidiaries of Old
Spintek, their officers and employees currently are permitted to participate
(the "Employee Benefit Plans"), shall become the lawful obligations of New
Spintek and shall be implemented and administered in the same manner and without
interruption until the same are amended or otherwise lawfully altered or
terminated.
3.6 NEW SPINTEK COMMON STOCK HELD BY OLD SPINTEK. All issued and
outstanding shares of New Spintek Common Stock held by Old Spintek immediately
before the Effective Date shall, by virtue of the Merger and at the Effective
Date, cease to exist and certificates representing such shares shall be
cancelled.
ARTICLE IV
MISCELLANEOUS
4.1 ABANDONMENT. This Agreement of Merger may be terminated and the
proposed Merger abandoned at any time before the Effective Date of the Merger,
and whether before or after approval of this Agreement of Merger by the
shareholders of Old Spintek, if the Board of Directors of Old Spintek or of the
Surviving Corporation duly adopt a resolution abandoning this Agreement of
Merger.
4.2 AMENDMENT. Prior to shareholder approval, this Agreement may be
amended in any manner as may be determined in the judgment of the respective
Boards of Directors of New Spintek and Old Spintek. After shareholder approval,
this Agreement may be amended in any manner (except sections 3.1, 3.2, 3.3, and
any of the other principal terms that may not be amended without the approval of
the shareholders of Old Spintek) as may be determined in the judgment of the
respective Boards of Directors of New Spintek and Old Spintek to be necessary,
desirable or expedient in order to clarify the intention of the parties hereto
or to effect or to facilitate the purposes and intent of this Agreement.
4.3 COUNTERPARTS. For the convenience of the parties hereto and to
facilitate the filing of this Agreement of Merger, any number of counterparts
hereof may be executed, and each such counterpart shall be deemed to be an
original instrument.
IN WITNESS WHEREOF, this Agreement has been executed by Old Spintek and
New Spintek all on the date first above written.
SPINTEK GAMING TECHNOLOGIES, INC.,
a California corporation
By: ______________________________
Title:President
By: ______________________________
Title:Secretary
SPINTEK GAMING TECHNOLOGIES, INC.,
a Nevada corporation
By: ______________________________
Title:President
By: ______________________________
Title:Secretary
Articles of Incorporation
(Pursuant to NRS 78)
STATE OF NEVADA
Secretary of State
(For Filing office use) (For Filing office use)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
IMPORTANT: Read instructions on reverse side before completing this form.
TYPE OR PRINT (BLACK INK ONLY)
1. NAME OF CORPORATION: Spintek Gaming Technologies, Inc.
2. RESIDENT AGENT: (designated resident agent and his STREET ADDRESS in Nevada
where process may be served)
Name of Resident Agent: Robert E. Huggins
Street Address: 901 Grier Drive Suite B, Las Vegas 89119
Street No. Street Name City Zip
3. SHARES:(number of shares the corporation is authorized to issue) Number of
shares with par value:100,000,000 Par value:$.002 Number of shares without
par value:100,000
4. GOVERNING BOARD: shall be styled as (check one):____X____Directors
________Trustees The FIRST BOARD OF DIRECTORS shall consist of 3 members
and the names and addresses are as follows (attach additional pages if
necessary): Gary L. Coulter 901 Grier Dr., Ste. B, Las Vegas, NV 89119 Name
Address City/State/Zip
Malcolm C. Davenport, V. 901 Grier Dr., Ste. B, Las Vegas, NV 89119
------------------------ ------------------------------------------
Name Address City/State/Zip
5. PURPOSE (optional-see reverse side): The purpose of the corporation
shall be:
- --------------------------------------------------------------------------------
6. OTHER MATTERS: This form includes the minimal statutory requirements to
incorporate under NRS 78. You may attach additional information pursuant to
NRS 78.037 or any other information you deem appropriate. If any of the
additional information is contradictory to this form it cannot be filed and
will be returned to you for correction. Number of pages attached.1.
7. SIGNATURES OF INCORPORATORS: The names and addresses of each of the
incorporators signing the articles: (Signatures must be notarized). (Attach
additional pages if there are more than two incorporators).
Robert A. Penman _____________________________
Name (print) Name (print)
127 Peachtree St., N.E., Ste. 1600, _____________________________
Atlanta, GA 30303-1845 _____________________________
Address City/State/Zip Address City/State/Zip
___________________________________ _____________________________
Signature Signature
State of Georgia County of Fulton State of _______County of ___
This instrument was acknowledged before This instrument was acknowled-
me on ________________, 1998, ged before on __________, 1998,
by ____________________________________ by ___________________________
Robert Penman ______________________________
Name of Person Name of Person
as incorporator as incorporator
of Spintek Gaming Technologies, Inc. of ___________________________
(name of party on behalf of whom instrument was executed)
Notary Public Signature Notary Public Signature
(affix notary stamp or seal) (affix notary stamp or seal)
8. CERTIFICATE OF ACCEPTANCE OF APPOINTMENT OF RESIDENT AGENT
I, Robert E. Huggins hereby accept appointment as Resident Agent for the above
named corporation.
_____________________________________ _____________________________
Signature of Resident Agent Date
<PAGE>
ARTICLE IV
FIRST BOARD OF DIRECTORS
4.1 THIRD DIRECTOR
Patrick W. McGrath 901 Grier Drive, Ste. B, Las Vegas, NV 89119
ARTICLE VI
OTHER MATTERS
6.1 ADDITIONAL INFORMATION ON SHARES. This Corporation is
authorized to issue One Hundred Million One Hundred Thousand (100,100,000)
shares of capital stock consisting of One Hundred Million (100,000,000) shares
of common stock, each with a $.002 par value, and One Hundred Thousand (100,000)
shares of preferred stock without a par value. As to the preferred stock of the
Corporation, the power to issue any shares of preferred stock of any class or
any series of any class and designation, numbers, voting powers, or the denial
of voting powers, preferences, and relative, participating, optional or other
rights, if any, or the qualifications, limitations, or restrictions thereof,
shall be determined by the Board of Directors.
6.2 PERSONAL LIABILITY OF DIRECTORS AND OFFICERS. A Director or officer
of the Corporation shall not be personally liable to the Corporation or its
stockholders for monetary damages for any breach of fiduciary duty as a Director
or officer, except for liability for (a) acts or omissions which involve
intentional misconduct, fraud or a knowing violation of the law or (b) the
payment of distributions in violation of Section 78.300 of the Nevada Revised
Statutes.
<PAGE>
ARTICLES OF MERGER OF
---------------------
SPINTEK GAMING TECHNOLOGIES, INC.
---------------------------------
A NEVADA CORPORATION
--------------------
AND SPINTEK GAMING TECHNOLOGIES, INC.
-------------------------------------
A CALIFORNIA CORPORATION
------------------------
I.
The Agreement of Merger and Plan of Reorganization attached hereto as
Exhibit "A" and incorporated by reference herein was duly approved by the Board
of Directors of Spintek Gaming Technologies, Inc., A California corporation
("Old Spintek"), and Spintek Gaming Technologies, Inc., A Nevada corporation
("New Spintek").
II.
The name of the surviving corporation is Spintek Gaming Technologies,
Inc., a Nevada corporation.
III.
The Agreement and Plan of Merger was duly approved by the written
consent of the shareholder of New Spintek and by the requisite majority of
voting power in Old Spintek sufficient to approve the merger. Of the 7,792,720
shares of Old Spintek Common Stock entitled to vote on the merger, 7,586,050
shares approved the merger with 203,070 shares dissenting. No other class of
shares was entitled to vote on the merger.
IV.
Pursuant to the Agreement of Merger and Plan of Reorganization, the
merger of Old Spintek and New Spintek shall be effective on the date on which
these Articles of Merger are filed by the Secretary of State of Nevada.
Sworn to and subscribed before me SPINTEK GAMING TECHNOLOGIES, INC.
This _______day of ___________, 1998. a California corporation
__________________________________ By:___________________________
NOTARY PUBLIC, State of Georgia President
Attest:________________________
Secretary
[CORPORATE SEAL]
<PAGE>
SPINTEK GAMING TECHNOLOGIES, INC.
A Nevada corporation
By:______________________________________
President
Attest:____________________________________
Secretary
[CORPORATE SEAL]
Sworn to and subscribed before me This_______day of ______________, 1998.
- -----------------------------
NOTARY PUBLIC, State of Georgia
BYLAWS
SPINTEK GAMING TECHNOLOGIES, INC.
PREAMBLE
These bylaws are subject to, and governed by, the Nevada Business Corporation
Act and the articles of in Corporation of Spintek Gaming Technologies, Inc. (the
"Corporation"). These Bylaws shall be controlling except in the event of a
direct conflict between the provisions of these bylaws and (1) the mandatory
provisions of the Nevada Business Corporation Act or (2) the provisions of the
articles of in Corporation of the Corporation. In the event of conflict the
mandatory provisions of the Nevada Business Corporation Act or the articles of
in Corporation of the Corporation, as the case may be, will be controlling. In
the event either may control the articles of in Corporation of the Corporation
shall prevail.
ARTICLE ONE
OFFICES
-------
1.01 Registered Office and Agent. The registered office and registered
agent of the Corporation shall be as designated from time to time by the
appropriate filing by the Corporation in the office of the Secretary of State of
Nevada.
1.02 Other Offices. The Corporation may also have offices at such other
places, both within and without the State of Nevada, as the Board of Directors
may from time to time determine or the business of the Corporation may require.
ARTICLE TWO
SHAREHOLDERS
------------
2.01 Annual Meetings. An annual meeting of shareholders of the
Corporation shall be held during each calendar year on such date and at such
time as shall be designated from time to time by the Board of Directors and
stated in the notice of the meeting, if not a legal holiday in the place where
the meeting is to be held, and, if a legal holiday in such place, then on the
next business day following, at the time specified in the notice of the meeting.
At such meeting, the shareholders shall elect directors and transact such other
business as may properly be brought before the meeting.
2.02 Special Meeting. Special meetings of shareholders, unless
otherwise prescribed by statute, may be called by the Chairman of the Board,
Chief Executive Officer, the Board of Directors, or by the holders of at least
fifty-one percent of all shares entitled to vote at the meeting. Only business
within the purpose or purposes described in the notice of special meeting may be
conducted at such special meeting.
<PAGE>
2.03 Place of Meetings. The annual meeting of shareholders may be held
at any place within or without the State of Nevada designated by the Board of
Directors. Special meetings of shareholders may be held at any place within or
without the State of Nevada designated by the person or persons calling such
special meeting as provided in Section 2.02 above. Meetings of shareholders
shall be held at the principal office of the Corporation unless another place is
designated for meetings in the manner provided herein. Notwithstanding, if a
special meeting of Shareholders is called by at least 51% of Shareholders, it
must be held in Las Vegas, Nevada during the day of the week from Monday through
Friday and between the hours of 8:00 a.m. and 4:00 p.m.
2.04 Notice. Except as otherwise provided by law, written or printed
notice stating the place, day, and hour of each meeting of the shareholders
shall be delivered not less than ten nor more than sixty days before the date of
the meeting. Such notice shall be by or at the direction of the Chairman of the
Board (Chairman) or Chief Executive Officer, or the person or group calling the
meeting, to each shareholder of record entitled to vote at said meeting. In case
of a special meeting, the purpose or purposes for which the meeting is called
shall accompany the notice.
2.05 Voting List. At least ten days before each meeting of
shareholders, the Secretary shall prepare a complete list of shareholders as of
the date of the closing of transfer records or record date, as provided in
Article 2.10 hereof. This list shall comprise the shareholders and be a prima
facie evidence as to the shareholders entitled to vote at such meeting. The list
shall bearranged in alphabetical order, including the address of each
shareholder and the number of voting shares held by each shareholder. For a
period of ten days prior to such meeting, such list shall be kept on file at the
registered office or principal place of business of the Corporation and shall be
subject to inspection by any shareholder during usual business hours. Such list
shall be produced at such meeting, and at all times during such meeting shall be
subject to inspection by any shareholder. The original share transfer records
closed as of the date shall be prima facie evidence as to who are the
shareholders entitled to examine such list.
2.06 Voting of Shares. The following shares shall not be entitled to
vote or to be counted in determining the total number of outstanding shares: A)
Treasury shares, B) shares of the Corporation's own stock owned by another
Corporation the majority of the voting stock of which is owned or controlled by
the Corporation, and C) shares of the Corporation's own stock held by the
Corporation in a fiduciary capacity. Shares standing in the name of another
domestic or foreign Corporation of any type or kind may be voted by such
officer, agent, or proxy as the bylaws of such Corporation may authorize or, in
the absence of such authorization, as the Board of Directors of such Corporation
may determine. Shares held by an administrator, executor, guardian, or
conservator may be voted by him, either in person or by proxy, without transfer
of such shares into his name so long as such shares form a part of the estate
served by him and are in the possession of such estate. Shares held by a trustee
may be voted by him, either in person or by proxy, only after the shares have
been transferred into his name as trustee. Shares held by or under the control
of a receiver may be voted by such receiver without transfer of such shares into
his name. Shareholders whose shares are pledged shall be entitled to vote such
----------------------------------------------------------------------
shares until they have been transferred into the name of the pledgee, and
- --------------------------------------------------------------------------------
thereafter, the pledgee shall be entitled to vote such shares.
- --------------------------------------------------------------
2
<PAGE>
2.07 Quorum: Withdrawal of Quorum. A quorum shall be present at a
meeting of shareholders if the holders of a majority of the shares entitled to
vote are represented at the meeting in person or by proxy, except as otherwise
provided by law or the Articles of Incorporation. The shareholders represented
in person or by proxy at any properly called meeting lacking a quorum can
adjourn the meeting until such time and to such place as may be determined by a
vote of the holders of a majority of the shares represented in person or by
proxy at that meeting. Once a quorum is present at a meeting of shareholders,
the shareholders represented in person or by proxy at the meeting may conduct
such business as may be properly brought before the meeting until it is
adjourned. The subsequent withdrawal from the meeting of any shareholder or the
refusal of any shareholder represented in person or by proxy to vote shall not
affect the presence of a quorum at the meeting.
2.08 Majority Vote. Directors of the Corporation shall be elected by a
plurality of the votes cast by the holders of shares entitled to vote in the
election of directors of the Corporation at a meeting of shareholders at which a
quorum is present. Except as otherwise provided by law, the articles of in
Corporation, or these bylaws, with respect to any matter, the affirmative vote
of the holders of a majority of the Corporation's shares entitled to vote on
that matter shall be the act of the shareholders.
2.09 Method of Voting; Proxies. Each shareholder of record, unless
otherwise provided herein, shall be entitled at every meeting of shareholders to
one vote on each matter submitted to a vote, for every share standing in his
name on the original share transfer records of the Corporation. Notwithstanding
the foregoing, shareholders shall be entitled to vote only to the extent that
the voting rights of the shares of any class or classes are increased, limited,
or denied by the articles of in Corporation or the designation of rights and/or
preference associated with the issuance of such shares. At any meeting of
shareholders, every shareholder having the right to vote may vote either in
person or by a proxy executed in writing by the shareholder by his duly
authorized attorney-in-fact. Each such proxy shall be filed with the secretary
of the Corporation before, or at the time of, the meeting. No proxy shall be
valid after eleven months from the date of execution, unless otherwise provided
in the proxy. If no date is stated on a proxy, such proxy shall be presumed to
have been executed on the date of the meeting at which it is to be voted. Each
proxy shall be revocable unless the proxy form conspicuously states that the
proxy is irrevocable.
2.10 Closing of Transfer Records; Record Date. For the purpose of
determining shareholders entitled to notice of, or to vote at, any meeting of
shareholders or any adjournment thereof, or entitled to receive a distribution
(other than a distribution involving a purchase or redemption by the Corporation
of any of its own shares) or a share dividend, or in order to make a
determination of shareholders for any other proper purpose (other than
determining shareholders entitled to a consent to action by shareholders
proposed to be taken without a meting of shareholders), the Board of Directors
may provide that the share transfer records of the Corporation shall be closed
for a stated period but not to exceed in any event sixty days. If the share
transfer records are closed for the purpose of determining shareholders entitled
to notice of, or to vote at, a meeting of shareholders, such records shall be
closed for at least ten days immediately preceding such meeting. In lieu of
closing the share transfer records, the Board of Directors may fix, in advance,
3
<PAGE>
a date as the record date for any such determination of shareholders. Such date
in any case shall not be more than sixty days and, in case of a meeting of
shareholders, not less than ten days prior to the date on which the particular
action requiring such determination of shareholders is to be taken. If the share
transfer records are not closed and if no record date is fixed for the
determination of shareholders entitled to: 1) notice of, or to vote at, a
meeting of shareholders, 2) receive a distribution (other than a distribution
involving a purchase or redemption by the Corporation of any of its own shares),
or 3) a share dividend, the date on which the notice of the meeting if mailed or
the date on which the resolution of the Board of Directors declaring such
distribution or share dividend is adapted, as the case may be, shall be the
record date for such determination of shareholders. A determination of
shareholders entitled to vote at any meeting of shareholders pursuant to this
Section 2.10, shall apply to any adjournment thereof except where the
determination has been made through the closing of the share transfer records
and the stated period of closing has expired.
2.11 Officers Duties at Meetings. The Chairman shall preside at, and
the secretary shall prepare minutes of, each meeting of shareholders, and in the
absence of either such officer, his duties shall be performed by some person or
persons elected by the vote of the holders of a majority of the outstanding
shares entitled to vote, present in person or represented by proxy.
2.12 Advance Notice of Shareholder, Nominations and Proposals.
(a) Annual Meetings.
(1) Nominations of persons for election to the Board
of Directors of the Corporation and the proposal of business
to be considered by the shareholders may be made at an annual
meeting of shareholders (A) by or at the direction of the
Chairman, the Chief Executive Officer, or by a majority of the
Board of Directors or (B) by any shareholder of the
Corporation who was a shareholder of record at the time of
filing of notice provided for in this bylaw, and who is
entitled to vote at such meeting and who complies with the
notice procedure set forth in this bylaw.
(2) For nominations or other business to be properly
brought before an annual meeting by a shareholder pursuant to
clause (B) of paragraph (a)(1) of this bylaw, the shareholder
must have given timely notice thereof in writing to the
secretary of the Corporation and, with respect to business
other than a director nomination, must otherwise be a proper
matter for shareholder action at the meeting to be held. To be
timely, a shareholder's notice shall be delivered to the
secretary at the principal executive offices of the
Corporation not later than the close of business on the 120th
day prior to the anniversary date of the Corporation's proxy
statement released to shareholders in connection with the
previous year's annual meeting of shareholders; provided,
however, that in the event that the date of the annual meeting
is more than twenty days before such anniversary date, notice
by the shareholder to be timely must be so delivered not later
than the close of business on the fifth day following the day
on which public disclosure of the date of such meeting is
first made by the Corporation. In no event shall the public
disclosure of an adjournment of an annual meeting commence a
new time period for the giving of a shareholder's notice as
described above. Such shareholder's notice shall set forth
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(A) as to each person whom the shareholder purposes to nominate
for election or re-election as a director all information
relating to such person as required to be disclosed in
solicitations of proxies for election of directors in an election
contest, or as otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and Rule 14a-11 thereunder
(including such person's written consent to be named in the proxy
statement as a nominee and to serve as director if elected) or
any Rule or Rule(s) adopted in lieu or substitution therefor; (B)
as to any other business desired to be brought before the
meeting, the reasons for conducting such business at the meeting
and any material interest in such business of such shareholder
and the beneficial owner, if any, on whose behalf the proposal is
made; and (C) as to the shareholder giving the notice and the
beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such shareholder, as
they appear on the Corporation's books, and of such beneficial
owner, (ii) the class or series and number of shares of the
Corporation which are owned beneficially and of record by such
shareholder and such beneficial owner, and (iii) a description of
any material interest of such shareholder or beneficial owner in
such proposal.
(b) Special Meetings. Only such business shall be conducted at
a special meeting of shareholders that shall have been brought before
the meeting pursuant to the Corporation's notice of meeting.
Nominations of persons from the floor for election to the Board of
Directors may be made at a special meeting of shareholders at which
directors are to be elected pursuant to the Corporation's notice of
meeting (A) by or at the direction of the Board of Directors or (B)
provided that the Board of Directors has determined that directors
shall be elected at such meeting. Such nominations must be by a
shareholder of the Corporation who is a shareholder of record at the
time of giving notice provided for in this bylaw, who shall be entitled
to vote at the meeting and who complies with the notice procedures set
forth in this bylaw. In the event the Corporation calls a special
meeting of shareholders for the purpose of electing one or more
directors to the Board of Directors, any such shareholder may nominate
a person or persons (as the case may be), for election to such
position(s) as specified in the Corporation's notice of meeting, if the
shareholder's notice required by paragraph (a)(2) of this bylaw shall
be delivered to the secretary at the principal executive offices of the
Corporation not later than the close of business on the fifth day
following the day on which public disclosure is first made of the date
of the special meeting and of the nominee's disclosure of an
adjournment of a special meeting commence a new time period for the
giving of a shareholder's notice as described above.
(c) General.
(1) Only such persons who are nominated in accordance
with the procedures set forth in this bylaw shall be
eligible to serve as directors and only such business shall
be conducted at a meeting of shareholders as shall have been
brought before the meeting in accordance with the procedures
set forth in this bylaw. Except as otherwise provided by
law, the articles in Corporation or these bylaws, the
Chairman of the meeting shall have the power and duty to
determine whether a nomination or any business proposed to
be brought before the meeting was made or
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proposed, as the case may be, in accordance with the
procedures set forth in this bylaw and, if any proposed
nomination or business is not in compliance with this bylaw,
to declare that such defective proposal or nomination shall
be disregarded.
(2) For purpose of this bylaw, "public disclosure"
shall mean notice provided to the shareholders by the
Corporation.
(3) Notwithstanding the foregoing provisions of this
bylaw, a shareholder shall also comply with all applicable
requirements of the Exchange Act and the rules and
regulations thereunder with respect to the matters set forth
in this bylaw. Nothing in this bylaw shall be deemed to
affect any rights (A) of shareholders to request inclusion
of a proposal in the Corporation's proxy statement pursuant
to Rule 14A-8 under the Exchange Act, as amended or as
superceded or (B) of the holders of any series of preferred
stock to elect directors under specified circumstances.
ARTICLE THREE
DIRECTORS
---------
3.01 Management. The powers of the Corporation shall be exercised by or
under the authority of, and the business and affairs of the Corporation shall be
managed under the direction of, the Board of Directors.
3.02 Number; Election; Term; Qualification. This provision of the
by-laws shall take affect immediately but directors shall be elected pursuant
thereto at the annual shareholder meeting next occurring following the effective
date of these by-laws. The number of directors that shall constitute the Board
of Directors shall be not less than one. The number of directors which shall
constitute the entire Board of Directors shall be determined by resolution of
the Board of Directors at any meeting thereof or by the shareholders at any
meeting thereof, but shall never be less than one. The directors shall be
classified with respect to the time for which they severally hold office into
three classes, as nearly equal in number as possible. At each annual meeting of
the shareholders of the Corporation, the successors of the class of directors
whose term expires at the meeting shall be elected by plurality vote of all
shares cast at such meeting and shall hold office for a term expiring at the
annual meeting of shareholders held in the third year following the year of
their election. No director need be a shareholder, a resident of the State of
Nevada, or a citizen on the United States.
3.03 Changes in Number. No increase in the number of directors
constituting the entire Board of Directors shall have the effect of shortening
the term on any incumbent director. Any directorship to be filled by reason of
an increase in the number of directors may be filled by (i) the shareholders at
any annual or special meeting of shareholders called for that purpose or (ii)
the Board of Directors; provided that the Board of Directors may not fill more
than three such directorships during the period between any two successive
annual meetings of shareholders.
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3.04 Removal. At any meeting of shareholders called expressly for that
purpose, any director or the entire Board of Directors may be removed, with or
without cause, by a vote of the holders of a majority of the shares then
entitled to vote on the election of directors.
3.05 Vacancies. Any vacancy occurring in the Board of Directors may be
filled by (i) the shareholders at any annual or special meeting of shareholders
called for that purpose or (ii) the affirmative vote of a majority of the
remaining directors though less than a quorum of the Board of Directors. A
director elected to fill a vacancy shall be elected to serve for the unexpired
term of his predecessor in office.
3.06 Place of Meetings. The Board of Directors may hold its meetings in
such place or places within or without the State of Nevada as the majority of
the Board or the Chairman may, from time to time, determine.
3.07 First Meeting. Each newly elected Board of Directors may hold its
first meeting for the purpose of organization and the transaction of business,
if a quorum is present, immediately after and at the same place as the annual
meeting of shareholders, and notice of such meeting shall not be necessary.
3.08 Regular Meetings. Regular meetings of the Board of Directors may
be held without notice at such times and places as may be designated from time
to time by the Chairman of the Board or by resolution of the Board of Directors
and communicated to all directors.
3.09 Special Meeting Notice. Special meetings of the Board of Directors
shall be held whenever called by the Chairman, Chief Executive Officer, or by
any Director. The person calling any special meeting shall cause notice of such
special meeting, including therein the time and place of such special meeting,
to be given to each Director at least two days before such special meeting.
Neither the business to be transacted at, nor the purpose of any special meeting
of the Board of Directors need be specified in the Notice or Waiver of notice of
any special meeting.
3.10 Quorum; Majority Vote. At all meetings of the Board of Directors,
a majority of the number of Directors fixed in the manner provided in these
bylaws shall constitute a quorum for the transaction of business. If a quorum is
not present, a majority of the Directors present may adjourn the meeting from
time to time, without notice other than an announcement at the meeting, until a
quorum is present. The act of a majority of the directors present at a meeting
at which a quorum is in attendance shall be the act of the Board of Directors,
unless the act of a greater number is required by law, the articles of in
Corporation, or these bylaws.
3.11 Procedure; Minutes. At meetings of the Board of Directors,
business shall be transacted in such order as the Board of Directors may
determine from time to time. The Chairman, if present, shall preside. If the
Chairman is absent, the Board of Directors shall appoint at each meeting a
person to preside at the meeting and a person to act as Secretary of the
meeting. The Secretary of the meeting shall prepare minutes of the meeting,
which shall be delivered to the Secretary of the Corporation for placement in
the minute books of the Corporation.
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3.12 Presumption of Assent. A Director of the Corporation who is
present at any meeting of the Board of Directors at which action on any matter
is taken shall be presumed to have assented to the action unless his dissent
shall be entered in the minutes of the meeting or unless he shall file his
written dissent to such action with the person acting as Secretary of the
meeting before the adjournment thereof or shall forward any dissent by certified
or registered mail to the Secretary of the Corporation immediately after the
adjournment of the meeting. Such right to dissent shall not apply to a Director
who voted in favor of such action.
3.13 Compensation. Directors, in their capacity as Directors, may
receive, by resolution of the Board of Directors, a fixed sum and expenses of
attendance, if any, for attending meetings of the Board of Directors or a stated
salary. No Director shall be precluded from serving the Corporation in any other
capacity or receiving compensation therefor.
3.14 Action without Meeting. Any action which may be taken, or which is
required by law, the articles of inCorporation, or these bylaws to be taken, at
a meeting of the Board of Directors or any committee may be taken without a
meeting if a consent in writing, setting forth the action so taken, shall have
been signed by all of the members of the Board of Directors or committee, as the
case may be, and such consent shall have the same force and effect, as of the
date stated therein, as a unanimous vote of such members of the Board of
Directors or committee, as such the case may be, and may be stated as such in
any document or instrument filed will the Secretary of State of Nevada or in any
certificate or other document delivered to any person. The consent may be in one
or more counterparts so long as each director or committee member signs one of
the counterparts. The signed consent shall be placed in the minute book of the
Corporation.
3.15 Advisory Directors. The Board of Directors from time to time may
elect one or more persons to be Advisory Directors who shall not by such
appointment be members of the Board of Directors. Advisory Directors shall be
available from time to time to perform special assignments specified by the
Chief Executive Officer, to attend meetings of the Board of Directors upon
invitation and to furnish consultation to the Board. The Board of Directors may
prescribe the period during which the title shall be held. If no period is
prescribed, the title shall be held at the pleasure of the Board.
ARTICLE FOUR
COMMITTEES
----------
4.01 Designation. The Board of Directors may, by resolution adopted by
a majority of the entire Board of Directors, designate one or more committees.
4.02 Number, Qualification; Term. The Board of Directors, by resolution
adopted by a majority of the entire Board of Directors, shall designate one or
more of its members as members of any committee and may designate one or more of
its members as alternate members of any committee, who may, subject to any
limitations imposed by the Board of Directors, replace absent or disqualified
members at any meeting of that committee. The Chairman shall be an ex-officio
member of all committees. The number of committee members may be increased or
decreased
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from time to time by resolution adopted by a majority of the entire Board of
Directors. Each committee member shall serve as such until the earliest of (i)
the expiration of his term as Director (ii) his resignation as a committee
member or as a Director, or (iii) his removal, as a committee member or as a
Director.
4.03 Authority. Each committee, to the extent expressly provided in the
resolution establishing such committee, shall have and may exercise all of the
authority of the Board of Directors, including, without limitation, the
authority to authorize a distribution and to authorize the issuance of shares of
the Corporation. Notwithstanding the foregoing, however, no committee shall have
the authority of the Board of Directors in reference to:
(a) Amending the Articles of Incorporation, except a committee
may, to the extent provided in the resolution designating that
committee, exercise the authority of the Board of Directors vested in
it in accordance with Article 2.13 of the Nevada Business Corporation
Act;
(b) Proposing a reduction of the stated capital of the
Corporation in the manner permitted by Article 4.12 of the Nevada
Business Corporation Act;
(c) Approving a plan of merger or share exchange of the
Corporation;
(d) Recommending to the shareholders the sale, lease, or exchange
of the property and assets of the Corporation except in the usual and
regular course of its business;
(e) Recommending to the shareholders a voluntary dissolution of
the Corporation or a revocation thereof;
(f) Amending, altering, or repealing these bylaws or adopting new
bylaws;
(g) Filling vacancies in the Board of Directors;
(h) Filling vacancies in, or designating alternate members of,
any committee;
(i) Filling any directorships to be filled for any reason;
(j) Electing or removing officers of the Corporation or members
or alternate members of any committee;
(k) Fixing the compensation of any member or alternate member of
any committee; or
(l) Altering or repealing any resolution of the Board of
Directors that by its terms provides that it shall not be amenable or
repeatable.
4.04 Committee Changes. The Board of Directors shall have the power at
any time to fill vacancies in, to change the membership of, and to discharge any
committee.
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4.05 Regular Meetings. Regular meetings of any committee may be held
without notice at such time and place as may be designated from time to time by
the committee and communicated to all members thereof.
4.06 Special Meetings. Special meetings of any committee may be held
whenever called by any committee member. The committee member calling any
special meeting shall cause notice of such special meeting, including therein
the time and place of such special meeting, to be given to each committee member
at least two days before such special meeting. Neither the business to be
transacted at, nor the purpose of, any special meeting of any committee need be
specified in the notice or waiver of notice to any special meeting.
4.07 Quorum; Majority Vote. At meetings of any committee, a majority of
the number of members designated by the Board of Directors shall constitute a
quorum for the transaction of business. If a quorum is not present at a meeting
of any committee, a majority of the members present may adjourn the meeting from
time to time, without notice other than an announcement at the meeting, until a
quorum is present. The act of a majority of the members present at any meeting
at which a quorum is in attendance shall be the act of a committee, unless the
act of a greater number is required by law, the Articles of Incorporation or
these bylaws.
4.08 Minutes. Each committee shall cause minutes of its proceedings to
be prepared and shall report the same to the Board of Directors upon the request
of the Board of Directors. The minutes of the proceedings of each committee
shall be delivered to the Secretary of the Corporation for placement in the
minute books of the Corporation.
4.09 Compensation. Committee members may, by resolution of the Board of
Directors, to be allowed a fixed sum and expenses of attendance, if any, for
attending any committee meetings or a stated salary.
4.10 Responsibility. The designation of any committee and the
delegation of authority to it shall not operate to relieve the Board of
Directors or any director of any responsibility imposed upon it or such director
by law.
ARTICLE FIVE
GENERAL PROVISIONS RELATING TO THE MEETINGS
-------------------------------------------
5.01 Notice. Whenever by law, the Articles of Incorporation, or these
bylaws, notice is required to be given to any committee member, Director, or
shareholder and no provision is made as to how such notice shall be given, it
shall be construed to mean that any such notice may be given (a) in person, (b)
in writing, by mail, postage prepaid, addressed to such committee member,
director, or shareholder at his address as it appears on the books of the
Corporation or, in the case of the shareholder, the share transfer records of
the Corporation, or (c) by any other method permitted by law. Any notice
required or permitted to be given by mail shall be deemed to be
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deliverable and given at the time when the same is deposited in the United
States mail, postage prepaid, and addressed as aforesaid.
5.02 Waiver of Notice. Whenever by law, the Articles of Incorporation,
or these bylaws, any notice is required to be given to any committee member,
shareholder, or Director of the Corporation, a waiver thereof in writing signed
by the person or persons entitled to such notice, whether before or after the
time notice should have given, shall be equivalent to the giving of such notice.
Attendance of a committee member, shareholder, or Director at a meeting shall
constitute a Waiver of Notice of such meeting, except where such person attends
for the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
5.03 Telephone and Similar Meetings. Shareholders, Directors, or
committee members may participate in and hold a meeting by means of a conference
telephone or similar communications equipment by means of which persons
participating in the meeting can hear each other. Participation in such a
meeting shall constitute presence in person at such meeting, except where a
person participates in the meeting for the express purpose of objecting to the
transaction of any business on the ground that the meeting is not lawfully
called or convened.
ARTICLE SIX
OFFICERS AND OTHER AGENTS
-------------------------
6.01 Number; Titles; Election; Term; Qualification. The officers of the
Corporation shall be a President, one or more Vice Presidents (and, in the case
of each Vice President, with such descriptive title, if any, as the Board of
Directors shall determine), a Secretary, and a Treasurer. The Corporation may
also have a Chairman of the Board, Chief Executive Officer, Chief Operating
Officer, Chief Financial Officer, one or more Assistant Treasurers, one or more
Assistant Secretaries, and such other officers and such agents as the Board of
Directors may from time to time elect or appoint. The Board of Directors shall
elect a President, Vice President, Treasurer, and Secretary at its first meeting
at such a quorum shall be present after the annual meeting of shareholders or
whenever a vacancy exists. The Board of Directors then, or from time to time,
may also elect or appoint one or more other officers or agents as it shall deem
advisable. Each officer and agent shall hold office for the term for which he is
elected or appointed and until his successor has been elected or appointed and
qualified. Any person may hold any number of offices. No officers or agent need
be a shareholder, a Director, a resident of the State of Nevada, or a citizen of
the United States.
6.02 Removal. Any officer or agent elected or appointed by the Board of
Directors may be removed by the Board of Directors whenever in its judgment the
best interest of the Corporation will be served thereby, but such removal shall
be without prejudice to the contract rights, if any, of the person so removed.
Election or appointment of an officer or agent shall not of itself create
contract rights.
6.03 Vacancies. The Board of Directors may fill any vacancy occurring
in any office of the Corporation.
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6.04 Authority. Officers shall have such authority and perform such
duties in the management of the Corporation as are provided in these bylaws or
as may be determined by resolution delegate to any one or more officers of the
Corporation the authority to fix such compensation.
6.05 Compensation. The compensation, if any, of officers and agents
shall be fixed from time to time by the Board of Directors, provided, that the
Board of Directors may by resolution delegate to any one or more officers of the
Corporation the authority to fix such compensation.
6.06 Chairman of the Board. The Chairman of the Board shall have such
powers and duties as may be prescribed by the Board of Directors.
6.07 President. Subject to such supervisory powers, if any, as may be
given by the Board of Directors to the Chairman of the Board, the President
shall be the Chief Executive Officer of the Corporation. In such capacity he
shall, subject to the control of the Board of Directors, have general
supervision, direction, and control of the business and officers of the
Corporation, and shall have the general powers and duties of management usually
vested in the office of President of a Corporation, and shall have such other
powers and duties as may be prescribed by the Board of Directors or these
bylaws. Within this authority and in the course of his duties he shall:
(a) Conduct Meetings: Preside at all meetings of the shareholders
and be an ex officio member of all standing committees of the
Corporation.
(b) Sign Share Certificates: Sign all certificates of stock of
the Corporation in conjunction with the Secretary or Assistant
Secretary, unless otherwise ordered by the Board of Directors.
(c) Execute Instruments: When authorized by the Board of
Directors or required by law, execute, in the name of the Corporation,
deeds, conveyances, notices, leases, checks, drafts, bills of
exchange, warrants, promissory notes, bonds, debentures, contracts,
and other papers and instruments in writing. Unless the Board of
Directors shall order otherwise by resolution, he shall make such
contracts as the ordinary conduct of the Corporation's business may
require.
(d) Hire and Fire Employees: Appoint and remove, employ and
discharge, and prescribe the duties and fix the compensation of all
agents and employees of the Corporation other than the duly appointed
officers, subject to the approval of the Board of Directors. He shall
control, subject to the direction of the Board of Directors, all of
the officers, agents, and employees of the Corporation.
(e) Meetings of Other Corporations:Unless otherwise directed by
the Board of Directors, attend in person or by substitute appointed by
him, and act and vote on behalf of the Corporation at all meetings of
the shareholders of any Corporation in which this Corporation holds
stock.
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6.08 Executive Vice President. There is hereby created the office of
Executive Vice President, who shall be elected by, and serve at the pleasure of,
the Board of Directors. Subject to the supervisory powers given by the Board of
Directors to the Chairman of the Board and President the Executive Vice
President shall be the Chief Operating Officer of the Corporation. The Executive
Vice President shall direct the day-to-day activities of the Corporation in
accordance with policies and objectives established by the President and the
Board of Directors to achieve maximum profitability of operations. He shall
assist the President in developing: (a) policies of the Corporation and (b) an
organization insuring that full advantage is taken of the long-range
potentialities of the business. In the absence of the President, he shall direct
and coordinate the activities of the Corporation's staff and operations. The
Executive Vice President shall perform such other duties as may be prescribed by
the Board of Directors or as may be delegated from time to time by the
President.
6.09 Vice Presidents.
(a) Not withstanding the provisions of Article 6.09 hereof the
Corporation may have one or more Executive Vice Presidents, each with
such powers and duties as may be prescribed by the Board of Directors.
In the absence of the President, the Executive Vice President
designated by the Board of Directors (or in the absence of such
designation, by designation of title or if none, by seniority, as
determined by the length of time each has held the office of Executive
Vice President continuously) shall exercise the powers of the
President.
(b) The Corporation may have one or more group Vice
Presidents, each with such powers and duties as may be prescribed by
the Board of Directors or as may be delegated from time to time by the
President. The group Vice Presidents shall not be officers of the
Corporation and shall not have the power or authority to bind the
Corporation in its dealings with third parties.
6.10 Treasurer (Chief Financial Officer). The Treasurer (also known as
the Chief Financial Officer) shall have custody of the Corporation's funds and
securities, shall keep full and accurate accounts of receipts and disbursements,
and shall deposit all moneys and valuable effects in the name and to the credit
of the Corporation. The funds shall be deposited in such depository or
depositories as may be designated by the Board of Directors. The Treasurer shall
audit all payrolls and vouchers of the Corporation, receive, audit, and
consolidate all operating and financial statements of the Corporation and its
various departments, shall supervise the accounting and auditing practices of
the Corporation, and shall have charge of matters relating to taxation.
Additionally, the Treasurer shall have the power to endorse for deposit,
collection, or otherwise all checks, drafts, notes, bills of exchange, and other
commercial paper payable to the Corporation and to give proper receipts and
discharges for all payments to the Corporation. The Treasurer shall perform such
other duties as may be prescribed by the Board of Directors or as may be
delegated from time to time by the President.
6.11 Assistant Treasurers (Controllers). Each Assistant Treasurer shall
have such powers and duties as may be prescribed by the Board of Directors or as
may be delegated from time
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to time by the President. The Assistant Treasurers (in the order as designated
by the Board of Directors or, in the absence of such designation, as determined
by the length of time each has held the office of Assistant Treasurer
continuously) shall exercise the powers of the Treasurer during that officer's
absence or inability to act. As between the Corporation and third parties, any
action taken by an Assistant Treasurer in the performance of the duties of the
Treasurer shall be conclusive evidence of the absence or inability to act of the
Treasurer at the time such action was taken.
6.12 Secretary. The Secretary shall maintain minutes of all meetings of
the Board of Directors, of any committee, and of the shareholders or consents in
lieu of such minutes in the Corporation's minute books, and shall cause notice
of such meetings to be given when requested by any person authorized to call
such meetings. The Secretary may sign with the President, in the name of the
Corporation, all contracts of the Corporation and affix the seal of the
Corporation thereto. The Secretary shall have charge of the certificate books,
share transfer records, stock ledgers, and such other stock books and papers as
the Board of Directors may direct, all of which shall at all reasonable times be
open to inspection by any Director at the office of the Corporation during
business hours. The Secretary shall perform such other duties as may be
prescribed by the Board of Directors or as may be delegated from time to time by
the President.
6.13 Assistant Secretaries. Each Assistant Secretary shall have such
powers and duties as may be prescribed by the Board of Directors or as may be
delegated from time to time by the President. The Assistant Secretaries (in the
order designated by the Board of Directors, or in the absence or such
designation, as determined by the length of time each has held the office of
Assistant Secretary continuously) shall exercise the duties of the Secretary
during that officer's absence or inability to act. As between the Corporation
and third parties, any action taken by an Assistant Secretary in the performance
of the duties of the Secretary shall be conclusive evidence of the absence or
inability to act of the Secretary at the time such action was taken.
ARTICLE SEVEN
CERTIFICATES AND SHAREHOLDERS
-----------------------------
7.01 Certificates for Shares. The certificates representing shares of
stock of the Corporation shall be in such form as shall be approved by the Board
of Directors in conformity with law. The certificates shall be consecutively
numbered, shall be entered as they are issued in the books of the Corporation or
in the records of the Corporation's designated transfer agent, if any, and shall
state upon the face thereof; (a) that the Corporation is organized under the
laws of the State of Nevada; (b) the name of the person to whom issued; (c) the
number and class of shares and the designation of the series, if any, which such
certificate represents; (d) the par value of each share represented by such
certificate, or statement that the shares are without par value; and (e) such
other matters as may be required by law. The certificates shall be signed by the
President or any Vice President and also by the Secretary, an Assistant
Secretary, or any other officer; however, the signatures of any of such officers
may be facsimiles, The certificates may be sealed with the seal of the
Corporation or a facsimile thereof.
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7.02 Issuance. Shares with or without par value may be issued for such
consideration and to such persons, as the Board of Directors may from time to
time determine, except in the case of shares with par value the consideration
must be at lease equal to the par value of such shares. Shares may not be issued
until the full amount of the consideration has been paid. After the issuance of
uncertificated shares, the Corporation or the transfer agent of the Corporation
shall send to the registered owner of such uncertificated shares a written
notice containing the information required to be stated on certificated
representing shares of stock as set forth in the Nevada Business Corporation
Code and/or the Nevada Uniform Commercial Code as currently in effect and as the
same may be amended from time to time hereafter.
7.03 Consideration for Shares. The consideration for the issuance of
shares shall consist of any tangible or intangible benefit to the Corporation,
including cash, promissory notes, services performed, contracts for services to
be performed, or other securities of the Corporation. In the absence of fraud in
the transaction, the judgment of the Board of Directors as to the value of
consideration received shall be conclusive. When consideration, fixed as
provided by law, has been paid, the shares shall be deemed to be issued and
shall be considered fully paid and nonassessable. The consideration received for
shares shall be allocated by the Board of Directors, in accordance with law,
between stated capital and surplus accounts.
7.04 Lost, Stolen, or Destroyed Certificates. The Corporation shall
issue a new certificate or certificates in place of any certificate representing
shares previously issued if the registered owner of the certificate:
(1) Claim. Makes proof by affidavit, in form and substance
satisfactory to the Board of Directors or any proper officer, that a
previously issued certificate representing shares has been lost,
destroyed, or stolen:
(2) Timely Request. Requests that issuance of a new
certificate before the Corporation has notice that the certificate has
been acquired by a purchaser for value in good faith and without notice
of an adverse claim;
(3) Bond. If required by the Board of Directors or any proper
officer, in its or such officer's discretion, delivers to the
Corporation a bond or indemnity agreement in such form, with such
surety or sureties, and with such fixed or open penalty, as the Board
of Directors or such officer may direct, in its or cash officer's
discretion, to indemnify the Corporation (and its transfer agent and
registrar, if any) against any claim that may be made on account of the
alleged loss, destruction, or theft of the certificate; and
(4) Other Requirements. Satisfies any other reasonable
requirements imposed by the Board of Directors.
7.05 Transfer of Shares. Shares of stock of the Corporation shall be
transferable only on the books of the Corporation by the shareholders thereof in
person or by their duly authorized attorneys or legal representatives. With
respect to shares, upon surrender to the Corporation or the transfer agent of
the Corporation for transfer of a certificate representing shares duly endorsed
and accompanied by any reasonable assurances that such endorsements are genuine
and effective as the
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Corporation may require and after compliance with any applicable law relating to
the collection of taxes, the Corporation or its transfer agent shall, if it has
no notice of an adverse claim or if it has discharged any duty with respect to
any adverse claim, issue one or more new certificates to the person entitled
thereto, cancel the old certificate and record the transaction upon its books.,
7.06 Registered Shareholders. The Corporation shall be entitled to
treat the shareholder of record as the shareholder in fact of any shares and,
accordingly, shall not be bound to recognize any equitable or other claim to or
interest in such shares on the part of any other person, whether or not it shall
have actual or other notice thereof, except as otherwise provided by law.
7.07 Legends. The Board of Directors shall cause an appropriate legend
to be paced on certificates representing shares of stock as may be deemed
necessary or desirable by the Board of Directors in order for the Corporation to
comply with applicable federal or state securities or other laws.
7.08 Regulations. The Board of Directors shall have the power and
authority to make all such rules and regulations as it may deem expedient
concerning the issue, transfer, registration, or replacement of certificates
representing shares of stock of the Corporation.
ARTICLE EIGHT
MISCELLANEOUS PROVISIONS
------------------------
8.01 Dividends. Subject to provisions of applicable statutes and the
Articles of Incorporation, dividends may be declared by and at the discretion of
the Board of Directors at any meeting and may be paid in cash, in property, or
in shares of stock of the Corporation.
8.02 Books and Records. The Corporation shall keep books and records of
account and shall keep minutes of the proceedings of its shareholders, the Board
of Directors, and each committee of the Board of Directors. The Corporation
shall keep at its registered office or principal place of business, or at the
office of its transfer agent or registrar, a record of the original issuance of
shares issued by the Corporation and a record of each transfer of those shares
that have been presented to the Corporation for registration of transfer, giving
the names and addresses of all past and current shareholders and the number and
class of the shares held by each of such shareholders.
8.03 Fiscal Year. The fiscal year of the Corporation shall be fixed by
the Board of Directors; provided, that if such fiscal year is not fixed by the
Board of Directors and the Board of Directors does not defer its determination
of the fiscal year, the fiscal year shall be the calendar year.
8.04 Seal. The seal, if any, of the Corporation shall be in such form
as may be approved from time to time by the Board of Directors. If the Board of
Directors approves a seal, the affixation of such seal shall not be required to
create a valid and binding obligation against the Corporation.
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<PAGE>
8.05 Attestation by the Secretary. With respect to any deed, deed of
trust, mortgage, or other instrument executed by the Corporation through its
duly authorized offer or officers, the attestation to such execution by the
Secretary of the Corporation shall not be necessary to constitute such deed,
deed of trust, mortgage, or other instrument a valid and binding obligation
against the Corporation unless the resolutions, if any, of the Board of
Directors authorizing such execution expressly state that such attestation is
necessary.
8.06 Indemnification. Each person who is or was a director or officer
of the Corporation, or each such person who is or was serving at the request of
the Board of Directors or an officer of the Corporation as a Director, officer,
partner, venturer, proprietor, trustee, employee, agent or similar functionary
of another Corporation, partnership, joint venture, sole proprietorship, trust
or other enterprise or employee benefit plan (including the heirs, executors,
administrators or estate of such person) shall be indemnified by the Corporation
to its fullest extent that a Corporation is required or permitted to grant
indemnification to such person under the Nevada Business Corporation Act or any
other relevant provision of Nevada law as the same may exist or may hereafter be
amended (but, in the case of any such amendment, only to the extent that such
amendment permits the Corporation to provide broader indemnification rights than
said law permitted the Corporation to provide prior to such amendment) or any
other applicable laws as presently or hereafter in effect. Without limiting the
generality or the effect of the foregoing, the Corporation may enter into one or
more agreements with any person, which provide for indemnification greater or
different than that provided in this article to the extent provided by
applicable laws. Any amendment or repeal of this article shall not adversely
affect any right protection existing hereunder immediately prior to such
amendment or repeal.
8.07 Insurance. The Corporation may purchase and maintain insurance or
other arrangement on behalf of any person who is or was a Director, officer,
employee, or agent of the Corporation or who is or was serving at the request of
the Corporation as a director, officer, partner, venturer, proprietor, trustee,
employee, agent, or similar functionary of another foreign or domestic
Corporation, partnership, joint venture, sole proprietorship, trust, employee
benefit plan, or other enterprise, against any liability asserted against him
and incurred by him in such a capacity or arising out of this status as such a
person,, whether or not the Corporation would have the power to indemnify him
against that liability under these bylaws. If the insurance or other arrangement
is with a person or entity that is not regularly engaged in the business of
providing insurance coverage, the insurance or arrangement may provide for
payment of a liability with respect to which the Corporation would not have the
power to indemnify the person only if including coverage for the additional
liability has been approved by the shareholders of the Corporation. In the
absence of fraud, the judgment of the Board as to the terms and conditions of
the insurance or other arrangement in the identity of the insured or other
person participating gin an arrangement shall be conclusive and the insurance or
arrangement shall not be voidable and shall not subject the Directors approving
the insurance or arrangement or liability, on any ground, regardless of whether
Directors participating in the approval are beneficiaries of the insurance or
arrangement.
8.08 Resignation. Any Director, committee member, officer, or agent may
resign by so stating at any meeting of the Board of Directors or by giving
written notice to the Board of Directors, the President, or the Secretary. Such
resignation shall take effect at the time specified in the statement made at the
Board of Director's meeting or in the written notice, but in no event may
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the effective time of such resignation be prior to the time such statement is
made or such notice is given. If no effective time is specified in the
resignation, the resignation shall be effective immediately. Unless a
resignation specifies otherwise, it shall be effective without being accepted.
8.09 Securities of Other Corporations. The President of any Vice
President of the Corporation shall have the power and authority to transfer,
endorse for transfer, vote, consent, or take any other action with respect to
any securities of another issuer which may be held or owned by the Corporation
and to make, execute, and deliver any waiver, proxy, or consent with respect to
any such securities.
8.10 Amendment of Bylaws. The power to amend or repeal these bylaws or
to adopt new bylaws is vested in the Board of Directors, but is subject to the
right of the shareholders to amend or repeal these bylaws or to adopt new
bylaws.
8.11 Invalid Provisions. If any part of these bylaws is held invalid or
inoperative for any reason, the remaining parts, so far, as is possible and
reasonable, shall remain valid and operative.
8.12 Headings: Table of Contents. The heading and table of contents
used in these bylaws are for convenience only and do not constitute matter to be
construed in the interpretation of these bylaws.
18
2
CERTIFICATE OF DESIGNATION, NUMBER, POWERS,
PREFERENCES AND RELATIVE, PARTICIPATING,
OPTIONAL, AND OTHER SPECIAL RIGHTS AND THE
QUALIFICATIONS, LIMITATIONS, RESTRICTIONS,
AND OTHER DISTINGUISHING CHARACTERISTICS OF
SERIES A PREFERRED STOCK
OF
SPINTEK GAMING TECHNOLOGIES, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is SPINTEK GAMING TECHNOLOGIES, INC. a Nevada corporation.
2. The articles of incorporation of the Corporation authorizes the
issuance of 100,000 shares of Preferred Stock, no par value per share, and
expressly vests in the Board of Directors of the Corporation the authority
provided therein to issue any or all of said shares in one or more series and by
resolution or resolutions to establish the designation, number, full or limited
voting powers, or the denial of voting powers, preferences and relative,
participating, optional, and other special rights and the qualifications,
limitations, restrictions, and other distinguishing characteristics of each
series to be issued.
3. The Board of Directors designated Fifteen Thousand (15,000) of the
One Hundred Thousand (100,000) authorized shares of Preferred Stock of the
Corporation as Series A Preferred Stock.
4. None of the shares designated Series A Preferred Stock have been
issued prior to this Certificate of Determination.
5. The Board of Directors of the Corporation, pursuant to the authority
expressly vested in it as aforesaid, has adopted the following resolutions
creating a Series A issue of Preferred Stock:
RESOLVED, that 15,000 of the 100,000 authorized shares of Preferred
Stock of the Corporation shall be designated Series A Preferred Stock (the
"Series A Preferred Stock") and shall possess the rights and privileges set
forth below:
A. Dividends.
(i) The holder of each issued and outstanding share of Series A
Preferred Stock shall be entitled to receive, when and as declared by the
Board of Directors of the Corporation, out of the assets at the time
legally available for such purpose, dividends at a rate of 4% of the
liquidation preference per annum, payable in cash or in stock. Such
dividends shall not be cumulative and no right to such dividends shall
accrue to holders of Series A Preferred Stock
<PAGE>
unless declared by the Corporation's Board of Directors. No dividends shall
be declared or paid with respect to the Corporation's Common Stock (other
than a dividend payable solely in Common Stock of the Corporation), or upon
any other class of Preferred Stock of the Corporation with a dividend
preference subordinate to the dividend preference of the Series A Preferred
Stock, unless a dividend of equal or greater amount per share (on an
as-if-converted to Common Stock basis) is first declared and paid with
respect to the Series A Preferred Stock.
(ii) No dividends shall be paid on the Series A Preferred Stock at
such time as:
(a) such payment would violate Nevada law; or
(b) such payment would impair the net capital or other financial
requirements applicable to the Corporation established by the National
Association of Securities Dealers, Inc., the Securities and Exchange
Commission, or any other state or federal securities authority or
agency, any state or federal commodities authority or agency, or any
commodities or securities exchange.
B. Liquidation Preference.
(i) In the event of any liquidation, dissolution or winding-up of the
Corporation, either voluntary or involuntary (a "Liquidation"), the holders
of shares of the Series A Preferred Stock then issued and outstanding shall
be entitled to be paid out of the assets of the Corporation available for
distribution to its shareholders, whether from capital, surplus or
earnings, before any payment shall be made to the holders of shares of the
Common Stock or upon any other series of Preferred Stock of the Corporation
with a liquidation preference subordinate to the liquidation preference of
the Series A Preferred Stock, an amount equal to one thousand dollars
($1,000) per share. If, upon any Liquidation of the Corporation, the assets
of the Corporation available for distribution to its shareholders shall be
insufficient to pay the holders of shares of the Series A Preferred Stock
and the holders of any other series of Preferred Stock with a liquidation
preference equal to the liquidation preference of the Series A Preferred
Stock the full amounts to which they shall respectively be entitled, then
the holders of shares of the Series A Preferred Stock and the holders of
any other series of Preferred Stock with liquidation preference equal to
the liquidation preference of the Series A Preferred Stock shall receive
all of the assets of the Corporation available for distribution and each
such holder of shares of the Series A Preferred Stock and the holders of
any other series of Preferred Stock with a liquidation preference equal to
the liquidation preference of the Series A Preferred Stock shall share
ratably in any distribution in accordance with the amounts due such
shareholders. After payment shall have been made to the holders of shares
of the Series A Preferred Stock of the full amount to which they shall be
entitled, as aforesaid, the holders of shares of the Series A Preferred
Stock shall be entitled to no further distributions thereon and the holders
of shares of the Common Stock and of shares of any other series of stock of
the Corporation shall be entitled to share, according to their respective
rights and preferences, in all remaining assets of the Corporation
available for distribution to its shareholders.
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<PAGE>
(ii) A merger or consolidation of the Corporation with or into any
other corporation, or a sale, lease, exchange, or transfer of all or any
part of the assets of the Corporation which shall not in fact result in the
liquidation (in whole or in part) of the Corporation and the distribution
of its assets to its shareholders shall not be deemed to be a voluntary or
involuntary liquidation (in whole or in part), dissolution, or winding-up
of the Corporation.
C. Conversion of Series A Preferred Stock.
The holders of Series A Preferred Stock shall have
the following conversion rights:
(i) Right to Convert. Each share of Series A Preferred Stock shall be
convertible, on the Conversion Dates and at the Conversion Prices set forth
below, into fully paid and nonassessable shares of Common Stock.
(ii) Mechanics of Conversion. Each holder of Series A Preferred Stock
who desires to convert the same into shares of Common Stock shall provide
notice ("Conversion Notice") via telecopy to the Corporation. The original
Conversion Notice and the certificate or certificates representing the
Series A Preferred Stock for which conversion is elected, shall be
delivered to the Corporation by international courier, duly endorsed. The
date upon which a Conversion Notice is properly received by the Corporation
shall be a "Notice Date."
The Corporation shall use all reasonable efforts to issue and deliver
within three (3) business days after the Notice Date, to such holder of Series A
Preferred Stock at the address of the holder on the stock books of the
Corporation, a certificate or certificates for the number of shares of Common
Stock to which the holder shall be entitled as aforesaid; provided that the
original shares of Series A Preferred Stock to be converted are received by the
transfer agent or the Corporation within three business days after the Notice
Date and the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the record
holder or holders of such shares of Common Stock on such date. If the original
shares of Series A Preferred Stock to be converted are not received by the
transfer agent or the Corporation within three business days after the Notice
Date, the Conversion Notice shall become null and void.
(iii) Conversion Dates. The Series A Preferred Stock shall become
convertible into shares of Common Stock at any time commencing forty-five
(45) days after the last day on which there is an original issuance of
Series A Preferred Stock (the "Conversion Date").
(iv) Conversion Price. Each share of Series A Preferred Stock shall be
convertible into the number of shares of Common Stock according to the
following formula:
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<PAGE>
[(.04) (N/365) (1,000)] + 1,000
-------------------------------
Conversion Price
N = the number of days between (i) the date of issuance of the
Series A Preferred Stock and (ii) the applicable date of
conversion for the Series A Preferred Stock for which
conversion is being elected.
Conversion
Price = the average closing bid price of the Corporation's Common
Stock for the five (5) trading days immediately preceding
the Notice Date.
(v) Automatic Conversion. Each share of Series A Preferred Stock
outstanding on December 31, 1999 automatically shall be converted into
Common Stock on such date as the Conversion Price then in effect, and
December 31, 1999 shall be deemed to be the Notice Date with respect to
such conversion. The Company shall have no right to force conversion of any
outstanding shares of Series A Preferred Stock prior to December 31, 1999.
(vi) Fractional Shares. No fractional share shall be issued upon the
conversion of any shares, share or fractional share of Series A Preferred
Stock. All shares of Common Stock (including fractions thereof) issuable
upon conversion of shares (or fractions thereof) of Series A Preferred
Stock by a holder thereof shall be aggregated for purposes of determining
whether the conversion would result in the issuance of any fractional
share. If, after the aforementioned aggregation, the conversion would
result in the issuance of a fraction of a share of Common Stock, the
Corporation shall, in lieu of issuing any fractional share, pay the holder
otherwise entitled to such fraction a sum in cash equal to the closing bid
price of the Corporation's Common Stock on the Notice Date multiplied by
such fraction.
(vii) Reservation of Stock Issuable Upon Conversion. The Corporation
shall at all times reserve and keep available out of its authorized but
unissued shares of Common Stock, solely for the purpose of effecting the
conversion of the shares of the Series A Preferred Stock, such number of
its shares of Common Stock as shall from time to time be sufficient to
effect the conversion of all then outstanding shares of the Series A
Preferred Stock; and if at any time the number of authorized but unissued
shares of Common Stock shall not be sufficient to effect the conversion of
all then outstanding shares of the Series A Preferred Stock, the
Corporation will take such corporate action as may be necessary to increase
its authorized but unissued shares of Common Stock to such number of shares
as shall be sufficient for such purpose.
(viii) Adjustment to Conversion Price.
(a) If, prior to the conversion of all shares of Series A
Preferred Stock at a time when conversion would be at the Conversion
Price, there is a stock split, stock dividend, or other similar event
which occurs during the five-day period utilized to compute the
Conversion Price, then the Closing Bid Price used to compute the
Conversion Price shall be appropriately adjusted to reflect, as deemed
equitable and appropriate by the Corporation, such
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<PAGE>
stock split, stock dividend or other similar event.
(b) If, prior to the conversion of all shares of Series A
Preferred Stock, there shall be any merger, consolidation, exchange of
shares, recapitalization, reorganization, or other similar event, as a
result of which shares of Common Stock of the Corporation shall be
changed into the same or a different number of shares of the same or
another class or classes of stock or securities of the Corporation or
another entity, then the holders of Series A Preferred Stock shall
thereafter have the right to purchase and receive upon conversion of
shares of Series A Preferred Stock, upon the basis and upon the terms
and conditions specified herein and in lieu of the shares of Common
Stock immediately theretofore issuable upon conversion, such shares of
stock and/or securities as may be issued or payable with respect to or
in exchange for the number of shares of Common Stock immediately
theretofore purchasable and receivable upon the conversion of shares
of Series A Preferred Stock held by such holders had such merger,
consolidation, exchange of shares, recapitalization or reorganization
not taken place, and in any such case appropriate provisions shall be
made with respect to the rights and interests of the holders of the
Series A Preferred Stock to the end that the provisions hereof
(including, without limitation, provisions for adjustment of the
Conversion Price and of the number of shares issuable upon conversion
of the Series A Preferred Stock) shall thereafter be applicable, as
nearly as may be practicable in relation to any shares of stock or
securities thereafter deliverable upon the exercise hereof. The
Corporation shall effect any transaction described in this subsection
unless the resulting successor or acquiring entity (if not the
Corporation) assumes by written instrument the obligation to deliver
to the holders of the Series A Preferred Stock such shares of stock
and/or securities as, in accordance with the foregoing provisions, the
holders of the Series A Preferred Stock may be entitled to purchase.
(c) If any adjustment under this subsection would create a
fractional share of Common Stock or a right to acquire a fractional
share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon conversion shall be
the next higher number of shares.
D. Redemption.
(i) Right to Redeem on Conversion. The Corporation shall have the
right, in its sole discretion, upon receipt of a notice of conversion
pursuant to Section C, to redeem in whole or in part any shares of Series A
Preferred Stock submitted for conversion, immediately prior to conversion.
If the Corporation elects to redeem some, but not all, of the shares of
Series A Preferred Stock submitted for conversion, the Corporation shall
redeem from among the shares of Series A Preferred Stock submitted by the
various shareholders for conversion on the applicable date, a pro-rata
amount from each shareholder so submitting shares of Series A Preferred
Stock for conversion.
(ii) Mechanics of Redemption on Conversion. The Corporation shall
effect each such redemption by giving notice of its election to redeem, by
facsimile within 1 business day following receipt of a notice of conversion
from a Holder, with a copy by 2-day courier, to the Holder of shares of
Series A Preferred Stock submitted for conversion at the
5
<PAGE>
address and facsimile number of such Holder appearing in the Corporation's
register for the Series A Preferred Stock. Such redemption notice shall
indicate whether the Corporation will redeem all or part of the shares of
Series A Preferred Stock submitted for conversion and the applicable
redemption price. The Corporation shall not be entitled to send any notice
of redemption and begin the redemption procedure unless it has the full
amount of the redemption price, in cash, available in a demand or other
immediately available account in a bank or similar financial institution on
the date the redemption notice is sent to shareholders.
The redemption price per shares of Series A Preferred Stock shall be
calculated in accordance with the following formula:
Principal + Interest x Closing Bid Price
----------------------------------------
Conversion Price
For the purposes of the above formula, "Principal", "Interest",
"Closing Bid Price" and "Conversion Price" shall have the meanings set forth in
Section C.
The redemption price shall be paid to the Holder of shares of Series A
Preferred Stock redeemed within 10 business days of the delivery of the notice
of such redemption to such Holder; provided, however, that the Corporation shall
not be obligated to deliver any portion of such redemption price unless either
the certificates evidencing the shares of Series A Preferred Stock redeemed are
delivered to the Corporation or its transfer agent as provided in Section C, or
the Holder notifies the Corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and executes an agreement satisfactory to
the Corporation to indemnify the Corporation from any loss incurred by it in
connection with such certificates.
(iii) Redemption on Asset Sale. In the event the Corporation enters
into a transaction or series of transactions to sell all or substantially
all of its assets, the Corporation shall, within seven days after the
closing of such transaction and after giving at least 15 days advance
written notice of such transaction (which notice shall specify the date
that such redemption is to be effected, which date is referred to
hereinafter as the "Effective Date of Redemption"), redeem the shares of
Series A Preferred Stock for cash. The redemption price in such event
("Redemption Price on Asset Sale") shall be calculated in accordance with
the formula set forth in Section D(ii) above.
Upon the close of the transaction causing redemption under this Section
D(iii), the Corporation shall deposit the Redemption Price on Asset Sale for all
outstanding shares of Series A Preferred Stock with a bank or trust company
having aggregate capital and surplus in excess of $50,000,000 as a trust fund
for the benefit of the respective holders of the Series A Preferred Stock
designated for redemption and not yet redeemed. Simultaneously, the Corporation
shall deposit irrevocable instruction and authority to such bank or trust
company to publish the notice of redemption thereof (or to complete such
publication if theretofore commenced) and to pay, on and after the date fixed
for redemption or prior thereto, the Redemption Price on Asset Sale to the
holders of the Series A Preferred Stock upon surrender of their certificates.
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<PAGE>
(iv) Redemption on Change of Control. In the event of a Change of
Control (as hereinafter defined), the shares of Series A Preferred Stock
shall be redeemed by the Corporation for cash at a redemption price
calculated in accordance with the formula set forth in Section D(ii) above.
For purposes of this Section D(iv), 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 of
the Corporation entitling such Person to exercise 50% 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 (any shares of
voting stock of which such person or group is the beneficial owners
that are not then outstanding for purposes of calculating such
percentage); 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).
(v) No Other Redemption. The Corporation shall have no right to redeem
the Series A Preferred Stock except as provided in Section D hereof.
E. Voting. Except as otherwise provided by the General
Corporation Law of the State of Nevada, the holders of the Series A Preferred
Stock shall have no voting power whatsoever, and no holder of Series A Preferred
Stock shall vote or otherwise participate in any proceeding in which actions
shall be taken by the Corporation or the shareholders thereof or be entitled to
notification as to any meeting of the Board of Directors or the shareholders.
F. Protective Provisions. So long as shares of Series A
Preferred Stock are outstanding, the Corporation shall not without first
obtaining the approval (by vote or written consent, as provided by law) of the
holders of at least a majority of the then outstanding shares of Series A
Preferred Stock:
(i) alter or change the rights, preferences or privileges of the
shares of Series A Preferred Stock so as to affect adversely the Series A
Preferred Stock;
(ii) create any new class or series of stock being on a parity with or
having a preference over the Series A Preferred Stock with respect to
dividends, to payments upon Liquidation (as provided for in Section B of
this Designation) or to redemption; or
7
<PAGE>
(iii) do any act or thing not authorized or contemplated by this
Designation which would result in taxation of the holders of shares of the
Series A Preferred Stock under Section 305 of the Internal Revenue Code of
1986, as amended (or any comparable provision of the Internal Revenue Code
as hereafter from time to time amended).
G. Status of Converted Stock. In the event any shares of
Series A Preferred Stock shall be converted as contemplated by this Designation,
the shares so converted shall be canceled, shall return to the status of
authorized but unissued Preferred Stock of no designated class or series, and
shall not be issuable by the Corporation as Series A Preferred Stock.
FURTHER RESOLVED, that the statements contained in the foregoing
resolutions creating and designating the said Series A Preferred Stock and
fixing the number, powers, preferences and relative, optional, participating,
and other special rights and the qualifications, limitations, restrictions, and
other distinguishing characteristics thereof shall, upon the effective date of
said series, be deemed to be included in and be a part of the articles of
incorporation of the Corporation pursuant to the provisions of the Nevada
Revised Statutes.
Signed on _____________, 1998.
Sworn to and subscribed before me By:
this _____ day of _____________, 1998. Its: President
Attest:
Notary Public
By:_______________________________
My Commission Expires: Its: Secretary
(NOTARY SEAL)
THE OFFERING IS MADE IN RELIANCE UPON THE PRIVATE PLACEMENT EXEMPTION CONTAINED
IN SECTION 4(2) OF THE SECURITIES ACT OF 1933 AND REGULATION D PROMULGATED
THEREUNDER. THE OFFERING IS MADE EITHER IN RELIANCE UPON SIMILAR EXEMPTIONS
UNDER APPLICABLE STATE SECURITIES LAWS OR HAS BEEN REGISTERED IN SUCH STATES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR THE STATE SECURITIES
COMMISSIONS HAVE REVIEWED THE MERITS OF OR APPROVED THE OFFERING OR HAVE PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PRIVATE PLACEMENT MEMORANDUM. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
6% SECURED CONVERTIBLE NOTE DUE FEBRUARY 28, 2008
SPINTEK GAMING TECHNOLOGIES, INC.
a California corporation
$_______________ Las Vegas, Nevada February __, 1998
Spintek Gaming Technologies, Inc., a California corporation (the
"Corporation"), is indebted and, for value received, promises to pay to the
order of the individual or entity identified as the holder on the signature page
hereto ("Holder") on February 28, 2008 (the "Due Date"), upon presentation of
this Note, the amount set forth as the principal amount on the signature page
hereto (the "Principal Amount") and to pay interest on the Principal Amount at
the rate of six percent (6%) per annum as provided herein.
This Note is one of a series of notes (the "Notes") in the aggregate
principal amount of up to $5,000,000.00, being issued by the Corporation in a
private placement transaction. ALL OF THE NOTES SHALL BE EQUAL IN RANK WITH EACH
OTHER WITH RESPECT TO THE OBLIGATIONS OF THE CORPORATION AS DESCRIBED IN THE
INTERCREDITOR AGREEMENT AMONG THE HOLDERS. Each Note shall be convertible into
shares of the Corporation's common stock as provided in Section 3 hereof.
The Corporation covenants, promises and agrees as follows:
1. Interest. Interest which shall accrue on the Principal Amount shall
be payable in annual installments on February 28 in each calendar year until the
Principal Amount and all accrued and unpaid interest shall have been paid in
full. If this Note shall be issued on a date other than the first day of a
calendar month, the interest payable shall be prorated based upon the number of
days of such calendar month period during which this Note shall have been issued
and outstanding. All accrued and unpaid interest shall be payable on the Due
Date. The first payment of interest shall be made on February 28, 1999. All
payments of principal and interest or principal or interest shall be made at the
address of the Holder as set forth on the signature page hereto, or at such
other place as may be designated by the Holder.
2. Prepayment. This Note may be prepaid in whole or in part, at any
time on or after March 1, 2001.
<PAGE>
3. Conversion.
3.1. The Holder shall have the right, at the Holder's option,
at any time through February 28, 2001, to convert all, but not less than all, of
the then outstanding Principal Amount of this Note into such number of fully
paid and nonassessable shares of Common Stock of the Corporation (the "Common
Stock") as shall be provided for herein. The Holder may exercise the conversion
right provided in this Section 3.1 by giving written notice (the "Conversion
Notice") to the Corporation of the exercise of such right and stating the name
or names in which the stock certificate or stock certificates for the shares of
Common Stock are to be issued and the address or addresses to which such stock
certificates shall be delivered. The Conversion Notice shall be accompanied by
the Note with such transfer documents as the Corporation may reasonably request.
3.2. The number of shares of Common Stock that shall be
issuable upon conversion of the Note shall equal 0.8% of the "Outstanding Common
Stock" (as hereinafter defined) for each $100,000 of Principal Amount; provided,
however, that all calculations hereunder shall be rounded to the nearest whole
shares (with one-half shares being rounded up), and that in the event that the
Principal Amount is not evenly divisible by $100,000, then the number of shares
of Common Stock shall be issued pro rata.
3.3. The Corporation shall have the right, at the
Corporation's option, to convert all or any part of the then outstanding
Principal Amount of this Note into such number of fully-paid and non-assessable
shares of Common Stock of the Corporation as determined pursuant to Section 3.2
hereof beginning at the earliest of:
(i) the day immediately following the conversion to Common Stock of all
Series A Preferred Stock of the Corporation which was outstanding on March 1,
1998;
(ii) upon the closing of the public offering of the Corporation's
securities yielding to the Corporation net proceeds of not less than $5,000,000,
or
(iii) March 1, 2000.
The Corporation's right to convert this Note shall expire in all events on
February 28, 2001. In the event that the Corporation elects to convert this
Note, the Corporation may do so without any notice to the Holder, although the
Corporation shall, within three business days following conversion, notify the
Holder that the conversion has occurred, the effective date of the conversion, a
summary of the shares of Common Stock to be delivered in respect of the
conversion, as well as a summary of any accrued and unpaid interest that is
payable through the date of conversion. In the event that the Corporation elects
to convert this Note pursuant to the provisions of subsection (ii), the
conversion shall be effective as of the day immediately preceding the closing of
the public offering, and the Holders shall not be entitled to any recalculation
of the amount of shares to be issued upon conversion as provided in Section 3.6
hereof.
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3.4. Conversion shall be deemed to have been effected on the
date (the "Conversion Date") (i) that the Conversion Notice is delivered (if
conversion is pursuant to Section 3.2), (ii) designated by the Corporation in
its notice to the Holder if conversion is pursuant to Sections 3.3(i) or (iii),
or (iii) the first business day immediately preceding the closing of the public
offering if conversion is pursuant to Section 3.3(ii). Within ten business days
following the Conversion Date, the Corporation shall issue and deliver by hand
against a signed receipt therefor or by United States registered mail, to the
address designated by the Holder in the Conversion Notice or the address
included herein if there is no Conversion Notice, a stock certificate, or stock
certificates of the Corporation representing the number of shares of Common
Stock to which such Holder is entitled and a check in payment of all interest
accrued and unpaid on the Note up to and including the Conversion Date.
Notwithstanding the foregoing, in the event that a conversion has been effected
pursuant to Section 3.3 hereof, the Corporation may defer the delivery of the
stock certificate or stock certificates described herein until such time as the
Holder has delivered to the Corporation the Note and that the Holder may give
written notice to the Corporation at the time of the delivery of the Note of the
name or names in which the stock certificate or stock certificates for the
shares of Common Stock are to be issued and the address or addresses to which
such stock certificates shall be delivered; provided, however, that the
Corporation may issue such certificates to the Holder at any time if at the time
of issuance no direction has been given.
3.5. For the purposes of this Section 3, the term "Outstanding
Common Stock" shall refer to the number of shares of Common Stock which are
outstanding immediately subsequent to the conversion being made by the Holder
herein. The Outstanding Common Stock shall also include shares of Common Stock
being issued upon conversion of any other of the Notes which are being converted
as of the same Conversion Date, as well as shares of Common Stock which, as of
the Conversion Date, may be acquired by any individual or entity pursuant to any
then currently exercisable stock option or warrant agreement (without regard to
any adjustment that would result from the conversion of the Notes), but not
including any shares of Common Stock subject to issuance pursuant to any
outstanding convertible security (including other Notes not being converted at
that time).
3.6. Except with respect to a conversion of the Note pursuant
to Section 3.3(ii) and 3.7 hereof, on the earlier of (i) the first business day
following the first business day on which all Notes have been converted and all
shares of the Company's Series A Preferred Stock which were outstanding on March
1, 1998 have been converted into Common Stock of the Corporation, or (ii) March
1, 2001, regardless of any prior conversion of the Note the Corporation shall
recalculate any conversions made hereunder assuming that such conversions were
made on such date and shall recalculate the number of shares of outstanding
Common Stock as of such date. Within ten (10) business days thereafter, the
Corporation shall issue to the Holder hereof a summary of such calculations and,
if additional shares of Common Stock are issuable to the Holder, the Corporation
shall deliver by hand against a signed receipt therefore or by United States
registered mail, to the address designated by the Holder to the last known
address of the Holder, a stock certificate, or stock certificates, of the
Corporation represent the number of shares of Common Stock to which such Holder
is entitled.
3.7 In case of any capital reorganization, any
reclassification of the stock of the
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Corporation (other than as a result of a stock dividend or
subdivision, split up or combination of shares), or any share exchange by or the
consolidation or merger of the Corporation with or into another person or entity
(other than a share exchange or merger in which the Corporation is the acquiring
or surviving corporation and which does not result in any change in the Common
Stock) or of the sale, exchange, lease, transfer or other disposition of all or
substantially all of the properties and assets of the Corporation as an entirety
or the participation by the Corporation in share exchange as the corporation the
stock of which is to be acquired, this Note shall (effective on the opening of
business on the date after the effective date of such reorganization,
reclassification, consolidation, merger, sale or exchange, lease, transfer or
other disposition or share exchange) be converted into the kind and number of
shares of stock or other securities or property of the Corporation or of the
corporation resulting from such consolidation or surviving such merger or to
which such properties and assets shall have been sold, exchanged, leased,
transferred or otherwise disposed or which was the corporation whose securities
were exchanged for those of the Corporation, to which the holder of the number
of shares of Common Stock deliverable (at the close of business on the date
immediately preceding the effective date of such reorganization,
reclassification, consolidation, merger, sale, exchange, lease, transfer or
other disposition or share exchange) upon conversion of this Note would have
been entitled upon such reorganization, reclassification, consolidation, merger,
sale, exchange, lease, transfer or other disposition or share exchange. The
provisions of this Section 3.7 shall similarly apply to successive
reorganizations, reclassifications, consolidations, mergers, sales, exchanges,
leases, transfers or other dispositions or other share exchanges. The provisions
of Section 3.6 shall not apply to a conversion pursuant to this Section 3.7.
3.8. The Corporation shall pay all transactional taxes and
charges attributable to the issuance or delivery of shares of stock of the
Corporation upon conversion; provided, however, that the Corporation shall not
be required to pay any taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificate for such shares in a
name other than that of the record holder of this Note.
4. Security. This Note is secured by a Collateral Assignment and
Security Agreement of even date herewith from Spinteknology, Inc., a
wholly-owned second tier subsidiary of the Corporation (the "Security
Agreement"), conveying to the Holder, as well as all of the Holder's of the
Notes, a security interest and collateral assignment of all of the patents,
unpatented inventions, patent applications, patent interference proceedings,
trade secrets, rights under technology, licenses, choses-in-action, information
contained in computer media and derivatives thereof, including the right to
make, use and vend good-utilizing of the foregoing, together with all cash and
non-cash proceeds and products thereof (the "Collateral"). In addition to the
Security Agreement, the terms to the collateral are governed by a Patent
Collateral Assignment as well as an Intercreditor Agreement amongst the Holders
of the Notes.
5. Default. Subject to the provisions of the Intercreditor Agreement,
upon the occurrence of an Event of Default, as defined in the Security
Agreement, at 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
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<PAGE>
stated in this Note or the documents which now or hereinafter collectively
evidence or secure the loan evidenced by the Note (collectively the "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 and 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 shall, at Holder's option, bear
interest at the default rate stated below.
6. Transfer. This Note shall be transferred on the books of the
Corporation only by the registered holder hereof or by his or her attorney duly
authorized in writing or by delivery to the Corporation of a duly executed
Assignment substantially in the form attached hereto as Exhibit A. Subject to
compliance with applicable federal and state securities laws and the notice
provisions of the Intercreditor Agreement amongst the Corporation, Holder and
the other Holders of the Notes, the Corporation shall be entitled to treat any
holder of record of the Note as the holder in fact thereof and shall not be
bound to recognize any equitable or other claim to or interest in this Note in
the name of any other person, whether or not it shall have express or other
notice thereof, save as expressly provided by the laws of the State of Georgia.
7. Notices. All notices and communications under this Note shall be in
writing and shall be either delivered in person or accompanied by a signed
receipt therefor or mailed first-class United States certified mail, postage
prepaid, and addressed as follows: if to the Corporation, to 901 Grier Drive,
Suite B, Las Vegas, Nevada 89119 and, if to the Holder of this Note, to the
address of such Holder as it appears on the signature page hereto. Any notice of
communication shall be deemed given and received as of the date of such delivery
or mailing.
8. Miscellaneous.
8.1. 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, the Corporation agrees to pay to Holder,
in addition to any indebtedness due and unpaid, all reasonable costs and
expenses of such proceedings, including reasonable attorneys' fees.
8.2. 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.
8.3. 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
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<PAGE>
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 the Corporation in
connection with this Note. The Corporation 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 the
Corporation, 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 the Corporation.
8.4. This Note is given and accepted as evidence of
indebtedness and not in payment or satisfaction of any indebtedness or
obligation.
8.5. 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 nine
percent (9%) 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.
8.6. The Corporation hereby waives demand for payment of any
of the indebtedness or performance of any of the obligations hereby evidenced,
and protest and notice of dishonor or of default to the Corporation or to any
other party with respect to the indebtedness.
8.7. The liability of the Corporation 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. The
Corporation 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.
8.8. Time is of the essence with respect to all of the
Corporation's obligations and agreements under this Note.
8.9. This Note and all provisions, conditions, promises and
covenants hereof shall be binding in accordance with the terms hereof upon the
Corporation, its successors and assigns, provided nothing herein shall be deemed
a consent to any assignment or conveyance which is restricted or
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<PAGE>
prohibited by the terms of this Note or the other documents.
8.10. All notices to the Corporation 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.
9. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of Georgia, or, where
applicable, the laws of the United States.
IN WITNESS WHEREOF, the Corporation has caused this Note to be executed
and sealed by its duly authorized officers.
ATTEST: SPINTEK GAMING TECHNOLOGIES, INC.
By: _______________________________
_________________, Secretary Gary Coulter, President
[CORPORATE SEAL]
HOLDER: ______________________________
ADDRESS:______________________________
______________________________
PRINCIPAL AMOUNT: $___________________
T.I.N.#___________________________________
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<PAGE>
EXHIBIT A
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby assigns to
______________________, the within Secured Convertible Note of Spintek Gaming
Technologies, Inc., and hereby irrevocably appoints _____________________,
Attorney, to transfer said Note on the books of the within named corporation,
with full power of substitution in the premises.
IN WITNESS WHEREOF, the undersigned has executed this Assignment on
this _____ day of __________, 199__.
WITNESS:
_______________________________ ________________________
THE OFFERING IS MADE IN RELIANCE UPON THE PRIVATE PLACEMENT EXEMPTION CONTAINED
IN SECTION 4(2) OF THE SECURITIES ACT OF 1933 AND REGULATION D PROMULGATED
THEREUNDER. THE OFFERING IS MADE EITHER IN RELIANCE UPON SIMILAR EXEMPTIONS
UNDER APPLICABLE STATE SECURITIES LAWS OR HAS BEEN REGISTERED IN SUCH STATES.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR THE STATE SECURITIES
COMMISSIONS HAVE REVIEWED THE MERITS OF OR APPROVED THE OFFERING OR HAVE PASSED
UPON THE ACCURACY OR ADEQUACY OF THIS PRIVATE PLACEMENT MEMORANDUM. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
6% SECURED CONVERTIBLE NOTE DUE FEBRUARY 28, 2008
SPINTEK GAMING TECHNOLOGIES, INC.
a California corporation
$_______________ Las Vegas, Nevada July __, 1998
Spintek Gaming Technologies, Inc., a California corporation (the
"Corporation"), is indebted and, for value received, promises to pay to the
order of the individual or entity identified as the holder on the signature page
hereto ("Holder") on February 28, 2008 (the "Due Date"), upon presentation of
this Note, the amount set forth as the principal amount on the signature page
hereto (the "Principal Amount") and to pay interest on the Principal Amount at
the rate of six percent (6%) per annum as provided herein.
This Note is one of a series of notes (the "Notes") in the aggregate
principal amount of up to $5,000,000.00, being issued by the Corporation in two
private placement transactions, the first initiated on February 27, 1998 and the
latter initiated on June 30, 1998. ALL OF THE NOTES SHALL BE EQUAL IN RANK WITH
EACH OTHER WITH RESPECT TO THE OBLIGATIONS OF THE CORPORATION AS DESCRIBED IN
THE INTERCREDITOR AGREEMENT AMONG THE HOLDERS. Each Note shall be convertible
into shares of the Corporation's common stock as provided in Section 3 hereof.
The Corporation covenants, promises and agrees as follows:
1. Interest. Interest which shall accrue on the Principal Amount shall
be payable in installments on February 28 in each calendar year until the
Principal Amount and all accrued and unpaid interest shall have been paid in
full. If this Note shall be issued on a date other than the first day of a
calendar month, the interest payable shall be prorated based upon the number of
days of such calendar month period during which this Note shall have been issued
and outstanding. All accrued and unpaid interest shall be payable on the Due
Date. The first payment of interest shall be made on February 28, 1999. All
payments of principal and interest or principal or interest shall be made at the
address of the Holder as set forth on the signature page hereto, or at such
other place as may be designated by the Holder.
2. Prepayment. This Note may be prepaid in whole or in part, at any
time on or after March 1, 2001.
<PAGE>
3. Conversion.
3.1. The Holder shall have the right, at the Holder's option,
at any time through February 28, 2001, to convert all, but not less than all, of
the then outstanding Principal Amount of this Note into such number of fully
paid and nonassessable shares of Common Stock of the Corporation (the "Common
Stock") as shall be provided for herein. The Holder may exercise the conversion
right provided in this Section 3.1 by giving written notice (the "Conversion
Notice") to the Corporation of the exercise of such right and stating the name
or names in which the stock certificate or stock certificates for the shares of
Common Stock are to be issued and the address or addresses to which such stock
certificates shall be delivered. The Conversion Notice shall be accompanied by
the Note with such transfer documents as the Corporation may reasonably request.
3.2. The number of shares of Common Stock that shall be
issuable upon conversion of the Note shall equal 0.4% of the "Outstanding Common
Stock" (as hereinafter defined) for each $50,000 of Principal Amount; provided,
however, that all calculations hereunder shall be rounded to the nearest whole
shares (with one-half shares being rounded up), and that in the event that the
Principal Amount is not evenly divisible by $50,000, then the number of shares
of Common Stock shall be issued pro rata.
3.3. The Corporation shall have the right, at the
Corporation's option, to convert all or any part of the then outstanding
Principal Amount of this Note into such number of fully-paid and non-assessable
shares of Common Stock of the Corporation as determined pursuant to Section 3.2
hereof beginning at the earliest of:
(i) the day immediately following the conversion to Common Stock of all
Series A Preferred Stock of the Corporation which was outstanding on March 1,
1998;
(ii) upon the closing of the public offering of the Corporation's
securities yielding, after integrating both the private placement initiated
February 27, 1998 and the private placement initiated June 30, 1998, to the
Corporation net proceeds of not less than $5,000,000, or
(iii) March 1, 2000.
The Corporation's right to convert this Note shall expire in all events on
February 28, 2001. In the event that the Corporation elects to convert this
Note, the Corporation may do so without any notice to the Holder, although the
Corporation shall, within three business days following conversion, notify the
Holder that the conversion has occurred, the effective date of the conversion, a
summary of the shares of Common Stock to be delivered in respect of the
conversion, as well as a summary of any accrued and unpaid interest that is
payable through the date of conversion. In the event that the Corporation elects
to convert this Note pursuant to the provisions of subsection (ii), the
conversion shall be effective as of the day immediately preceding the closing of
the public offering, and the Holders shall not be entitled to any recalculation
of the amount of shares to be issued upon conversion as provided in Section 3.6
hereof.
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3.4. Conversion shall be deemed to have been effected on the
date (the "Conversion Date") (i) that the Conversion Notice is delivered (if
conversion is pursuant to Section 3.2), (ii) designated by the Corporation in
its notice to the Holder if conversion is pursuant to Sections 3.3(i) or (iii),
or (iii) the first business day immediately preceding the closing of the public
offering if conversion is pursuant to Section 3.3(ii). Within ten business days
following the Conversion Date, the Corporation shall issue and deliver by hand
against a signed receipt therefor or by United States registered mail, to the
address designated by the Holder in the Conversion Notice or the address
included herein if there is no Conversion Notice, a stock certificate, or stock
certificates of the Corporation representing the number of shares of Common
Stock to which such Holder is entitled and a check in payment of all interest
accrued and unpaid on the Note up to and including the Conversion Date.
Notwithstanding the foregoing, in the event that a conversion has been effected
pursuant to Section 3.3 hereof, the Corporation may defer the delivery of the
stock certificate or stock certificates described herein until such time as the
Holder has delivered to the Corporation the Note and that the Holder may give
written notice to the Corporation at the time of the delivery of the Note of the
name or names in which the stock certificate or stock certificates for the
shares of Common Stock are to be issued and the address or addresses to which
such stock certificates shall be delivered; provided, however, that the
Corporation may issue such certificates to the Holder at any time if at the time
of issuance no direction has been given.
3.5. For the purposes of this Section 3, the term "Outstanding
Common Stock" shall refer to the number of shares of Common Stock which are
outstanding immediately subsequent to the conversion being made by the Holder
herein. The Outstanding Common Stock shall also include shares of Common Stock
being issued upon conversion of any other of the Notes which are being converted
as of the same Conversion Date, as well as shares of Common Stock which, as of
the Conversion Date, may be acquired by any individual or entity pursuant to any
then currently exercisable stock option or warrant agreement (without regard to
any adjustment that would result from the conversion of the Notes), but not
including any shares of Common Stock subject to issuance pursuant to any
outstanding convertible security (including other Notes not being converted at
that time).
3.6. Except with respect to a conversion of the Note pursuant
to Section 3.3(ii) and 3.7 hereof, on the earlier of (i) the first business day
following the first business day on which all Notes have been converted and all
shares of the Company's Series A Preferred Stock which were outstanding on March
1, 1998 have been converted into Common Stock of the Corporation, or (ii) March
1, 2001, regardless of any prior conversion of the Note the Corporation shall
recalculate any conversions made hereunder assuming that such conversions were
made on such date and shall recalculate the number of shares of outstanding
Common Stock as of such date. Within ten (10) business days thereafter, the
Corporation shall issue to the Holder hereof a summary of such calculations and,
if additional shares of Common Stock are issuable to the Holder, the Corporation
shall deliver by hand against a signed receipt therefore or by United States
registered mail, to the address designated by the Holder to the last known
address of the Holder, a stock certificate, or stock certificates, of the
Corporation represent the number of shares of Common Stock to which such Holder
is entitled.
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3.7 In case of any capital reorganization, any
reclassification of the stock of the Corporation (other than as a result of a
stock dividend or subdivision, split up or combination of shares), or any share
exchange by or the consolidation or merger of the Corporation with or into
another person or entity (other than a share exchange or merger in which the
Corporation is the acquiring or surviving corporation and which does not result
in any change in the Common Stock) or of the sale, exchange, lease, transfer or
other disposition of all or substantially all of the properties and assets of
the Corporation as an entirety or the participation by the Corporation in share
exchange as the corporation the stock of which is to be acquired, this Note
shall (effective on the opening of business on the date after the effective date
of such reorganization, reclassification, consolidation, merger, sale or
exchange, lease, transfer or other disposition or share exchange) be converted
into the kind and number of shares of stock or other securities or property of
the Corporation or of the corporation resulting from such consolidation or
surviving such merger or to which such properties and assets shall have been
sold, exchanged, leased, transferred or otherwise disposed or which was the
corporation whose securities were exchanged for those of the Corporation, to
which the holder of the number of shares of Common Stock deliverable (at the
close of business on the date immediately preceding the effective date of such
reorganization, reclassification, consolidation, merger, sale, exchange, lease,
transfer or other disposition or share exchange) upon conversion of this Note
would have been entitled upon such reorganization, reclassification,
consolidation, merger, sale, exchange, lease, transfer or other disposition or
share exchange. The provisions of this Section 3.7 shall similarly apply to
successive reorganizations, reclassifications, consolidations, mergers, sales,
exchanges, leases, transfers or other dispositions or other share exchanges. The
provisions of Section 3.6 shall not apply to a conversion pursuant to this
Section 3.7.
3.8. The Corporation shall pay all transactional taxes and
charges attributable to the issuance or delivery of shares of stock of the
Corporation upon conversion; provided, however, that the Corporation shall not
be required to pay any taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificate for such shares in a
name other than that of the record holder of this Note.
4. Security. This Note is secured by a Collateral Assignment and
Security Agreement of even date herewith from Spinteknology, Inc., a
wholly-owned second tier subsidiary of the Corporation (the "Security
Agreement"), conveying to the Holder, as well as all of the Holder's of the
Notes, a security interest and collateral assignment of all of the patents,
unpatented inventions, patent applications, patent interference proceedings,
trade secrets, rights under technology, licenses, choses-in-action, information
contained in computer media and derivatives thereof, including the right to
make, use and vend good-utilizing of the foregoing, together with all cash and
non-cash proceeds and products thereof (the "Collateral"). In addition to the
Security Agreement, the terms to the collateral are governed by a Patent
Collateral Assignment as well as an Intercreditor Agreement amongst the Holders
of the Notes.
5. Default. Subject to the provisions of the Intercreditor Agreement,
upon the occurrence of an Event of Default, as defined in the Security
Agreement, at Holder's option, the entire unpaid principal balance of this Note,
together with all accrued and unpaid interest thereon shall immediately
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<PAGE>
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
hereinafter collectively evidence or secure the loan evidenced by the Note
(collectively the "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
and 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 shall, at Holder's
option, bear interest at the default rate stated below.
6. Transfer. This Note shall be transferred on the books of the
Corporation only by the registered holder hereof or by his or her attorney duly
authorized in writing or by delivery to the Corporation of a duly executed
Assignment substantially in the form attached hereto as Exhibit A. Subject to
compliance with applicable federal and state securities laws and the notice
provisions of the Intercreditor Agreement amongst the Corporation, Holder and
the other Holders of the Notes, the Corporation shall be entitled to treat any
holder of record of the Note as the holder in fact thereof and shall not be
bound to recognize any equitable or other claim to or interest in this Note in
the name of any other person, whether or not it shall have express or other
notice thereof, save as expressly provided by the laws of the State of Georgia.
7. Notices. All notices and communications under this Note shall be in
writing and shall be either delivered in person or accompanied by a signed
receipt therefor or mailed first-class United States certified mail, postage
prepaid, and addressed as follows: if to the Corporation, to 901 Grier Drive,
Suite B, Las Vegas, Nevada 89119 and, if to the Holder of this Note, to the
address of such Holder as it appears on the signature page hereto. Any notice of
communication shall be deemed given and received as of the date of such delivery
or mailing.
8. Miscellaneous.
8.1. 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, the Corporation agrees to pay to Holder,
in addition to any indebtedness due and unpaid, all reasonable costs and
expenses of such proceedings, including reasonable attorneys' fees.
8.2. 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.
8.3. 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
5
<PAGE>
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 the
Corporation in connection with this Note. The Corporation 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 the
Corporation, 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 the Corporation.
8.4. This Note is given and accepted as evidence of
indebtedness and not in payment or satisfaction of any indebtedness or
obligation.
8.5. 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 nine
percent (9%) 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.
8.6. The Corporation hereby waives demand for payment of any
of the indebtedness or performance of any of the obligations hereby evidenced,
and protest and notice of dishonor or of default to the Corporation or to any
other party with respect to the indebtedness.
8.7. The liability of the Corporation 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. The
Corporation 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.
8.8. Time is of the essence with respect to all of the
Corporation's obligations and agreements under this Note.
8.9. This Note and all provisions, conditions, promises and
covenants hereof shall be binding in accordance with the terms hereof upon the
Corporation, its successors and assigns, provided
6
<PAGE>
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 other documents.
8.10. All notices to the Corporation 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.
9. Governing Law. This Note shall be governed by and construed and
enforced in accordance with the laws of the State of Georgia, or, where
applicable, the laws of the United States.
IN WITNESS WHEREOF, the Corporation has caused this Note to be executed
and sealed by its duly authorized officers.
ATTEST: SPINTEK GAMING TECHNOLOGIES,
INC.
By: ______________________________
________________________ , Secretary Gary L. Coulter, President
[CORPORATE SEAL]
HOLDER:________________________________
ADDRESS: _____________________________
_____________________________
PRINCIPAL AMOUNT: $___________________
T.I.N.#___________________________________
7
<PAGE>
EXHIBIT A
ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby assigns to
______________________, the within Secured Convertible Note of Spintek Gaming
Technologies, Inc., and hereby irrevocably appoints _____________________,
Attorney, to transfer said Note on the books of the within named corporation,
with full power of substitution in the premises.
IN WITNESS WHEREOF, the undersigned has executed this Assignment on
this _____ day of __________, 199__.
WITNESS:
__________________________________ _____________________________
DRAFT 2/20/98
-------------
PATENT COLLATERAL ASSIGNMENT
This Agreement is made as of the ____ day of _____________, 1998
between SPINTEKNOLOGY, INC., a corporation having a mailing address at 901-B
Grier Drive, Las Vegas, Nevada 89119 ("Pledgor") and the individual or entity
identified on the signature page hereto.
BACKGROUND. Pledgor is a wholly-owned subsidiary of Spintek Gaming
Technologies, Inc. (the "Debtor"), which has executed and delivered its 6%
Secured Convertible Note due February 28, 2008 (the "Note") to the Secured Party
in the amount described on the signature page hereto. In order to induce the
Secured Party to make the loan to Debtor evidenced by the Note, Pledgor has
agreed to assign to Secured Party certain patent rights. This Agreement is made
subject to a prior agreement to NAC Investments Properties Inc. N.V. to secure a
principal amount of $100,000 (the "NAC Debt").
NOW, THEREFORE, in consideration of the premises, Pledgor and Debtor
hereby agrees with Secured Party as follows:
1. 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,
and all indebtedness to be incurred by Debtor to Secured Party with respect to
the Note (hereinafter the "Obligations"), Pledgor hereby grants, assigns and
conveys to Secured Party the entire right, title and interest in and to and
grants Secured Party interest in the patent applications and patents listed in
Schedule A hereto, including without limitation all proceeds thereof (such as,
by way of example, license royalties and proceeds of infringement suits), the
right to sue for past, present and future infringement suits), the right to sue
for past, present and future infringements, all rights corresponding thereto
throughout the world and all re-issues, divisions, continuations, renewals,
extensions and continuations-in-part thereof (collectively called the
"Patents").
2. Pledgor covenants and warrants that:
(a) The Patents are subsisting and have not been adjudged
invalid or unenforceable, in whole or in part;
(b) Except for the prior assignment to secure the NAC Debt,
Pledgor is the sole and exclusive owner of the entire and
unencumbered right, title and interest in and to each of the
Patents, free and clear of any liens, charges and
encumbrances, including without limitation licenses, shop
rights and covenants by Debtor not to sue third persons; and
(c) Pledgor has the unqualified right to enter into this
Agreement and perform its terms and has entered and will
enter into written agreements with each of its present and
future employees, agents and consultants which will enable
it to comply with the covenants herein contained.
<PAGE>
Except has specifically set forth above, Pledgor does not warrant that
the Patents might not be declared invalid if challenged in court.
3. Pledgor agrees that, until all of the Obligations shall have been
satisfied in full, it will not enter into any agreement (for example, a license
agreement) which is inconsistent with Pledgor's obligations under this
Agreement, without Secured Party's prior written consent.
4. If, before the Obligations shall have been satisfied in full,
Pledgor shall obtain rights to any new patentable inventions, or become entitled
to the benefit of any patent application or patent for any reissue, division,
continuation, renewal, extension, or continuation-in-part of any Patent or any
improvement on any Patent, the provisions of Paragraph 1 shall automatically
apply thereto and Pledgor shall give to Secured Party prompt notice thereof in
writing hereof.
5. Pledgor authorizes Secured Party to modify this Agreement by
amending Schedule A to include any future patents and patent applications which
are Patents under Paragraph 1 or Paragraph 4 hereof.
6. Unless and until there shall have occurred and be continuing an
Event of Default (as defined below), Secured Party hereby grants to Pledgor the
exclusive, non-transferable right and license to make, have made, use and sell
the inventions disclosed and claimed in the Patents for Pledgor's own benefit
and account and for none other. Pledgor agrees not to sell or assign its
interest in, or grant any sublicense under, the license granted to Pledgor in
this Paragraph 6, without the prior written consent of Secured Party.
7. (a) The occurrence of one or more of the following events shall, at
the option of Secured Party, constitute an "Event of Default" hereunder:
(i) 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;
(ii) if any warranty or representation of Pledgor contained herein
shall be materially false or misleading when made;
(iii) if Debtor shall cease to do business as a going concern, or
generally fail to meet its obligations as they mature; or
(iv) an event of default occurs under and as defined in the Note or
other document or instrument evidencing or securing the indebtedness of the
Note (each, a "Loan Document").
(b) If any Event of Default shall have occurred and be continuing,
Pledgor's license under the Patents as set forth in Paragraph 6, shall terminate
forthwith, and the Secured Party shall have, in addition to all other rights and
remedies given it by this Agreement, those allowed by law and
2
<PAGE>
the rights and remedies of a secured party under the Uniform Commercial Code as
enacted in any jurisdiction in which the Patents may be located and, without
limiting the generality of the foregoing, the Secured Party may immediately,
without demand of performance and without other notice (except as set forth next
below) or demand whatsoever to Debtor, all of which are hereby expressly waived,
and without advertisement, sell at public or private sale or otherwise realize
upon, in Las Vegas, Nevada, or elsewhere, the whole or from time to time any
part of the Patents, or any interest which the Debtor may have therein, and
after deducting from the proceeds the sale or other disposition of the Patents
all expenses (including all reasonable expenses for brokers' fees and legal
services), shall apply the residue of such proceeds toward the payment of the
Obligations. Any remainder of the proceeds after payment in full of the
Obligations shall be paid over to the Debtor. Notice of any sale or other
disposition of the Patents shall be given to Debtor at least five (5) days
before the time of any intended public or private sale or other disposition of
the Patents is to be made, which Debtor hereby agrees shall be reasonable notice
of such sale or other disposition. At any such sale or other disposition, any
holder of any Note or Secured Party may, to the extent permissible under
applicable law, purchase the whole or any part of the Patents sold, free from
any right of redemption on the part of Debtor, which right is hereby waived and
released.
8. At such time as Debtor shall completely satisfy all of the
Obligations or the Note is converted into shares of Common Stock of the Debtor,
Secured Party shall execute and deliver to Pledgor and Debtor all deeds,
assignments and other instruments as may be necessary or proper to re-vest in
Pledgor full title to the Patents, subject to any disposition thereof which may
have been made by Secured Party pursuant hereto.
9. Any and all fees, costs and expenses, of whatever kind or nature,
including the reasonable attorneys' fees and legal expenses, incurred by Secured
Party in connection with the preparation of this Agreement and all other
documents relating hereto and the consummation of this transaction, the filing
or recording of any documents (including all taxes in connection therewith) in
public offices, the payment or discharge of any taxes, counsel fees, maintenance
fees, encumbrances or otherwise protecting, maintaining, preserving the Patents,
or in defending or prosecuting any actions or proceedings arising out of or
related to the Patents, shall be borne and paid by Debtor on demand by Secured
Party and until so paid shall be added to the principal amount of the
Obligations and shall bear interest at the Default Rate prescribed in the Note.
10. Pledgor shall have the duty, through counsel acceptable to Secured
Party, to prosecute diligently any patent application of the Patents pending as
of the date of this Agreement or thereafter until the Obligations shall have
been paid in full, to make application on unpatented but patentable inventions
and to preserve and maintain all rights in patent applications and patents of
the Patents. Any expenses incurred in connection with such an application shall
be borne by Pledgor. The Pledgor shall not abandon any right to file a patent
application, or any pending patent application or patent without the consent of
the Secured Party, which consent shall not be unreasonably withheld.
11. Secured Party shall have the right but in no way be obligated to
bring suit in its own name to enforce the Patents and any license thereunder, in
which event Debtor shall at the request of
3
<PAGE>
Secured Party do any and all lawful acts and execute any and all proper
documents required by Secured Party in aid of such enforcement and Debtor shall
promptly, upon demand, reimburse and indemnify Agent for all costs and expenses
incurred by Secured Party in the exercise of its rights under this Paragraph 11.
12. No course of dealing between Pledgor or Debtor and Secured Party,
nor any failure to exercise, nor any delay in exercising, on the part of Secured
Party, any rights, power or privilege hereunder or under any Loan Document shall
operate as a waiver thereof; nor shall any single or partial exercise of any
rights, power or privilege hereunder or thereunder preclude any other or further
exercise thereof or the exercise of any other right, power or privilege.
13. All of Secured Party's rights and remedies with respect to the
Patents, whether established hereby or by the Note, or by any Loan Document or
by law shall be cumulative and may be exercised singularly or concurrently.
14. Notwithstanding anything contained in this Security Agreement to
the contrary, the Secured Party understands and acknowledges that the rights of
the Secured Party are subject to and may be limited by that certain
Intercreditor Agreement by and among the Debtor and each of the Holders of the
Notes, a form of which is attached hereto as Exhibit "A."
15. The provisions of this Agreement are severable, and if any clause
or provision shall be held invalid and unenforceable in whole or in party in any
jurisdiction, then such invalidity or unenforceability shall affect only such
clause or provision, or part thereof, in such jurisdiction, and shall not in any
manner affect such clause or provision in any other jurisdiction, or any other
clause or provision of this Agreement in any jurisdiction.
16. This Agreement is subject to modification only by a writing signed
by the parties, except as provided in Paragraph 5.
17. The benefits and burdens of this Agreement shall inure to the
benefit of and be binding upon the respective successors and permitted assigns
of the parties.
18. The validity and interpretation of this Agreement and the rights
and obligations of the parties hereunder shall be governed by the laws of the
State of Nevada.
4
<PAGE>
WITNESS the execution hereof under seal as of the day and year first
above written.
SPINTEKNOLOGY, INC.
By:__________________________________________
Title:________________________________________
Secured Party:_______________________
Address:____________________________
____________________________
Principal Amount of Note: $_______________
5
<PAGE>
Schedule A to a Patent Collateral Assignment dated _______________, 1998,
between Spinteknology, Inc. and Holder of 6% Secured Convertible Note Due 2008
Application or
Patent No. Country
- -----------------------------------------------------------------
08/414,238 USA
60/005,312 USA
08/506,513 USA
Corresponding PCI International Patent Application filed March 26, 1996.
E.P.O. PATENT APPLICATIONS AND RESERVATIONS OF RIGHT TO FILE FOR EXAMINATION:
Austria (F) Ireland (F)
Belgium (F) Italy (F)
Switzerland & Liechtenstein (F) Luxembourg (F)
Germany (F) Monaco (F)
Denmark (F) Netherlands (F)
Spain (F) Portugal (F)
France (F) Sweden (F)
United Kingdom (?) Finland (F)
Greece (F)
Applications filed are designated by F, designations of right to file are
designated by I.
P.C.T. PATENT APPLICATIONS AND RESERVATIONS OF RIGHT TO FILE FOR EXAMINATION:
Albania (I) Liberia (I)
Armenia (I) Lesotho (I)
Austria (F) Lithuania (I)
Australia (F) Luxembourg (F)
Azerbaijan (I) Latvia (I)
Barbados (I) Republic of Moldova (I)
Bulgaria (I) Madagascar (I)
Brazil (I) Macedonia (I)
Belarus (I) Mongolia (I)
Canada (F) Malawi (I)
Switzerland & Liechtenstein (F) Mexico (I)
China (I) Norway (I)
Czech Republic (I) New Zealand (I)
Germany (F) Poland (I)
Denmark (F) Portugal (F)
(P.C.T. CONTINUED)
Estonia (I) Romania (I)
Spain (F) Russian Federation (I)
Finland (F) Sudan (I)
United Kingdom (F) Sweden (F)
Georgia (I) Singapore (I)
Hungary (I) Slovenia (I)
Iceland (I) Slovakia (I)
Japan (I) Tajikistan (I)
Kenya (I) Turkmenistan (I)
Kyrgyzstan (I) Turkey (I)
Democratic People's Trinidad & Tobago (I)
Rep. of Korea (I) Ukraine (I)
Republic of Korea (I) Uganda (I)
Kazakstan (I) USA (F)
Sri Lanka (I) Uzbekistan (I)
Viet Nam (I)
Applications filed are designated by F, designations of right to file are
designated by I.
In addition to P.C.T. individual companies, intentions have been filed with the
following regional patent areas: AP/ARIPO patent, EA/Eurasian Patent,
EP/European Patent and OA/OAPI Patent.
FORM OF REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "Agreement") is made and
entered into effective as of the _____ day of ________, 1998, by and among
SPINTEK GAMING TECHNOLOGIES, INC., a California corporation ("Company"), and the
individual or entity identified on the signature pages attached hereto who is a
holder of a 6% Secured Convertible Note due February 28, 2008 of the Company
acquired pursuant to an offering dated February 25, 1998 (the "Purchaser").
W I T N E S S E T H:
THAT FOR AND IN CONSIDERATION of the premises and the mutual promises and
covenants contained herein, and for other good and valuable consideration, the
receipt, adequacy and sufficiency of which is hereby acknowledged by all of the
parties hereto, the parties, intending to be legally bound, agree as follows:
WHEREAS, the Company has offered for sale up to $5,000,000 of 6% Secured
Convertible Notes due February 28, 2008 (individually a "Note" and collectively
the "Notes") pursuant to a Private Placement Offering dated February 25, 1998
(the "Offering"); and
WHEREAS, the Notes are convertible into shares of Common Stock of the
Company (the "Common Stock");
WHEREAS, the Purchaser, as well as the other individuals and entities which
have purchased the Notes (such individuals and entities collectively being
referred to herein as the "Purchasers") are, pursuant to the terms of the
Offering, being granted by the Company certain registration rights with respect
to the Common Stock which is issuable to the Purchasers upon conversion of the
Notes.
NOW, THEREFORE, FOR AND IN CONSIDERATION of the premises and the mutual
promises and covenants contained herein, and for other good and valuable
consideration, the receipt, adequacy and sufficiency of which is hereby
acknowledged, the parties hereto, intending to be legally bound, agree as
follows:
1. Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
(a) "Commission" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the
Securities Act.
(b) "Holder" shall mean the Purchaser which holds Registrable
Securities and any person holding Registrable Securities to whom the
rights under this Agreement have been transferred in accordance with
Section 13 hereof.
(c) "Initiating Holders" shall mean any Purchaser or transferees
of a Purchaser under Section 13 hereof.
(d) "Register," "registered" and "registration" refer to a
registration effected by
<PAGE>
preparing and filing with the Commission a registration statement in
compliance with the Securities Act, and the declaration or ordering of
the effectiveness of such registration statement.
(e) "Registrable Securities" means any Common Stock of the
Company issued or issuable in respect of the conversion of any of the
Notes; and any other securities issued or issuable upon any stock
split, stock dividend, recapitalization, or similar event.
(f) "Registration Expenses" shall mean all expenses, except
Selling Expenses as defined below, incurred by the Company in
complying with Section 6 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, escrow
fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, the expense of any special audits incident to or
required by any such registration (but excluding the compensation of
regular employees of the Company which shall be paid in any event by
the Company) and the reasonable fees and disbursements of one counsel
for all Holders.
2. Restrictions on Transferability. The Purchaser will cause any
proposed purchaser, assignee, pledgee or transferee of the Registrable
Securities held by the Purchaser to agree to take and hold such securities
subject to the provisions and conditions of this Agreement.
3. [INTENTIONALLY OMITTED.]
4. Restrictions on Registration. The registration rights referred to in
this Agreement apply only to shares of Common Stock. Notwithstanding the
foregoing, in the event of a notice of proposed registration pursuant to Section
6(a)(i) hereof, the Holder of the Note may exercise its rights of conversion and
elect to register the Common Stock received pursuant to such conversion and the
Company shall take all steps reasonably appropriate herewith in order to insure
that the Holder's rights to convert and register are protected.
5. [INTENTIONALLY OMITTED.]
6. Company Registration.
(a) Notice of Registration. If at any time or from time to time the
Company shall determine to register any of its securities, either for its
own account or for the account of a security Holder or holders, other than
(1) a registration relating solely to employee benefit plans; (2) a
registration relating solely to a Commission Rule 145 transaction; or (3)
any other registration which is not appropriate for the registration for
the Registerable Securities for sale to the public, then the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and any related qualification
under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in written
request or requests, made within twenty (20) days after receipt of
such written notice from the Company, by any Holder.
<PAGE>
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 6(a)(i). In such event the right of any Holder to
registration pursuant to Section 6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein.
All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and any other shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company. Notwithstanding any other
provision of this Agreement, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the Registrable Securities
that may be included in the registration and the number of shares of
Registrable Securities that may be included in the registration shall be
allocated among all Holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities held by such Holders at the
time of filing the registration statement. To facilitate the allocation of
shares in accordance with the above provisions, the Company may round the
number of shares allocated to any Holder or other shareholder to the
nearest one hundred (100) shares. If any Holder or other shareholder
disapproves of the terms of any such underwriting, he may elect to withdraw
therefrom by written notice to the Company and the managing underwriter.
Any securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration, and shall not be transferred in a public
distribution prior to ninety (90) days after the effective date of the
registration statement relating thereto, or such other shorter period of
time as the underwriters may require. The Company may include shares of
Common Stock held by shareholders other than Holders in a registration
statement pursuant to Section 6 if, and to the extent that, the amount of
Registrable Securities otherwise includible in such registration statement
would not thereby be diminished.
(c) Right to Terminate Registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under this
Section 6 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration.
7. [INTENTIONALLY OMITTED.]
8. Stand Off Agreement. Each Holder of Registrable Securities shall,
upon the reasonable request of the underwriter's managing an underwritten
offering, agree not to sell, make any short sell of, grant any option for the
purchase of, or otherwise dispose of any Registrable Securities (other than
those included in the registration) without the prior written consent of such
managing underwriter for a period of time (not to exceed one hundred eighty
(180) days from the effective date of such registration); provided, however,
that all executive officers and directors of the Company agree to similar
restrictions.
9. Expenses of Registration and Expiration. All Registration Expenses
incurred in connection with registration(s) pursuant to Section 6, shall be
borne by the Company; provided, however, that such Registration Expenses shall
be borne by the Company with respect to no more than two (2) such registrations
in any twelve month period, and provided further that the Company will not be
obligated to bear registration expenses with respect to registrations under Blue
Sky laws in more than ten (10) states. Unless otherwise stated, all Selling
Expenses relating to securities registered on
<PAGE>
behalf of the Holders shall be borne by the Holders of such securities pro rata
on the basis of the number of shares so registered. Registration Expenses not
otherwise covered herein shall be borne by all selling shareholders and, if it
participates, the Company on a pro-rata basis. In addition, any rights granted
pursuant to Section shall expire three (3) years to the day following the
effective date of a public offering of the Company's Common Stock committed
underwriting which yields to the Company, after all expenses, not less than
$10,000,000.
10. Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company shall:
(a) Keep such registration, qualification or compliance pursuant to
this Agreement effective for a period of one hundred eighty (180) days or until
the Holder or Holders have completed the distribution described in the
Registration Statement relating thereto, whichever occurs first; and
(b) Furnish such number of Prospectuses and such other documents
incident thereto as the Holder from time to time may reasonably request.
11. Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall promptly furnish the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement.
<PAGE>
12. Indemnification.
(a) The Company will indemnify each Holder, each of its officers,
directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 6, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Company of the
Securities Act or any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such Holder,
each of its officers and directors, and each person controlling such Holder,
each such underwriter and each person who controls any such underwriter, for any
legal and any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action; provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission or alleged untrue statement or
omission, made in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder,
controlling person or underwriter and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each underwriter, if any, of the Company's securities covered by such
a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all claims, losses, damages and liabilities (or action in respect
thereof) arising out of or based on (i) any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such Holders, such directors, officers, persons, underwriters or
control persons for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein; or (ii) any violation by such Holder
of the Securities Act or any rule or regulation promulgated under the Securities
Act applicable to Holder in connection with any such registration, qualification
or compliance. Notwithstanding the foregoing, the liability of each Holder under
this subsection (b) shall be limited to an amount equal to the initial public
offering price of the shares sold
<PAGE>
by such Holder, unless such liability arises out of or is based on willful
conduct by such Holder.
(c) Each party entitled to indemnification under this Section 12 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 6 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action
and provided further, that the Indemnifying Party shall not assume the defense
for matters as to which there is a conflict of interest or separate and
different defenses. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
13. Transfer of Registration Rights. The rights to cause the Company to
register securities granted to the Purchaser under this Agreement may be
assigned at any time without the prior written consent of the Company to a
transferee or assignee (other than a competitor of the Company) in connection
with any transfer or assignment of Registrable Securities by the Purchaser;
provided that such transferee or assignee (i) holds or acquires at least twenty
percent (20%) of the Registrable Securities originally held by the Purchaser
(appropriately adjusted for recapitalization); or (ii) is an affiliate of a
Holder (which term shall include, in the case of a Holder that is a partnership,
the partner of a Holder, or in the case of a corporation, a shareholder of a
Holder), without any requirement as to minimum holding by such transferee or
assignee; provided further, however, that if such assignee or transferee holds
less than 20% of the Registrable Securities then his or its rights to register
such securities may only be exercised when the Purchaser is exercising its
rights. In addition to the foregoing, such transfer must otherwise be effected
in accordance with applicable securities laws.
14. Notice of Proposed Transfers. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than (i)
transfers not involving a change in beneficial ownership or (ii) transactions
involving distribution without consideration of Restricted Securities by any of
the Purchasers to any of its partners, or retired parties, or to the estate of
any of its partners or retired partners), unless there is in effect a
registration statement under the Securities Act covering the proposed transfer,
the holder thereof shall give written notice to the Company of such holder's
intention to effect such transfer, sale, assignment or pledge. Each such notice
shall describe the manner and circumstances of the proposed transfer, sale,
assignment or pledge in sufficient detail, and shall be accompanied, at such
holder's expense by either (i) an opinion of legal counsel who shall be, and
whose legal opinion shall be, reasonably satisfactory to the Company addressed
to the Company to the effect that the proposed transfer of the Restricted
Securities may be effected without registration under the Securities Act, or
(ii) a "no action" letter from the Commission to the effect that the transfer of
such securities without registration will not result in a recommendation by the
staff of the Commission that action be taken with respect thereto, whereupon the
holder of such Restricted Securities shall be
<PAGE>
entitled to transfer such Restricted Securities in accordance with the terms of
the notice delivered by the holder to the Company. Each certificate evidencing
the Restricted Securities Transferred as above provided shall bear, except if
such transfer is made pursuant to Rule 144, the appropriate restrictive legend
set forth in Section 15, except that such certificate shall not bear such
restrictive legend if in the opinion of counsel for such holder and the Company
such legend is not required in order to establish compliance with any provision
of the Securities Act.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
COMPANY:
SPINTEK GAMING TECHNOLOGIES, INC.
By:___________________________________
Name:_________________________________
Title:________________________________
Address for Notices:
901 Grier Drive, Suite B
Las Vegas, Nevada 89119
PURCHASER:
-------------------------------------
Signature
Print Name:___________________________
-------------------------------------
Title (if applicable)
Address for Notices:
=====================================
STANDARD LEASE
SPENCER AIRPORT CENTER
ARTICLE 1 BASIC LEASE TERMS
1.01 Premises Leased
1.02 Project
1.03 Term
1.04 Rent
1.05 Operating Expenses
1.06 Security Deposit
1.07 Permitted Use
1.08 Addresses for Payments, Notices and Deliveries
1.09 Broker
1.10 Building Improvements
1.11 Payments Upon Execution
ARTICLE 2 PREMISES
2.01 Leased Premises
2.02 Delivery and Acceptance of Premises
2.03 Building Name and Address
ARTICLE 3 TERM
3.01 General
3.02 Tender of Possession by Lessor
3.03 Delay in Possession
3.04 Early Occupancy
ARTICLE 4 RENT AND OPERATING EXPENSES
4.01 Base Rent
4.02 Operating Expenses
4.03 Cost of Living Increases
4.04 Security Deposit
ARTICLE 5 USES
5.01 Use
5.02 Hazardous Materials
5.03 Signs and Auctions
ARTICLE 6 COMMON FACILITIES AND VEHICLE PARKING
6.01 Operation and Maintenance of Common Facilities
6.02 Use of Common Facilities
6.03 Parking
6.04 Changes and Additions by Lessor
ARTICLE 7 MAINTENANCE, REPAIRS AND ALTERATIONS
7.01 Lessor's Obligations
7.02 Lessee's Obligations
7.03 Alterations and Additions
7.04 Utility Additions
7.05 Entry and Inspection
ARTICLE 8 TAXES AND ASSESSMENTS ON LESSEE'S PROPERTY
8.01 Taxes on Lessee's Property
ARTICLE 9 UTILITIES
ARTICLE 10 ASSIGNMENT AND SUBLETTING
10.01 Rights of Parties
10.02 Effect of Transfer
ARTICLE 11 INSURANCE AND INDEMNITY
11.01 Liability Insurance - Lessee
11.02 Lessor's Insurance
11.03 Waiver of Subrogation
11.04 Policies
11.05 Lessee's Indemnity
11.06 Lessor's Non-Liability
ARTICLE 12 DAMAGE OR DESTRUCTION
12.01 Restoration
<PAGE>
ARTICLE 13 EMINENT DOMAIN
13.01 Total or Partial Taking
13.02 Temporary Taking
13.03 Taking of Parking Area
ARTICLE 14 SUBORDINATION, ESTOPPEL CERTIFICATE
14.01 Subordination
14.02 Estoppel Certificate
ARTICLE 15 DEFAULTS AND REMEDIES
15.01 Lessee's Defaults
15.02 Lessor's Remedies
15.03 Repayment of "Free" Rent
15.04 Cumulative Remedies
15.05 Late Payments
15.06 Right of Lessor to Perform
15.07 Default by Lessor
15.08 Expenses and Legal Fees
ARTICLE 16 END OF TERM
16.01 Holding Over
16.02 Merger on Termination
16.03 Surrender of Premises; Removal of Property
16.04 Termination; Advance Payments
ARTICLE 17 PAYMENTS AND NOTICES
ARTICLE 18 LIMITATION OF LIABILITY
ARTICLE 19 BROKER'S COMMISSION
ARTICLE 20 TRANSFER OF LESSOR'S INTEREST
ARTICLE 21 INTERPRETATION
21.01 Gender and Number
21.02 Headings
21.03 Joint and Several Liability
21.04 Successors
21.05 Time of Essence
21.06 Severability
21.07 Entire Agreement
21.08 Covenants and Conditions
21.09 Counterparts
21.10 Indemnities
21.11 Attachments
<PAGE>
LEASE
(FREESTANDING BUILDING)
This lease is hereby dated for reference purposes only as of June 9,
1998 by and between SPENCER AIRPORT CENTER, LLC, a Delaware limited liability
company (herein called "Lessor") and SPINTEKNOLOGY, INC., a Georgia
Corporation(herein called "Lessee").
ARTICLE 1 BASIC LEASE TERMS
Each reference in this Lease to the "Basic Lease Terms" shall mean and
refer to the following collective terms, the application of which shall be
governed by the provisions in the remaining articles of this Lease.
1.01 Premises Leased:
a. Premises Address:1857 Helm Drive, Las Vegas, NV 89119
b. Rental Area: 16,903 square feet
c. Building Designation: "B"
1.02 Project:
a. Project Name: Spencer Airport Center
b. Total Project Rental Area: 16,903 square feet
1.03 Term:
a. Estimated Commencement Date: August 31, 1998
b. Number of Calendar Months (Initial Term):
Six-two (62) months
1.04 Rent:
a. Fixed Base Rent: (i) Months one and two shall be free of base
rent; (ii) $13,130.00/month during months three (3) through fourteen (14); (iii)
$17,072.03/month during months fifteen (15) through twenty-six (26); (iv)
$17,584.19/month during months twenty-seven (27) through thirty-eight (38); (V)
$18,111.71/month during months thirty-nine (39) through fifty (50); (vi)
$18,655.06/month during months fifty-one (51) through sixty-two (62). In
addition, operating expenses are due and payable throughout the term of the
Lease.
1.5 Operating Expenses: Lessor estimates Operating Expenses during the calendar
year when the Lease commences to be $1,690.00 per month. Operating Expenses are
in addition to the Base Rent set forth in Section 1.04.
1.06 Security Deposit: $83,482.12. Providing the tenant is not in default, this
security deposit shall be applied to base rents on the twenty-sixth (26th),
twenty-seventh (27th), thirty-eighth (38th) and fiftieth (50th) month during the
original lease term.
1.07 Permitted Use: Office and warehouse for the sales, display, storage,
distribution, and light manufacturing of gaming slot devices and related legal
use.
1.08 Addresses for Payments, Notices and Deliveries:
Lessor: Spencer Airport Center
6800 Paradise Road
Las Vegas, NV 89119
Lessee: SPINTEKNOLOGY
901 Grier Drive, Suite B
Las Vegas, NV 89119
1.9 Brokers: John D. McKeown
Colliers International - Commission to be paid by Lessor.
1.10 Building Improvements: The tenant improvement allowance shall be
$400,000.00. It is further understood after execution of said lease, we will
immediately finalize bids on the improvements for approval by Lessee; if Lessee
and Lessor cannot agree on the final cost of said improvements, Lessee can
cancel said Lease. The approximate square footage of 16,903 square feet to
include approximately 12,603 square feet of office area, approximately 2,800
square feet of swamp cooled warehouse and approximately 1,500 square feet of
HVACed assembly area with drop ceiling. Should Lessee anytime throughout the
lease term, desire to perform additional modifications at Lessee's cost, bids
may be obtained from Lessor's contractor or another licensed, bonded contractor
subject to Lessor's approval. If an outside contractor is chosen, Lessee shall
be subject to the following requirements: Lessee must meet with Lessor to review
the selected contractor's bid in order to ascertain that all construction
modifications meet code requirements, prior to commencement of construction;
Provide Lessor with contractor's license and bond status; Comply with the
attached Tenant Specification Guidelines; Provide Lessor with the buildout plans
and subsequent permits for same prior to construction; and Provide Lessor with
the Building Department final sign off and Certificate of Occupancy. Lessor will
post Notice of Non-Responsibility during said modification period.
3
<PAGE>
1.11 Payments Upon Execution: The first installment of Base Rent $13,130.00,
which is the third month of the base rent, the first month's Operating Expenses
$1,690.00, and a Security Deposit of $83,482.12 for a total of $98,302.12, which
shall be delivered to Lessor concurrently with Lessee's execution of this Lease.
ARTICLE 2 PREMISES
2.01 Leased Premises: Lessor leases to Lessee and Lessee rents from Lessor the
Premises (herein the "Premises"), containing the rental area set forth in
Section 1.01b of the Basic Lease Terms. The Premises are located at the building
identified in the Basic Lease Terms (which together with underlying real
property is called herein the "Building"), and is a portion of the project
including other buildings described in Section 1.02a of the Basic Lease Terms
(herein the "Center"). The Premises and the Center are indicated on a site plan
attached hereto as Exhibit "A". If, upon completion of the space plans for the
Premises, Lessor's architect or space planner determines that the rentable
square footage of the Premises differs from that set forth in the Basic Lease
Terms, then Lessor shall so notify Lessee, and the Base Rent (as shown in
Section 1.04 of the Basic Lease Terms) shall be promptly adjusted in proportion
to the change in square footage. Within ten (10) days following Lessor's
request, the parties shall memorialize the adjustments by executing a
certificate to this Lease prepared by Lessor, provided that the failure or
refusal by either party to execute the certificate shall not affect its
validity. The form of such certificate is Exhibit "B".
2.02 Delivery and Acceptance of Premises: Lessor shall deliver the Premises to
Lessee clean and free of debris, on the Commencement Date (unless Lessee is
already in possession), and Lessor further warrants to Lessee that the Common
Facilities referred to in Article 6, plumbing, heating, air conditioning,
ventilating, electrical, lighting facilities and equipment with the Premises,
fixtures, walls (interior and exterior), foundations, ceilings, roofs, floors,
windows, access doors, loading doors, plate glass and skylights shall be in good
operating condition on the Commencement Date. In the event that it is determined
that this warranty has been violated, then it shall be the obligation of the
Lessor, after receipt of written notice from Lessee setting forth with
specificity the nature of the violation, to promptly, at Lessor's sole cost,
rectify such violation. Lessee's failure to give such written notice to Lessor
within six (6) months after the Commencement Date shall cause the conclusive
presumption that Lessor has complied with all of Lessor's obligations hereunder.
The warranty contained in this Section shall be of no force or effect if prior
to the date of this Lease Lessee was the owner or occupant of the Premises.
Except as otherwise provided in this Lease, Lessee hereby
accepts the Premises in their condition existing as of the Commencement Date or
the date that Lessee takes possession of the Premises, whichever is earlier,
subject to all applicable zoning, municipal, county and state laws, ordinances
and regulations governing and regulating the use of the Premises and any
covenants or restrictions of record, and accepts this Lease subject thereto and
to all matters disclosed thereby and by any exhibits attached hereto. Lessee
acknowledges that neither Lessor nor Lessor's agent has made any representation
or warranty as to the present or future suitability of the Premises for the
conduct of Lessee's business.
Baring any acts beyond our control, including but not limited, to acts
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of God and unless, Lessee makes further changes to the plans we feel comfortable
- --------------------------------------------------------------------------------
that the building will be completed by the month of August and we are willing to
- --------------------------------------------------------------------------------
pay 100% of the holdover penalty charged to Tenant by the Howard Hughes
- --------------------------------------------------------------------------------
Corporation, until such time as the premises is occupied and signed off by the
- --------------------------------------------------------------------------------
Clark County Building Department for occupancy by the tenant.
- -------------------------------------------------------------
2.03 Building Name and Address: Lessee shall not utilize any name selected by
Lessor from time to time for the Building as any part of Lessee's corporate or
trade name. Lessor shall have the right to change the name, number or
designation of the Building without notice or liability to Lessee.
ARTICLE 3 TERM
3.01 General: The term shall be for the period shown in Section 1.03b of the
Basic Lease Terms. Subject to the provisions of Section 3.03, the term shall
commence on the commencement date (herein "Commencement Date") on the earliest
of (a) the Estimated Commencement Date as set forth in Section 1.03a of the
Basic Lease Terms, or (b) the date Lessee acquires possession or commences use
of the Premises for any purpose other than construction. Within ten (10) days
after possession of the Premises is tendered to Lessee, the parties shall
execute the Exhibit "B" Certificate form provided by Lessor, which shall state
the Commencement Date and the expiration date ("Expiration Date") of the Lease.
Lessee's failure to execute that form shall not affect the validity of Lessor's
determination of those dates.
3.02 Tender of Possession by Lessor: The Premises shall be deemed ready for
occupancy upon the tendered date, but only if and when Lessor, to the extent
applicable, (a) has provided reasonable access to the Premises for Lessee so
that it may be used without unnecessary interference, (b) has substantially
completed all the work required to be done by Lessor in this Lease, and (c) has
obtained requisite governmental approvals to Lessee's occupancy.
3.03 Delay in Possession: Notwithstanding the provisions of Section 3.01, if
Lessor, for any reason whatsoever, cannot deliver possession of the Premises to
Lessee on/or before the Estimated Commencement Date, this Lease shall not be
void or voidable nor shall Lessor be liable to Lessee for any resulting loss or
damage. However, Lessee shall not be liable for any rent and the Commencement
Date shall not occur until Lessor delivers possession of the Premises and the
Premises are in fact ready for occupancy in accordance with Section 3.02; except
that if Lessor's failure to so deliver possession on the Estimated Commencement
Date is attributable to any action or inaction by Lessee (including any tenant
improvement construction change orders requested by Lessee or Lessee's failure
to supply any information required from Lessee or the furnishing by Lessee of
inaccurate or erroneous estimates, specifications, data or other information),
then the Commencement Date shall not be advanced to the date on which possession
of the Premises is tendered to Lessee, and Lessor shall be entitled to full
performance by Lessee (including the payment of rent) from the Estimated
Commencement Date.If Lessor cannot deliver the premises by September 1st, 1998
the Lessor shall be responsible to pay directly to the
4
<PAGE>
Howard Hughes Corporation the Tenant's hold over rent (above Lessor's August
base rent) until such time the Lessor is able to have the Clark County Building
Department sign off the building for occupancy.
3.04 Early Occupancy: If Lessee occupies the Premises prior to the Estimated
Commencement Date, Lessee's occupancy of the Premises shall be subject to all of
the provisions of this Lease. Early occupancy of the Premises shall not advance
the expiration date of this Lease. Lessee shall pay Base Rent, Operating
Expenses and all other charges, including, without limitation, insurance
specified in this Lease for the early occupancy period, upon Lessor's demand for
same.
ARTICLE 4 RENT AND OPERATING EXPENSES
4.01 Base Rent: From and after the Commencement Date, Lessee shall pay without
deduction or offset a Base Rent for the Premises in the total amount shown
(including subsequent adjustments, if any) in Section 1.04a of the Basic Lease
Terms. The rent shall be due and payable in equal monthly installments on the
first day of each month, in advance, except that if the Commencement Date occurs
on a day other than the first day of the month, the first installment of Base
Rent shall include rent for both the fractional month, if any, starting with the
Commencement Date and the following calendar month. No demand, notice or invoice
shall be required.
4.02 Operating Expenses:
a. Lessee shall pay to Lessor during the term hereof, in
addition to the Base Rent, Lessee's share, as hereinafter defined, of all
Operating Expenses, as hereinafter defined, during each year of the term of this
Lease.
b. "Lessee's Share" is defined, for purposes of this Lease, as
the percentage determined by dividing the square footage of the Premises by the
total square footage of the rentable space contained in the Center. It is
understood and agreed that the square footage figures set forth in the Basic
Lease Terms are approximations which Lessor and Lessee agree are reasonable and
shall not be subject to revision except in connection with an actual change in
the size of the Premises or a change in the space available for lease in the
Center.
c. The term "Operating Expenses" (excluding property taxes and
building insurance which shall be billed separately by Lessor to Lessee) shall
include (i) all expenses attributable to Lessor's obligations for operation,
replacement, repair and maintenance in neat, clean, good order and condition of
the Center, including parking areas, loading and unloading areas, trash areas,
roadways, sidewalks, walkways, parkways, driveways, landscaped areas, striping,
bumpers, irrigation systems, common lighting facilities, fences and gates,
tenant directories and any other services to be provided by Lessor under this
Lease; (ii) property taxes (billed separately), general or special assessments,
and costs and expenses in contesting the amount or validity of any property tax
by appropriate proceedings; (iii) parkway water and sewer charges and other
publicly mandated services to the Center; (iv) insurance premiums for liability
and property insurance maintained by Lessor pursuant to Article 11 or reasonable
premium equivalents should Lessor elect to self-insure any risk that Lessor is
authorized to insure hereunder; (v) license, permit and inspection fees; (vi)
air conditioning maintenance; (vii) supplies, materials, equipment, tools,
amortization of capital investments reasonably intended to produce a reduction
in operating charges or energy conservation , labor, any expense incurred
pursuant to Article 6, 7, 11 and 12, and (viii) a reasonable overhead/management
fee which shall include, without limitation, allocated wages and salaries,
fringe benefits and payroll taxes for administrative, accounting and other
personnel applicable to the Center. It is understood that Operating Expenses
shall include competitive charges for direct services provided by any subsidiary
or division of Lessor, including reasonable supervisory or overhead fees. The
term "property taxes" (billed separately) as used herein shall include the
following: (i) all real estate taxes or personal property taxes (on Lessor's
personal property used for the Center), as such property taxes may be reassessed
from time to time; (ii) other taxes, documentary transfer fees, charges and
assessments which are levied with respect to this Lease or to the Premises
and/or the Center, and any improvements, fixtures and equipment and other
property of Lessor located in the Center, except that general net income and
franchise taxes imposed against Lessor which shall be excluded; and (iii) any
tax surcharge or assessment which shall be levied in addition to or in lieu of
real estate or personal property taxes, other than taxes covered by Article 8. A
copy of Lessor's unaudited statement of expenses shall be made available to
Lessee upon request.
d. The inclusion of the improvements, facilities and services
set forth in the definition of Operating Expenses shall not be deemed to impose
an obligation upon Lessor to either have said improvements or facilities or to
provide those services unless the Center already has the same, Lessor already
provides the services or Lessor has agreed elsewhere in this Lease to provide
the same or some of them.
e. Lessee's Share of Operating Expenses shall be payable by
Lessee within ten (10) days after a reasonably detailed statement of actual
expenses is presented to Lessee by Lessor. At Lessor's option, however, an
amount may be estimated by Lessor from time to time of Lessee's share of annual
Operating Expenses and the same shall be payable monthly or quarterly, as Lessor
shall designate, during each calendar year of the Term, on the same day as the
Base Rent is due hereunder. In the event that Lessee pays Lessor's estimate of
the Lessee's Share of Operating Expenses as aforesaid, Lessor shall deliver to
Lessee within sixty (60) days after expiration of each calendar year a
reasonably detailed statement showing Lessee's share of the actual Operating
Expenses incurred during the preceding year. If Lessee's payments under this
subparagraph during said preceding calendar year exceed Lessee's Share as
indicated on said statement, Lessee shall be entitled to credit in the amount of
such overpayment against Lessee's Share of
5
<PAGE>
Operating Expenses next falling due. If Lessee's payments under this
subparagraph during said preceding calendar year were less than Lessee's Share
as indicated on said statement, Lessee shall pay to Lessor the amount of the
deficiency within ten (10) days after delivery by Lessor to Lessee of said
statement. Changes in rental amounts will be made March 1st of each year.
f. If, at any time during any calendar year, any one or more
of the Operating Expenses are increased to a rate(s) or amount(s) in excess of
the rate(s) or amount(s) used in calculating the estimated Operating Expenses
for the year, then Lessee's estimated amount of Operating Expenses shall be
increased for the month in which the increase becomes effective and for all
succeeding months by an amount equal to Lessee's proportionate share of the
increase. Lessor shall give Lessee written notice of the amount or estimated
amount of the increase, the month in which the increase will become effective,
Lessee's monthly share thereof and the months for which the payments are due.
Lessee shall pay the increase to Lessor as a part of the Lessee's monthly
payments of Estimated Operating Expenses as provided in subparagraph "b" above,
commencing with the month in which effective.
g. Even though the Lease has terminated and Lessee has vacated
the Premises, when the final determination is made of Lessee's Share of
Operating Expenses for any prior calendar year in which the Lease terminates,
Lessee shall immediately upon notice pay the entire increase due over the
estimated expenses paid. Conversely, any overpayment made in the event expenses
decrease shall be immediately rebated by Lessor to Lessee.
4.03 Cost of Living Increases: Upon the expiration date of the month referenced
in Section 1.04b of the Basic Lease Terms after the commencement of the Term,
and upon the expiration of each twelve (12) calendar month period thereafter
during the Term hereof, rent shall be adjusted by multiplying the Base Rent as
referenced in Section 1.04a of the Basic Lease Terms by a fraction, which
fraction shall have as its numerator the Consumer Price Index For All Urban
Consumers using the U.S. City Average (or alternative thereto as hereinafter
provided) (Base Period 1982-84=100), as published by the U.S. Department of
Labor, Bureau of Labor Statistics, for the calendar month which is four (4)
months prior to the expiration of the applicable twelve (12) month period, and
which such fraction shall have as its denominator said Consumer Price Index, as
published for the calendar month which is four (4) months prior to the
commencement of the Term. If the present base of said Index should hereafter be
changed, then the new base shall be converted to the base now used. In the event
that the Bureau should cease to publish said Index figure, then any similar
Index published by any other branch or department of the U.S. Government shall
be used. In the event said Bureau shall publish more than one such index, the
index showing the greater proportionate increase shall be used, and if none is
so published, then another index generally recognized as authoritative shall be
substituted by agreement of the parties hereto, or if no such agreement is
reached within a reasonable time, either party may make application to any court
of competent jurisdiction to designate such other index. In any event, the base
used by any new index shall be reconciled to the 1982-84=100 Base Index. In no
event shall the rent to be paid by Lessee pursuant hereto be less than the Base
Rent set forth in Section 1.04a of the Basic Lease Terms or the Base Rent as
adjusted with respect to the next preceding twelve (12) month period, whichever
is the greater. In the event the numerator of said fraction is not available at
the time of adjustment of the rent as provided herein, Lessee shall continue to
pay the rent established for the immediately prior twelve (12) month period;
provided, however, Lessee shall promptly pay to Lessor any deficiency at such
time as said rent is adjusted.
4.04 Security Deposit: Concurrently with the execution of this Lease, Lessee
shall deposit with Lessor the sum stated in Section 1.06 of the Basic Lease
Terms, to secure the faithful performance of Lessee's obligations hereunder. If
Lessee fails to pay Rent or other charges due hereunder, or otherwise defaults
with respect to any provision of this Lease, Lessor may use, apply or retain all
or any portion of said deposit for the payment of any rent or other charges in
default or for the payment of any other sum to which Lessor may become obligated
by reason of Lessee's default, or to compensate Lessor for any loss or damage
which Lessor may suffer thereby. If Lessor so uses or applies all or any portion
of said deposit, Lessee shall, within ten (10) days after written demand
therefor, deposit cash with Lessor in an amount sufficient to restore said
deposit to the full amount hereinabove stated and Lessee's failure to do so
shall be a material breach of this Lease. If the Base monthly rent shall, from
time to time, increase during the Term, Lessee shall thereupon deposit with
Lessor additional security deposit so that the amount of security deposit held
by Lessor shall at all times bear the same proportion to current rent as the
original security deposit bears to the original Base monthly rent set forth in
this Article. Lessor shall not be required to keep said deposit separate from
its general accounts. If Lessee performs all of Lessee's obligations hereunder,
said deposit, or so much thereof as has not theretofore been applied by Lessor,
shall be returned, without payment of interest or other increment for its use,
to Lessee (or, at Lessor's option, to the last assignee, if any, of Lessee's
interest hereunder) at the expiration of the Term hereof, and after Lessee has
vacated the Premises. No trust relationship is created herein between Lessor and
Lessee with respect to said security deposit. In no event may Lessee
unilaterally apply or credit its deposit against the last month's rent. Should
Lessor sell its interest in the Premises during the Term hereof and if Lessor
deposits with the Purchaser thereof, the then unappropriated funds deposited by
Lessee as aforesaid, thereupon Lessor shall be discharged from any further
liability with respect to such deposit. 4.05 Option Rent: If Lessee duly
exercises its option to extend this Lease as provided in Section 3.05 above, the
rent payable during the Option Term(s) shall be at a mutually agreeable
increase.
ARTICLE 5 USES
5.01 Use: Lessee shall use the Premises only for the purposes stated in Section
1.07 of the Basic Lease Terms. Lessee shall not do, or permit anything to be
done, in or about the Premises which will in any way interfere with the rights
of other occupants of the Building, or use or allow the Premises to be used for
any improper, immoral, unlawful or objectionable purpose, nor shall Lessee
permit any nuisance or commit any waste in the Premises. Lessee shall not do or
permit to be done anything which will invalidate or increase the cost of any
insurance policy(ies) covering the Building and/or their contents, and shall
comply with all applicable insurance underwriters' rules and the requirements of
the Pacific Fire Rating Bureau or any other organization performing a similar
function. Lessee shall comply, at its expense, with all present and future laws,
ordinances and requirements of all governmental authorities that pertain to
Lessee or its use of the Premises, including without limitation, all federal and
state occupational health and safety requirements, whether or not Lessee's
compliance will necessitate expenditures or interfere with its use and enjoyment
of the Premises. Lessee shall promptly upon demand reimburse Lessor for any
additional insurance premium charged by reason of Lessee's failure to comply
with
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the provisions of this Section, and shall indemnify Lessor from any liability
and/or expense resulting from Lessee's noncompliance.
5.02 Hazardous Materials: Lessee shall not cause, permit or allow any Hazardous
Materials (as defined below) to be brought upon, kept or used in or about the
Premises by Lessee, its agents, employees, contractors or invitees, without the
prior written consent of Lessor (which consent Lessor shall not unreasonably
withhold as long as Lessee demonstrates to Lessor reasonable satisfaction that
such Hazardous Materials are necessary to Lessee's business, and will be used,
kept and stored in a manner that complies with all Hazardous Materials Laws (as
defined below) regulating any such Hazardous Materials so brought upon, used or
kept in or about the Premises). If (i) Lessee, its employees, invitees or agents
breach any obligation stated in the preceding sentence, or (ii) the presence of
Hazardous Materials in the Premises caused or permitted by Lessee results in
contamination of the Premises, the Building, any structure, system or
improvement, any soil or water in, on, under or about the Premises
(collectively, the "Property"), or (iii) contamination of the Property by
Hazardous Materials otherwise occurs for which Lessee is legally liable to
Lessor for damage resulting therefrom, then Lessee shall indemnify, defend and
hold Lessor and lessor's partners, affiliates, employees, contractors,
representatives, lenders, successors and assigns (collectively, the "Indemnified
Parties") harmless from any and all claims, judgments, damages, penalties,
fines, costs, liabilities, losses, actions or causes of action (including,
without limitation, diminution in value of the Building, damages for the loss or
restriction on use of rentable or usable space or of any amenity, damages
arising from any adverse impact on marketing any of the foregoing, and sums paid
in settlement of claims, attorneys' fees and costs incurred, consultant fees and
expert fees) made, brought or sought against or suffered or incurred by the
Indemnified Parties, or any of them, which arise during or after the Term of
this Lease as a result of such contamination. This indemnification of Lessor by
Lessee includes, without limitation, attorneys' fees and expenses and costs
incurred in connection with any investigation of site conditions or any cleanup,
remedial, removal or restoration work required by any federal, state or local
governmental agency or political subdivision or required to return the property
to the condition existing prior to the introduction of any such Hazardous
Materials for which Lessee is responsible. Lessee's obligations hereunder shall
survive the expiration or earlier termination of the Term of this Lease. Prior
to lease commencement, Lessee will provide Lessor with toxic management plans
for glass and sign manufacturing.
Lessee shall at all times and in all respects comply with all federal,
state and local laws, ordinances and regulations ("Hazardous Materials Laws")
relating to industrial hygiene, environmental protection or the use, analysis,
generation, manufacture, storage, disposal or transportation of any oil or
petrochemical products, PCB, flammable materials, explosives, asbestos, urea
formaldehyde, radioactive materials or waste, or other hazardous, toxic,
contaminated or polluting materials, substances or wastes, including, without
limitation, any substances defined as or included in the definition of
"Hazardous Materials", "toxic substances" or "chemicals known to the State to
cause cancer or reproductive toxicity" under any such Hazardous Materials Laws
(collectively, "Hazardous Materials").
5.03 Signs and Auctions: Lessee shall not place any signs on the Premises
without Lessor's prior written consent. Lessee shall not conduct, nor permit to
be conducted, either voluntarily or involuntarily, any auctions or sheriff's
sales from the Premises without having first obtained Lessor's prior written
consent, which shall not be unreasonably withheld.
ARTICLE 6 COMMON FACILITIES AND VEHICLE PARKING
6.01 Operation and Maintenance of Common Facilities: During the Term, Lessor
shall operate all Common Facilities within the Center. The term "Common
Facilities" shall mean all areas within the exterior boundaries of the Building
and other buildings in the Center which are not held for exclusive use by
persons entitled to occupy space, and all other appurtenant areas and
improvements provided by Lessor for the common use of Lessor and tenants and
their respective employees and invitees, including, without limitation, parking
areas and structures, driveways, sidewalks, landscaped and planted areas and
common entrances not located within the Premises of any tenant.
6.02 Use of Common Facilities: The occupancy by Lessee of the Premises shall
include the use of the Common Facilities in common with Lessor and with others
for whose convenience and use the Common Facilities may be provided by Lessor,
subject, however, to compliance with all rules and regulations as are prescribed
from time to time by Lessor. Lessor shall operate and maintain the Common
Facilities in the manner Lessor may determine to be appropriate. Lessor shall at
all times during the Term have exclusive control of the Common Facilities, and
may restrain any use or occupancy, except as authorized by Lessor's rules and
regulations. Lessee shall keep the Common Facilities clear of any obstruction or
unauthorized use related to Lessee's operations. Nothing in this Lease shall be
deemed to impose liability upon Lessor for any damage to or loss of the property
of, or for any injury to , Lessee, its invitees or employees. Lessor may
temporarily close any portion of the Common Facilities for repairs or
alterations, to prevent a public dedication or the accrual of prescriptive
rights, or for any other reason deemed sufficient by Lessor. Under no
circumstances shall the right herein granted to use the Common Facilities be
deemed to include the right to store any property, temporarily or permanently,
in the Common Facilities. Any such storage shall be permitted only by the prior
written consent of Lessor or Lessor's designated agent, which consent may be
revoked at any time. In the event that any unauthorized storage shall occur,
then Lessor shall have the right, without notice, in addition to such other
rights and remedies that it may have, to remove the property and charge the cost
to Lessee, which cost shall be immediately payable upon demand by Lessor.
6.03 Parking: Subject to Lessor's right to adopt reasonable, nondiscriminatory
modifications and additions to the regulations by written notice to Lessee,
Lessee shall have the parking rights set forth as follows: (Note attached
Exhibit market Site Plan showing 59 (fifty-nine) spaces, this will be Lessee's
exclusive parking area for Lessee's, or it's invitees or agents.)
a. Lessor agrees to maintain, or cause to be maintained, an
automobile parking area ("Parking Area") for the benefit and use of the visitors
and patrons and employees of Lessee, and other tenants and occupants of the
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Center. The Parking Area shall include the automobile parking stalls, driveways,
entrances, exits, sidewalks and attendant pedestrian passageways and other areas
designated for parking. Lessor shall have the right and privilege of determining
the nature and extent of the Parking Area, and of making such changes to the
Parking Area from time to time which in its opinion are desirable and for the
best interests of all persons using the Parking Area. Lessor shall keep the
Parking Area in a neat, clean and orderly condition, properly lighted and
landscaped, and shall repair any damage to its facilities. Nothing contained in
this Lease shall be deemed to create liability upon Lessor for any damage to
motor vehicles of visitors or employees, unless ultimately determined to be
caused by the sole negligence or willful misconduct of Lessor, its agents,
servants and employees. Unless otherwise instructed by Lessor, every user of the
Parking Area shall park and lock his or her own motor vehicle. Lessor shall also
have the right to establish, and from time to time amend, and to enforce against
all users of the Parking Area all reasonable rules and regulations as Lessor may
deem necessary and advisable for the proper and efficient operation and
maintenance of the Parking Area.
b. Persons using the Parking Area shall observe all
directional signs and arrows and any posted speed limits. All vehicles shall be
parked entirely within painted stalls, and no vehicles shall be parked in areas
which are posted or marked as "no parking" or on, or in ramps, driveways and
aisles. Only one (1) vehicle may be parked in a parking space. In no event shall
Lessee interfere with the use and enjoyment of the Parking Area by other tenants
of the Building or buildings within the Center or their employees or invitees.
c. Parking areas shall be used only for parking vehicles.
Washing, waxing, cleaning or servicing of vehicles, or the storage of vehicles
for twenty-four (24) hour periods, in the Parking Area (other than emergency
services) by any user of the Parking Area or his or her agents or employees is
prohibited unless otherwise authorized by Lessor. Lessee shall have no right to
install any fixtures, equipment or personal property (other than vehicles) in
the Parking Area, nor shall Lessee make any alteration to the Parking Area.
6.04 Changes and Additions by Lessor: Lessor reserves the right to make
alterations or additions to the Building(s) or the Center, or to the attendant
fixtures, equipment and Common Facilities. Lessor may at any time relocate or
remove any of the various buildings, parking areas and other common facilities,
and may add buildings and areas to the Center from time to time. No change shall
entitle Lessee to any abatement of rent or other claim against Lessor, provided
that the change does not deprive Lessee of reasonable access to or use of the
Premises. The Landlord must notify the Lessee 90 days in advance of any building
or project alterations to the "Building" leased to the Lessee and the common
area designated as the Lessee's exclusive parking area, and not to other
buildings or other portions of the project.
ARTICLE 7 MAINTENANCE, REPAIRS AND ALTERATIONS
7.01 Lessor's Obligations:
a. Subject to the provisions of Section 4.02 (Operating Expenses),
Article 5 (Uses), Article 6 (Building Parking), Section 7.02 (Lessee's
Obligations) and Article 12 (Damage or Destruction), and except for damage
caused by any negligent or intentional act or omission of Lessee, Lessee's
employees, suppliers, shippers, customers or invitees, in which event Lessee
shall, at its sole cost and expense, repair the damage further utilizing a
contractor of Lessor's choice. Lessor at Lessor's expense, subject to
reimbursement pursuant to Section 4.02, shall keep in good condition and repair
the foundations, exterior walls, structural condition of interior bearing walls,
and roof of the Premises, and utility installations of the Building and all
parts thereof, as well as providing the services for which there is an Operating
Expense pursuant to Section 4.02. Lessor shall not, however, be obligated to
paint the interior walls, nor shall Lessor be required to maintain, repair or
replace windows, doors or plate glass of the Premises. Lessor shall have no
obligation to make repairs under this Section 7.01 until a reasonable time after
receipt of written notice from Lessee of the need for such repairs. Lessor shall
not be liable for damages or loss of any kind or nature by reason of Lessor's
failure to furnish any such services when such failure is caused by accident,
breakage, repairs, strikes, lockout or any other labor disturbances or disputes
of any character, or by any other cause beyond the reasonable control of Lessor.
b. Lessor shall warrant Lessee's heating-ventilation-air conditioning
(HVAC), plumbing and electrical throughout the first lease year of the Initial
Term only. In addition, Lessor will successively perform quarterly air filter
changes and annual evaporative cooler winterizing, if applicable; however,
Lessor shall not be responsible for any other item pertaining to the HVAC,
plumbing or electrical following said warranty during the Initial Term,
including without limitation, repair or replacement. Lessor's one year warranty
shall immediately expire if Lessee, its employees, invitees or agents modify or
cause damage to same and Lessee shall then assume all responsibility for same,
including without limitation, repair/replacement, etc. After Lessor's one year
HVAC warranty, Lessor reserves the right to continue changing the HVAC filters
on a quarterly basis and further winterize the warehouse evaporative coolers on
an annual basis.
7.02 Lessee's Obligations:
a. Subject to the provisions of Article 5 (Use), Section 7.01 (Lessor's
Obligations) and Article 12 (Damage or Destruction), Lessee, at Lessee's
expense, shall keep in good order, condition and repair the Premises and every
part thereof (whether or not the damaged portion of the Premises or the means of
repairing same are reasonably or readily accessible to Lessee) including,
without limiting the generality of the foregoing, all plumbing, heating,
ventilating and air conditioning systems, electrical and lighting facilities and
equipment within the Premises, fixtures, interior walls and interior surfaces of
exterior walls, ceilings, windows (including glass and casings), doors
(including casings), plate glass and skylights located within the Premises.
b. If Lessee fails to perform Lessee's obligations under this Section
7.02 or under any other paragraph of this Lease, Lessor may enter upon the
Premises after ten (10) days' prior written notice to Lessee (except in the case
of emergency, in which event, no notice shall be required), perform such
obligations on Lessee's behalf and put the Premises in good order, condition and
repair, and the cost thereof together with interest thereon at fifteen percent
(15%) per annum shall be due and payable as additional rent to Lessor together
with Lessee's next Base Rent installment.
7.03 Alterations and Additions:
a. Lessee shall not, without Lessor's prior written consent which shall
not be unreasonably withheld, make any alterations, improvements, additions or
Utility Installments in, on or about the Premises, except for nonstructural
alterations to the Premises not exceeding $5,000 in cumulative costs during the
Initial Term. In any event, whether or not in excess of $5,000 in cumulative
cost, Lessee shall make no change or alteration to the exterior of the Premises,
without
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Lessor's prior written consent. As used in this Lease, the term "Utility
Installations" shall mean carpeting, window coverings, air lines, power panels,
electrical distribution systems, lighting fixtures, space heaters, air
conditioning, plumbing and fencing. Lessor may require that Lessee remove any
and all of said alterations, improvements, additions or Utility Installations at
the expiration of the Initial Term, as it may have been extended, and restore
the Premises to its prior condition. Lessor may require Lessee to provide
Lessor, at Lessee's sole cost and expense, a lien and completion bond in an
amount equal to one and one-half times the estimated cost of such improvements,
to insure Lessor against any liability for mechanic's and materialman's liens
and to insure completion of the work. Should Lessee make any alterations,
improvements, additions or Utility Installations without the prior approval of
Lessor, Lessor may, at any time during the term of this Lease, require that
Lessee remove any or all of same.
b. Any alterations, improvements, additions or Utility
Installations in or about the Premises that Lessee shall desire to make and
which requires the consent of Lessor, shall be presented to Lessor in written
form with proposed detailed plans. If Lessor shall give its consent, the consent
shall be deemed conditioned upon Lessee acquiring a permit to perform the work
from appropriate governmental agencies, the furnishing of a copy thereof to
Lessor prior to the commencement of the work and the compliance by Lessee of all
conditions of said permit in a prompt and expeditious manner.
c. Lessee shall pay, when due, all claims for labor or
materials furnished or alleged to have been furnished to or for Lessee at or for
use in the Premises, which claims are, or may be secured by, any mechanic's or
materialman's lien against the Premises, or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in the Premises, and Lessor shall have the right to post notices of
non-responsibility in or on the Premises or the Building as provided by law. If
Lessee shall in good faith contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense, defend itself and Lessor against
the same and shall pay and satisfy any such adverse judgment that may be
rendered thereon, before the enforcement thereof, against Lessor or the Premises
upon the condition that if Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to such contested lien
claim or demand indemnifying Lessor against liability for the same and holding
the Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay Lessor's attorneys fees and costs in participating in such
action if Lessor shall decide it is to Lessor's best interest to do so.
d. All alterations, improvements, additions and Utility
Installations (whether or not such Utility Installations constitute trade
fixtures of Lessee), which may be on the Premises, shall be the property of
Lessor and shall remain upon and be surrendered with the Premises at the
expiration of the Initial Term, except if Lessee designates items he wants to
remove to Lessor, as it may have been extended, unless Lessor requires their
removal pursuant to subparagraph "a" above. Notwithstanding the provisions of
this paragraph, Lessee's machinery and equipment, other than that which is
affixed to the Premises, and other than Utility Installations, shall remain the
property of Lessee and may be removed by Lessee subject to the provisions of
Section 7.02.
7.04 Utility Additions: Lessor reserves the right to install new or additional
utility facilities throughout the Building for the benefit of Lessor or Lessee,
including, but not limited to, such utilities as plumbing, electrical systems,
security systems, communication systems and fire protection and detection
systems, so long as such installations do not unreasonably interfere with
Lessee's use of the Premises.
7.05 Entry and Inspection: Lessor shall at reasonable times have the right to
enter the Premises to inspect them, to supply services in accordance with this
Lease, to protect the interests of Lessor in the Premises, to submit the
Premises to prospective or actual purchasers or encumbrance holders (or, during
the last one hundred and eighty (180) days of the Term, or when an uncured
tenant default exists, to prospective tenants), to alter, improve or repair the
Premises, or as otherwise permitted in this Lease, all without being deemed to
have caused an eviction of Lessee and without abatement of rent except as
provided elsewhere in this Lease. If Lessee vacates the Premises, Lessor may
enter the Premises and alter them without abatement of rent and without
liability to Lessee. Lessor shall have the right to use any and all means which
Lessor may deem proper to open the doors in an emergency in order to obtain
entry to the Premises, and any entry to the Premises obtained by Lessor shall
not under any circumstances be deemed to be a forcible or unlawful entry into,
or a detainer of the Premises, or any eviction of Lessee from the Premises.
ARTICLE 8 TAXES AND ASSESSMENTS ON LESSEE'S PROPERTY
8.01 Taxes on Lessee's Property: Lessee shall be liable for and shall pay, at
least ten (10) days before delinquency, all taxes and assessments levied against
all personal property of Lessee located in the Premises. When possible, Lessee
shall cause its personal property to be assessed and billed separately from the
real property of which the Premises form a part. If any taxes on Lessee's
personal property are levied against Lessor or Lessor's property is increased by
the inclusion of a value placed upon the personal property of Lessee, and if
Lessor pays the taxes based upon the increased assessment, Lessee shall pay to
Lessor the taxes so levied against Lessor or the proportion of the taxes
resulting from the increase in the assessment. In calculating what portion of
any tax bill which is assessed against Lessor separately, or Lessor and Lessee
jointly, is attributable to Lessee's fixtures and personal property, Lessor's
reasonable determination shall be conclusive.
ARTICLE 9 UTILITIES
Lessee shall fully and promptly pay for all gas and electric (where
applicable), water, telephone and trash removal for the building and other
utilities of every kind furnished to the leased Premises, together with any
personal property taxes thereon, and all other costs and expenses of every kind
whatsoever, of, or in connection with the use, operation and maintenance of the
leased Premises and all activities conducted thereon, and Lessor shall have no
responsibility of any kind for any thereof. Lessee shall put all such utilities
in its own name and not that of Lessor.
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ARTICLE 10 ASSIGNMENT AND SUBLETTING
10.01 Assignment and Subletting/Lessee Affiliate:
a. No assignment (whether voluntary, involuntary or by
operation of law), and no subletting shall be valid or effective without
Lessor's prior written consent. Further, no assignment or subletting shall
relieve Lessee from its primary and ultimate obligations, responsibilities or
duties under the Lease.
b. Lessee may assign this Lease or sublet the Premises to an
assignee or subtenant which controls, is controlled by or is under common
control with Lessee or to any corporation resulting from the merger of or
consolidation with Lessee ("Lessee's Affiliate"). In such case, any Lessee's
Affiliate shall assume in writing all of Lessee's obligations under this Lease.
Lessee shall in no event increase Lessee's Affiliate's rent from the rate
currently being charged Lessee under this Lease.
c. If Lessee, or any guarantor of Lessee ("Lessee's
Guarantor") is a corporation, or is an unincorporated association or
partnership, the transfer of any stock or interest in the corporation,
association or partnership which results in a change in the voting control of
Lessee or Lessee's Guarantor, if any, shall be deemed an assignment within the
meaning and provisions of this Article. In addition, any change in the status of
the entity, such as, but not limited to, the withdrawal of a general partner,
shall be deemed an assignment within the meaning of this Article.
d. Lessee shall reimburse Lessor for Lessor's reasonable costs
and attorney's fees incurred in connection with the processing and documentation
of any requested transfer. In addition, Lessee shall pay a transfer fee of
$500.00 in the event the transfer is approved.
10.02 Effect of Transfer: No subletting or assignment, even with the consent of
Lessor, shall relieve Lessee of its obligation to pay rent and to perform all
its other obligations under this Lease. Moreover, Lessee shall indemnify and
hold Lessor harmless, as provided in Section 11.03, for any acts or omission by
Lessee's Affiliate. Each transferee, other than Lessor, shall assume all
obligations of Lessee under this Lease and shall be liable jointly and severally
with Lessee for the payment of all rent, and for the due performance of all of
Lessee's obligations under this Lease. No transfer shall be binding upon Lessor
unless any document memorializing the transfer is delivered to Lessor and, if
the transfer is an assignment or sublease, both the assignee/subtenant and
Lessee deliver to Lessor an executed document which contains (i) a covenant of
assumption by the assignee/subtenant, and (ii) an indemnification agreement by
Lessee, both satisfactory in substance and form to Lessor and consistent with
the requirements of this Article; provided that the failure of the
assignee/subtenant or Lessee to execute the instrument of assumption shall not
release either from any obligation under this Lease. The acceptance by Lessor of
any payment due under this Lease from any other person shall not be deemed to be
a waiver by Lessor of any provision of this Lease or to be a consent to any
transfer. Consent by Lessor to one or more transfers shall not operate as a
waiver or estoppel to the future enforcement by Lessor of its rights under this
Lease.
ARTICLE 11 INSURANCE AND INDEMNITY
11.01 Liability Insurance - Lessee: Lessee shall, at Lessee's expense, obtain
and keep in force during the term of this Lease, a policy of Combined Single
Limit Bodily Injury and Property Damage insurance insuring Lessee and Lessor
against any liability arising out of the use, occupancy or maintenance of the
Premises. Such insurance shall be in an amount not less than $1,000,000.00 per
occurrence. The policy shall insure performance by Lessee of the indemnity
provisions of this Article. The limits of said insurance shall not, however,
limit the liability of Lessee hereunder.
11.02 Lessor's Insurance: (Building insurance to be billed separately by Lessor
to Lessee). Lessor may, at its election, provide any or all of the following
types of insurance, with or without deductible and in amounts and coverages as
may be determined by Lessor in its discretion: "all risk" property insurance,
subject to standard exclusions, covering the Premises, and such other risks as
Lessor or its mortgagees may from time to time deem appropriate, and
comprehensive public liability coverage. Lessor shall not be required to carry
insurance of any kind on Lessee's property, including leasehold improvements,
trade fixtures, furnishings, equipment, plate glass, signs and all other items
of personal property, and shall not be obligated to repair or replace the
property should damage occur. All proceeds of insurance maintained by Lessor
upon the Premises shall be the property of Lessor, whether or not Lessor is
obligated to, or elects, to make any repairs. In the event there is a deductible
clause in any standard form policy insuring the Premises against fire, extended
coverage and other property insurance losses, then the amount deducted from the
coverage pursuant to such deductible clause shall be borne by Lessee. Any
insurance containing a deductible clause of $3,000 (per occurrence) for fire,
extended coverage and other property losses, shall not, by virtue of such
deductible clause, be regarded as unsatisfactory. In the event Lessor assumes
supervision and control of the repair or restoration activity for the
improvements damaged or destroyed by reason of occurrences embraced by the
aforesaid standard form insurance policy, Lessor shall provide Lessee with
written notice of the actual cost of repair and restoration, up to the full
deductible amount, and Lessee shall pay to Lessor such sum within thirty (30)
days thereafter. Failure to pay such sum shall constitute a breach of the Lease
and subject Lessee to any rights or remedies of Lessor as provided in the Lease.
11.03 Waiver of Subrogation: Lessor and Lessee hereby waive any rights each may
have against the other on account of any loss or damage occasioned to Lessor or
Lessee, as the case may be, or to the Premises or its contents, and which may
arise out of or incident to the perils insured against under Section 11.02,
which perils occur in, on or about the Premises, whether due to the negligence
of Lessor or Lessee or their agents, contractors and/or invitees. The parties
shall obtain from their respective insurance companies insuring the property a
waiver of any right of subrogation which said insurance companies may have
against Lessor or Lessee as the case may be.
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11.04 Policies: All insurance to be maintained by Lessee under this Lease shall
be procured from an insurance company or companies rated "A" or better in
"Best's Insurance Guide" and authorized to do business in the State of Nevada,
and Lessee shall deliver to Lessor, prior to taking occupancy of the Premises,
copies of insurance binders required to be maintained by Lessee hereunder,
together with evidence of the payment of the premiums thereof. Insurance binders
shall name Lessor and all members thereof as "Additional Insured." The binders
evidencing such insurance shall provide that they shall not be canceled or
modified except after thirty (30) days prior written notice of intention to
modify or cancel has been given to Lessor and any encumbrancer named as
beneficiary thereunder. At lease ninety (90) days prior to the expiration date
of any policy to be maintained by Lessee hereunder, Lessee shall deliver to
Lessor a renewal policy or "binder" therefor.
11.05 Lessee's Indemnity: To the fullest extent permitted by law, Lessee shall
defend, indemnify and hold harmless Lessor, its agents and any and all
affiliates of Lessor, including, without limitation, its members, co-venturers,
corporations or other entities controlling, controlled by or under common
control with Lessor, from and against any and all claims or liabilities arising
either before or after the Commencement Date from Lessee's use or occupancy of
the Premises, the Building, or from the conduct of its business, or from any
activity, work or thing done, permitted or suffered by Lessee or its agents,
employees, invitees or licensees in or about the Premises, the Building, or from
any default in the performance of any obligation on Lessee's part to be
performed under this Lease, or from any act or negligence of Lessee or its
agents, employees, visitors, patrons, guests, invitees or licensees. In case
Lessor, its agent or affiliates are made a party to any litigation commenced by
or against Lessee (relating to Lessee's use and occupancy of the Premises), then
Lessee shall protect and hold Lessor harmless and shall pay all costs, expenses
and attorneys' fees incurred or paid by Lessor in connection with the
litigation. Lessor may, at its option, require Lessee to assume Lessor's defense
in any action covered by this Section through counsel satisfactory to Lessor.
11.06 Lessor's Non-Liability: Lessor shall not be liable to Lessee, its
employees, agents and invitees, and Lessee hereby waives all claims against
Lessor for loss of or damage to any property, or any injury to any person, or
loss or interruption of business or income, resulting from, but not limited to,
fire, explosion, falling plaster, steam, gas, electricity, water or rain which
may leak or flow from or into any part of the Premises or from the breakage,
leakage, obstruction or other defects of the pipes, sprinklers, wires,
appliances, plumbing, air conditioning, electrical works or other fixtures in
the Building, whether the damage or injury results from conditions arising in
the Premises or in other portions of the Building, unless Lessor, its agents,
invitees and/or employees cause such loss, damage or injury through their own
negligence or willful misconduct. Neither Lessor nor its agents shall be liable
for interference with light or other similar intangible interests. Lessee shall
immediately notify Lessor in case of fire or accident in the Premises, the
Building and of defects in any improvements or equipment.
ARTICLE 12 DAMAGE OR DESTRUCTION
12.01 Restoration:
a. If the Building of which the Premises are a part is
damaged, Lessor shall repair that damage as soon as reasonably possible, at its
expense, unless: (i) Lessor reasonably determines that the cost of repair would
exceed ten percent (10%) of the full replacement cost of the Building
("Replacement Cost") and the damage is not covered by Lessor's fire and extended
coverage insurance (or by normal extended coverage policy should Lessor fail to
carry that insurance); or (ii) Lessor reasonably determines that the cost of
repair would exceed twenty-five percent (25%) of the Replacement Cost; or (iii)
Lessor reasonably determines that the cost of repair would exceed ten percent
(10%) of the Replacement Cost and the damage occurs during the final twelve (12)
months of the Initial Term, as it may have been extended. Should Lessor elect
not to repair the damage for one of the preceding reasons, Lessor shall so
notify Lessee in writing within sixty (60) days after the damage occurs and this
Lease shall terminate as of the date of that notice.
b. Unless Lessor elects to terminate this Lease in accordance
with subsection "a" above, this Lease shall continue in effect for the remainder
of the Initial Term, as it may have been extended; provided that if the damage
is so extensive as to reasonably prevent Lessee's substantial use and enjoyment
of the Premises for more than six (6) months, then Lessee may elect to terminate
this Lease by written notice to Lessor within the sixty (60) day period stated
in subsection "a".
c. Commencing on the date of any damage to the Building, and
ending on the date the damage is repaired or this Lease is terminated, whichever
occurs first, the rental to be paid under this Lease shall be abated in the same
proportion that the floor area of the Premises that is rendered unusable by the
damage from time to time bears to the total floor area of the Premises. Lessee
further agrees that if there is a fire and the building burns down, provided it
is not the fault of the Lessee, its invitees or agents; and half or more of the
building is not usable Lessor will notify Lessee of the time required for repair
as reasonably determined by Lessor, and if the time exceeds six months the
Lessee will have the right to cancel the lease.
d. Notwithstanding the provisions of subsections "a", "b" and
"c" of this Section, the cost of any repairs shall be borne by Lessee, and
Lessee shall not be entitled to rental abatement or termination rights if the
damage is due to the fault or neglect of Lessee or its employees, subtenants,
invitees or representatives. In addition, the provisions of this Section shall
not be deemed to require Lessor to repair any improvements or fixtures that
Lessee is obligated to repair or insure pursuant to any other provisions of this
Lease. Lessee will have liability for repairs unless Lessor, its agents,
invitees and/or employees cause such damage through their own negligence or
willful misconduct or by such act of God.
ARTICLE 13 EMINENT DOMAIN
13.01 Total or Partial Taking: If all or a material portion of the Premises is
taken by any lawful authority by exercise of the right of eminent domain, or
sold to prevent a taking, either Lessee or Lessor may terminate this Lease
effective as of the
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date possession is required to be surrendered to the
authority. In the event title to a portion of the Building, other than the
Premises, is taken or sold in lieu of taking, and if Lessor elects to restore
the Building in such a way as to alter the Premises materially, Lessor may
terminate this Lease, by written notice to Lessee, effective on the date of
vesting of title. In the event neither party has elected to terminate this Lease
as provided above, then Lessor shall promptly, after receipt of a sufficient
condemnation award, proceed to restore the Premises to substantially their
condition prior to the taking, and a proportionate allowance shall be made to
Lessee for the rent corresponding to the time during which, and to the part of
the Premises of which, Lessee is deprived on account of the taking and
restoration. In the event of a taking, Lessor shall be entitled to the entire
amount of the condemnation award without deduction for any estate or interest of
Lessee; provided that nothing in this Section shall be deemed to give Lessor any
interest in, or prevent Lessee from seeking any award against the taking
authority for, the taking of personal property and fixtures belonging to Lessee
or for relocation recoverable from the taking authority.
13.02 Temporary Taking: No temporary taking of the Premises shall terminate this
Lease or give Lessee any right to abatement of rent, and any award specifically
attributable to a temporary taking of the Premises shall belong entirely to
Lessee. A temporary taking shall be deemed to be a taking of the use or
occupancy of the Premises for a period not to exceed ninety (90) days.
13.03 Taking of Parking Area: In the event there shall be a taking of the
Parking Area such that Lessor can no longer provide sufficient parking to comply
with this lease, Lessor may substitute reasonably equivalent parking in a
location reasonably close to the Building; provided that if Lessor fails to make
that substitution within ninety (90) days following the taking and if the taking
materially impairs Lessee's use and enjoyment of the Premise, Lessee may, at its
option, terminate this Lease by written notice to Lessor, and such termination
shall be effective thirty (30) days after written notice of termination is given
by Lessee. If this Lease is not so terminated by Lessee within thirty (30) days
after this taking, there shall be no abatement of rent and this Lease shall
continue in effect.
ARTICLE 14 SUBORDINATION; ESTOPPEL CERTIFICATE
14.01 Subordination:
a. This Lease shall be subordinate to all ground or underlying
leases, mortgages, deeds of trust and conditions, covenants and restrictions,
reciprocal easements and rights of way, if any, which may hereafter affect the
Premises, and to all renewals, modifications, consolidations, replacements and
extensions thereof; provided, that so long as Lessee is not in default under
this Lease, this Lease shall not be terminated or Lessee's quiet enjoyment of
the Premises disturbed in the event of termination of any such ground or
underlying lease, or the foreclosure of any such mortgage or deed of trust, to
which Lessee has subordinated this Lease pursuant to this Section. In the event
of a termination or foreclosure, Lessee shall become a tenant of and attorney to
the successor-in-interest to Lessor upon the same terms and conditions as are
contained in this Lease, and shall execute any instrument reasonably required by
Lessor's successor for that purpose. Lessee shall also, upon written request of
Lessor, execute and deliver all instruments as may be required from time to time
to subordinate the rights of Lessee under this Lease to any ground or underlying
lease or to the lien of any mortgage or deed of trust, or if requested by
Lessor, to subordinate, in whole or in part, any ground or underlying lease or
the lien of any mortgage or deed of trust to this Lease.
b. Failure of Lessee to execute any statements or instruments
necessary or desirable to effectuate the provisions of this Article within ten
(10) days after written request by Lessor, shall constitute a default under this
Lease. In that event, Lessor, in addition to any other rights or remedies it
might have, shall have the right, by written notice to Lessee, to terminate this
Lease as of a date not less than twenty (20) days after the date of Lessor's
notice. Lessor's election to terminate shall not relieve Lessee of any liability
for its default.
14.02 Estoppel Certificate:
a. Lessee shall, at any time upon not less than twenty (20)
days' prior written notice from Lessor, execute, acknowledge and deliver to
Lessor, in any form that Lessor may reasonably require, a statement, in writing
(i) certifying that this Lease is unmodified and in full force and effect (or,
if modified, stating the nature of the modification and certifying that this
Lease is unmodified and in full force and effect) and the dates to which the
rental, additional rent and other charges have been paid in advance, if any, and
(ii) acknowledging that, to Lessee's knowledge, there are no uncured defaults on
the part of Lessor, or specifying each default if any are claimed, and (iii)
setting forth all further information that Lessor may reasonably require.
Lessee's statement may be relied upon by any prospective purchaser or
encumbrancer of all or any portion of the Building.
b. Lessee's failure to deliver any estoppel statement within
the provided time shall be conclusive upon Lessee that (i) this Lease is in full
force and effect without modification except as may be represented by Lessor,
(ii) there are no uncured defaults in Lessor's performance, and (iii) not more
than one month's rental has been paid in advance.
ARTICLE 15 DEFAULTS AND REMEDIES
15.01 Lessee's Defaults: In addition to any other event of default set forth in
this Lease, the occurrence of any one or more of the following events shall
constitute a default by Lessee:
a. The abandonment of the Premises by Lessee. Abandonment is defined to
include, but not limited to, any absence by Lessee from the Premises for ten
(10) days or longer.
b. The failure by Lessee to make any payment of rent or additional rent
required to be made by Lessee, as and when due, where the failure continues for
a period of ten (10) days after the date such payment was due. For
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purposes of these default and remedies provisions, the term "additional rent"
shall be deemed to include all amounts of any type whatsoever, other than Base
Rent, to be paid by Lessee pursuant to the terms of this Lease.
c. Assignment, sublease, encumbrance or other transfer of the Lease by
Lessee, either voluntarily or by operation of law, whether by judgment,
execution transfer by intestacy or testacy, or other means, without the prior
written consent of Lessor.
d. The discovery by Lessor that any financial statement provided by
Lessee, or by any affiliate, successor or guarantor of Lessee was materially
false or misleading.
e. The failure or inability by Lessee to observe or perform any of the
express or implied covenants or provisions of this Lease to be observed or
performed by Lessee, other than as specified in any other subsection of this
Section, where the failure continues for a period of thirty (30) days after
written notice from Lessor to Lessee. However, if the nature of the failure is
such that more than thirty (30) days are reasonably required for its cure, then
Lessee shall not be deemed to be in default if Lessee commences the cure within
thirty (30) days and thereafter diligently pursues the cure to completion in a
time period not to exceed thirty (30) days.
f. (i) The making by Lessee of any general assignment for the benefit
of creditors; (ii) the filing by or against Lessee of a petition to have Lessee
adjudged a Chapter 7 debtor under the Bankruptcy Code or to have debts
discharged or a petition for reorganization or arrangement under any law
relating to bankruptcy (unless, in the case of a petition filed against Lessee,
the same is dismissed within sixty (60) days); (iii) the appointment of a
trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, if possession is
not restored to Lessee within thirty (30) days; (iv) the attachment, execution
or other judicial seizure of substantially all of Lessee's assets located at the
Premises or of Lessee's interest in this Lease where the seizure is not
discharged within thirty (30) days; or (v) Lessee's convening of a meeting of
its creditors for the purpose of effecting a moratorium upon or composition of
its debts. Lessor shall not be deemed to have knowledge of any event described
in this subsection unless notification in writing is received by Lessor, nor
shall there be any presumption attributable to Lessor of Lessee's insolvency. In
the event that any provision of this subsection is contrary to applicable law,
the provision shall be of no force or effect.
15.02 Lessor's Remedies: On the occurrence of any default by Lessee, Lessor may,
at any time thereafter, with or without notice or demand and without limiting
Lessor in the exercise of any right or remedy which Lessor may have:
a. Terminate Lessee's right to possession of the Premises by any lawful
means, in which case this Lease shall terminate and Lessee shall immediately
surrender possession of the Premises to Lessor. In such event, Lessor shall be
entitled to recover from Lessee all damages incurred by Lessor by reason of
Lessee's default, including (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 Lessor proves could not 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 by the
balance of the term after the time of award exceeds the amount of such rental
loss that Lessor proves could not have been reasonably avoided; and (iv) any
other amount necessary to compensate Lessor for all the detriment proximately
caused by Lessee'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 Lessor 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, Lessor'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
(15%) per annum, or such lesser amount as may be then the maximum lawful rate.
As used in subpart "(iii)" above, the "worth at the time of the award" is
computing 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%). If Lessee
shall have abandoned the Premises, Lessor shall have the option of (i) retaking
possession of the Premises and recovering from Lessee the amount specified in
this Section 15.02a, or (ii) proceeding under Section 15.02b.
b. Maintain Lessee's right to possession, in which case this Lease
shall continue in effect whether or not Lessee shall have abandoned the
Premises. In such event, Lessor shall be entitled to enforce all of Lessor's
rights and remedies under this Lease, including the right to recover the rent as
it becomes due hereunder.
c. Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state in which the Property is located.
15.03 Repayment of "Free" Rent: If this Lease provides for a postponement of any
monthly rental payments, a period of "free" rent, or other rent concession, such
postponed rent or "free" rent is called the "Abated Rent". Lessee shall be
credited with having paid all of the Abated Rent on the expiration of the Lease
Term only if Lessee has fully, faithfully and punctually performed all of
Lessee's obligations hereunder, including the payment of all rent (other than
Abated Rent) and all other monetary obligations and the surrender of the
property in the physical condition required by this Lease. Lessee acknowledges
that its right to receive credit for the Abated Rent is absolutely conditioned
upon Lessee's full, faithful and punctual performance of its obligations under
this Lease. If Lessee defaults and does not cure within any applicable grace
period, the Abated Rent shall immediately become due and payable in full and
this Lease shall be enforced as if there were no such rent abatement or other
rent concession. In such case, Abated Rent shall be calculated based on the full
initial rent payable under this Lease.
15.04 Cumulative Remedies: Lessor's exercise of any right or remedy shall not
prevent it from exercising any other right or remedy.
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15.05 Late Payments: Any rent due under this Lease that is not paid to Lessor
within ten (10) days of the date when due shall bear interest fifteen percent
(10%) per annum from the date due until fully paid. The payment of interest
shall not cure any default by Lessee under this Lease. In addition, Lessee
acknowledges that the late payment by Lessee to Lessor, of rent, will cause
Lessor to incur costs not contemplated by this Lease, the exact amount of which
will be extremely difficult and impractical to ascertain. Those costs may
include, but are not limited to, administrative, processing and accounting
charges, and late charges which may be imposed on Lessor by the terms of any
ground lease, mortgage or trust deed covering the Premises. Accordingly, if any
rent due from Lessee shall not be received by Lessor or Lessor's designee within
ten (10) days after the date due, then Lessee shall pay to Lessor, in addition
to the interest provided above, a late charge in the amount of ten percent (10%)
of each delinquent payment. Acceptance of a late charge by Lessor shall not
constitute a waiver of Lessee's default with respect to the overdue amount, nor
shall it prevent Lessor from exercising any of its other rights and remedies.
15.06 Right of Lessor to Perform: All covenants and agreements to be performed
by Lessee under this Lease shall be performed at Lessee's sole cost and expense
and without any abatement of rent or right of set off. If Lessee fails to pay
any sum of money, other than rent, or fails to perform any other act on its part
to be performed under this Lease, and the failure continues beyond any
applicable grace period set forth in Section 15.01, then in addition to any
other available remedies, Lessor may, at its election, make the payment or
perform the other act on Lessee's part. Lessor's election to make the payment or
perform the act on Lessee's part shall not give rise to any responsibility of
Lessor to continue making the same or similar payments or performing the same or
similar acts. Lessee shall, promptly upon demand by Lessor, reimburse Lessor for
all sums paid by Lessor and all necessary incidental costs, together with
interest at the maximum rate permitted by law from the date of the payment by
Lessor. Lessor shall have the same rights and remedies if Lessee fails to pay
those amounts as Lessor would have in the event of a default by Lessee in the
payment of rent.
15.07 Default by Lessor: Lessor shall not be deemed to be in default in the
performance of any obligation under this Lease unless, and until, it has failed
to perform the obligation within thirty (30) days after written notice by Lessee
to Lessor specifying in reasonable detail the nature and extent of the failure;
provided, however, that if the nature of Lessor's obligation is such that more
than thirty (30) days are required for its performance, then Lessor shall not be
deemed to be in default if it commences performance within the thirty (30) day
period and thereafter diligently pursues the cure to completion.
15.08 Expenses and Legal Fees: Lessee shall reimburse Lessor upon demand, for
any costs or expenses incurred by Lessor in connection with any breach or
default of Lessee 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.
Lessee shall also indemnify Lessor against and hold lessor harmless from all
costs, expenses, demands and liability incurred by Lessor if Lessor becomes or
is made a party to any claim or action (a) instituted by Lessee, or by any third
party if due to negligence by Lessee, or by or against any person holding any
interest under or using the Premises by license of or agreement with Lessee; (b)
for foreclosure for any lien for labor or material furnished to or for Lessee or
such other person; (c) otherwise arising out of or resulting from any negligent
act by Lessee or such other person; or (d) necessary to protect Lessor's
interest under this Lease in a bankruptcy proceeding, or other proceeding under
Title 11 of the United States Code, as amended. Lessee shall defend Lessor
against any such claim or action at Lessee's expense with counsel reasonably
acceptable to lessor or, at Lessee's election, Lessee shall reimburse Lessor for
any legal fees or costs incurred by Lessor in any such claim or action.
ARTICLE 16 END OF TERM
16.01 Holding Over: This Lease shall terminate without further notice upon the
expiration of the Term (herein "Expiration Date"), and any holding over by
Lessee after the Expiration Date shall not constitute a renewal or extension of
this Lease, or give Lessee any rights under this Lease, except when in writing,
signed by both parties. If Lessee holds over for any period after the Expiration
(or earlier termination) of the Term, Lessor may, at its option, treat Lessee as
a tenant at sufferance only, commencing on the first (1st) day following the
termination of this Lease and subject to all of the terms of this Lease, except
that the monthly rental shall be one hundred fifty percent (150%) of the greater
of (a) the total monthly rental for the month immediately preceding the date of
termination, or (b) the then currently scheduled rent for comparable space in
the Building. If Lessee fails to surrender the Premises upon the expiration of
this Lease despite demand to do so by Lessor, Lessee shall indemnify and hold
Lessor harmless from all loss or liability, including, without limitation, any
claims made by any succeeding tenant relating to such failure to surrender.
Acceptance by Lessor of rent after the termination shall not constitute a
consent to a holdover or result in a renewal of this Lease. The foregoing
provisions of this Section are in addition to, and do not affect, Lessor's right
of re-entry or any other rights of Lessor under this Lease or at law.
16.02 Merger on Termination: The voluntary or other surrender of this Lease by
Lessee, or mutual termination of this Lease, shall terminate any or all existing
subleases unless Lessor, at its option, elects in writing to treat the surrender
or termination as an assignment to it of any or all subleases affecting the
Premises.
16.03 Surrender of Premises: Removal of Property: Upon the Expiration Date, or
upon any earlier termination of this Lease, Lessee shall quit and surrender
possession of the Premises to Lessor in as good order, condition and repair as
when received or as hereafter may be improved by Lessor or Lessee, reasonable
wear and tear and repairs, which are Lessor's obligation excepted, and shall
without expense to Lessor, remove or cause to be removed from the Premises all
personal property and debris, except for any items that Lessor may by written
authorization allow to remain. Lessee shall repair all damage to the Premises
resulting from the removal, which repair shall include the patching and filling
of holes and repair of structural damage, provided that Lessor may instead elect
to repair any structural damage at Lessee's expense. If Lessee shall fail to
comply with the provisions of this Section, Lessor may effect the removal and/or
make any repairs, and
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the cost to Lessor shall be additional rent payable by Lessee upon demand. If
requested by Lessor, Lessee shall execute, acknowledge and deliver to Lessor an
instrument in writing releasing and quitclaiming to Lessor, all right, title and
interest of Lessee in the Premises.
16.04 Termination; Advance Payments: Upon termination of this Lease under
Article 12 (Damage or Destruction), Article 13 (Eminent Domain) or any other
termination not resulting from Lessee's default, and after Lessee has vacated
the Premises in the manner required by this Lease, and equitable adjustment
shall be made concerning advance rent, and any other advance payments made by
Lessee or Lessor, and Lessor shall refund the unused portion of the security
deposit to Lessee or Lessee's successor.
ARTICLE 17 PAYMENTS AND NOTICES
All sums payable by Lessee to Lessor shall be paid, without deduction
or offset, in lawful money of the United States to Lessor at its address set
forth in Section 1.08 of the Basic Lease Terms, or at any other place as Lessor
may designate in writing. Unless this Lease expressly provides otherwise, as for
example in the payment of rent pursuant to Section 4.01, all payments shall be
due and payable within five (5) days after demand. All payments requiring
proration shall be prorated on the basis of a thirty (30) day month and a three
hundred sixty (360) day year. Any notice, election, demand, consent, approval or
other communication to be given, or other document to be delivered by either
party to the other, may be delivered in person to an officer or duly authorized
representative of the other party, or may be deposited in the United States
mail, duly registered or certified, postage prepaid, return receipt requested,
and addressed to the other party at the address set forth in Section 1.08 of the
Basic Lease Terms, or if to Lessee, at that address, or from and after the
Commencement Date, at the Premises (whether or not Lessee has departed from,
abandoned or vacated the Premises). Either party may, by written notice to the
other, served in the manner provided in this Article, designate a different
address. If any notice or other document is sent by mail, it shall be deemed
served or delivered upon actual receipt or refusal thereof. If more than one
Lessee is named under this Lease, service of any notice upon any one of them
shall be deemed as service upon all of them.
ARTICLE 18 LIMITATION OF LIABILITY
In consideration of the benefits accruing hereunder, Lessee agrees that
in the event of any actual or alleged failure, breach or default of this Lease
by Lessor: (i) the sole and exclusive remedy shall be against Lessor and its
assets - Lessor's liability shall be limited to its interest in the Center; (ii)
no member of Lessor shall be sued or named as a party in any suit or action
(except as may be necessary to secure jurisdiction of the Lessor); (iii) no
service of process shall be made against any member of Lessor (except as may be
necessary to secure jurisdiction of the Lessor); (iv) no member of Lessor shall
be required to answer or otherwise plead to any service of process; (v) no
judgment may be taken against any member of Lessor; (vi) any judgment taken
against any member of Lessor may be vacated and set aside at any time without
hearing; (vii) no writ of execution will ever be levied against the assets of
any member of Lessor; and (viii) these covenants and agreements are enforceable
both by Lessor and also by any member of Lessor. Lessee agrees that each of the
foregoing provisions shall be applicable to any covenant or agreement either
expressly contained in this Lease or imposed by statute or at common law.
ARTICLE 19 BROKER'S COMMISSION
The parties recognize as the broker(s) who negotiated this Lease, the
firm(s), if any, whose name(s) is (are) stated Section 1.09 of the Basic Lease
Terms, and agree that the party designated in Section 1.09 shall be solely
responsible for the payment of brokerage commissions to those broker(s), and
that the other party shall have no responsibility for the commissions unless
otherwise provided in this Lease. Lessee warrants that it has had no dealings
with any other real estate broker or agent in connection with the negotiation of
this Lease, and Lessee agrees to indemnify and hold Lessor harmless from any
cost, expense or liability (including reasonable attorneys' fees) for any
compensation, commissions or charges claimed by any other real estate broker or
agent employed or claiming to represent or to have been employed by Lessee in
connection with the negotiation of this Lease. The foregoing agreement shall
survive the Expiration or earlier termination of this Lease. If Lessee fails to
take possession of the Premises or if this Lease otherwise terminates prior to
the Expiration Date, Lessor shall be entitled to recover the unamortized portion
of any brokerage commission funded by Lessor in addition to any other damages to
which Lessor may be entitled.
ARTICLE 20 TRANSFER OF LESSOR'S INTEREST
In the event of any transfer of Lessor's interest in the Premises,
including a so-called sale-leaseback, the transferor shall be automatically
relieved of all obligations on the part of Lessor accruing under this Lease from
and after the date of the transfer, provided that any funds held by the
transferor, in which Lessee has an interest, shall be turned over, subject to
that interest, to the transferee, and Lessee is notified of the transfer as
required by law. No holder of a mortgage and/or deed of trust to which this
Lease is, or may be, subordinate, and no landlord under a so-called
sale-leaseback shall be responsible in connection with the security deposit,
unless the mortgagee or holder of the deed of trust or the landlord actually
receives the security deposit. It is intended that the covenants and obligations
contained in this Lease on the part of the Lessor shall, subject to the
foregoing, be binding on Lessor, its successors and assigns, only during, and in
respect to, their respective successive periods of ownership.
ARTICLE 21 INTERPRETATION
21.01 Gender and Number: Whenever the context of this Lease requires, the words
"Lessor" and "Lessee" shall include the plural and well as the singular, and
words used in neuter, masculine or feminine genders shall include the others.
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21.02 Headings: The captions and headings of the Articles and Sections of this
Lease are for convenience only, and are not a part of this Lease and shall have
no effect upon its construction or interpretation.
21.03 Joint and Several Liability: If there is more than one Lessee, the
obligations imposed upon Lessee shall be joint and several, and the act of, or
notice from, or notice or refund to, or the signature of, any one or more of
them shall be binding on all of them with respect to the tenancy of this Lease,
including, but not limited to, any renewal, extension, termination, or
modification of this Lease.
21.04 Successors: Subject to Articles 10 and 20, all rights and liabilities
given to or imposed upon Lessor and Lessee shall extend to and bind their
respective heirs, executors, administrators, successors and assigns. Nothing
contained in this Section is intended, or shall be construed, to grant to any
person other than Lessor and Lessee and their successors and assigns any rights
or remedies under this Lease.
21.05 Time of Essence: Time is of the essence with respect to the performance of
every provision of this Lease, in which time of performance is a factor.
21.06 Severability: If any term or provision of this Lease, [the deletion of
which would not adversely affect the receipt of any material benefit by either
party or the deletion of which is consented to by the party adversely affected],
shall be held invalid or unenforceable to any extent, the remainder of this
Lease shall not be affected and each term and provision of this Lease shall be
valid and enforceable to the fullest extent permitted by law.
21.07 Entire Agreement: The parties hereto declare and represent that no
promise, inducement or agreement not herein expressed has been made to them,
that this document embodies and sets forth the entire agreement and
understanding between them relating to the subject matter hereof, and that it
merges and supersedes all prior discussions, agreements, understandings,
representations, conditions, warranties and covenants between them on said
subject matter.
21.08 Covenants and Conditions: All of the provisions of this Lease shall be
construed to be conditions as well as covenants as though the words specifically
expressing or imparting covenants and conditions were used in each separate
provision.
21.09 Counterparts: This Lease may be executed in one or more counterparts, each
of which shall be deemed an original, but all of which taken together shall
constitute one and the same instrument.
21.10 All indemnities set forth in this Lease shall survive the expiration or
earlier termination of this Lease.
21.11 Attachments: In addition to all of the exhibits referred to above,
attached are the following documents which also constitute a part of this Lease:
Utilities Information Form and Center Signage Guidelines.
LESSOR: SPENCER AIRPORT CENTER LLC
By: Its Members
THE GUARDIAN LIFE INSURANCE COMPANY OF AMERICA
By:____________________________
Michael Noulas
Second Vice President, Real Estate
NEVADA REAL ESTATE GROUP, LLC, a Nevada limited liability company
By:____________________________
Bradford H. Miller, Manager
By:____________________________
Lee W. Phelps, Manager
LESSEE:
By:_____________________________________________
Robert E. Huggins
Senior Vice President and Chief Financial Officer
By:_____________________________________________
Malcolm M. Davenport, V
Secretary
If Lessee shall be a corporation, then authorized officers must sign on behalf
of the corporation. The Lease must be executed by the President or Vice
President and the Secretary or Secretary/Treasurer, unless the By-Laws or a
Resolution of the Board of Directors shall otherwise provide, in which event,
the By-Laws, or a certified copy of the Resolution, as the case may be, must be
furnished. Also, the appropriate corporate seal must be affixed.
16
<PAGE>
At this point in the original lease document, the following documenys are
attached;
1-Schematics of the property
2-Check from Spinteknology to Spencer Aircraft Center, LLC for $98,302.12
3-Certificate of Liability Insurance
4-Lessor's Requirements
5-Utilities Information
EMPLOYMENT AGREEMENT
THIS AGREEMENT is made and entered into this 1st day of July 1998 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
WHERAS, the Corporation is desirous of promoting Executive to the position
of President and Chief Operating Officer; and
WHEREAS, in order to retain the services of the Executive in the position
of President and Chief Operating Officer, 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 July 1,
1998 and shall continue for a period of two (2) years until June 30, 2000 (the
"Term"). After the original Term, this Agreement shall continue in effect and
shall be deemed automatically renewed for a second two year 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 President and Chief
Operating Officer during the Term or any extension thereof.
1
<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 thirty (30) 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 thirty (30) 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 or group of affiliated or related persons
(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 July 1, 1998 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 and
has failed to cure such deficiencies within a thirty (30) day period
after such notification (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, has committed common law fraud, or a willful violation of
any
2
<PAGE>
State or Federal Securities Law resulting in a fine (to Company or
Executive)) or imprisonment ("for Cause").
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
Eighty Six Thousand Dollars ($186,000) such salary to be paid no less than
biweekly 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 this Agreement is not renewed, or 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 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 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, including the obligation contained in subparagraph
C of paragraph 5, shall be due and owed in a lump sum payment on or before
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 allowance in the amount of
Seven Hundred Fifty Dollars ($750) per month during the Term.
C. The Corporation shall reimburse Executive for the cost of his
country club membership, such amount not to exceed $35,000. Such country club
membership shall be held in the name of the Executive for the benefit of
Executive and shall be the exclusive property of the Executive. Corporation
shall reimburse Executive in accordance with the schedule attached hereto as
Exhibit "A". Notwithstanding the foregoing provisions of this subparagraph if
Executive is terminated for cause the obligation of Corporation under this
paragraph to reimburse Executive shall terminate on the date of such
termination.
D. Executive shall receive additional compensation in the form of
Bonuses granted by the Corporation at the discretion of the Board of Directors
or Chief Executive Officer of the Corporation (the "CEO"). The amount of the
Bonus paid to Executive shall be determined in the discretion of the Board of
Directors.
3
<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. Executive shall be provided
with a life insurance policy on his life for not less than double his then
current base annual salary; and, he shall also be provided with a disability
insurance policy for not less than 60% of his then current annual salary.
7. Grant of Options to Acquire Stock
---------------------------------
In addition to those options previously granted by the Corporation to
Executive, Corporation shall grant Executive options to purchase 200,000 shares
of the Corporations common stock on the date of execution of this Agreement.
Such option shall vest in full on the date granted. Further, Corporation
guarantees Executive will receive 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 immediately on the date
of grant, and that the exercise price will be the closing price of the publicly
traded shares on the day of such grant.
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 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 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,
4
<PAGE>
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
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, group of persons, 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
5
<PAGE>
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 Nevada 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. The parties shall have the right to bring an action in a
Nevada court of competent jurisdiction to enforce any equitable remedy such
party may have.
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 Date July 1, 1998
/S/Robert E. Huggins
- --------------------
Robert E. Huggins
Spintek Gaming Technologies, Inc.
/s/Gary L. Coulter, Chairman & CEO
- ----------------------------------
Gary L. Coulter, Chairman & CEO
- ----------------------------------
Malcolm C. Davenport V, Secretary
12
<PAGE>
EXHIBIT A
The Red Rock Country Club Membership Payment Schedule is attached here.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM SPINTEX
GAMING TECHNOLOGIES, INC. FINANCIAL STATEMENTS FOR THE YEAR ENDED JUNE 30,
1998 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1998
<PERIOD-START> JUL-01-1997
<PERIOD-END> JUN-30-1998
<EXCHANGE-RATE> 1
<CASH> 500
<SECURITIES> 0
<RECEIVABLES> 229
<ALLOWANCES> 0
<INVENTORY> 679
<CURRENT-ASSETS> 1,454
<PP&E> 204
<DEPRECIATION> 60
<TOTAL-ASSETS> 2,744
<CURRENT-LIABILITIES> 2,467
<BONDS> 2,350
5,355
0
<COMMON> 40
<OTHER-SE> (7,469)
<TOTAL-LIABILITY-AND-EQUITY> 2,744
<SALES> 444
<TOTAL-REVENUES> 444
<CGS> 280
<TOTAL-COSTS> 280
<OTHER-EXPENSES> 4,659
<LOSS-PROVISION> 180
<INTEREST-EXPENSE> 71
<INCOME-PRETAX> (4,787)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,787)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,115)
<EPS-PRIMARY> (0.28)
<EPS-DILUTED> (0.28)
</TABLE>
