<PAGE>2
As filed with the Securities and Exchange Commission on September , 1997
Commission File Number
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2/A
REGISTRATION STATEMENT
Under The Securities Act of 1933
CASINOVATIONS INCORPORATED
Washington 91-1696010
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdictions Classification Code Number) Identification
Number)
of incorporation
or organization)
3909 South Maryland Parkway
Suite 311
Las Vegas, Nevada 89119
Telephone: 702-733-7195
Facsimile: 702-733-7197
(Address and telephone number of registrant's principal executive
offices and principal place of business.)
Jay L. King
3909 South Maryland Parkway
Suite 311
Las Vegas, Nevada 89119
Telephone: 702-733-7195
Facsimile: 702-733-7197
(Name, address and telephone number of agent for service.)
with copies to:
Jody M. Walker
Attorney At Law
7841 South Garfield Way
Littleton, Colorado 80122
If any of the securities being registered on this Form are to be offered on
a
delayed or continuous basis pursuant to Rule 415 under the Securities Act
of 1933, check the following box: | x |
<TABLE>
CALCULATION OF REGISTRATION FEE
<CAPTION>
Title of each Proposed Proposed Amount of
class of Amount to be offering aggregate registration
securities registered price offering price fee
<S> <C> <C> <C> <C>
Common Stock
$.001 par value 100,000 $3.50 $350,000 $120.69
Common Stock<F1> 2,019,041 $3.50 $7,066,644 $2,436.77
Common Stock<F2> 200,000 $4.00 $800,000 $275.86
Common Stock<F3> 200,000 $6.00 $1,200,000 $413.79
Common Stock<F4> 250,000 $8.00 $2,000,000 $689.66
Common Stock<F5> 100,000 $1.50 $150,000 $51.72
Total 2,869,041 $11,366,644
$3,919.53
</TABLE>
[FN]
<F1>Represents Common Stock to be registered on behalf of Selling
Shareholders.
<F2>Represents Common Stock underlying the A Warrants to be registered on
behalf of Selling Shareholders.
<F3>Represents Common Stock underlying the B Warrants to be registered on
behalf of Selling Shareholders.
<F4>Represents Common Stock underlying the C Warrants to be registered
on behalf of Selling Shareholders.
<F5>Represents Common Stock underlying the D Warrants to be registered on
behalf of Selling Shareholders.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the registration statement shall
become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>3
PRELIMINARY PROSPECTUS DATED September 12, 1997
SUBJECT TO COMPLETION
Up to a Maximum of 100,000 Common Shares
2,019,041 Common Shares on behalf of Selling Shareholders
200,000 Common Shares underlying the A Warrants
200,000 Common Shares underlying the B Warrants
250,000 Common Shares underlying the C Warrants
200,000 Common Shares underlying the D Warrants
CASINOVATIONS INCORPORATED
Common Stock
($.001 Par Value)
The Company is offering up to a maximum of 100,000 Common Shares at the
purchase price of $3.50 per Common Share. There is no minimum investment
amount. The Company is registering 2,019,041 common shares on behalf of its
selling security holders. The Company is registering the stock underlying
its A, B, C and D Warrants on behalf of its selling security holders. The
A
Warrants are exercisable into one common share at the purchase price of
$4.00. The A Warrants shall be exercisable for a period of four years from
July, 1996 and shall be redeemable by the Company at $.001 per A Warrant
upon
thirty days notice. The B Warrants are exercisable into one common share at
the purchase price of $6.00. The B Warrants shall be exercisable for a
period of four years from July, 1996 and shall be redeemable by the Company
at $.001 per B Warrant upon thirty days notice. The C Warrants are
exercisable into one common share at the purchase price of $8.00. The C
Warrants shall be exercisable for a period of four years from July, 1996 and
shall be redeemable by the Company at $.001 per C Warrant upon thirty days
notice. The D Warrants are exercisable into one common share at the purchase
price of $1.50. The D Warrants shall be exercisable for a period of two
years from January 31, 1997 and shall be redeemable by the Company at $.001
per D Warrant upon thirty days notice.
The 2,019,041 common shares being registered on behalf of selling security
holders consist of 413,511 Common Shares on behalf of the Company's
officers,
directors and affiliates, 1,211,516 Common Shares on behalf of shareholders
who purchased in a previous private placement and 294,014 Common Shares to
other unaffiliated shareholders. See "Selling Security Holders". Prior to
the date hereof, there has been no trading market for the Common Stock of
the
company. There can be no assurance that the Common Stock will ever be
quoted, that an active trading and/or a liquid market will ever develop or,
if developed, that it will be maintained.
THERE ARE MATERIAL RISKS IN CONNECTION WITH THE PURCHASE OF THE SECURITIES.
SEE RISK FACTORS, PAGE 8.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold
nor may offers to buy be accepted prior to the time the registration
statement becomes effective. This prospectus shall not constitute an offer
to sell or the solicitation of an offer to buy nor shall there be any sales
of these securities in any State in which such offer, solicitation or sale
would be unlawful prior to registration or qualification under the
securities
laws of any state.
The Company is engaged in the manufacture and marketing of certain gaming
products and concepts.
<TABLE>
<CAPTION>
Price to proceeds to
Public Commissions Company
<S> <C> <C> <C>
Per Common Share 3.50 $.35 $3.15
Maximum Offering<F1><F2> $350,000 $35,000 $315,000
</TABLE>
(Footnotes on following page)
The date of the Prospectus is September 12, 1997
<PAGE>4
[FN]
<F1>The Common Shares are being offered on a "best efforts" basis by the
Company (employees, officers and directors) and possibly selected broker-
dealers. No sales commission will be paid for Common Shares sold by the
Company. Selected broker-dealers shall receive a sales commission of up to
10% for any Common Shares sold by them. The Company reserves the right to
withdraw, cancel or reject an offer in whole or in part. See "TERMS OF THE
OFFERING - Plan of Distribution and Offering Period."
This Offering will terminate on or before December 31, 1997. In the
Company's sole discretion, the offering of Common Shares may be extended for
up to three Thirty day periods, but in no event later than March 31, 1998.
There is no minimum offering amount and no escrow account. Proceeds of this
Offering are to be deposited directly into the operating account of the
Company. See "TERMS OF THE OFFERING - Plan of Distribution."
<F2>The amount as shown in the preceding table does not reflect the
deductions of (1) general expenses payable by the Company; and (2) fees
payable in connection with legal and accounting expenses incurred in this
Offering. These expenses are estimated to be $41,919.53 if the total
offering amount is obtained. The selling shareholders will not pay any of
the expenses associated with this offering.
REPORTS TO SECURITY HOLDERS
Although the Company is subject to the informational requirements of the
Securities Exchange Act of 1934, as amended, and in accordance therewith
will file reports and other information with the Securities and Exchange
Commission, the Company has not yet filed any reports with the Securities
and Exchange Commission. The reports and other information filed by the
Company can be inspected and copied at the public reference facilities
maintained by the Commission in Washington, D.C. and at the Chicago
Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and the New York Regional Office, 7 World
Trade Center, New York, New York 10048. Copies of such material can
be obtained from the Public Reference Section of the Commission,
Washington, D.C. 20549 at prescribed rates.
The Company will furnish to shareholders: (i) an annual report containing
financial information examined and reported upon by its certified public
accountants; (ii) unaudited financial statements for each of the first three
quarters of the fiscal year; and (iii) additional information concerning the
business and operations of the Company deemed appropriate by the Board
of Directors.
EXHIBITS INCORPORATED BY REFERENCE
The Company has filed with the Securities and Exchange Commission (the
"Commission") a registration statement (together with all amendments and
exhibits thereto, the "Registration Statement") under the Act with respect
to
the securities offered hereby. This Prospectus does not contain all of the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the Rules and Regulations of the Commission.
For further information with respect to the Company and the securities
offered hereby, reference is made to the Registration Statement. Copies of
such materials may be examined without charge at, or obtained upon payment
of
prescribed fees from, the Public Reference Section of the Commission at Room
1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington, DC 20549, at the
Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite
1400, Chicago, Illinois 60661-2511 and the New York Regional Office, 7 World
Trade Center, New York, New York 10048.
The Company will voluntarily file periodic reports in the event its
obligation to file such reports is suspended under Section 15(d) of the
Exchange Act.
The Company will provide without charge to each person who receives a
prospectus, upon written or oral request of such person, a copy of any of
the
information that was incorporated by reference in the prospectus.
Requests for copies of said documents should be directed to Jay L. King,
3909
South Maryland Parkway, Suite 311, Las Vegas, Nevada 89119.
The Commission maintains a Web site -- //www.sec.gov -- that contains
reports, proxy and information statements and other information regarding
issuers that file electronically with the Commission.
UNTIL _____ , 1997 (90 DAYS AFTER THE DATE OF THE PROSPECTUS), ALL
PERSONS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR
NOT PARTICIPATING IN THE OFFERING, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF SUCH PERSONS TO
DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
<PAGE>5
NO DEALER, SALESMAN, AGENT OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS. IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST
NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, OR THE
UNDERWRITER, IF AN UNDERWRITER ASSISTS IN THE SALE OF THE SECURITIES.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR A SOLICITATION BY ANYONE TO
ANY PERSON IN ANY STATE, TERRITORY OR POSSESSION OF THE UNITED STATES IN
WHICH SUCH OFFER OR SOLICITATION IS NOT AUTHORIZED BY THE LAWS THEREOF, OR
TO
ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION.
NEITHER THE DELIVERY OF THIS PROSPECTUS OR ANY SALE MADE HEREUNDER SHALL,
UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS NOT BEEN ANY
CHANGE IN THE FACTS SET FORTH IN THIS PROSPECTUS OR IN THE AFFAIRS OF THE
COMPANY SINCE THE DATE HEREOF.
<PAGE>6
<TABLE>
TABLE OF CONTENTS
<S> <C>
PROSPECTUS SUMMARY 7
RISK FACTORS 8
SELLING SECURITY HOLDERS 11
SOURCE AND USE OF PROCEEDS 13
DILUTION 14
THE COMPANY 14
BUSINESS ACTIVITIES 16
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION 19
MANAGEMENT 21
CERTAIN TRANSACTIONS 25
PRINCIPAL SHAREHOLDERS 29
SHARES ELIGIBLE FOR FUTURE SALE 32
MARKET FOR REGISTRANT'S COMMON EQUITY 33
TERMS OF THE OFFERING 34
DESCRIPTION OF SECURITIES 35
LEGAL MATTERS 35
LEGAL PROCEEDINGS 35
EXPERTS 35
INTERESTS OF NAMED EXPERTS AND COUNSEL 36
</TABLE>
<PAGE>7
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information, financial statements and notes to the financial statements
including the notes thereto appearing elsewhere in this Prospectus.
The Company. The Company was incorporated in the state of Washington on
September 20, 1995. The Company's operations are the development and
marketing of certain gaming products and concepts invented and developed by
the Sines-Forte General Partnership ("Sines-Forte") of which Steve Forte, a
Director of the Company and Randy Sines, former Vice President of the
Company
are general partners. The Company is authorized to issue a total of
20,000,000 shares of its capital stock (Common Shares), par value per share
of $.001.
The Company has three products that are completed or are near completion.
First, the Random Ejection Shuffler, which can shuffle automatically up to
six decks of playing cards in random order. There have been five proto
types built and tested. Tooling is being built and production shall start
by mid-September 1997. Second, the Fantasy 21 Table Game is currently
having graphics redesigned and should be ready for field trial the first of
October 1997. Third, the Safety Peek Card, a new type of casino playing
card, is already in use and is under distribution agreements with selected
playing cards distributor.
The Company intends to sell or lease its products to the world-wide gaming
industry directly, through distributors or subcontracts with non-affiliated
manufacturers. The Company is in the process of negotiating distribution
and marketing arrangements for its products, but has no significant history
of operations and no profits.
The Company's principal offices are located at 3909 South Maryland Parkway,
Suite 311, Las Vegas, Nevada 89119. Its telephone number at such address
is
(702) 733-7195.
<TABLE>
<S> <C>
The Offering. The Company hereby offers
up to 100,000 Common Shares
at $3.50 per Common Share.
Common Shares outstanding
prior to Public Offering 5,640,640
Common Shares to be outstanding
after Offering 5,740,640
Percent of Common Shares owned by
current shareholders after Maximum
Offering 98.26%
Gross Proceeds After Maximum Offering $350,000
Use of Proceeds. The Company intends to utilize
the sale of its Common Shares
for working capital. Thirty
Five percent (35%) of all
proceeds received will be used
to pay down a $250,000
promissory note between the
Company and Richard Huson. See
"Source and Use of Proceeds."
This Prospectus also relates to
securities being registered on
behalf of selling security
holders and the Company will
not
receive any cash or other
proceeds from the sale. Any
proceeds received from the
subsequent exercise of the A,
B,
C or D Warrants shall be used
as
working capital, to pay down
the
promissory note with Mr. Huson,
if needed and to expand
operations. See "Source and
Use
of Proceeds."
MARKET FOR COMMON STOCK
AND WARRANTS. Prior to the date hereof, there
has been no trading market for
the Common Stock or Warrants of
the Company. The Company has
agreed to use its best efforts
to apply for the quotation of
its Common Stock on the
Electronic Bulletin Board.
<PAGE>8
There can be no assurance that
the Common Stock will be
quoted,
that an active trading and/or a
liquid market will develop or,
if developed, that it will be
maintained. See "Risk
Factors"
and "Market Listing."
RESALES BY SELLING
SHAREHOLDERS. This Prospectus relates to
common Shares being registered
on behalf of selling security
holders. The Company will not
receive any cash or other
proceeds in connection with the
subsequent sale. See "Selling
shareholders."
RISK FACTORS There are material risks, such
as uncertainty of future
financial results, liquidity
dependent on additional capital
and debt financing and risks
related to the gaming industry,
in connection with the purchase
of the securities. See "Risk
Factors."
Absence of Dividends; Dividend Policy The Company does not currently
intend to pay regular cash
dividends on its Common Stock;
such policy will be reviewed by
the Company's Board of
Directors
from time to time in light of,
among other things, the
Company's earnings and
financial
position. The Company does not
anticipate paying dividends on
its Common Stock in the
foreseeable future. See "Risk
Factors."
Transfer Agent The Company acts as its own
transfer agent for the
Company's
securities.
</TABLE>
RISK FACTORS
In analyzing this offering, prospective investors should read this entire
Prospectus and carefully consider, among other things, the following Risk
Factors:
No Established Business/No Independent Market Research of Potential Demand
for Current Operations. The Company is in the development stage and has
only recently commenced formal efforts to manufacture and market its gaming
devices. No independent organization has conducted market research providing
management with independent assurance from which to estimate potential
demand
for the Company's business operations. Even in the event a market demand is
independently identified, there is no assurance the Company will be
successful. See "BUSINESS ACTIVITIES."
Regulation. The gaming industry is a highly regulated industry and is
subject to numerous statutes, rules and regulations administered by the
gaming commissions or similar regulatory authorities of each jurisdiction.
Generally, the Company and other entities which seek to introduce gaming
products or concepts into such jurisdictions may be required to submit
applications relating to their activities or products (including detailed
background information concerning controlling persons within their
organization) which are then reviewed for approval. The Company may incur
significant expenses in seeking to obtain licenses for its gaming products
and concepts, and no assurance can be given that its products will be
approved in any particular jurisdiction. A failure to obtain such approval
in any jurisdiction in which the Company may seek to introduce its products
or concepts, could have a material adverse effect on the Company's business.
Newly Formed Corporation; Lack of Operating Results. The Company was
formed
in September of 1995, and its activities have been limited to product
development, analyzing the gaming industry, consulting with persons in the
industry, negotiating agreements with Sines-Forte and Sharps International
Limited Partnership ("Sharps"), negotiating interim financing arrangements
and developing and consummating the plan of reorganization with Sharps.
<PAGE>9
Sines-Forte and Sharps are or were owned or controlled by persons who are or
were also directors, executive officers and principal shareholders of the
Company. Sharps has been dissolved. The Company is still in the
development stage. Higher than normal operating expenses will in all
likelihood be incurred during initial operations.
Additional Financing May be Required. Even if all of the 100,000 Common
Shares offered hereby are sold, the funds available to the Company may not
be
adequate for its business activities. Accordingly, the ultimate success of
the Company may depend upon its ability to raise additional capital or to
have other parties bear a portion of the required costs to further develop
or
exploit its business activities. Currently, the Company is seeking
additional
debt or equity financing, however, there can be no assurance that any
additional financing can be obtained. See "USE OF PROCEEDS" AND "BUSINESS
ACTIVITIES."
Risks Attributable to a Best Efforts, Self-Underwritten Offering. This
offering is being offered on a best efforts, self-underwritten basis. As a
result, due to the absence of an underwriter, there may be less due
diligence
performed in conjunction with this offering than would be performed in an
underwritten offering.
Potential Adverse Impact of Sale of Shares by Selling Shareholders. Sales
by selling shareholders may have an adverse impact on the Company's primary
offering of securities at $3.50 per share. Additionally, there is an
inherent conflict of interest with officers and directors of the Company
participating as selling shareholders while the Company undertakes a self-
underwritten best efforts primary offering by its officers and directors.
Influence on Election of Directors and All Other Matters by Current Officers
and Directors. After the offering, the officers and directors of the
Company will own 31.56% of the outstanding common shares. As a result, the
officers and directors of the Company, through their aggregate ownership in
the securities of the Company may be able to influence the election of
directors and all other matters submitted to a vote of the Company's
shareholders.
Uncertainty of Market for Company's Products. The Company's products are
still in the development status and, as such, the market for these products
is uncertain.
Future Sales of and Market for the Common Shares. Upon completion of the
offering there shall be 5,740,640 Common Shares outstanding. This does not
include any Common Shares which shall be issued upon conversion of the A, B,
C or D Warrants, 75,000 Common Shares reserved for issuance pursuant to loan
conversion options, 593,000 shares reserved pursuant to outstanding options
for issuance to key employees and others. If the maximum number of Common
Shares are sold, 3,721,599 of the Common Shares to be outstanding will be
considered "restricted securities" as that term is defined in Rule 144
adopted under the United States Securities Act of 1933, as amended and in
the
future may be sold only in compliance with the resale provisions set forth
therein. Rule 144 provides, in essence, that persons holding restricted
securities for a period of one years may sell in brokerage transactions an
amount equal to one percent of the Company's securities or outstanding
Common
Shares every three months. Hence, the possibility of sale under Rule 144
may
in the future have a depressive effect on the price of the Company's Common
Shares in any market which may develop.
Conflicts of Interest. Officers and directors of the Company are
participating as selling shareholders in this offering while the Company
undertakes its primary offering by its officers and directors.
Additionally,
some of the directors of the Company are currently
principals of other businesses. As a result, conflicts of interest may
arise. The directors shall immediately notify the other directors of any
possible conflict which may arise due to their involvement with other
businesses. The interested directors in any conflict shall refrain from
voting on any matter in which a conflict of interest has arisen. The
Company has adopted a policy that any transactions with directors, officers
or entities of which they are also officers or directors or in which they
have a financial interest, will only be on terms which are fair and
reasonable to the Company and approved by a majority of the disinterested
directors of the Company's Board of Directors. For further discussion see
"Management - Conflicts of Interest Policy." There can be no assurance that
such other activities will not interfere with the officers' and directors'
ability to discharge their obligation herein.
Possible Affect on Company's Ability to Obtain Approval for the Licensing of
the Company Due to Actions of Director of the Company. Steven L. Forte, a
consultant to, and an employee and director of the Company, was convicted of
a gambling-related third degree felony in New Jersey in 1990, and in 1982
pled guilty to a misdemeanor trespass charge arising from a gambling related
charge emanating from Harrah's Casino in
Reno, Nevada. Such convictions could affect the Company's ability to
obtain
approval for the licensing of the Company, if required, in any number of
prospective jurisdictions.
<PAGE>10
Benefit to Management. The Company may, in the future, compensate the
Company's management with substantial salaries and other benefits. The
payment of future larger salaries, commissions and the costs of these
benefits may be a burden on the Company and may be a factor in limiting or
preventing the Company from achieving profitable operations in the future.
However, the Company would not continue to compensate management with such
substantial salaries and other benefits under circumstances where to do so
would have a material negative effect on the Company's financial condition.
See "MANAGEMENT - Remuneration."
No Diversification. The Company intends to manufacture and market certain
gaming products and concepts. Therefore, the Company's financial viability
will depend almost exclusively on its ability to generate revenues from its
operations and the Company will not have the benefit of reducing its
financial risks by relying on revenues derived from other operations.
Dilution. Purchase of the Common Shares offered hereby will incur
immediate dilution of 100.57% in the net tangible book value of their
investment. This does not include any of the Common Shares to be issued
upon exercise of the A, B, C and D Warrants. The Company has 75,000 Common
Shares reserved for issuance pursuant to loan conversion options or 593,000
shares reserved for issuance pursuant to outstanding options and commitments
to key employees and others. The Company may issue additional shares in
private business transactions and may pursue a public offering in the future
to complete its business plan. Any sales under Rule 144 after the
applicable holding period may have a depressive effect upon the market price
of the Company's Common Shares and investors in this offering upon
conversion. As a result, the investors in this Offering may experience
substantial dilution. See "DILUTION" and "CAPITALIZATION."
Investors May Bear Risk of Loss. The capital required by the Company to
acquire assets needed for its proposed operations is being sought from the
proceeds of this Offering. Therefore, investors of this Offering may bear
most of the risk of the Company's expansion of operations. Conversely,
management stands to realize benefits from the payment of salaries, expenses
and receipt of stock options regardless of the profitability of the Company.
Financial Condition. Although the officers of the Company anticipate that
the Company will have adequate funds to pay all of its operating expenses
assuming the expansion and promotion of the Company's operations, there can
be no assurance that this will in fact occur or that the Company can be
operated in a profitable manner. Profitability depends upon many factors,
including the success of this Offering and the success of the Company's
operations.
Competition. There is significant competition in the gaming industry.
The
Company competes with established companies and other entities (many of
which
possess substantially greater resources than the Company). Almost all of
the companies with which the Company competes are substantially larger, have
more substantial histories, backgrounds, experience and records of
successful
operations, greater financial, technical, marketing and other resources,
more
employees and more extensive facilities than the Company now has, or will
have in the foreseeable future. It is also likely that other competitors
will emerge in the near future. There is no assurance that the Company
will
continue to compete successfully with other established gaming product
Manufacturers. The Company shall compete on the basis of quality and
price.
Inability to compete successfully might result in increased costs, reduced
yields and additional risks to the investors herein. See "The Company -
Competition."
Forward-Looking Statements and Associated Risk. This Prospectus, including
the information incorporated herein by reference, contains forward-looking
statements within the meaning of Section 27A of the Securities Act and
Section 21E of the Securities Exchange Act of 1934, including statements
regarding, among other items, the Company's growth strategies, and
anticipated trends in the Company's business and demographics. These
forward-looking statements are based largely on the Company's expectations
and are subject to a number of risks and uncertainties, certain of which are
beyond the Company's control. Actual results could differ materially from
these forward-looking statements as a result of the factors described in
this
section "Risk Factors," including among others, regulatory or economic
influences. In light of these risks and uncertainties, there can be no
assurance that the forward-looking information contained in this Prospectus
will be accurate.
Arbitrary Offering Price. The initial offering price of $3.50 per Common
Share has been arbitrarily determined by the Company based upon such factors
as the objectives of the Company, the proceeds to be raised by the Offering
and the percentage of ownership to be held by the purchasers thereof.
Having
established that the total gross proceeds of the maximum offering would be
$350,000, the actual price of $3.50 per Common Share was thereupon
determined
by the Company and accordingly bears no relationship whatsoever to assets,
earnings, book value or any other objective standard of worth. See
"DILUTION."
Lack of Dividends. There can be no assurance that the operations of the
Company will become profitable. At the present time, the Company intends to
use any earnings which may be generated to finance the growth of the
Company's business. See "DESCRIPTION OF SECURITIES".
<PAGE>11
Dependence on Key Individuals. The future success of the Company is highly
dependent upon the management skills of its key employees and the Company's
ability to attract and retain qualified key employees. The inability to
obtain and employ these individuals would have a serious effect upon the
business of the Company. The Company has entered into definitive employment
agreements with Jay King, Randy Sines and Steven Forte. Mr. Sines has
recently resigned from the Company and will continue on a consultant basis.
There can be no assurance that the Company will be successful in retaining
its two remaining key employees or that it can attract or retain additional
skill personnel required. The Company has not obtained any key man life
insurance. See "COMPANY - Employees" and "MANAGEMENT."
Vulnerability to Fluctuations in the Economy. Demand for the Company's
products is dependent on, among other things, general economic conditions
which are cyclical in nature. Prolonged recessionary periods may be
damaging
to the Company.
"Penny" Stock Regulation of Broker-Dealer Sales of Company Securities. The
Company intends to list its Common Shares, at least initially, on the OTC
Bulletin Board and on NASDAQ upon meeting the requirements for a NASDAQ
listing, if ever. Upon completion of this offering, the Company will not
meet the requirements for a NASDAQ listing. Until the Company obtains a
listing on NASDAQ, if ever, the Company's securities may be covered by a
Rule
15g-9 under the Securities Exchange Act of 1934 that imposes additional
sales
practice requirements on broker-dealers who sell such securities to persons
other than established customers and institutional accredited investors
(generally institutions with assets in excess of $5,000,000 or individuals
with net worth in excess of $1,000,000 or annual income exceeding $200,000
or
$300,000 jointly with their spouse). For transactions covered by the rule,
the broker-dealer must furnish to all investors in penny stocks, a risk
disclosure document required by Rule 15g-9 of the Securities Exchange Act of
1934, make a special suitability determination of the purchaser and have
received the purchaser's written agreement to the transaction prior to the
sale. In order to approve a person's account for transactions in penny
stock, the broker or dealer must (i) obtain information concerning the
person's financial situation, investment experience and investment
objectives; (ii) reasonably determine, based on the information required by
paragraph (i) that transactions in penny stock are suitable for the person
and that the person has sufficient knowledge and experience in financial
matters that the person reasonably may be expected to be capable of
evaluating the rights of transactions in penny stock; and (iii) deliver to
the person a written statement setting forth the basis on which the broker
or
dealer made the determination required by paragraph (ii) in this section,
stating in a highlighted format that it is unlawful for the broker or dealer
to effect a transaction in a designated security subject to the provisions
of
paragraph (ii) of this section unless the broker or dealer has received,
prior to the transaction, a written agreement to the transaction from the
person; and stating in a highlighted format immediately preceding the
customer signature line that the broker or dealer is required to provide the
person with the written statement and the person should not sign and return
the written statement to the broker or dealer if it does not accurately
reflect the person's financial situation, investment experience and
investment objectives and obtain from the person a manually signed and dated
copy of the written statement. A penny stock means any equity security
other than a security (i) registered, or approved for registration upon
notice of issuance on a national securities exchange that makes transaction
reports available pursuant to 17 CFR 11Aa3-1 (ii) authorized or approved for
authorization upon notice of issuance, for quotation in the NASDAQ system;
(iii) that has a price of five dollars or more or . . . . (iv) whose issuer
has net tangible assets in excess of $2,000,000 demonstrated by financial
statements dated less than fifteen months previously that the broker or
dealer has reviewed and has a reasonable basis to believe are true and
complete in relation to the date of the transaction with the person.
Consequently, the rule may affect the ability of broker-dealers to sell the
Company's securities and also may affect the ability of purchasers in this
Offering to sell their shares in the secondary market. See "Market for
Registrant's Common Equity and Related Stockholder Matters - Broker-Dealer
Sales of Company's Securities."
SELLING SECURITY HOLDERS
The Company shall register pursuant to this prospectus 2,019,041 Common
Shares currently outstanding for the account of the following individuals or
entities. The percentage owned prior to and after the offering reflects all
of the then outstanding common shares. The amount and percentage owned
after the offering assumes the sale of all of the Common Shares being
registered on behalf of the selling shareholders.
<PAGE>12
<TABLE>
<CAPTION>
Name and Amount Total Number % Owned Number of % Owned
Being Registered Owned Prior to Shares Owned After
Currently Offering After Offering Offering
<S> <C> <C> <C> <C>
Stacy Haskins - 15,478 15,478 .27% 0 0%
Martin Petri - 15,478 15,478 .27% 0 0%
Michael Szeremeta -15,477 15,477 .27% 0 0%
Glen (Tom) Pickell<F1> - 700 7,000 .12% 6,300 .11%
Sines-Forte Partnership<F2>
126,190 1,261,900 22.78% 1,135,710 19.78%
Cheryl Forte - 25,461<F3> 254,610 4.52% 229,149 3.99%
Cheryl & Steve Forte
- 4,512<F4> 45,122 .80% 40,610 .71%
Richard S. Huson
- 212,229 2,222,285 38.71% 2,010,056 34.41%
Leonard A. Hale - 15,478 15,478 .27% 0 0%
David A. Krise - 91,910 91,910 1.63% 0 0%
Norman G. Kelln<F5>
- 11,362 113,628 2.01% 102,266 1.78%
John F. Curran - 10,193 10,193 .18% 0 0%
Randy D. Sines<F6>
- 25,461 254,610 4.51% 229,149 3.99%
David E. Sampson<F7> - 4,096 40,955 .73% 36,859 .64%
Jay Willoughby - 50,000 50,000 .89% 0 0%
David Goldsmith - 50,000 50,000 .89% 0 0%
C. Culver Smith - 30,000 30,000 .53% 0 0%
Don Ludwick - 20,000 20,000 .35% 0 0%
William Martin - 10,000 10,000 .18% 0 0%
Adam Chase - 10,000 10,000 .18% 0 0%
Adam W. Jaslow - 30,000 30,000 .53% 0 0%
Jennifer L. Jaslow-50,000 50,000 .89% 0 0%
Jennifer L. Jaslow Trust
- 50,000 50,000 .89% 0 0%
John Horstmann - 6,000 6,000 .11% 0 0%
Richard S. Jaslow, IRA
- 100,000 100,000 1.77% 0 0%
Lori K. Jaslow Trust
- 20,000 20,000 .35% 0 0%
Adam Jaslow Trust - 70,000 70,000 1.24% 0 0%
John Plati - 20,000 20,000 .35% 0 0%
Doris Ljubicich - 3,400 3,400 .06% 0 0%
Joseph Hroncich - 3,000 3,000 .05% 0 0%
John S. Cole - 3,000 3,000 .05% 0 0%
Vito Bavaro - 3,000 3,000 .05% 0 0%
Lori K. Jaslow, Trust
- 80,000 80,000 1.42% 0 0%
Kevo Plumbing & Heating
- 10,000 10,000 .18% 0 0%
Tami L. Dirienzo - 6,000 6,000 .11% 0 0%
Peter Jankowski - 10,000 10,000 .18% 0 0%
Rinaldo C. Forcellati - 3,000 3,000 .05% 0 0%
Frank Stein - 3,000 3,000 .05% 0 0%
Joan Carranza - 3,000 3,000 .05% 0 0%
Joseph Criscione Sr. - 3,000 3,000 .05% 0 0%
Paul M. Reichenberg - 6,000 6,000 .11% 0 0%
Kathleen M. Mahaffey - 3,000 3,000 .05% 0 0%
Balieri Associates - 3,000 3,000 .05% 0 0%
William S. Dean - 6,000 6,000 .11% 0 0%
Pratt, Wylce & Lords
- 29,100 29,100 .52% 0 0%
Clinton Clark - 60,900 60,900 1.89% 0 0%
Victor & Lana Woinski
- 3,000 3,000 .05% 0 0%
James J. & Sheila Criscione
- 3,000 3,000 .05% 0 0%
Catherine O'Connell - 3,400 3,400 .06% 0 0%
Joseph & Ida Dellaroba
- 3,000 3,000 .05% 0 0%
Mark R. Alleman - 3,000 3,000 .05% 0 0%
William Megnin - 3,400 3,400 .05% 0 0%
James P. Rose - 3,000 3,000 .05% 0 0%
Mark Megnin - 3,000 3,000 .05% 0 0%
Daniel Morgan & Sara
Andelina - 3,010 3,010 .05% 0 0%
Richard P. Keshishian - 3,000 3,000 .05% 0 0%
Robert Jouas - 4,000 4,000 .07% 0 0%
David E. & Margaret Winkelman
- 3,000 3,000 .05% 0 0%
Carl & Birte Mainardi - 3,400 3,400 .06% 0 0%
Mark Megnin & Helen Connor
- 3,400 3,400 .06% 0 0%
Paul S. & Renee Spiegler
- 6,500 6,500 .12% 0 0%
Diana Forcellati - 3,000 3,000 .05% 0 0%
Richard Napolitano - 3,000 3,000 .05% 0 0%
Gaming Venture Corp.
- 200,000 200,000 3.55% 0 0%
<PAGE>13
Jeremy B. & W. Stern
- 10,000 10,000 .18% 0 0%
Aldo R. Beretta 1993
Family Trust - 10,000 10,000 .18% 0 0%
Dr. David Adelberg - 10,000 10,000 .18% 0 0%
Michael Schaeffer - 10,000 10,000 .18% 0 0%
Joseph & Julie Vaccaro
- 7,000 7,000 .11% 0 0%
George & Selma Spiegler
- 3,000 3,000 .05% 0 0%
Susan Jaslow - 50,000 50,000 .89% 0 0%
Maria Cunha IRA - 8,500 8,500 .15% 0 0%
Henry and John Horstmann
- 8,000 8,000 .14% 0 0%
Antonio Tommolillo - 3,000 3,000 .05% 0%
Salvatore LaCognata - 3,000 3,000 .05% 0 0%
Harry & Adele Conti - 3,000 3,000 .05% 0 0%
Nicola Attanasio - 5,000 5,000 .09% 0 0%
Lawrence Mendosa - 5,000 5,000 .09% 0 0%
Janet Ausiello - 5,000 5,000 .09% 0 0%
Michael Ausiello - 5,000 5,000 .09% 0 0%
Mark Malzberg - 6,000 6,000 .11% 0 0%
Laura Giostra - 6,700 6,700 .12% 0 0%
David Lupo - 3,000 3,000 .05% 0 0%
Peter O'Hare, Jr. - 4,000 4,000 .07% 0 0%
Giovanni Granata - 3,000 3,000 .05% 0 0%
Mario Tommolillo - 4,000 4,000 .07% 0 0%
Jeffrey Kerne - 6,000 6,000 .11% 0 0%
Gino Ramundo - 6,000 6,000 .11% 0 0$
Evelyn Alleman - 3,000 3,000 .05% 0 0%
Thelma Zube - 3,400 3,400 .06% 0 0%
Vincent & F. Ponte - 6,667 6,667 .12% 0 0%
Laura Giostra - 6,700 6,700 .12% 0 0%
Philip & Concetta Vincenti
- 6,800 6,800 .12% 0 0%
Andrew Lesnak - 3,400 3,400 .06% 0 0%
Susan Miller - 6,700 6,700 .12% 0 0%
Uphill c/o Paul Scott
- 9,400 9,400 .17% 0 0%
Martin Feldman - 3,400 3,400 .06% 0 0%
Mark DeLorenzo - 3,000 3,000 .05% 0 0%
Steven Blad<F8> - 1,000 10,000 .18% 9,000 .16%
Micro Cap World, L.L.C.
- 10,000 10,000 .18% 0 0%
Jay L. King<F9> - 2,500 25,000 .44% 22,500 .40%
Jayport Holdings, Inc. (BUI)
- 20,339 20,339 .36% 0 0%
Glenn Fine - 30,000 30,000 .53% 0 0%
Casino Journal of Nevada, Inc.
- 20000 20,000 .35% 0 0%
Robert Smith - 6,000 6,000 .11% 0 0%
John Wasden - 5,000 5,000 .09% 0 0%
Althea Duggins - 1,000 1,000 .02% 0 0%
James Beard - 1,000 1,000 .02% 0 0%
</TABLE>
[FN]
<F!> Mr. Pickell is currently an officer and director of the Company.
<F2> Randy Sines, a former officer and director of the Company and Steven
Forte, a current officer and director of the Company are general partners of
Sines-Forte Partnership.
<F3> Cheryl Forte is married to Randy Sines, a former director of the
Company.
<F4> Steve Forte is a director of the Company.
<F5> Norman G. Kelln is a director of the Company.
<F6> Randy Sines was an officer and director of the Company.
<F7> David Sampson is a director of the Company.
<F8> Steven Blad is an officer of the Company.
<F9> Jay L. King is an officer and director of the Company.
- --------------------------------------------------------------
SOURCE AND USE OF PROCEEDS
- --------------------------------------------------------------
If the maximum amount of securities is sold in the offering, the Company
shall have net proceeds of $270,080.47 after the payment of commissions of
$35,000 and offering expenses of $414,919.53. The Company shall utilize
the
net proceeds from the sale of its Common Shares for working capital. The
proceeds are anticipated to be utilized over a six month period.
Securities are being registered on behalf of the selling security holders
and
the Company will not receive any cash or other proceeds in connection with
the subsequent sale.
<PAGE>14
Any proceeds received from the subsequent exercise of the A, B, C or D
Warrants shall be used as working capital and to expand operations. Due to
the uncertainty of the timing and amount of actual funds which may be
received upon exercise of the Warrants, no specific breakdown of uses have
been established by the Company. The aggregate amount of proceeds if all
of the Warrants are exercised is $4,150,000. If all of the A, B, C or D
Warrants are exercised, the proceeds shall be utilized over a two year
period.
Pursuant to a promissory note with the principal amount of $250,000 plus
interest of 9.5% with a maturity date of December 31, 1997 between the
Company and Mr. Richard Huson, 35% of all equity proceeds raised by the
Company shall be utilized to pay down the promissory note until said note is
retired. The proceeds of the note were used for operating expenses. In
accordance with the note, 35% of net proceeds from either the sale of common
stock of the exercise of the A, B, C, or D Warrants will be used to reduce
the note payable.
- -------------------------------------------------------
DILUTION
- -------------------------------------------------------
Dilution. Assuming completion of maximum offering amount, there will
be a total of 5,740,640 Common Shares outstanding. The following table
illustrates the per Share dilution as of the date of this Prospectus, which
may be experienced by investors upon reaching the maximum offering.
Offering price $3.50
Net tangible book value per
Share before offering (.0666)
Increase per Share .0466
attributable to investors ------
Pro forma net tangible
book value per Common
Share after offering (.02)
-----
Dilution to investors 3.528
Dilution as a percent of
offering price 100.57%
Comparative Per Common Share Data.
<TABLE>
Maximum Offering Amount
Total Price
Number of Paid Per Consider-
Shares % Share ation Paid %
<C> <S> <S> <S> <S> <S>
Existing Shareholders 5,640,640 98.26% $ .46 2,679,246 88.45%
New Investors
of Common Shares 100,000 1.74% $3.50 350,000 11.55%
</TABLE>
Further Dilution. The Company may issue additional restricted
Common Shares pursuant to private business transactions. Any sales under
Rule 144 after the applicable holding period may have a depressive effect
upon the market price of the Company's Common Shares and investors in
this offering upon conversion. See "SALES OF STOCK PURSUANT TO RULE 144."
- -------------------------------------------------------
THE COMPANY
- -------------------------------------------------------
The Company. The Company was incorporated in the State of Washington on
September 20, 1995. The Company's operations are to develop and market
certain gaming products and concepts invented and developed by Sines-Forte,
and others, which are indirectly affiliated with the Company. The Company is
authorized to issue a total of 20,000,000 Common Shares, par value per
Common
Share of $.001.
The Company intends to sell or lease its products to the world-wide gaming
industry directly, or through subcontracts with non-affiliated
manufacturers.
The Company is in the process of negotiating distribution and marketing
arrangements for its products, but has no significant history of operations
and no profits.
The Company's principal offices are located at 3909 South Maryland Parkway,
Suite 311, Las Vegas, Nevada 89119. Its telephone number at such address
is
(702) 733-7195. These offices consist of 2,100 square feet on a month to
month lease with a lease payment of $2,800 per month.
There are presently outstanding 5,640,640 Common Shares. As a result, up to
5,740,640 Common Shares will be outstanding upon completion of this
Offering.
This does not include any Common Shares to be issued upon exercise of the
Class A, B, C or D Warrants, 75,000 Common Shares reserved for issuance
<PAGE>15
pursuant to loan conversion options, 593,000 shares reserved for issuance to
key employees and others pursuant to outstanding options and commitments.
See "DILUTION", "DESCRIPTION OF SECURITIES" and "CERTAIN
TRANSACTIONS."
Employees. As of the date of this Prospectus, the Company has four full
time
and two part time employees. See "RISK FACTORS."
The Company will, as operations demand, sub-contract the balance of its
personnel through independent contractors or hire additional employees.
Competition. There is significant competition in the gaming industry. The
Company competes with established companies and other entities (many of
which
possess substantially greater resources than the Company). Almost all of
the companies with which the Company competes are substantially larger, have
more substantial histories, backgrounds, experience and records of
successful
operations, greater financial, technical, marketing and other resources,
more
employees and more extensive facilities than the Company now has, or will
have in the foreseeable future. It is also likely that other competitors
will emerge in the near future. There is no assurance that the Company
will
continue to compete successfully with other established gaming product
manufacturers. The Company shall compete on the basis of quality and
price.
Inability to compete successfully might result in increased costs, reduced
yields and additional risks to the investors herein.
Product Development and Ownership History. Sines-Forte, a general
partnership
formed in September, 1993 owned the rights to currently existing patents and
trademarks to a variety of gaming devices, including the Safety Peek Playing
Cards, Fantasy 21 and the Random Ejection Card Shuffler. The Company's
name
"Casinovations" is a registered trademark.
Pursuant to the terms of a financing agreement dated January 15, 1996
between
the Company, Sines-Forte and Sharps International Limited Partnership
("Sharps") which initially held exclusive rights to manufacture and market
these gaming products and concepts under the terms of a licensing agreement
with Sines-Forte, and certain of their affiliates, substantially all of the
gaming products and concepts owned by Sines-Forte and licensed to Sharps
were
transferred and assigned to Sharps. Subsequently, the ownership of these
products/concepts was transferred to the Company as part of the
reorganization transaction.
Sines-Forte and Sharps are or were owned or controlled by persons who are
also directors, executive officers and principal shareholders of the
Company.
Effective January 1, 1996, the Company and Sharps concluded a plan of
reorganization whereby all of the outstanding general and limited
partnership
interests in Sharps were exchanged for shares of the Company in a tax-free
transaction, at the rate of 5,160 shares of Capital Stock for each unit of
general or limited partnership interest in Sharps. An aggregate of
2,513,000
shares of Capital Stock of the Company were issued to the Sharps' partners
in
this transaction. In addition, 1,261,900 shares of Capital Stock were
issued to Sines-Forte in exchange for substantially all of Sines-Forte's
assets and an additional 130,000 shares of Capital Stock were issued to
certain investors at the price of $1.00 per share.
As a consequence of the reorganization transaction, Sharps was liquidated,
and all of its assets and liabilities have been assumed by the Company.
Such assets include substantially all of the gaming products and concepts
formerly owned by Sharps, together with certain contractual arrangements
relating to the manufacture and sale of the Safety Peek Playing Cards.
Royalty Agreement with Sines-Forte. Pursuant to the aforementioned
financing agreement, the Company assumed an obligation of Sharps to pay
royalties to Sines-Forte generated from revenues received by the Company on
certain intellectual properties. Sines-Forte is to receive a quarterly
royalty fee of 3% of the net revenues earned by the Company with respect to
certain products and an option to purchase from the Company 40,000 shares of
the Company's common stock at the price of $1.00 per share. Royalties owed
in a given period shall not be a credit toward any royalties owed for a past
or future royalty period. The term "Net Revenues" means gross cash
revenues
received by the Company for the relevant quarter attributable to the
products, minus the Company's cost of such goods sold for such quarter.
If the Company leases product instead of selling or having others sell in
their behalf, or if leasing of product otherwise occurs under the Agreement,
the Company shall be obligated to pay royalties on the same terms as if the
lease payments are considered to be Net Revenues. Such treatment of
leasing
for determination of royalties shall not apply where a third party pays the
Company and acts as a financial leasing agent or where the Company actually
receives payments on a basis other than the actual lease payments. In such
cases, royalties are determined based on the amount and timing of payments
received by the Company and not those received by any financing and leasing
organization.
Regulation. The gaming industry is a highly regulated industry and is
subject to numerous statutes, rules and regulations administered by the
gaming commissions or similar regulatory authorities of each jurisdiction.
Generally, the Company and other entities which seek to introduce gaming
products or concepts into such jurisdictions may be required to submit
applications relating to their activities or products (including detailed
<PAGE>16
background information concerning controlling persons within their
organization) which are then reviewed for approval. The Company may incur
significant expenses in seeking to obtain licenses for its gaming products
and concepts, and no assurance can be given that its products will be
approved in any particular jurisdiction. A failure to obtain such approval
in any jurisdiction in which the Company may seek to introduce its products
or concepts, could have a material adverse effect on the Company's business.
- -------------------------------------------------
BUSINESS ACTIVITIES
- -------------------------------------------------
General. The net proceeds of this Offering will be used for working capital
purposes, including payment of employee compensation and other general and
administrative expenses. The net proceeds of the offering are anticipated
to be applied over the next six months.
Products. The Company has currently completed or nearly completed the
development of three different types of products and is considering
variations of said products:
(i) Random Ejection Shuffler - an automatic, multi-deck card
shuffler. The machine can shuffle up to six decks of playing cards. The
shuffler shall lease for approximately $10-15 per day. Additionally, the
Company intends to offer a maintenance contract for approximately $50 per
month which would include annual refurbishing of the Random Ejection
Shuffler. The sales price of the shuffler is in the process of being
determined.
(ii) Fantasy 21 Table Game - a jackpot table game variation of
Casino 21. This game incorporates a jackpot and bonus payment schedule
based on consecutive player high hands (counts of 20 or 21) or dealer busts,
allowing players to win very large jackpots while playing the traditional
game and wagering minimum side bets or antes. The game utilizes a modern
version of the traditional table layout and features an electronic tracking
and display system that documents each player's progress toward the
jackpots.
As few as three successive high hands are required to win the smallest
jackpot and eleven successive high hands for the super jackpot. As a
result of the ante structure, simplicity of operation and probable patterns
of play, the casino's profit potential can be significantly higher than that
of the traditional game. The Fantasy 21 Table Game may be leased at the
basis of approximately $400 per month.
(iii) Safety Peek Card - a new type of Casino 21 playing card. This
product features a new playing card design which eliminates the holecard
problem in the game of Casino 21 when used with a modified form of the
classic peeking action. In the game of Casino 21, if the dealer is showing
an ace of face card, they will generally peek at the hole or down card.
With this peeking action, there is the chance of players seeing the hole
card
and adjusting their bets accordingly. With the patented card design of the
Safety Peek Card, the dealer, by peeking at the opposite corner (which is
considered a modified form of peeking action) can determine if the hole card
is an ace without showing any card value.
Development History of Products. Steven Forte developed the concepts for
the Random Ejection Shuffler, the Safety Peek Card and the Fantasy 21 game.
Working with Randy Sines, they began to develop the products. Sharps was
created to raise funding and develop the products. Sines/Forte was created
between the two founders as a means to hold certain ownership rights and to
receive certain product royalties. See the above discussion under "The
Company - Product Development and Ownership History" for further discussion.
The Company has granted joint exclusive licenses to the George C. Matheson
Company ("Gemaco" ) and to The US Playing Card Company specifically for the
Safety Peek Playing Card. The terms of the Gemaco agreement provides for a
royalty of $.04 per deck of playing cards being paid to the Company on a
quarterly basis. Additionally, Gemaco agreed that during the term of the
agreement, it will use .02 on each deck for promotion and advertising of the
product. The US Playing Card Company pays a royalty of $.075 per deck.
Testing. Currently prototype lab testing of the Random Ejection Shuffler
and Fantasy 21 has been completed and both products are ready for field
testing to be followed by final production tooling prior to the beginning of
manufacturing. As soon as the first production units are assembled and
thoroughly lab and field-tested, a unit of each product will be submitted to
the appropriate gaming authorities, if any.
Proprietary Technology. The Company's products are protected under
various
pending patents, patents, copyrights and trademarks. All patent
applications filed before June 8, 1995 will have a term which is either 17
years from the date of issue or 20 years from the filing date (or priority
date). U.S. patent applications filed on or after June 8, 1995 have a term
of 20 years from the filing date of the application or filing date of any
parent patent application upon which priority is claimed. Design patents
have a term of 14 years from the issue date. utility patents require
maintenance fees be paid to have the full term. The term of patents may
vary depending upon other consideration in special cases. U.S. trademark
registrations issued or renewed prior to November 16, 1989 remain in force
<PAGE>17
for 20 years from their date of issue or renewal. Those U.S. trademark
registrations issued or renewed on or after November 16, 1989 have a term of
10 years unless canceled or surrendered.
The Safety Peek Playing cards patent claims are directed at both the novel
playing cards and methods for playing blackjack using the novel playing
cards.
Title: Cards and Methods for Playing Casino 21 or Blackjack
Status: Issued U.S. Patent
Serial No: 08/165,302
Filing Date: December 9, 1993
Patent No: 5,403,015
Issue Date: April 4, 1995
Title: Cards and Methods for Playing Blackjack
Status: issued U.S. Patent
Serial No: 08/353,526
Filing Date: December 8, 1994
Patent No.: 5,518,249
Issue Date: May 21, 1996
Title: Blackjack Card Deck
Status: Issued U.S. Design Patent
Serial No: 29/028,882
Filing Date: September 23, 1994
Patent No. Des. 366,503
Issue Date: January 23, 1996
Patents for the Playing Card Shuffling Machine have been applied for and
their status is as follows:
Title: Playing Card Shuffler
Status: Pending U.S. Patent Application - case has been allowed and issue
fee has been paid. Patent is expected at any time.
Serial No: 08/228,609
Filing Date: April 18, 1994
Patent No: Not Issued
Issued Date: Not Issued
Title: Playing Card Shuffling Machines and Methods
Status: Issued U.S. Patent
Serial No: 08/423/408
Filing Date: April 18, 1995
Patent No: 5,584,483
Issue Date: December 17, 1996
Title: Playing Card Shuffling Machines and Methods
Status: Pending Canadian Patent Application
Serial No. 2,188,137
Filing Date April 18, 1995 (International Filing Date)
Patent No. Not issued
Issue Date: Not issued
Title: Playing Card Shuffling Machines and Methods
Status: Pending European Patent Application
Serial No: 95916434.4
Filing Date: April 18, 1995 (International Filing Date)
Patent No: Pending European Patent Application
Issue Date: Not issued
Title: Playing Card Shuffling Machines and Methods
Status: Pending Australian Patent Application
Serial No: 22936/95
Filing Date: April 18, 1995 (International Filing Date)
Patent No: Not issued
Issue Date: Not issued
The Blackjack Game System and Methods patent claims are as follows:
Title: Blackjack Game System and Methods
Status: Pending application
Serial No: 08/242,229
Filing Date: May 13, 1994
Patent No: Not issued
Issue Date: Not issued
Title: Blackjack Game System and Methods
Status: Issued Patent
Serial No: 08/439,687
Filing Date: May 12, 1995
Patent No: 5,586,766
Issue Date: December 24, 1996
<PAGE>18
Title: Blackjack Game System and Methods
Status: Pending Canadian patent application
Serial No: 2190266
Registration #1483441 and #1483442
Filing Date: November 13, 1996
Patent No: Not issued
Issue Date: Not issued
Title: Blackjack Game System and Methods
Status: Pending European patent application
Serial No: 95920444.7
Filing Date: May 12, 1995
Patent No: Not issued
Issue Date: Not issued
Title: Blackjack Game System and Methods
Status: Pending Australian patent application
Serial No: 25892/95
Filing Date: November 12, 1996
Patent No: Not issued
Issue Date: Not issued
Title: Blackjack Game System and Methods
Status: Pending Patent Cooperation Treaty patent application
Designates about 80 foreign countries for possible patents
Serial No: PCT/US95/12908
Filing Date: October 13, 1995
Patent No: Not issued
Issue Date: Not issued
The Company has made and received the following trademarks.
Mark: SAFETY PEEK
Status: Registered U.S. trademark
Serial No: 74/640,372
Filing Date: February 21, 1995
Reg. No: 1,944,346
Reg. Date: December 26, 1995
Mark: FANTASY 21
Status: Pending U.S. Trademark Application
Serial No: 74/456,337
Filing Date: November 3, 1993
Reg. No: Not yet registered
Reg. Date: Not yet registered
Mark: CASINOVATIONS
Status: Pending U.S. Trademark Application
Serial No: 74/640,371
Filing Date: February 21, 1995
Reg. No: Not yet registered
Reg. Date: Not yet registered
The Company has applied for the following additional patents:
Title: Slot Machine and Methods of Operation
Status: Pending U.S. Patent Application
Serial No: 08/60317
Filing Date: 2/2/96
Patent No: Not issued
Issue Date: Not issued
Title: Drop Slot Game Machine
Status: Pending U.S. Patent Application
Serial No: 08/649821
Filing Date: 5/17/96
Patent No: Not issued
Issue Date: Not issued
Title: Blackjack Game System and Methods
Status: unknown
Serial No: 08/798642
Filing Date: 2/11/97
Patent No: Not issued
Issue Date: Not issued
Title: Slot Machine and Methods of Operation
Status: Pending Patent Cooperation Treaty patent application
Designates about 80 foreign countries for possible patents
Serial No: PCT/US96/02157
Filing Date: 2/20/96
Proprietary information is available to investors upon signature of a Non-
Disclosure Agreement.
<PAGE>19
Research and Development. Prior to the incorporation of the Company and to
date, most of the time and effort of the Company has been spent on research
and product development. The Company or its predecessors incurred research
and development costs aggregating $244,117 and $436,871 for the years ended
December 31, 1996 and 1995, respectively. These funds were expended on
engineering, tooling, parts and other related expenditures. The Company
intends to have a continued emphasis on research and development as funding
and cash flow allow.
Manufacturing. The Company shall manufacture the Random Ejection
Shuffler and Fantasy 21 through Western Electronics Corporation, an
independent third party supplier. The Safety Peek Card is currently being
manufactured by the George C. Matheson Company ("GEMACO"), and distributed
to the U.S. Playing Card Company.
Production. It is anticipated that the actual production for the Random
Ejection Shuffler and Fantasy 21 will be subcontracted to Western
Electronics
Corporation in Boise, Idaho, a contract manufacturing company.
Packaging and Transportation. The Company shall utilize custom boxes on
which its name, logo and a silk screen of the product itself will be
printed.
It is expected that transportation will be by UPS ground or a similar
carrier
in the continental United States, and by other arrangements as appropriate.
Initial installations will be made by the Company's sales and/or service
personnel, or, if distributors are used, by their sales and service
personnel.
Service and Maintenance Policy. The Company intends to establish
appropriate service capabilities for each product in each market it
services,
either through its distributors or with in-house personnel.
Marketing. The Company shall market and distribute its products in one of
three ways, depending upon the regulatory market and the specific product.
(i) Directly by the Company's sales force;
(ii) Through OEM's who incorporate a Company's product into a
product they manufacture; or
(iii) Through distributors with a significant market presence in
one or more regulatory markets.
OEM's, original equipment manufacturers, are manufacturers who build product
to the product owner's specifications and place the owner's name on the
product.
The Company currently has an exclusive distributorship agreement with Sodak
Gaming, Inc. The term of the agreement is Five (5) years. The Company
agrees to offer to Sodak a minimum discount of twenty-five percent (25%)
less
than the promoted retail price in Nevada. The territory includes all Indian
lands of the United States and First Nation/Aboriginal Lands in Canada,
Deadwood, South Dakota and Miss Marquette Riverboat and Casino, Marquette,
Iowa. The Company also has an exclusive distributorship agreement with RGB
SDN BHD., a Malaysia corporation. The term of the agreement is Five (5)
years. The Company agrees to offer to RGB SDN BHD a minimum discount of
twenty-five percent (25%) less than the promoted retail price in Nevada.
The
territory including the entire Asian RIM area including but not limited to
Malaysia, Singapore, China, Hong Kong, Korea, Vietnam, Indonesia, Thailand,
The Philippines, Nepal, Cambodia, India, Sri Lanka, Macau, Myanmar, Laos,
Cruise Ships based in Malaysia, Singapore & Hong Kong and the Islands in the
Asian areas. The territory specifically excludes Japan, Australia and New
Zealand which will be treated as common distributor areas. Additionally,
the Company has an exclusive distributorship agreement with B. Joel Rahn
(company name to be designated). The term of the agreement is Five (5)
years.
The Company agrees to offer to B. Joel Rahn a minimum discount of twenty-
five
percent (25%) less than the promoted retail price in Nevada. The territory
consists of South America, Central America, the Caribbean Islands, the State
of Florida and Cruise Ships worldwide, excluding Cruise Ships based in
Malaysia, Singapore and Hong Kong. The territory consisting of the Bahamas
shall be non-exclusive.
- -----------------------------------------------------------------
MANAGEMENT'S DISCUSSION OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
- ----------------------------------------------------------------
Trends and Uncertainties. Demand for the Company's products will be
dependent on, among other things, general economic conditions which are
cyclical in nature. Inasmuch as a major portion of the Company's activities
is the manufacture and sale of gaming products and concepts, new
technologies
may reduce and/or restrict the Company's activities.
In addition, the outcome of this offering is uncertain. The lack of sales
of
this offering would negatively impact the Company's ability to successfully
continue operations.
<PAGE>20
Capital and Source of Liquidity. The Company currently has no material
commitments for capital expenditures. The Company has planned expenditures
of $900,000 for the cost of sales and $140,000 for additional tooling costs
of manufacturing the Random Ejection Shuffler. These costs will be less if
the sales projections are not met. The Company intends to use a majority of
the proceeds of this offering to make a portion of the proposed
expenditures.
If this offering is not successful, the Company's cash flow will be
negatively effected if the expenditures are made.
The Company has commitments under its consulting agreements and employment
agreements Payments to Mr. Blad of $12,500 per month plus commissions of
3.73% on the gross margin received by the Company on its product sold though
sales arranged and completed primarily by the efforts of Mr. Blad, $10,000
per month to Mr. Forte, and $7,500 per month for Mr. King will negatively
impact the liquidity of the Company.
The Company shall attempt to develop business plans, operations and sales
that will permit the Company to be self-supportive 30 to 60 days after
production begins. The funding requirement to complete this time period is
estimated to be between $100,000 and $300,000 and may come in the form of
this offering proceeds, deposits on future sales or debt financing. This
planning, if effective, would permit funds raised in this offering, if any,
to be used to develop new products in the next six months.
If the Company has to add a significant amount of capital equipment to
develop an in-house production capacity, this will impact cash flow in a
potentially significant way. The Company expects that the net proceeds from
this Offering and the cash flow from operations will be sufficient to allow
the Company to meet the expected growth in demand for its products.
However,
there can be no assurance that sufficient capital will be raised or that
future product sales will meet the Company's growth expectations. Should
either of these fail to occur, the Company may elect to (i) reduce the
planned introduction of new products to a level consistent with its
resources
or (ii) pursue other financing alternatives. Implementation of either of
the
foregoing options could delay or diminish the Company's planned growth and
adversely affect its profitability.
For the six months ended June 30, 1997, the Company acquired plant and
equipment valued at $18,996. The Company had an increase in patents and
trademarks of $10,949. As a result, the Company had net cash used in
investing activities of $29,945 for the six months ended June 30, 1997.
For the six months ended June 30, 1996, the Company acquired plant and
equipment valued at $2,600. The Company had an increase in patents and
trademarks of $36,049. As a result, the Company had net cash used in
investing activities of $38,649 for the six months ended June 30, 1996.
For the year ended December 31, 1996, the Company acquired plant and
equipment valued at $12,969. The Company had an increase in patents and
trademarks of $65,781. As a result, the Company had net cash used in
investing activities of $78,750 for the year ended December 31, 1996.
For the six months ended June 30, 1997, the Company sold common stock for
cash in the amount of $600,010. The Company had an increase in amounts due
officers and shareholder of $100,377. As a result, the Company had net
cash
provided by financing activities of $700,347 for the six months ended
June 30, 1997.
For the six months ended June 30, 1996, the Company sold common stock for
cash in the amount of $45,000. The Company had an increase in amounts due
officers and shareholder of $486,202. As a result, the Company had net cash
provided by financing activities of $531,202 for the six months ended June
30, 1996.
For the year ended December 31, 1996, the Company sold common stock for cash
in the amount of $887,265. The Company had an increase in stockholder
loans of $630,168. As a result, the Company had net cash provided by
financing activities of $1,517,433 for the year ended December 31, 1996.
Management is of the opinion that its current working capital and
anticipated
funds from operations are sufficient to meet its cash requirements for
moderate growth in the year ahead. However, in order to achieve the
Company's plans for growth, additional capital is required.
On a long term basis, liquidity is dependent on increased revenues from
operations, additional infusions of capital and debt financing. The
Company
believes that additional capital and debt financing in the short term will
allow the Company to commence its marketing and sales efforts and thereafter
result in revenue and greater liquidity in the long term. However, there
can
be no assurance that the Company will be able to obtain additional equity or
debt financing in the future, if at all.
Results of Operations. For the six months ended June 30, 1997, the Company
has a net loss of $1,069,517. The Company had revenues from card royalties
of $632, interest income of $7,074 and the sale of patent rights of $13,000
for the six months ended June 30, 1997. The Company had depreciation and
amortization of $11,396 and amortized deferred interest of $93,000 for the
six months ended June 30, 1997. Due to the commencement of operations, the
Company had an increase in accounts receivable of $5,591, an increase in
<PAGE>21
prepaid expenses of $4,526, and an increase in accounts payable and accrued
expenses of $150,842. The Company issued stock for services valued at
$69,999. For the six months ended June 30, 1997, the Company had net
cash used in operating activities of $1,069,282.
The Company had general and administrative expenses of $200,538 for the six
months ended June 30, 1997. These expenses consisted of salaries of
$116,000, payroll taxes & benefits of $9,862, travel and entertainment of
$14,707, fees to consultants of $17,772, legal expenses of $41,295 and
miscellaneous expenses of $902.
For the six months ended June 30, 1996, the Company has a net loss of
$526,709. The Company had depreciation and amortization of $2,854 for the
six months ended June 30, 1996. Due to the commencement of operations,
the Company had an increase in accounts receivable of $100 and an increase
in
accounts payable of $16,700. The Company issued stock for services valued
at $45,000. For the six months ended June 30, 1996, the Company had net
cash used in operative activities of $495,655.
The Company had general and administrative expenses of $677,735 for the six
months ended June 30, 1996. These expenses consisted of salaries of
$128,566, payroll taxes & benefits of $22,975, travel and entertainment of
$73,995, gaming show expenses of $46,567, office expense of $36,178, fees to
consultants of $255,387, legal expenses of $34,139, interest expense of
$51,582 and miscellaneous expenses of $4,857.
For the year ended December 31, 1996, the Company has a net loss of
$1,638,227. The Company had revenues in card royalties of $2,450 and
interest income of $1,803 for the year ended December 31, 1996. The
Company
issued stock for services valued at $700,500. Interest added to loan
balances was $23,245. The Company exchanged equipment valued at $2,903 for
services. The Company had depreciation and amortization of $2,553 for the
year ended December 31, 1996. Due to the commencement of operations, the
Company had an increase in accounts receivable of $2,833, an increase in
prepaid expenses of $300, an increase in other assets of $6,119, and
increase
in accounts payable of $73,330 and an increase in accrued expenses of
$104,351 for the year ended December 31, 1996. For the year ended December
31, 1996, the Company had net cash used in operative activities of $887,257.
For the year ended December 31, 1996, the Company had general and
administrative expenses of $1,318,327. These expenses consisted of
consulting services valued at $826,824, salaries and wages of $254,200,
legal
and accounting of $108,510, development costs of 68,520, reimbursement of
services of $33,497, patent and trademark costs of $27,312, telephone of
$12,880, travel of $24,943, and other miscellaneous expenses of $38,359.
The Company also paid general and administrative expenses of $52,313 to a
related party. Research and development costs to a related party for the
year ended December 31, 1996 was $244,117.
The Company shall seek to maintain low operating and administrative expenses
while expanding operations and increasing the number of distributors and
operating revenues. However, increased marketing expenses will probably
occur in future periods as the Company attempts to further increase its
marketing and sales efforts.
- ---------------------------------------------------------
MANAGEMENT
- ---------------------------------------------------------
Officers and Directors. Pursuant to the Articles of Incorporation, each
Director shall serve until the annual meeting of the stockholders, or until
his successor is elected and qualified. The Company's basic philosophy
mandates the inclusion of directors who will be representative of
management,
employees and the minority shareholders of the Company. Directors may only
be removed for "cause". The term of office of each officer of the Company
is
at the pleasure of the Company's Board.
The principal executive officers and directors of the Company will be as
follows:
<TABLE>
<CAPTION>
Name Position Term(s) of Office
<S> <C> <C>
Jay L. King, age 50 Vice President From March 12, 1996
of Finance & Controller to present
and Director
Steven Blad, age 45 President and Chief From April 30, 1997
Operations Officer to present
Norman G. Kelln, age 62 Director From March 12, 1996
to present
<PAGE>22
Glen (Tom) Pickell,
age 52 Director From March 12, 1996
to present
Chief Executive
Officer From Sept. 24, 1996
and President to April 30, 1997
Chairman of the Board
and Chief Executive officer From April 30, 1997
to present
Steven Forte, age 40 Director From March 12, 1996
to present
David Sampson, age 55 Director From March 12, 1996
to present
Mr. Randy Sines resigned as an officer and director of the Company on August
27, 1997.
Resumes:
Jay L. King. Mr. King has extensive experience in all phases of financial
management for a variety of companies and circumstances. He was Controller
for Sigma Game, Inc., a manufacturer and developer of electronic based and
software driven gaming machines from December 1994 to October 1995. Mr.
King was consultant to the corporation from November 1995 through February
1996 and elected Vice President of Finance and Controller and Director in
March 1996. He still serves in these positions. From July 1993 to
November 1994, Mr. King was an independent financial consultant and Chief
Financial Officer for I.C. Refreshment Corporation, a startup
beverage company. From 1986 to 1993, Mr. King was director of financial
management for PG&E, a public utility company. Mr. King managed full
financial responsibilities for engineering, construction and manufacturing
business unit.
Mr. King holds a BS in Accounting (1971) and an MBA (1973) from the
University of Utah and is a Certified Public Accountant.
Steven Blad. Mr. Blad was President and Chief Executive Officer of
Flagship Games International from 1987 to July 1991. From July 1991 to
September 1994, Mr. Blad was a consultant for Marketing and Gaming in
Atlanta, Georgia. From October 1994 to September 1996, Mr. Blad was a
consultant for Spintek Gaming Technologies. Mr. Blad joined the Company in
October 1996 as Vice President of Sales and Marketing until April 30, 1997
when he was named President of the Company.
Mr. Blad received a Bachelor of Arts degree in 1973 from Carson Newman. He
obtained a Masters of Arts degree in 1975 from Southern Baptist Graduate
School. From 1975 to 1976, Mr. Blad attended additional graduate studies
at
the University of Alabama.
Norman G. Kelln. Mr. Kelln has been President and sole owner of Designed
Devices Co., a Spokane, Washington consulting engineering firm since 1980.
During his career, Mr. Kelln has worked in various engineering capacities
for
several well-known companies including RCA, Tally Corporation, Boeing,
Keytronic Corporation and ISC Systems, Inc.
Glen (Tom) Pickell. Mr. Pickell has been President of The Arcus Group, a
financial and management consulting firm he formed since 1989. From 1981
to
1988, Mr. Pickell was Chief Financial Officer and Vice President of Finance
and Administration for Chronicle Broadcasting. Mr. Pickell graduated magna
cum laude with a Bachelor of Science degree in accounting from Golden Gate
University in San Francisco in 1975 and held a CPA certificate in
California.
Mr. Pickell also serves as an advisor to Mr. Richard Huson who is a major
shareholder of the Company.
Steven Forte. Mr. Forte is currently the President of his own consulting
company, International Gaming Specialists. In this capacity Mr. Forte
provides consulting assistance in the areas of security, employee
productivity and profitability to casinos throughout the world. Mr.
Forte's
recent clients include some of the largest and most successful casino
operations in the world, including Harrahs, Caesar's Palace, The Mirage,
Resorts International and the world's largest casinos in Malaysia and
Austria. Numerous law enforcement agencies have employed his services,
including the FBI and The Royal Canadian Mounted Police.
Mr. Forte is currently a general partner of the Sines-Forte General
Partnership which was formed to hold certain ownership rights and to receive
certain product royalties developed by the two partners. Before entering
the consulting business, Mr. Forte was employed by several different casinos
and is experienced in all aspects of gaming management from
dealer to casino manager. Mr. Forte also gambled professionally for seven
years. He has published several books, articles and video tapes on various
gaming topics.
Steven L. Forte, a consultant to, and an employee and director of the
Company, was convicted of a gambling-related third degree felony in New
Jersey in 1990, and in 1982 pled guilty to a misdemeanor trespass charge
<PAGE>23
arising from a gambling related charge emanating from Harrah's Casino in
Reno, Nevada. Such convictions could affect the Company's ability to
obtain
approval for the licensing of the Company, if required, in any number of
prospective jurisdictions. Were this to occur, Mr. Forte has agreed that
he
and the Company would restructure Mr. Forte's relationship with the Company,
and in particular, the terms of Mr. Forte's Personal Services Agreement with
the Company, in order to conform to the gaming requirements of such
jurisdictions.
David Sampson. From August, 1985 to 1991, Mr. Sampson was the owner and
manager of University Bistro in Seattle, Washington. From March 1994 to
April 1996, Mr. Sampson has served as President and Chairman of MITT USA
Corporation, a sporting goods manufacturer. Mr. Sampson joined Rendova
Boats as General Manager and Director of Rendova Boats, L.L.C., a boat
manufacturer located in
Olympia, Washington, in October 1996 and still holds that position. Mr.
Sampson received a Bachelor of Science at Oregon State University in Social
Science in 1965. He received a Masters degree in Political Science from
the
State University of New York at Buffalo in 1968 and a post-graduate degree
from the Pacific Coast Banking School at the
University of Washington.
Remuneration. The following table sets forth certain summary information
concerning the total remuneration paid or accrued by the Company, to or on
behalf of the Company's Chief Executive Officer and the Company's four most
highly compensated executive officers determined as of the end of each of
the
last three years.
SUMMARY COMPENSATION TABLE
</TABLE>
<TABLE>
<CAPTION>
Long Term Compensation
Annual Compensation Awards Payouts
<S> <C> <C> <C> <C> <C> <C> <C>
<C>
(a) (b) (c) (d) (e) (f) (g) (h)
(i)
Other
ALL Name Annual Restricted
LTIP Other
and Compen- Stock Options/ Pay-
Compen-
Principal Salary Bonus sation Awards SARs Outs
sation
Position(1) Year ($) ($) ($) ($) ($) ($)
($)
Randy Sines 1994 - - - - - -
- -
President 1995 - - - - - -
- -
1996 40,000 (2) (2) (2) - -
- -
David E. Sampson 1994 - - - - - -
- -
Vice President 1995 - - - - - -
- -
1996 15,000 - - - - -
- -
Jay King 1994 - - - - - -
- -
Vice President 1995 - - - - - -
- -
1996 73,750 12,500 10,200 - - -
- -
</TABLE>
(1) Affiliated entities of current officers and directors received
compensation in fiscal year ended December 31, 1996. The Arcus Group
controlled by Glen (Tom) Pickell received $20,479, Gametek controlled by
Steven J. Blad received $27,750 and Designed Devices, Co. controlled by
Norman Kelln received $302,551.
(2) Effective January 15, 1996, the Company, Sines-Forte, Randy D. Sines,
Steven L. Forte, Cheryl L. Forte and Richard S. Huson entered into a series
of transactions to provide additional financing to Sharps. Mr. Huson is a
major shareholder of the Company; Mr. Sines is a director and was president
of the Company and a partner of Sines-Forte; Mr. Forte is a consultant to,
employee and a director of the Company, and a partner of Sines-Forte; and
Cheryl L. Forte is the spouse of Steven L. Forte.
Pursuant to a loan agreement entered into among the parties, Mr. Huson
loaned
Sharps $300,000 and Sharps, in turn, executed and delivered a promissory
note
to Mr. Huson providing for the repayment of such amount on or before July
15,
1996. The loan was extended to September 1996 and was secured by 111 units
of limited partnership interest in Sharps owned by Mr. Sines and Mr. Forte
which was subsequently forfeited to Mr. Huson. Mr. Huson has agreed to
accept 700,000 Common Shares (350,000 each from Mr. Sines and Mr. Forte) in
lieu of repayment of the loan by the Company. Mr. Sines and Mr. Forte
assumed the rights and benefits of said loan. Mr. Huson loaned an
additional
$150,000 to the Company in July, 1996. This loan was due on September 15,
1996 with Mr. Huson agreeing to accept 327,000 Common Shares from the
Company
in lieu of repayment of the loans, accrued interest and extension fees.
As part of this transaction, Sines-Forte assigned and transferred to Sharps
(which rights were subsequently transferred and assigned to the Company) all
of its rights in and to substantially all of the gaming products and
concepts
invented or developed by Sines-Forte. Those of Sines-Forte's games and
concepts that were not transferred to Sharps and certain literary rights
such as articles, books, movie scripts, motion pictures, sound recordings
and
other works of the same or similar genre. In return for these additional
<PAGE>24
assignments, Sharps issued Sines-Forte options for the purchase of six units
of limited partnership interest in Sharps (which is equivalent to 40,000
Common Shares of the Company).
In addition, Mr. Sines and Mr. Forte individually sold Mr. Huson 42 units of
limited partnership interest in Sharps (which was equivalent to 265,000
Common Shares of the Company). Mr. Sines and Mr. Forte had pledged their
additional aforementioned 111 units of limited partnership interest in
Sharps
owned by them (which is equivalent to 700,000 Common Shares of the Company)
as security for repayment of the Sharps' loan. In September of 1996, such
pledged interest was forfeited to Mr. Huson upon default in repayment of the
pledged interest to Sharps. Said loan has been assigned by Mr. Huson to
Mr. Sines and Mr. Forte. Mr. Sines and Mr. Forte have recently assumed the
rights and benefits of said loan at that time.
Furthermore, Mr. Huson, in turn, has granted Mr. Sines and Mr. Forte an
option to reacquire 50% of these pledged interests (which are equivalent to
350,000 Common Shares of the Company following completion of the
consolidation transaction), at the option exercise price of $300,000. Such
option will be exercisable by Mr. Sines and Mr. Forte in the third through
the fifth years of the date such interests are were first acquired by Mr.
Huson.
As part of the transaction, Mr. Sines and Mr. Forte also agreed to enter
into
Personal Service Agreements with the Company providing for monthly
compensation to each of $10,000 per month on a pro rata basis for time
worked
and restricting either from competing, directly or indirectly with the
Company during the terms of the agreements and for a period of two years
thereafter, or from using trade secrets or other proprietary information of
the Company except in furtherance of the Company's business. The personal
service agreements will be terminable by the Company for cause (which is
defined to include breach of the agreement; deception; fraudulent, dishonest
or illegal acts; the failure or refusal to carry out the reasonable
directions of the board of directors; or a willful failure or refusal to
comply in any material respect with the reasonable policies or procedures of
the Company), or without cause (in which event the terminated individual
will
be entitled to six months' compensation).
On September 24, 1996, Mr. Huson agreed to loan up to $500,000 to the
Company
for a period not to exceed December 31, 1997. Interest shall be accrued at
9.5% annually. Payment of the note shall come from additional funds to be
raised through equity offerings that are anticipated to take place in the
near future. The specific details of these offerings have yet to be
determined. Payment of 35 cents of each dollar raised shall be made to pay
down the note. The note shall be secured by agreement of Randy Sines and
Cheryl Forte to provide Mr. Huson a minimum of 51% of the voting rights, if
mathematically possible, by pledging sufficient voting rights of their
Common
Shares in the Company until the note is paid in full and a total of $2.4
million is raised through all sources. The current net balance of the note
is
$250,000. The note shall be senior to the $300,000 note held by Randy
Sines
and Steve Forte discussed above. Mr. Huson has the right to convert the
balance of the note of Common Shares at $.82 per Common Share.
Board of Directors Compensation. Members of the Board of Directors will
receive $500 per meeting if said Directors are not separately compensated by
the Company and will be required to attend a minimum of four meetings per
fiscal year. All expenses for meeting attendance or out of pocket expenses
connected directly with their Board representation will be reimbursed by the
Company. No differentiation is made in the compensation of "outside
Directors" and those officers of the Company serving in that capacity.
The Company has obtained Directors and Officers Insurance. Pursuant to the
policy with National Union Fire Insurance Company, the coverage includes
Company reimbursement and sections action claims entity coverage. The
coverage has a $1,000,000 aggregate limit of liability in each policy year
(inclusive of defense costs) and there is a retention of $25,000 for each
claim.
Conflicts of Interest Policy. The Company has adopted a policy that any
transactions with directors, officers or entities of which they are also
officers or directors or in which they have a financial interest, will only
be on terms consistent with industry standards and approved by a majority of
the disinterested directors of the Company's Board of Directors. The Bylaws
of the Company provide that no such transactions by the Company shall be
either void or voidable solely because of such relationship or interest of
directors or officers or solely because such directors are present at the
meeting of the Board of Directors of the Company or a committee thereof
which
approves such transactions, or solely because their votes are counted for
such purpose if: (i) the fact of such common directorship or financial
interest is disclosed or known by the Board of Directors or committee and
noted in the minutes, and the Board or committee authorizes, approves or
ratifies the contract or transaction in good faith by a vote for that
purpose
without counting the vote or votes of such interested directors; or (ii) the
fact of such common directorship or financial interest is disclosed to or
known by the shareholders entitled to vote and they approve or ratify the
contract or transaction in good faith by a majority vote or written consent
of shareholders holding a majority of the Common Shares entitled to vote
(the
votes of the common or interested directors or officers shall be counted in
any such vote of shareholders), or (iii) the contract or transaction is fair
<PAGE>25
and reasonable to the Company at the time it is authorized or approved. In
addition, interested directors may be counted in determining the presence of
a quorum at a meeting of the Board of Directors of the Company or a
committee
thereof which approves such transactions.
Indemnification. The Company shall indemnify to the fullest extent
permitted
by, and in the manner permissible under the laws of the State of Washington,
any person made, or threatened to be made, a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by
reason of the fact that he is or was a director or officer of the Company,
or
served any other enterprise as director, officer or employee at the request
of the Company. The Board of Directors, in its discretion, shall have the
power on behalf of the Company to indemnify any person, other than a
director
or officer, made a party to any action, suit or proceeding by reason of the
fact that he/she is or was an employee of the Company.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company, the
Company has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Company of expenses incurred or paid by a director, officer or controlling
person of the Company in the successful defense of any action, suit or
proceedings) is asserted by such director, officer, or controlling person in
connection with any securities being registered, the Company will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question
whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issues.
INDEMNIFICATION OF OFFICERS OR PERSONS CONTROLLING THE COMPANY
FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, IS HELD TO BE
AGAINST PUBLIC POLICY BY THE SECURITIES AND EXCHANGE COMMISSION AND IS
THEREFORE UNENFORCEABLE.
- ------------------------------------------------------
CERTAIN TRANSACTIONS
- ------------------------------------------------------
Distribution of Securities. In July, 1996, the Board of Directors
authorized the distribution of 200,000 A Warrants each exercisable into one
Common Share of the Company at the exercise price of $4.00 per Common Share,
200,000 B Warrants each exercisable into one Common Share of the Company at
the exercise price of $6.00 per Common Share and 250,000 C Warrants each
exercisable into one Common Share of the Company at the exercise price of
$8.00 per Common Share. The A, B and C Warrants are exercisable for a
period of 48 months from the date of issue and are callable with 30 days
notice at a price of $.001 per warrant. These distributions were be made
to
the owners of record of Common Shares on the books of the Company as of July
22, 1996.
Consulting Agreement. On July 15, 1996, the Company entered into a
consulting agreement with Pratt, Wylce & Lords, Ltd. ("Pratt") to assist the
Company in its capitalization and the obtainment of additional financing.
The
agreement was amended January 28, 1997 and subsequently canceled. The
Company
was to pay a total cash fee of $135,000 to Pratt. Additionally, the
Corporation issued 150,000 of its Common Shares to Pratt, of which up to 50%
was to be registered and distributed to Pratt shareholders, and options to
acquire an additional 75,000 Common Shares at $1.50 per Common Share with an
option period of 24 months. Pursuant to the agreement, the Corporation was
also to issue 50,000 Common Shares and options to acquire an additional
25,000 at $1.50 per Common Share with an option period of 24 months to
Clinton Clark, an affiliate of Pratt. Due to the date of the consulting
agreement, Pratt was distributed A, B and C Warrants, however, Pratt has
disclaimed the A, B and C Warrants and these Warrants were then
redistributed
on a pro rata basis to the remaining shareholders.
The net payment to Pratt after amendment and termination of the consulting
agreement was $35,000 cash and 25,000 Common Shares.
Additionally, the Company entered into a consulting agreement with Gaming
Venture Corp., U.S.A. (GVC) to assist the Company with the promotion of its
product and its Common Shares. The original agreement with GVC was dated
July 8, 1996 and was amended on December 1, 1996 and again on February 1,
1997. The contract began on July 8, 1996, and by amendment, will run
through July 7, 1998. GVC has received 200,000 shares of the Company,
$45,000 in cash and Options to acquire an additional 100,000 Common Shares.
By action of the Company's Board of Directors, on April 30, 1997, the
options
were exchanged for D Warrants, which are included in this offering.
Loan Collateralized by Related Party. On July 11, 1997, GVC agreed to
deposit $200,000 in a 200 day Certificate of Deposit with Bank West located
at 3500 West Sahara Avenue in Las Vegas, Nevada. Bank West agreed to loan
the Company up to the full amount of GVC's CD and charge the Company an
interest rate which is the rate of the CD plus 2%.
<PAGE> 26
The Company agreed to pay GVC a payment equal to 8.5% of the total amount of
the CD when the Company pays off the principal of the loan to Bank West.
The payment will be 8.5% of the principal of $200,000 or a total of $17,000.
If the Company is unable to pay off the loan balance after the 200 day
period, half of the $17,000 payment must be paid to GVC. GVC will then
have
the option of renewing the CD and allowing the Company to continue with the
loan or convert the principal balance of the loan into the Company's common
stock with registration rights. If GVC elects to renew the CD, the same
terms from the first 200 day period will be in effect including a full 8.5%
of the principal being due when the loan is repaid. The $8,500 which is
due
after the first 200 day period will not be deducted from the 8.5% due when
the loan is repaid if the CD is rolled over for another 200 day period.
Consulting Agreement with Related Party. On February 1, 1997, the Company
entered into a consulting agreement with Gametek, and Steven Blad, an
officer
of the Company. Mr. Blad is a consultant to Gametek. Pursuant to the
agreement, Mr. Blad shall, for two years commencing January 1, 1997, act as
an officer of the Company and shall receive a base salary of $12,500 per
month. Additionally, Mr. Blad receives a commission of 3.73% on the Gross
Margin received by the Company on its product sold through sales arranged
and
completed primarily by the efforts of Mr. Blad. Mr. Blad is also entitled
to
a one time licensing bonus of 10,000 Common Shares of the Company each time
Mr. Blad successfully obtains a license from the Nevada Gaming Commission
approving current products of the Company for use in the gaming industry.
Mr. Blad is entitled to receive a bonus, payable on a quarterly basis and in
an amount not to exceed $2,000 per month upon the Company achieving its
goals
as set by the Board of Directors, The bonus payable shall be reduced by the
commissions received during the same period.
In addition to the base salary, commissions, licensing bonus and quarterly
bonus stated above, the Consultant shall receive "Stock Options" to purchase
up to three hundred thousand (300,000) shares of the Company's common stock
("Shares") under the following terms and conditions:
(i) Upon execution of the consulting agreement, the Consultant
received the right to acquire up to one hundred thousand (100,000) Shares at
One Dollar and Fifty Cents ($1.50) per Share.
(ii) Upon the Consultant fulfilling his obligations and the
Company
reaching its goals for 1997, the Consultant shall have the right to acquire
up to an additional one hundred thousand (100,000) Shares at One Dollar and
Fifty Cents ($1,50) per Share. The determination of whether the Consultant
has met his obligations and the Company has reached its goals shall be made
at the discretion of the President and Chief Executive Officer and approved
by the Company's Board of Directors. The Consultant shall be entitled to a
meeting with the President and Chief Executive Officer during January 1998
to discuss the bonus to be paid hereunder, if any. The Stock Options to be
issued shall be vested in the Consultant no later than January 31, 1998.
(iii) Upon the Consultant fulfilling his obligations and the Company
reaching its goals for 1998, the Consultant shall have the right to acquire
up to an additional one hundred thousand (100,000) Shares at One Dollar and
Fifty Cents ($1,50) per Share. The determination of whether the Consultant
has met his obligations and the Company has reached its goals shall be made
at the discretion of the President and Chief Executive Officer and approved
by the Company's Board of Directors. The Consultant shall be entitled to a
meeting with the President and Chief Executive Officer during January 1999
to discuss the bonus to be paid hereunder, if any. The Stock Options to be
issued shall be vested in the Consultant no later than January 31, 1999.
(iv) The Stock Options must be exercised within Five (5) years from
the date the Consultant's rights are vested. The Shares will be issued
within Thirty (30) days from when the Consultant notifies his intent to
exercise the options and tenders the purchase price to the Company. The
Company offers no warranty as to the tradability of the Shares or as to
whether such shares will be registered with the Securities and Exchange
Commission.
(v) If the Company is to be sold, a portion of the Stock Options
not yet issued hereinabove shall vest in the Consultant thirty (30) days
prior to such sale. The number of Stock Options to vest under this
subparagraph shall be determined pro rata based upon the number of Stock
Options that the Consultant may be entitled to for the year and the number
of
months the Consultant was retained under the Agreement during this same
year.
For example, if the Company was to be sold on April 1, 1998, the Consultant
would have an additional twenty-five thousand Stock Options vest on March 1,
1998. [(100,000 stock options for 1998) x (3 months of consulting/12
months)].
The Company shall notify the Consultant in writing of (1) the impending
sale,
(2) the right of the Consultant to exercise the Stock Options and (3) the
terms and conditions of the proposed sale of the Company. For purposes
herein, the Company shall be deemed sold if substantially all of its assets
are sold, including patents and goodwill, or the Company's stock is sold or
transferred causing a change in the person or persons who currently have
majority control of the Company. This Paragraph does not apply to
transfers
of stock of the Company, (1) by an assignment to a revocable living trust in
which the holder is and remains a trustee and a beneficiary, or (2) by
reason
of death of the holder. It is the Consultant's discretion to exercise the
Stock Options prior to the proposed sale. Any Stock Options vested in this
subparagraph shall remain vested in the Consultant, whether or not they are
exercised before the sale, under the terms of subparagraph (vi).
<PAGE>27
Related Party Transaction. Effective January 15, 1996, the Company, Sines-
Forte, Randy D. Sines, Steven L. Forte, Cheryl L. Forte and Richard S. Huson
entered into a series of transactions to provide additional financing to
Sharps. Mr. Huson is a major shareholder of the Company; Mr. Sines is a
Director and was President of the Company and a partner of Sines-Forte; Mr.
Forte is a consultant to, employee and a Director of the Company, and a
partner of Sines-Forte; and Cheryl L. Forte is the spouse of Steven L.
Forte.
Pursuant to a loan agreement entered into among the parties, Mr. Huson
loaned
Sharps $300,000 and Sharps, in turn, executed and delivered a promissory
note
to Mr. Huson providing for the repayment of such amount on or before July
15,
1996. The loan was extended to September 1996 and was secured by 111 units
of limited partnership interest in Sharps owned by Mr. Sines and Mr. Forte
which was subsequently forfeited to Mr. Huson. Mr. Huson loaned an
additional $150,000 to the Company in July, 1996. This loan with Mr. Huson
was due on September 15, 1996. Mr. Huson has agreed to accept 327,000
Common Shares from the Company in lieu of repayment of the loans, accrued
interest and extension fees.
As part of this transaction, Sines-Forte assigned and transferred to Sharps
(which rights were subsequently transferred and assigned to the Company) all
of its rights in and to substantially all of the gaming products and
concepts
invented or developed by Sines-Forte. In return for the assignment of
concepts not previously assigned, Sharps issued Sines-Forte options for the
purchase of six units of limited partnership interest in Sharps (which is
equivalent to 40,000 Common Shares of the Company).
In addition, Mr. Sines and Mr. Forte individually sold Mr. Huson 42 units of
limited partnership interest in Sharps (which was equivalent to 265,000
Common Shares of the Company). Mr. Sines and Mr. Forte had pledged the
additional aforementioned 111 units of limited partnership interest in
Sharps
owned by them (which is equivalent to 700,000 Common Shares of the Company)
as security for repayment of the Sharps' loan.
In September of 1996, such pledged interest was forfeited to Mr. Huson upon
default in repayment of the $300,000 loan to Sharps. Said loan has been
assigned by Mr. Huson to Mr. Sines and Mr. Forte. Mr. Sines and Mr. Forte
assumed the rights and benefits of said loan at that time.
Furthermore, Mr. Huson, in turn, has granted Mr. Sines and Mr. Forte an
option to reacquire 50% of these pledged interests (which are equivalent to
350,000 Common Shares of the Company following completion of the
consolidation transaction), at the option exercise price of $300,000. Such
option will be exercisable by Mr. Sines and Mr. Forte in the third through
the fifth years of the date such interests were first acquired by Mr. Huson.
As part of the transaction, Mr. Sines and Mr. Forte also agreed to enter
into
personal service agreements with the Company providing for monthly
compensation to each of $10,000 per month on a pro rata basis for time
worked
and restricting either from competing, directly or indirectly with the
Company during the terms of the agreements and for a period of two years
thereafter, or from using trade secrets or other proprietary information of
the Company except in furtherance of the Company's business. The state court
may determine not to enforce (or only partially enforce) non-compete clauses
in the employment agreements. The personal service agreements will be
terminable by the Company for cause (which is defined to include breach of
the agreement; deception; fraudulent, dishonest or illegal acts; the failure
or refusal to carry out the reasonable directions of the board of directors;
or a willful failure or refusal to
comply in any material respect with the reasonable policies or procedures of
the Company), or without cause (in which event the terminated individual
will
be entitled to six months' compensation).
On September 24, 1996, Mr. Huson agreed to loan up to $500,000 to the
Company
for a period not to exceed December 31, 1997. Interest shall be accrued at
9.5% annually. Payment of the note shall come from additional funds to be
raised through equity offerings that are anticipated to take place in the
near future. The specific details of these offerings have yet to be
determined. Payment of 35 cents of each dollar raised shall be made to pay
down the note. The current net balance of the note is $250,000. The note
shall be secured by agreement of Randy Sines and Cheryl Forte to provide Mr.
Huson a minimum of 51% of the voting rights by pledging sufficient voting
rights of their Common Shares in the Company until the note is paid in full
and a total of $2.4 million is raised through all sources. The note shall
be senior to the $300,000 note held by Randy Sines and Steve Forte discussed
above. Mr. Huson has the right to convert the balance of the note to
Common
Shares at $.82 per Common Share.
On July 8, 1997, Mr. Huson loaned the Company $45,000 at an interest rate of
9.5% per annum. Payment of the unpaid principal and accrued interest shall
be due and payable in full within thirty (3) days from written demand by Mr.
Huson. The Company agreed to pay this note prior to payment of the amounts
previous owed to Mr. Huson and the Replacement Promissory Note with a
principal balance of $300,000, payable to Randy D. Sines and Cheryl L.
Forte.
Amendment to Employment Agreement (Personal Service Agreement) and Covenant
Not to Compete and Funding Agreements with Randy Sines. The Corporation and
Randy Sines had previously entered into an Employment Agreement (Personal
Service Agreement) and Covenant Not to Compete dated March 31, 1996. In
<PAGE>28
connection with the Employment Agreement, the parties have previously
entered
into a Funding Agreement dated January 15, 1996 and Third Round Funding
Agreement dated September 30, 1996. The Third Round Funding Agreement
subordinated the $300,000 promissory note assigned to Cheryl Forte/Steve
Forte and the Employee to the $500,000 promissory note, dated September 30,
1996, payable to Richard S. Huson. This subordination requires payments of
$10,000 each to Employee and Cheryl Forte. The $300,000 promissory note was
further subordinated by the agreement, dated July 8, 1997, to the $45,000
promissory note, dated July 8, 1997, payable to Richard S. Huson. (These
agreements and their amendments are referred to as the "Funding
Agreements").
Mr. Sines has resigned as an officer, director and employee of the
Corporation effective August 27, 1997. As a result of Mr. Sine's
resignation, the parties confirmed and modified each other's obligations
under the Employment Agreement and Funding Agreements.
1. Assignment of Drop Slot and Anticipation Slot Concepts. Pursuant to
a letter dated June 26, 1997, the Corporation attempted to transfer to Mr.
Sines all of the Corporation's right, title and interest in the Drop Slot
and
Anticipation Slot inventions/concepts for the sum of $15,000. Pursuant to
the above referenced letter, the payment was reflected in a reduction of the
debt owed to the Mr. Sines from the Corporation. The parties have raised
questions surrounding the purported transfer and have agreed to restate and
settle on the terms and conditions of the assignment as follows:
a. The Corporation has assigned all of its right, title and interest to
the Drop Slot and Anticipation Slot concepts to Mr. Sines.
b. The obligations owed by the Corporation to Mr. Sines contained in
the Funding Agreements will be decreased by the sum of $5,000, not the
$15,000 as previously agreed, in return for the assignment of the Royalty to
the Corporation provided herein below.
c. Mr. Sines agrees to reduce the monetary obligations owed by the
Corporation to him under the Funding Agreements to an interest rate at nine
and one-half percent (9 1/2%) per annum, effective October 1, 1997 and to
extend the due date of such obligations for a twelve (12) month period from
this same date. If the obligations are not paid on or before September 30,
1998, the interest rate shall increase at such date to fourteen and one-half
percent (14 1/2%) per annum. All other terms of the Funding Agreements,
including the subordination provisions, shall remain unchanged.
d. Mr. Sines agreed to pay to the Corporation a five percent (5%)
Royalty on the Net Revenue received by Mr. Sines, his heirs or assigns from
the sale, development, or manufacture of the Drop Sot and Anticipation Slot
concepts, including any derivatives or accessories pertaining thereto. The
term "Net Revenue" shall be defined as gross cash (or equivalents) revenues
received by Mr. Sines, his heirs or assigns from the sale, development, or
manufacture of the Drop Slot and Anticipation Slot concepts minus the cost
of
goods sold for such products. In determining the cost of goods sold,
Generally Accepted Accounting Principles shall be used. Mr. Sines shall
remit
the Royalty payments to the Corporation on a calendar quarter basis. The
Royalty payments due for each calendar quarter shall be paid within thirty
(30) days after the expiration of each quarter. Interest shall accrue at
the
rate of nine and one-half percent (9 1/2%) per annum on any Royalty payments
that are not paid when due.
Mr. Sines will use prudent efforts to protect the intellectual and
proprietary rights associated with the Drop Slot and Anticipation Slot
concepts, including but not limited to, the procurement and the filing of
patents, trade names or copyrights as may be applicable. Upon thirty (30)
days written notice, Mr. Sines agrees to provide access to the Corporation
or
its auditors to review and audit Mr. Sine's books and records containing
information pertinent to calculating the Royalty due the Corporation under
this agreement.
The Corporation allowed Mr. Sine's termination to be effective August 27,
1997. Mr. Sines remains obligated under the terms and conditions of the
Employment Agreement, as amended for those clauses which by their terms
survive termination and consist only of the Non-Competition, Confidential
Information, and Personal Property clauses. It is agreed and understood
that
the execution of the agreement is additional consideration from the parties
for the amendment to the Non-Competition clause of the Employment Agreement
as contained herein.
3. Amendment. The parties agree to amend Paragraph 14, Non-
Competition, ("Non-Competition Clause") of the Employment Agreement to
increase the term to three (3) years and to limit its scope as follows:
a. The Non-Competition Clause shall be amended to exclude from its
restrictions the Drop Slot and Anticipation Slot inventions/concepts and any
accessories or derivatives pertaining thereto. Mr. Sines shall be permitted
to market, develop and sell the Drop Slot and Anticipation Slot concepts so
long as such business actions are limited solely to such products and do not
involve any other gaming product not otherwise excluded herein below.
b. It is understood and agreed by the parties that Mr. Sines will not
be in violation of the Non-Competition Clause as amended herein for those
activities that are limited to the invention and development of gaming
<PAGE>29
products (not manufacturing or marketing), provided that such invention and
development does not pertain to the Corporation's Current Products and
Future
Products defined herein below in sub-paragraph (d).
c. Mr. Sines shall only be required to abide by the terms of the Non-
Competition Clause as it is currently written and as amended herein by
Paragraph 3(a) and (3)(b) for a period of six (6) months, beginning as of
August 27, 1997, with the exception of Paragraphs 3(d) and 3(e).
d. After the expiration of the six (6) month period stated
above, Mr. Sines agreed to remain obligated under the terms of the Non-
Competition Clause for an additional eighteen (18) months, but this
restriction shall be limited solely to products that are substantially
similar to the Corporation's current products (the "Current Products") and
to
the Corporation's future products referred to or described in the letter
dated August 28, 1997, executed by Steve Forte.
e. After the expiration of the two (2) year period stated
above in sub-paragraph (b) and (c), Mr. Sines agrees to not compete with the
Corporation as defined in the Employment Agreement for an additional one (1)
year period only as to such products that are substantially similar to the
Future Products defined previously herein.
4. No Unresolved Issues. The parties agree that there are no
unresolved issues that each party may be aware of and that were raised by
the
parties pertaining to the assignment of the Drop Slot and Anticipation Slot
concepts.
- ----------------------------------------------------------------
PRINCIPAL SHAREHOLDERS
- ----------------------------------------------------------------
There are currently 5,640,640 Common Shares outstanding. Assuming exercise
of
the 200,000 A Warrants, 200,000 B Warrants, 250,000 C Warrants and 593,000
options currently outstanding, there would be 6,983,640 Common Shares
outstanding on a fully diluted basis. The following tabulates holdings of
shares of the Company by each person who, subject to the above, as of August
30, 1997, holds of record or is known by Management to own beneficially more
than 5.0% of the Common Shares and, in addition, by all directors and
officers of the Company individually and as a group.
Shareholdings at Date of
This Memorandum <F1>
<TABLE>
<CAPTION>
Percentage of
Outstanding
Shares as
Adjusted
to Reflect
Percentage Number of Conclusion
Number Prior to shares outstanding of the
Name and Address of Shares<F1><F4> Offering after offering Offering
<S> <C> <C> <C> <C>
Richard S. Huson<F2> 2,389,940 34.22 2,177,711 30.74%
121 S.W. Morrison
Suite 1400
Portland, Oregon 97204
Steve and Cheryl Forte<F3><F4> 1,906,849 27.30% 1,902,337 26.86%
315 San Francisco Street
Henderson, Nevada 89014
Randy D. Sines<F4><F5> 1,861,727 27.30% 1,607,117 22.69%
4056 South Madelia
Spokane, Washington 99203
Sines-Forte Partnership 1,508,249 21.60% 1,382,059 19.51%
315 Francisco Street
Henderson, Nevada 89014
Steven Blad <F6> 110,000 1.58% 109,000 1.54%
286 Doe Run Circle
Henderson, Nevada 89012
Norman G. Kelln<F7> 257,208 3.68% 245,846 3.47%
2031 S. Eastern Lane
Spokane, Washington 99212
Glen (Tom) Pickell 7,000 .10% 6,300 .09%
115 NW Oregon Avenue, Suite 20
Bend, Oregon 97701
<PAGE>30
Jay L. King<F8>
4600 North Donna Street
North Las Vegas, Nevada 89031 100,000 1.43% 97,500 1.38%
David E. Sampson<F9> 141,016 2.02% 136,925 1.93%
4009 - 205th Avenue N.E.
Woodinville, Washington 98072
All Officers and Directors 2,522,073 36.11% 2,320,796 32.76%
as a Group (6 persons)
</TABLE>
[FN]
<F1> Pursuant to Rule 13d-3 under the Securities Exchange Act of 1934, as
amended, beneficial ownership of a security consists of sole or shared
voting
power (including the power to vote or direct the voting) and/or sole or
shared investment power (including the power to dispose or direct the
disposition) with respect to a security whether through a contract,
arrangement, understanding, relationship or otherwise. Unless otherwise
indicated, each person indicated above has sole power to vote, or dispose or
direct the disposition of all shares beneficially owned, subject to
applicable community property laws.
<F2> Includes 167,655 Common Shares which may be issued upon exercise of A,
B and C Warrants.
<F3>Includes 206,349 Common Shares which may be issued to Sine/Forte
Partnership upon exercise of the A, B and C Warrants 98,868 Common Shares
which may be issued to Cheryl Forte upon exercise of the A, B and C
Warrants,
and 40,000 Common Shares which may be issued to Sines/Forte Partnership.
Additionally, Steven Forte is a General Partners of Sines-Forte Partnership
and would be deemed to be beneficial owners of the 1,2508,249 Common Shares
shown above.
<F4>Former partners of Sharps International Limited Partnership.
<F5>Includes 206,349 Common Shares which may be issued to Sine/Forte
Partnership upon exercise of the A, B and C Warrants and 40,000 Common
Shares
which may be issued to Sines/Forte partnership. Additionally, Randy Sines is
a General Partner of Sines-Forte Partnership and would be deemed to be
beneficial owners of the 1,261,900 Common Shares shown above.
<F6>Includes 100,000 Common Shares which may be issued upon exercise of
100,000 options.
<F7>Includes 18,580 Common shares which may be issued upon exercise of the
Warrants and 125,000 Common Shares which may be issued upon exercise of
125,000 options.
<F8>Includes 75,000 Common Shares which may be issued upon exercise of
75,000
options.
<F9>Includes 5,061 Common Shares which may be issued upon exercise of the
warrants and 95,000 Common Shares which may be issued upon exercise of
95,000
options.
This does not include 75,000 Common Shares reserved for issuance pursuant to
loan conversion options. Additionally On September 24, 1996, Mr. Huson
agreed to loan up to $500,000 to the Company for a period not to exceed
December 31, 1997. The note shall be secured by agreement of Randy Sines
and Cheryl Forte to provide Mr. Huson a minimum of 51% of the voting rights
by pledging sufficient voting rights of their Common Shares in the Company
until the note is paid in full and a total of $2.4 million is raised through
all sources. See "Certain Transactions" for further discussion.
There are currently 200,000 A Warrants outstanding. The following
tabulates holdings of A Warrants of the Company by each person who, subject
to the above, at the date of this Prospectus, holds of record or is known by
Management to own beneficially more than 5.0% of the A Warrants and, in
addition, by all directors and officers of the Company individually and as a
group.
<TABLE>
<CAPTION>
Name Total Number Of % Amount %
A Warrants Owned Owned
Owned
Owned Prior to After
After
Offering Offering
Offering
<S> <C> <C> <C> <C>
Tom Pickell 0 0% 0 0%
Jay L. King 0 0% 0 0%
Steven Blad 0 0% 0 0%
Norman G. Kelln 5,717 2.86% 5,717 2.86%
Sines/Forte Partnership<F1> 63,492 31.75% 63,492 31.75%
Cheryl Forte<F2> 30,421 15.21% 30,421 15.21%
David Sampson 1,557 .78% 1,557 .78%
Randy Sines 30,421 15.21% 30,421 15.21%
Richard Huson 51,586 25.79% 51,586 25.79%
<PAGE>31
All Officers and
Directors
As a Group (6) 131,608 65.80% 131,608 65.80%
</TABLE>
[FN]
<F1>Randy Sines and Steve Forte are General Partners of Sines-Forte
partnership and would be deemed to be beneficial owners of the 63,492 Class
A
Warrants shown above.
<F2>Steve Forte is married to Cheryl Forte and would be deemed to be a
beneficial owners of the 30,421 Class A Warrants shown above.
There are currently 200,000 B Warrants outstanding. The following
tabulates holdings of B Warrants of the Company by each person who, subject
to the above, at the date of this Prospectus, holds of record or is known by
Management to own beneficially more than 5.0% of the B Warrants and, in
addition, by all directors and officers of the Company individually and as a
group.
<TABLE>
<CAPTION>
Name Total Number Of % Amount %
B Warrants Owned Owned
Owned
Owned Prior to After
After
Offering Offering
Offering
<S> <C> <C> <C> <C>
Tom Pickell 0 0% 0 0%
Jay L. King 0 0% 0 0%
Steven Blad 0 0% 0 0%
Norman G. Kelln 5,717 2.86% 5,717 2.86%
Sines/Forte Partnership<F1> 63,492 31.75% 63,492 31.75%
Cheryl Forte<F2> 30,421 15.21% 30,421 15.21%
David Sampson 1,557 .78% 1,557 .78%
Randy Sines 30,421 15.21% 30,421 15.21%
Richard Huson 51,586 25.79% 51,536 25.79%
All Officers and
Directors
As a Group (7) 131,608 65.80% 131,608 65.80%
</TABLE>
[FN]
<F1>Randy Sines and Steve Forte are General Partners of Sines-Forte
Partnership
and would be deemed to be beneficial owners of the 63,492 Class B Warrants
shown above.
<F2>Steve Forte is married to Cheryl Forte and would be deemed to be a
beneficial owners of the 30,421 Class B Warrants shown above.
There are currently 250,000 C Warrants outstanding. The following
tabulates holdings of C Warrants of the Company by each person who,
subject to the above, at the date of this Prospectus, holds of record or is
known by Management to own beneficially more than 5.0% of the C Warrants
and,
in addition, by all directors and officers of the Company
individually and as a group.
<TABLE>
<CAPTION>
Name Total Number Of % Amount %
C Warrants Owned Owned
Owned
Owned Prior to After
After
Offering Offering
Offering
<S> <C> <C> <C> <C>
Tom Pickell 0 0% 0 0%
Jay L. King 0 0% 0 0%
Steven Blad 0 0% 0 0%
Norman G. Kelln 7,146 2.86% 7,146 2.86%
Sines/Forte Partnership<F1> 79,365 31.75% 79,365 31.75%
Cheryl Forte<F2> 38,026 15,21% 38,026 15.21%
David Sampson 1,947 .78% 1,947 .78%
Randy Sines 38,026 15.21% 38,026 15.21%
<PAGE>32
Richard Huson 64,483 25.79% 64,483 25.79%
All Officers and
Directors
As a Group (6) 164,510 65.80% 164,510 65.80%
</TABLE>
[FN]
<F1>Randy Sines and Steve Forte are General Partners of Sines-Forte
Partnership and would be deemed to be beneficial owners of the 79,365 Class
C
Warrants shown above.
<F2>Steve Forte is married to Cheryl Forte and would be deemed to be a
beneficial owners of the 38,026 Class C Warrants shown above.
There are currently outstanding 200,000 D Warrants which were issued to
Richard Huson, a majority shareholder of the Company (100,000 D Warrants)
and
Gaming Venture Corp., U.S.A., a consultant to the Company (100,000 D
Warrants).
There are currently outstanding options to purchase 593,000 Common Shares of
the Company. The following tabulates holdings of options of the Company by
each person who, subject to the above, at the date of this Prospectus, holds
of record or is known by Management to own beneficially more than 5.0% of D
Warrants and, in addition, by all directors and officers of the Company
individually and as a group.
<TABLE>
<CAPTION>
Name Total Number Of % Amount %
Options Owned Owned Owned
Owned Prior to After After
Offering Offering Offering
<S> <C> <C> <C> <C>
Tom Pickell 0 0% 0 0%
Jay L. King 75,000 12.65% 75,000 12.65%
Steven Blad 100,000 16.86% 100,000 16.86%
Sine/Forte Partnership<F1> 40,000 6.75% 40,000 6.75%
Steven Forte 0 0% 0 0%
Norman Kelln 125,000 21.08% 125,000 21.08%
David Sampson 95,000 16.02% 95,000 16.02%
Donald Peterson 100,000 16.86% 100,000 16.86%
John Wasden 45,000 7.59% 45,000 7.59%
All Officers and
Directors
As a Group (6) 435,000 73.35% 435,000 73.35%
</TABLE>
(1)Randy Sines and Steve Forte are General Partners of Sines-Forte
Partnership
and would be deemed to be beneficial owners of the 40,000 options shown
above.
- ----------------------------------------------------------
SHARES ELIGIBLE FOR FUTURE SALE
- ----------------------------------------------------------
The Company currently has 5,640,640 shares of Common Stock outstanding.
Other securities may be issued, in the future, in private transactions
pursuant to an exemption from the Securities Act are "restricted securities"
and may be sold in compliance with Rule 144 adopted under the Securities Act
of 1933, as amended. Rule 144 provides, in essence, that a person who has
held restricted securities for a period of two years may sell every three
months in a brokerage transaction or with a market maker an amount equal to
the greater of 1% of the Company's outstanding shares or the average weekly
trading volume, if any, of the shares during the four calendar weeks
preceding
the sale. The amount of "restricted securities" which a person who is not
an
affiliate of the Company may sell is not so limited. Nonaffiliates may
each
sell without limitation shares held for three years. The Company will make
application for the listing of its Shares in the over-the-counter market.
Sales under Rule 144 may, in the future, depress the price of the Company's
Shares in the over-the-counter market, should a market develop. Prior to
this offering there has been no public market for the Common Stock of the
Company. The effect, if any, of a public trading market or the
availability
of shares for sale at prevailing market prices cannot be predicted.
Nevertheless, sales of substantial amounts of shares in the public market
could adversely effect prevailing market prices.
<PAGE>33
- ----------------------------------------------------------
MARKET FOR REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS
- ----------------------------------------------------------
Prior to this Offering, there has been no market for the Company's common
stock. Upon successful completion of this offering, the Company intends
to apply to have its common stock traded in the over-the-counter market and
listed on the OTC Bulletin Board.
Holders. The approximate number of holders of record of the Company's
.0010 par value common stock, as of May 31, 1997 was One Hundred (100).
Dividends. Holders of the Company's common stock are entitled to
receive such dividends as may be declared by its Board of Directors.
Broker-Dealer Sales of Company Securities. Upon successful application for
the trading of its securities on the over-the-counter market and until the
Company successfully obtains a listing on the NASDAQ quotation system, if
ever, the Company's securities may be covered by Rule 15g-2 under the
Securities Exchange Act of 1934 that imposes additional sales practice
requirements on broker-dealers who sell such securities to persons other
than
established customers and accredited investors (generally institutions with
assets in excess of $5,000,000 or individuals with net worth in excess of
$1,000,000 or annual income exceeding $200,000 or $300,000 jointly with
their
spouse). For transactions covered by the rule, the broker-dealer must make
a special suitability determination of the purchaser and have received the
purchaser's written agreement to the transaction prior to the sale. In
order
to approve a person's account for transactions in designated securities, the
broker or dealer must (i) obtain information concerning the person's
financial situation, investment experience and investment objectives; (ii)
reasonably determine, based on the information required by paragraph (i)
that
transactions in designated securities are suitable for the person and that
the person has sufficient knowledge and experience in financial matters that
the person reasonably may be expected to be capable of evaluating the rights
of transactions in designated securities; and (iii) deliver to the person a
written statement setting forth the basis on which the broker or dealer made
the determination required by paragraph (ii) in this section, stating in a
highlighted format that it is unlawful for the broker or dealer to effect a
transaction in a designated security subject to the provisions of paragraph
(ii) of this section unless the broker or dealer has received, prior to the
transaction, a written agreement to the transaction from the person; and
stating in a highlighted format immediately preceding the customer signature
line that the broker or dealer is required to provide the person with the
written statement and the person should not sign and return the written
statement to the broker or dealer if it does not accurately reflect the
person's financial situation, investment experience and investment
objectives
and obtain from the person a manually signed and dated copy of the written
statement. A designated security means any equity security other than a
security (i) registered, or approved for registration upon notice of
issuance on a national securities exchange that makes transaction reports
available pursuant to 17 CFR 11Aa3-1 (ii) authorized or approved for
authorization upon notice of issuance, for quotation in the NASDAQ system;
(iii) that has a price of five dollars or more or . . . (iv) whose issuer
has
net tangible assets in excess of $2,000,000 demonstrated by financial
statements dated less than fifteen months previously that the broker or
dealer has reviewed and has a reasonable basis to believe are true and
complete in relation to the date of the transaction with the person.
Consequently, the rule may affect the ability of broker-dealers to sell the
Company's securities and also may affect the ability of purchasers in this
Offering to sell their shares in the secondary market.
- ----------------------------------------------------------
TERMS OF OFFERING
- ----------------------------------------------------------
Plan of Distribution. The Company hereby offers up to 100,000 Common Shares
at the purchase price of $3.50 per Common Share. The Common Shares are
being offered on a "best efforts" basis by the Company (employees, officers
and directors) and possibly selected broker-dealers. The employees, officers
and directors who shall sell the offering on behalf of the Company are Jay
L.
King, Steven Blad, Glen (Tom) Pickell, David Sampson and Norman Kelln.
These
individuals will be relying on the safe harbor in Rule 3a4-1 of the
Securities Exchange Act of 1934 to sell the Company's securities.
No sales commission will be paid for Common Shares sold by the Company.
Selected broker-dealers shall receive a sales commission of up to 10% for
any
Common Shares sold by them. The Company reserves the right to withdraw,
cancel or reject an offer in whole or in part. The Common Shares offered
hereby will not be sold to insiders, control persons, or affiliates of the
Company. There are no plans, proposals, arrangements or understandings
with
any potential sales agent with respect to participating in the distribution
of the Company's securities. When, in the future, assuming such
participation develops, the registration statement will be amended to
identify such persons.
<PAGE>34
The Company, through its officers and directors, will undertake a best
efforts self-underwritten offering at the same time as the selling
shareholders will be selling their registered shares. Officers and
directors of the Company are participating as selling shareholders.
The Selling Shareholders may sell the Common Shares offered hereby in one or
more transactions (which may include "block" transactions in the over-the-
counter market, in negotiated transactions or in a combination of such
methods of sales, at fixed prices which may be changed, at market prices
prevailing at the time of sale, at prices related to such prevailing market
prices or at negotiated prices. The Selling Shareholders may effect such
transactions by selling the Shares directly to purchasers, or may sell to or
through agents, dealers or underwriters designated from time to time, and
such agents, dealers or underwriters may receive compensation in the form of
discounts, concessions or commissions from the Selling Shareholders and/or
the purchaser(s) of the Common Shares for whom they my act as agent or to
whom they may sell as principals, or both. The Selling Shareholders and
any agents, dealers or underwriters that act in connection with the sale of
the Common Shares might be deemed to be "underwriters" within the meaning of
Section 2(11) of the Securities Act, and any discount or commission received
by them and any profit on the resale of the Common Shares as principal might
be deemed to be underwriting discounts or commissions under the Securities
Act.
The Company will receive no portion of the proceeds from the sale of the
Common Shares by the selling shareholder and will bear all of the costs
relating to the registration of this Offering (other than any fees and
expenses of counsel for the Selling Shareholders). Any commissions,
discounts or other fees payable to a broker, dealer, underwriter, agent or
market maker in connection with the sale of any of the Common Shares will be
borne by the Selling Shareholders.
Determination of Offering Price. The offering price and other terms
of the Common Shares were arbitrarily determined by the Company after
considering the total offering amount needed and the possible dilution to
existing and new shareholders.
Offering Procedure. This Offering will terminate on or before
December 31, 1997. In the Company's sole discretion, the offering of
Common Shares may be extended for up to three Thirty day periods, but in
no event later than March 31, 1998.
Subscription Procedure. The full amount of each subscription will be
required to be paid with a check payable to the Company in the amount of
the subscription. Such payments are to be remitted directly to the Company
by the purchaser or by the soliciting broker/dealer before 12:00 noon, on
the
following business day, together with a list showing the names and
addresses of the person subscribing for the offered Common Shares or
copies of subscribers confirmations.
No Escrow Account. There is no minimum offering amount and no escrow
account. As a result, any and all offering proceeds will be deposited
directly into the operating account of the Company.
- --------------------------------------------------------------
DESCRIPTION OF SECURITIES
- --------------------------------------------------------------
Qualification. The following statements constitute brief summaries of the
Company's Certificate of Incorporation and Bylaws, as amended. Such
summaries do not purport to be complete and are qualified in their entirety
by reference to the full text of the Certificate of Incorporation and
Bylaws.
The Company's articles of incorporation authorize it to issue up to
20,000,000 Common Shares. Shares of common stock purchased in this
offering
will be fully paid and non-assessable. There are no provisions in the
Company's articles of incorporation or by-laws that would delay, defer or
prevents a change-in-control of the Company.
Pursuant to Section 23B.19.040 of the Revised Code of Washington, a target
corporation shall not engage in any significant business transaction for a
period of five years following the acquiring person's share acquisition time
unless the significant business transaction or the purchase of shares made
by
the acquiring person is approved prior to the acquiring person's share
acquisition time by a majority of the members of the board of directors of
the target corporation. Additionally, Section 23B.11.030 of the Revised
Code of Washington requires that shareholder approval be obtained to approve
any plan of merger or share exchange. These provisions could delay, defer
or prevent a change-in-control of the Company.
Common Stock. There are presently outstanding 5,640,640 Common Shares. As a
result, up to 5,740,640 Common Shares will be outstanding upon completion of
this Offering. This does not include 75,000 Common Shares reserved for
issuance pursuant to loan conversion options, 593,000 shares reserved for
issuance to key employees and others pursuant to outstanding options and
commitments.
<PAGE>35
Holders of Common Shares of the Company are entitled to cast one vote for
each share held at all shareholders meetings for all purposes. There are
no
cumulative voting rights. Upon liquidation or dissolution, each outstanding
Common Share will be entitled to share equally in the assets of the Company
legally available for distribution to shareholders after the payment of all
debts and other liabilities. Common Shares are not redeemable, have no
conversion rights and carry no preemptive or other rights to subscribe to or
purchase additional Common Shares in the event of a subsequent offering.
All
outstanding Common Shares are, and the shares offered hereby will be when
issued, fully paid and non-assessable.
There are no limitations or restrictions upon the rights of the Board of
Directors to declare dividends out of any funds legally available therefor.
The Company has not paid dividends to date and it is not anticipated that
any
dividends will be paid in the foreseeable future. The Board of Directors
initially may follow a policy of retaining earnings, if any, to finance the
future growth of the Company. Accordingly, future dividends, if any, will
depend upon, among other considerations, the Company's need for working
capital and its financial conditions at the time.
Warrants. In July, 1996, the Board of Directors authorized the
distribution of 200,000 A Warrants each exercisable into one Common Share of
the Company at the exercise price of $4.00 per Common Share, 200,000 B
Warrants each exercisable into one Common Share of the Company at the
exercise price of $6.00 per Common Share and 250,000 C Warrants each
exercisable into one Common Share of the Company at the exercise price of
$8.00 per Common Share. The A, B and C Warrants are exercisable for a
period of four years from July, 1996 and are callable with 30 days
notice at a price of $.001 per warrant. The Warrants have the same
expiration period, which the Board of Directors arbitrarily determined was
sufficient in length to allow for the growth of the Company such that the
Warrants could be deemed attractive to current Warrantholders for exercise.
These distributions were be made to the owners of record of Common Shares on
the books of the Company as of July 22, 1996.
In June 1997, the Company authorized the issuance of 200,000 Class D
Warrants. The D Warrants are exercisable into one common share at the
purchase price of $1.50. The D Warrants shall be exercisable for a period
of two years from January 31, 1997 and shall be redeemable by the Company at
$.001 per D Warrant upon thirty days notice.
The Company is registering the stock underlying its A, B, C and D Warrants
on
behalf of its selling security holders.
Transfer Agent. The Company acts as its own transfer agent. Subsequent to
the offering, the Company shall retain a separate transfer agent.
- -----------------------------------------------------------
LEGAL MATTERS
- -----------------------------------------------------------
The due issuance of the Common Shares offered hereby will be opined upon for
the Company by J. M. Walker, Attorney-At-Law, in which opinion Counsel will
rely on the validity of the Certificate and Articles of Incorporation issued
by the State of Washington, as amended and the representations by the
management of the Company that appropriate action under Washington law has
been taken by the Company.
- --------------------------------------------------------
LEGAL PROCEEDINGS
- --------------------------------------------------------
The Company is not involved in any legal proceedings as of the date of this
Prospectus.
Steven L. Forte, a consultant to, and an employee and director of the
Company, was convicted of a gambling-related third degree felony in New
Jersey in 1990, and in 1982 pled guilty to a misdemeanor trespass charge
arising from a gambling related charge emanating from Harrah's Casino in
Reno, Nevada. Such convictions could affect the Company's ability to
obtain
approval for the licensing of the Company, if required, in any number of
prospective jurisdictions. Were this to occur, Mr. Forte has agreed that
he
and the Company would restructure Mr. Forte's relationship with the Company,
and in particular, the terms of Mr. Forte's Personal Services Agreement with
the Company, in order to conform to the gaming requirements of such
jurisdictions.
- --------------------------------------------------------
EXPERTS
- --------------------------------------------------------
The audited financial statements included in this Prospectus have been so
included in reliance on the report of Winter, Scheifley & Associates, Inc.,
P.C., Certified Public Accountants, on the authority of such firm as experts
in auditing and accounting.
<PAGE>36
- --------------------------------------------------------
INTERESTS OF NAMED
EXPERTS AND COUNSEL
- --------------------------------------------------------
None of the experts or counsel named in the Prospectus are affiliated with
the Company.
<PAGE>37
Casinovations Incorporated
Balance Sheet
June 30, 1997
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Current assets:
Cash $ 161,998
Accounts receivable, trade 8,424
Accounts receivable -related parties -
Inventories 856
Prepaid expenses 5,250
-----------
Total current assets 176,528
Property and equipment, at cost, net of
accumulated depreciation of $4,326 28,473
Intangible assets 148,066
Deferred interest expense 93,000
Deposits 11,320
-----------
$ 457,387
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 36,180
Accrued wages 24,181
Shareholder loans 795,028
-----------
Total current liabilities 855,389
Stockholders' equity:
Common stock, $.001 par value,
20,000,000 shares authorized,
5,563,638 shares issue and outstanding 5,564
Additional paid-in capital 3,065,690
Unpaid subscriptions to common stock (162,500)
Accumulated deficit (3,306,756)
(398,002)
-----------
$ 457,387
</TABLE>
See accompanying notes to financial statements.
<PAGE>38
Casinovations Incorporated
Statements of Operations
Six Months Ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
<S> <C> <C>
Sales $ 632 $ 113
Other costs and expenses:
General and administrative 677,735 200,538
General and administrative - related party 3,092 6,578
Research and development 171,814 175,134
------------ -----------
852,641 382,250
------------ -----------
Income (loss) from operations (852,009) (382,137)
Other income and (expense):
Sale of patent rights 13,000
Interest income 7,074 10
Interest expense - related parties (237,582) (144,582)
------------ -----------
(217,508) (144,572)
------------ -----------
Income (loss) before income taxes (1,069,517) (526,709)
Provision for income taxes
------------ -----------
Net income (loss) $ (1,069,517) $ (526,709)
Earnings (loss) per share:
Net income (loss) $ (.20) $ (.13)
Weighted average shares outstanding 5,393,371 3,928,333
</TABLE>
See accompanying notes to financial statements.
<PAGE>39
Casinovations Incorporated
Statements of Cash Flows
Six Months Ended June 30, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
June 30, 1997 June 30, 1996
<S> <C> <C>
Net income (loss) $ (1,069,517) $ (526,709)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities:
Depreciation and amortization 11,396 2,854
Stock issued for services 69,999 45,000
Amortization of deferred interest 93,000
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (5,591) (100)
(Increase) decrease in inventory
(Increase) decrease in prepaid expenses (4,526)
(Increase) decrease in other assets (5,201)
Increase (decrease) in accounts payable and
accrued expenses (150,842) (16,700)
------------ ------------
Total adjustments 8,235 31,054
------------ ------------
Net cash (used in)
operating activities (1,061,282) (495,655)
Cash flows from investing activities:
Acquisition of plant and equipment (18,996) (2,600)
Increase in patents and trademarks (10,949) (36,049)
------------ ------------
Net cash (used in) investing activities (29,945) (38,649)
Cash flows from financing activities:
Common stock sold for cash 600,010 45,000
Increase in amounts due officers and shareholder 100,337 486,202
------------ ------------
Net cash provided by
financing activities 700,347 531,202
------------ ------------
Increase (decrease) in cash (390,880) (3,102)
Cash and cash equivalents,
beginning of period 552,878 1,452
------------ ------------
Cash and cash equivalents,
end of period $ 161,998 $ (1,650)
</TABLE>
See accompanying notes to financial statements.
<PAGE>40
Casinovations Incorporated
Notes to Financial Statements
Basis of presentation
The accompanying unaudited financial statements have been prepared in
accordance with generally accepted accounting principles for interim
financial information and with the instructions incorporated in Regulation
10-SB of the Securities and Exchange Commission. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments and
accruals) considered necessary for a fair presentation have been included.
The results of operations for the periods presented are not necessarily
indicative of the results to be expected for the full year. The accompanying
financial statements should be read in conjunction with the Company's
financial statements for the year ended December 31, 1996, included
elsewhere
herein.
Loss per share was computed using the weighted average number of common
shares outstanding.
During the period ended June 30, 1997 the Company issued 400,000 shares of
its common stock for cash aggregating $600,010. Additionally, the Company
issued 155,000 shares of common stock to consultants and others for services
valued at $232,500 ($1.50 per share) and issued 45,122 shares for the
conversion of debt of $45,122 to related parties pursuant to conversion
provisions included in the debt instruments.
Certain of the shares issued to a consultant and an advertiser were for
future services to be provided to the Company. The amounts attributable to
unearned services have been accounted for as unpaid subscriptions to common
stock in the accompanying balance sheet.
Also during the period ended June 30, 1997, the Company borrowed an
additional $100,337 from its shareholders on terms similar to existing
shareholder loans.
<PAGE>41
INDEPENDENT AUDITOR'S REPORT
Board of Directors and Stockholders
Casinovations Incorporated
(A Development Stage Company)
We have audited the balance sheet of Casinovations Incorporated as of
December 31, 1996, and the related statements of income, changes in
stockholders' equity, and cash flows for each of the two years in the
period then ended and for the period from inception (April 29, 1994)
to December 31, 1996. 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 financial statements referred to above, present
fairly, in all material respects, the financial position of
Casinovations Incorporated as of December 31, 1996, and the results
of its operations and cash flows for each of the two years in the
period then ended and for the period from inception (April 29, 1994)
to December 31, 1996, in conformity with generally accepted
accounting principles.
Winter, Scheifley & Associates, P.C.
Certified Public Accountants
Englewood, Colorado
March 27, 1997
<PAGE>42
Casinovations Incorporated
(A Development Stage Company)
Balance Sheet
December 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
1996
Current assets:
Cash $ 552,878
Accounts receivable 2,833
Inventory 856
Prepaid expenses 724
-----------
Total current assets 557,291
Property and equipment, at cost, net of
accumulated depreciation of $1,686 12,117
Other assets:
Patents and trademarks 145,873
Other 6,119
-----------
151,992
-----------
$ 721,400
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 45,186
Accounts payable - related parties 61,666
Accrued wages 91,950
Accrued expenses 12,401
Amounts due affiliates 650,034
-----------
Total current liabilities 861,237
Long term debt 89,779
Commitments and contingencies (Note 5)
Stockholders' equity:
Common stock, $.001 par value,
20,000,000 shares authorized,
4,963,510 issued and outstanding 4,964
Additional paid-in capital 1,956,159
(Deficit) accumulated during
development stage (2,190,739)
-----------
(229,616)
-----------
$ 721,400
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>43
Casinovations Incorporated
(A Development Stage Company)
Statement of Operations
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Period from
Inception
(April 29, 1994)
to December 31,
1996 1995 1996
------ ------ ------
<S> <C> <C> <C>
Revenues $ 2,450 $ 285 $ 2,735
Other income 1,803 1,803
----------- ----------- -----------
4,253 28 4,538
Costs and expenses:
General and administrative expenses 1,318,327 133,315 1,521,815
General and administrative expenses - related party 52,313 24,455 76,768
Research and development - related party 244,117 436,871 706,956
----------- ----------- -----------
1,614,757 594,641 2,305,539
Interest expense - related parties 27,723 14,401 42,124
----------- ----------- -----------
27,723 14,401 42,124
Net (loss) $ (1,638,227) $ (608,757) $ (2,343,125)
=========== =========== ===========
Earnings (loss) per share:
Net income (loss) $ (0.40) $ (0.21) $ (0.71)
=========== =========== ===========
Weighted average shares outstanding 4,133,909 2,867,165 3,306,649
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>44
Casinovations Incorporated
(A Development Stage Company)
Statement of Changes in Stockholders' Equity
For the Period From Inception (April 29, 1994) to December 31, 1996
<TABLE>
<CAPTION>
Deficit
Additional Accumulated
Common Stock Paid-in During
Develop-
ACTIVITY Shares Amount Capital ment Stage
Total
<S> <C> <C> <C> <C>
<C>
Capital contributed by partners $ - $ 101,845 $ - $ 101,845
Net (loss) for the period (96,141) (96,141)
---------- ---------- ---------- ----------
Balance, December 31, 1994 101,845 (96,141) 5,704
Issue shares to founders (September 1995) 3,775,000 3,775 297,330 301,105
Issuance of stock in private sales:
October 1995 at $1.00 130,000 13 129,870 130,000
(less cost of offering) (7,206) (7,206)
Net (loss) for the year (608,757) (608,757)
Reclassification of partnership losses (152,386) 152,386
---------- ---------- ---------- ----------
Balance, December 31, 1995 3,905,000 3,905 369,453 (552,512)
Issuance of stock in private sales:
March 1996 at $1.50 20,000 20 29,980 30,000
April 1996 at $1.50 10,000 10 14,990 15,000
July 1996 at $1.50 10,000 10 14,990 15,000
October 1996 at $1.50 186,000 186 278,814 279,000
November 1996 at $1.50 302,400 302 453,298 453,600
December 1996 at $1.50 63,110 63 94,602 94,665
Issuance of stock for services:
June 1996 at $1.50 30,000 30 44,970 45,000
October 1996 at $1.50 262,000 262 392,738 393,000
December 1996 at $1.50 175,000 175 262,325 262,500
Net (loss) for the year (1,638,227)
---------- ---------- ---------- ----------
Balance, December 31, 1996 4,963,510 $ 4,964 $ 1,956,159 $ (2,190,739)
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
</R.
<PAGE>45
Casinovations Incorporated
(A Development Stage Company)
Statements of Cash Flows
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Period from
Inception
(April 29, 1994)
to December 31,
1996 1995 1996
------ ------ ------
<S> <C> <C> <C>
Net income (loss) $ (1,638,227) $ (608,757) $ (2,343,125)
Adjustments to reconcile net income to net
cash provided by operating activities:
Stock issued for services 700,500 700,500
Interest added to loan balances 23,245 23,245
Equipment exchanged for services 2,903 2,903
Depreciation and amortization 2,553 73 4,227
Changes in assets and liabilities:
(Increase) in accounts receivable (2,833) (2,833)
(Increase) in inventory (856) (856)
(Increase) in prepaid expenses (300) (424) (724)
(Increase) in other assets (6,119) (6,119)
Increase (decrease) in accounts payable (73,330) 180,182 106,852
Increase in accrued expenses 104,351 104,351
----------- ----------- -----------
Total adjustments 750,970 179,634 931,546
----------- ----------- -----------
Net cash provided by (used in)
operating activities (887,257) (429,123) (1,411,579)
Cash flows from investing activities:
Acquisition of plant and equipment (12,969) (19,247)
Increase patents and trademarks (65,781) (67,909) (145,873)
----------- ----------- -----------
Net cash provided by (used in)
investing activities (78,750) (67,909) (165,120)
Cash flows from financing activities:
Capital contributions by partners 301,105 402,950
Common stock sold for cash 887,265 122,794 1,010,059
Increase in stockholder loans 630,168 66,400 716,568
----------- ----------- -----------
Net cash provided by (used in)
financing activities 1,517,433 490,299 2,129,577
----------- ----------- -----------
Increase (decrease) in cash 551,426 (6,733) 552,878
Cash and cash equivalents,
beginning of period 1,452 8,185 -
----------- ----------- -----------
Cash and cash equivalents,
end of period $ 552,878 $ 1,452 $ 552,878
=========== =========== ===========
Supplemental cash flow information:
Cash paid for interest $ - $ - $ -
Cash paid for income taxes $ - $ - $ -
</TABLE>
See accompanying notes to financial statements.
<PAGE>46
Casinovations Incorporated
Notes to Financial Statements
December 31, 1996 and 1995
Note 1. ORGANIZATION
The Company. was incorporated on September 20, 1995, in the State of
Washington. The Company is in the business of developing and
distributing products related to the gaming industry. The Company
has not recorded significant revenues to date and is considered to be
in its development stage. The Company's principal products are an
electronic card shuffling device, a table game similar to the card
game "blackjack" and playing cards designed to assist the dealer in
the game of "blackjack". The Company is a continuation of a
partnership known as Sharps International, (Sharps) which was formed
in April 1994 and whose principal business activity was the
development of an electronic card shuffler. The foregoing financial
statements present the operations of the Company and Sharps from the
inception of Sharps.
SIGNIFICANT ACCOUNTING POLICIES
Estimates:
The preparation of the Company's financial statements requires
management to make estimates and assumptions that effect the amounts
reported in the financial statements and accompanying notes. Actual
results could differ from these estimates.
Fixed assets:
The company depreciates its office equipment utilizing the straight
line method over a period of five years. Depreciation expense
amounted to $2,553 and $1,674 for the years ended December 31, 1996
and 1995, respectively.
Intangible assets
The Company has applied for patents for certain of its products.
Patent and trademark costs aggregating $145,873 will be amortized
using the straight line method over a period of ten years when sales
begin.
Organization costs aggregating $6,395 are amortized using the
straight line method over a period of five years and are stated net
of accumulated amortization of $1,279 at December 31, 1996.
Net loss per share:
The net loss per share is computed by dividing the net loss for the
period by the weighted average number of common shares outstanding
for the period. Common stock equivalents are excluded from the
computation as their effect would be anti-dilutive.
Revenue recognition:
The Company recognizes revenue from the sale of its products upon
shipment to the customer.
Cash and cash equivalents
Cash and cash equivalents consist of cash and other highly liquid
debt instruments with a maturity of less than three months.
Fair value of financial instruments
The Company's short-term financial instruments consist of cash and cash
equivalents, accounts and loans receivable, and payables and accruals.
The carrying amounts of these financial instruments approximates fair
value because of their short-term maturities. Financial instruments
that potentially subject the Company to a concentration of credit risk
consist principally of cash and accounts receivable, trade. During the
year the Company maintained cash deposits at financial institutions in
excess of the $100,000 limit covered by the Federal Deposit Insurance
Corporation.
Stock-based Compensation
The Company adopted Statement of Financial Accounting Standard No. 123
(FAS 123), Accounting for Stock-Based Compensation beginning with the
Company's first quarter of 1996. Upon adoption of FAS 123, the Company
continued to measure compensation expense for its stock-based employee
compensation plans using the intrinsic value method prescribed by APB
No. 25, Accounting for Stock Issued to Employees, and has provided in
Note 2 pro forma disclosures of the effect on net income and earnings
per share as if the fair value-based method prescribed by FAS 123 had
been applied in measuring compensation expense.
Note 2. STOCKHOLDERS' EQUITY
During the periods covered by these financial statements the Company
issued securities in reliance upon an exemption from registration
with the Securities and Exchange Commission. Although the Company
believes that the sales did not involve a public offering and that it
did comply with the exemptions from registration, it could be liable
for rescission of said sales if such exemption was found not to
<PAGE>47
apply. The Company has not received a request for rescission of
shares nor does it believe that it is probable that its shareholders
would pursue rescission nor prevail if such action were undertaken
At inception, (September 20, 1995) the Company issued 3,775,000
shares of its $.001 par value common stock to the partners of Sharps
on a pro rata basis in exchange for their respective partnership
interests.
During October 1995 the Company sold 130,000 shares of its common
stock to a limited group of investors for cash at $1.00 per share.
During July 1996 the Company entered into a one year consulting agreement
with an entity whereby the entity would provide financial consulting
services
to the Company. Pursuant to the agreement, the entity agreed to assist the
Company in preparing a private placement memorandum to obtain equity
financing of a minimum amount of $450,000 and to assist the Company in
completing the offering.
In exchange for these services, the Company agreed to pay $45,000 in cash
and
to issue 100,000 shares of its $.001 par value common stock valued at
$150,000. The Company also granted the consultant an option to purchase
50,000 shares of common stock at $1.50 for a two year period. During
February 1997, the Company issued an additional 100,000 shares to the
consultant for a one year extensio of the contract. The shares were valued
at $150,000. Additionally, in 1996, the Company issued 75,000 shares of
its
$.001 par value common stock valued at $112,500 to other unrelated
individuals for consulting services provided to the Company. These amount
have been included in general and administrative expenses in 1996 in the
accompanying Statement of Operations.
During July 1996, the Company authorized the issuance of 200,000 each of
A,B,
and 250,000 of C stock purchase warrants exercisable as follows:
$4.00 plus one A warrant for each share of common stock
$6.00 plus one B warrant for each share of common stock
$8.00 plus one C warrant for each share of common stock
The warrants are exercisable for a period of 48 months from the date
of issue, and are callable with 30 days notice at a price of $.001
per warrant.
During March 1996 the Company began offering shares of its common
stock at $1.50 per share pursuant to a private placement. Through
December 31, 1996, the Company issued 441,150 shares of common stock
for net cash proceeds aggregating $662,265. Additionally during 1996
the Company issued an aggregate of 290,000 shares (including the
consulting shares described above) to consultants and others. The
shares were valued at fair value of $1.50 per share.
During June, 1996, the Company agreed to issued 327,000 shares of its common
stock to its principal shareholder in exchange for conversion of $150,000 of
cash advanced to the Company during 1996. The excess of the fair value of
the stock at $1.50 per share over the loan amount was charged to expense.
Subsequent to December 31, 1996 the Company sold an additional 236,667
shares
of its common stock pursuant to the private placement for an aggregate of
$355,450 and issued 127,500 to consultants for services valued at $191,250.
The weighted average fair value at the date of grant for options granted
during 1996 as described above was $.17 per option. The fair value of
the options at the date of grant was estimated using the Black-Scholes
model with assumptions as follows:
Market value $1.50
Expected life 2
Interest rate 5.15%
Volatility 10%
Dividend yield 0.00%
Stock based compensation costs would have reduced pretax income by
$8,600 in 1996 ($.00 per share) if the fair value of the options granted
during 1996 had been recognized as compensation expense.
Note 3. INCOME TAXES
Deferred income taxes may arise from temporary differences resulting
from income and expense items reported for financial accounting and
tax purposes in different periods. Deferred taxes are classified as
current or non-current, depending on the classification of assets and
liabilities to which they relate. Deferred taxes arising from
temporary differences that are not related to an asset or liability
are classified as current or non-current depending on the periods in
which the temporary differences are expected to reverse. The
deferred tax asset resulting from the operating loss carryforward
described below has been fully reserved.
<PAGE>48
The Company currently has net operating loss carryforwards
aggregating approximately $1,400 000 which expire beginning in 2010.
The principal difference between the Company's book operating losses
and income tax operating losses results from the issuance of common
stock during 1996 for services.
Note 4. RELATED PARTY TRANSACTIONS
During the year ended December 31, 1996, certain officers and
shareholders made advances to the Company for working capital
purposes. The balances payable by the Company aggregated $650,034 at
December 31, 1996. The advances accrue interest at between 9.5% and
14.5% per annum. One of the advances in the amount of $250,000 from
the Company's major stockholder provides for repayment of the loan,
at the option of the stockholder, by the issuance of the Company's
common stock at a conversion rate of $.82 per share. Additionally,
the Company paid an aggregate of $24,455 in 1995 and $52,313 in 1996
to a company controlled by one of its officers for administrative
services provided to the Company. At December 31, 1996, the Company
had a balance due to this company of $1,882. The Company incurred
research and development costs aggregating $244,117 and $436,871
during the years ended December 31, 1996 and 1995, respectively from
a company controlled by a member of its board of directors, and had a
balance due to this company of $59,784 at December 31, 1996.
Note 5. LONG-TERM DEBT
During 1995, the Company borrowed $75,000 from two individuals with
interest payable at 15% per annum due January 2, 1998. Interest
accrued through December 31, 1996 has been added to the loan amounts.
Note 6. COMMITMENTS AND CONTINGENCIES
During October, 1996 (amended March 26, 1997), the Company entered
into a lease for office space for a thirty month period ending March
31, 1999 at a monthly rental of $2,694, including maintenance costs.
Rent expense was $8,939 for the years ended December 31, 1996. The
Company shared office space with the affiliated company discussed in
Note 4 prior to October 1996.
Future minimum rentals under the lease are as follows:
1997: $32,328 1998: $32,328 1999: $8,082
The Company primary business activity since its inception has been
the completion of research and development for its electronic
shuffling machine. Substantially all of the costs associated with
this research and development have been paid to an unaffiliated
engineering and design company. A prototype shuffling machine was
delivered to the Company during 1996. The Company believes that it
has fulfilled it's contractual obligations to the design company and
has retained the services of another company for refinements to the
prototype and commencement of manufacture of the device. The
Company's ability to complete its development stage and begin product
sales is dependent upon the successful manufacture of its products.
<PAGE>49
PART II
INFORMATION NOT REQUIRED BY PROSPECTUS
Item 24. Indemnification of Officers and Directors.
The By-Laws of the Company provides that a director of the registrant
shall have no personal liability to the Registrant or its stockholders for
monetary damages for breach of a fiduciary duty as a director, except for
liability (a) for any breach of the director's duty of loyalty to the
Registrant or its stockholders, (b) for acts and omissions not in good faith
or which involve intentional misconduct or a knowing violation of law, and
(c) pursuant to Canadian law for any transaction form which the director
derived an improper personal benefit. Registrant's By-Laws exculpates and
indemnifies the directors, officers, employees, and agents of the registrant
from and against certain liabilities. Further the By-Laws also provides
that
the Registrant shall indemnify to the full extent permitted under Canadian
law any director, officer employee or agent of Registrant who has served as
a director, officer, employee or agent or the Registrant or, at the
Registrant's request, has served as a director, officer, employee or agent
of
another corporation, partnership, joint venture, trust or other enterprise.
INDEMNIFICATION OF OFFICERS OR PERSONS CONTROLLING THE COMPANY
FOR LIABILITIES ARISING UNDER THE SECURITIES ACT OF 1933, IS HELD TO BE
AGAINST PUBLIC POLICY BY THE SECURITIES AND EXCHANGE COMMISSION AND IS
THEREFORE UNENFORCEABLE.
Item 25. Other Expenses of Issuance and Distribution.
Other expenses in connection with this offering which will be paid
by Casinovations Incorporated (hereinafter in this Part II referred to as
the "Company") are estimated to be substantially as follows:
<TABLE>
Amount
Payable
Item By Company
<S> <C>
S.E.C. Registration Fees 3,919.53
State Securities Laws (Blue Sky) Fees and Expenses 3,500.00
Printing and Engraving Fees 7,500.00
Legal Fees 15,000.00
Accounting Fees and Expenses 8,000.00
Transfer Agent's Fees 1,500.00
Miscellaneous 2,500.00
---------
Total 41,919.53
</TABLE>
Item 26. Recent Sales of Unregistered Securities.
In September, 1995, the Company issued common shares to the partners of
Sharps on a pro rata basis in exchange for their respective partnership
interests. These issuances were made in reliance on Section 4(2) by
Registrant's management to sophisticated investors who had access to
information on the Company necessary to make an informed investment
decision.
<TABLE>
<CAPTION>
Name Total Number
of Shares Date Issued
<S> <C> <C>
Stacy Haskins 15,478 9/1/95
Martin Petri 15,478 9/1/95
Michael Szeremeta 15,477 9/1/95
Sines-Forte Partnership 1,261,900 9/1/95
Cheryl Forte 254,610 9/1/95
Richard S. Huson 1,025,285 9/1/95
Leonard A. Hale 15,478 9/1/95
David A. Krise 61,910 9/1/95
Norman G. Kelln 113,628 9/1/95
John F. Curran 10,193 9/1/95
Randy D. Sines 254,610 9/1/95
David E. Sampson 40,955 9/1/95
</TABLE>
During October, 1995, the Company issued 130,000 for cash consideration of
$130,000. These issuances were made in reliance on Section 4(2) by
Registrant's management to sophisticated investors who had access to
information on the Company necessary to make an informed investment
decision.
<PAGE>50
<TABLE>
Name Total Number Cash
of Shares Date Issued
Consideration
<S> <C> <C> <C>
Jay Willoughby 50,000 10/6/95 $50,000
David Goldsmith 50,000 10/6/95 $50,000
C. Culver Smith 30,000 10/27/95 $30,000
</TABLE>
From March 15, 1995 to January 28, 1997, the Company pursued a private
placement at $1.50 per common shares and issued a total of 828,177 to the
following individuals for aggregate cash consideration of $1,232,265.50.
These issuances were made in compliance with Rule 505, Regulation D of the
Securities Act of 1933 by Registrant's management, consultants and selected
broker/dealers. No commissions or other remuneration was paid to anyone.
No general solicitation was utilized. There was less than 35 nonaccredited
investors. The determination of whether an investor was accredited or
nonaccredited was based on the responses in the subscription agreement
filled
out by each investor.
<TABLE>
Name Total Number Cash
of Shares Date Issued
Consideration
<S> <C> <C> <C>
Don Ludwick 20,000 3/26/96 $30,000
William Martin 10,000 4/12/96 $15,000
Adam Chase 10,000 7/11/96 $15,000
Adam W. Jaslow 30,000 10/25/96 $45,000
Jennifer L. Jaslow 100,000 10/25/96 $150,000
John Horstmann 6,000 10/25/96 $9,000
Richard S. Jaslow, IRA 100,000 11/1/97 $150,000
Lori K. Jaslow Trust 20,000 11/1/96 $30,000
Adam Jaslow Trust 70,000 11/1/96 $105,000
John Plati 20,000 11/12/96 $30,000
Doris Ljubicich 3,400 11/12/96 $5,100
Joseph Hroncich 3,000 11/12/96 $4,500
John S. Cole 3,000 11/12/96 $4,500
Vito Bavaro 3,000 11/12/96 $4,500
Lori K. Jaslow, Trust 80,000 11/14/96 $120,000
Kevo Plumbing & Heating 10,000 11/16/96 $20,000
Tami L. Dirienzo 6,000 11/16/96 $9,000
Peter Jankowski 10,000 11/16/96 $15,000
Rinaldo C. Forcellati 3,000 11/16/96 $4,500
Frank Stein 3,000 11/16/96 $4,500
Joan Carranza 3,000 11/16/96 $4,500
Joseph Criscione Sr. 3,000 11/16/96 $4,500
Paul M. Reichenberg 6,000 11/16/96 $9,000
Kathleen M. Mahaffey 3,000 11/16/96 $4,500
Balieri Associates 3,000 11/16/96 $4,500
William S. Dean 6,000 12/1/96 $9,000
Victor & Lana Woinski 3,000 12/11/96 $4,500
James J. & Sheila Criscione 3,000 12/11/96 $4,500
Catherine O'Connell 3,400 12/11/96 $5,100
Joseph & Ida Dellaroba 3,000 12/11/96 $4,500
Mark R. Alleman 3,000 12/11/96 $4,500
William Megnin 3,400 12/11/96 $5,100
James P. Rose 3,000 12/11/96 $4,500
Mark Megnin 3,000 12/11/96 $4,500
Danial Morgan & Sara
Andelina 3,010 12/11/96 $4,515
Richard P. Keshishian 3,000 12/11/96 $4,500
Robert Jouas 4,000 12/11/96 $6,000
David E. & Margaret Winkelman 3,000 12/11/96 $3,000
Carl & Birte Mainardi 3,400 12/11/96 $5,100
Mark Megnin & Helen Connor 3,400 12/11/96 $5,100
Paul S. & Renee Spiegler 6,500 12/11/96 $9,750
Diana Forcellati 3,000 12/16/96 $4,500
Richard Napolitano 3,000 12/11/96 $4,500
Jeremy B. & W. Stern 10,000 1/6/97 $15,000
Aldo R. Beretta 1993
Family Trust 10,000 1/6/97 $15,000
Dr. David Ade 10,000 1/6/97 $15,000
Michael Schaeffer 10,000 1/6/97 $15,000
Joseph & Julie Vaccaro 7,000 1/6/97 $10,500
George & Selma Spiegler 3,000 1/6/97 $4,500
Susan Jaslow 50,000 1/27/97 $75,000
Maria Cunha IRA 8,500 1/28/97 $12,750
Henry and John Horstmann 8,000 1/28/97 $12,000
Antonio Tommolillo 3,000 1/28/97 $4,500
Salvatore LaCognata 3,000 1/28/97 $4,500
Harry & Adele Conti 3,000 1/28/97 $4,500
Nicola Attanasio 5,000 1/28/97 $7,500
Lawrence Mendosa 5,000 1/28/97 $7,500
Janet Ausiello 5,000 1/28/97 $7,500
Michael Ausiello 5,000 1/28/97 $7,500
Mark Malzberg 6,000 1/28/97 $9,000
Laura Giostra 6,700 1/28/97 $10,050
David Lupo 3,000 1/28/97 $4,500
Peter O'Hare, Jr. 4,000 1/28/97 $6,000
<PAGE>51
Giovanni Granata 3,000 1/28/97 $4,500
Mario Tommolillo 4,000 1/28/97 $6,000
Jeffrey Kerne 6,000 1/28/97 $9,000
Gino Ramundo 6,000 1/28/97 $9,000
Evelyn Alleman 3,000 1/28/97 $3,000
Thelma Zube 3,400 1/28/97 $5,100
Vincent & F. Ponte 6,667 1/28/97 $10,000
Laura Giostra 6,700 1/28/97 $10,050
Philip & Concetta Vincenti 6,800 1/28/97 $10,200
Andrew Lesnak 3,400 1/28/97 $5,100
Susan Miller 6,700 1/28/97 $10,050
Uphill c/o Paul Scott 9,400 1/28/97 $14,100
Martin Feldman 3,400 1/28/97 $5,100
Mark DeLorenoz 3,000 1/28/97 $4,500
</TABLE>
On June 29, 1996, the Company issued 30,000 Common Shares to David Krise in
exchange for patents valued at $45,000. This issuance was made in reliance
on
Section 4(2) by Registrant's management to a sophisticated investor who had
access to information on the Company necessary to make an informed
investment
decision.
In July, 1996, the Board of Directors authorized the distribution of 200,000
A Warrants each exercisable into one Common Share of the Company at the
exercise price of $4.00 per Common Share, 200,000 B Warrants each
exercisable
into one Common Share of the Company at the exercise price of $6.00 per
Common Share and 250,000 C Warrants each exercisable into one Common Share
of
the Company at the exercise price of $8.00 per Common Share. The A, B and
C
Warrants are exercisable for a period of 48 months from the date of issue
and
are callable with 30 days notice at a price of $.001 per warrant. These
distributions were be made to the owners of record of Common Shares on the
books of the Company as of July 22, 1996. These issuances were made in
reliance on Section 4(2) by Registrant's management to sophisticated
investors who had access to information on the Company necessary to make an
informed investment decision.
During October, 1996, the Company issued 327,000 Common Shares to Richard
Huson for the conversion of a loan and accrued interest amounting to
$340,500. This issuance was made in reliance on Section 4(2) by
Registrant's management to an accredited investor.
In the fourth quarter of 1996 and the first quarter of 1997, the Corporation
issued an aggregate of 345,000 common shares to consultants for services
valued at $545,000 in the aggregate and officers and directors of the
Corporation (Steven Blad, David Sampson and Jay L. King) pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933
who had access to information on the Company necessary to make an informed
investment decision.
<TABLE>
<CAPTION>
Name Total Number Services
of Shares Date Issued Valued At
<S> <C> <C> <C>
Gaming Venture Corp. 100,000 12/28/96 $150,000
50,000 2/20/97 $75,000
50,000 2/28/97 $75,000
Pratt, Wylce & Lords 25,000 12/2/96 $37,500
4,100 2/20/97 $6,150
Clinton Clark 50,000 12/2/96 $75,000
10,900 2/20/97 $16,350
Steven Blad 10,000 2/20/97 $15,000
Micro Cap World, L.L.C. 10,000 2/20/97 $15,000
Jay L. King 25,000 10/02/96 $37,500
David Sampson 10,000 10/02/96 $15,000
</TABLE>
On March 31, 1997, the Corporation issued 45,122 Common Shares to Cheryl and
Steve Forte for the conversion of a loan whose principal and interest amount
was $45,122. This issuance was made in reliance on Section 4(2) by
Registrant's management to sophisticated investors who had access to
information on the Company necessary to make an informed investment
decision..
During May and June, 1997, the Corporation issued the following Common
Shares
to sophisticated investors who had access to information on the Company
necessary to make an informed investment decision for cash consideration or
services pursuant to an exemption from registration under Section 4(2) of
the
Securities Act of 1933.
<PAGE>52
<TABLE>
<CAPTION>
Name Total Number Cash
of Shares Date Issued Consideration (1)
or Services
Valued At (2)
<S> <C> <C> <C>
Jayport Holdings, Inc. (BUI) 20,339 5/2/97 $30,509 (1)
Glenn Fine 30,000 6/5/97 $45,000 (1)
Casino Journal of Nevada, Inc. 20,000 6/5/97 $30,000 (2)
Robert Smith 6,000 6/12/97 $9,000 (1)
John Wasden 5,000 6/12/97 $7,500 (1)
Althea Duggins 1,000 6/12/97 $1,500 (1)
James Beard 1,000 6/12/97 $1,500 (1)
</TABLE>
In June 1997, the Company issued 100,000 Class D Warrants to Richard Huson,
a
majority shareholder of the Company and 100,000 D Warrants to Gaming Venture
Corp., U.S.A., a consultant of the Company for services valued at $2,000.
These issuances were made in reliance on Section 4(2) by Registrant's
management to Mr. Huson, an accredited investor and Gaming Venture Corp.,
U.S.A. a sophisticated investor who had access to information on the Company
necessary to make an informed investment decision..
Item 27. Exhibit Index.
<TABLE>
<S> <C>
(1) Not Applicable
(2) Not Applicable
(3) Certificate of Incorporation incorporated by reference to
Form SB-2 filed on July 16, 1997, S.E.C. File Number 333-
31373
(3.1) Amendment to Articles of Incorporation dated October 14,
1996 incorporated by reference to Form SB-2 filed on July
16, 1997, S.E.C. File Number 333-31373
(3.2) Amendment to Articles of Incorporation dated February 18,
1997 incorporated by reference to Form SB-2 filed on July
16, 1997, S.E.C. File Number 333-31373
(3.3) Bylaws incorporated by reference to Form SB-2 filed on
July
16, 1997, S.E.C. File Number 333-31373
(4) Specimen certificate for Common Stock incorporated by
reference to Form SB-2 filed on July 16, 1997, S.E.C. File
Number 333-31373
(4.1) Specimen Warrant certificate incorporated by reference to
Form SB-2 filed on July 16, 1997, S.E.C. File Number 333-
31373
(5) Consent and Opinion of Jody M. Walker regarding
legality of securities registered under this
Registration Statement and to the
references to such attorney in the Prospectus filed
as part of this Registration Statement 55
(6) Not Applicable
(7) Not Applicable
(8) Not Applicable
(9) Not Applicable
(10.1) Consulting Agreement of GameTek and Steven J. Blad dated
February 1, 1997 incorporated by reference to Form SB-2
filed on July 16, 1997, S.E.C. File Number 333-31373
(10.2) Consulting Agreement with Gaming Venture Corp., U.S.A.
dated July 8, 1996 incorporated by reference to Form SB-2
filed on July 16, 1997, S.E.C. File Number 333-31373
(10.3) Exclusive Distributorship Agreement with Sodak Gaming,
Inc.
dated April 23, 1997 incorporated by reference to Form SB-
2
filed on July 16, 1997, S.E.C. File Number 333-31373
(10.4) Exclusive Distributorship Agreement with RGB SDN BHD dated
February 19, 1997 incorporated by reference to Form SB-2
filed on July 16, 1997, S.E.C. File Number 333-31373
(10.5) Exclusive Distributorship Agreement with B. Joel Rahn
dated
June 1, 1997 incorporated by reference to Form SB-2 filed
on July 16, 1997, S.E.C. File Number 333-31373
(10.6) Exclusive License Agreement with George C. Matteson Co.,
Inc. incorporated by reference to Form SB-2 filed on July
16, 1997, S.E.C. File Number 333-31373
(10.7) License Agreement with United States Playing Card Company
incorporated by reference to Form SB-2 filed on
July 16, 1997, S.E.C. File Number 333-31373
(10.8) Royalty Agreement with Sines/Forte Partnership dated June
15, 1996 incorporated by reference to Form SB-2 filed on
July 16, 1997, S.E.C. File Number 333-31373
(10.9) Promissory Note with Richard Huson dated July 8, 1997
incorporated by reference to Form SB-2 filed on July 16,
1997, S.E.C. File Number 333-31373
(10.10) Collateral Loan Agreement with Gaming Venture Corp.,
U.S.A. 56
(11) Not Applicable
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) Not Applicable
(16) Not Applicable
(17) Not Applicable
<PAGE>53
(18) Not Applicable
(19) Not Applicable
(20) Not Applicable
(21) Not Applicable
(22) not Applicable
(23) Not Applicable
(24) Consent of Winter, Scheifley & Associates, P.C. 80
(25) Not Applicable
(26) Not Applicable
(27) Financial Data Schedule 81
(28) Not Applicable
(99) Employment Agreement of Jay L. King dated January 1, 1997
incorporated by reference to Form SB-2 filed on July
16, 1997, S.E.C. File Number 333-31373
(99.1) Employment Agreement with Randy D. Sines dated March 31,
(99.2) Employment Agreement with Steven L. Forte dated March 31,
1996 82
(99.3) Agreement (Third Round Funding) 136
(99.4) Amendment to Employment Agreement (Personal Service
Agreement) and Convenant Not to Compete and Funding
Agreements dated September 8, 1997 138
(99.5) Selected Dealer Agreement 147
</TABLE>
Item 28. Undertaking.
The undersigned registrant hereby undertakes:
(a)(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this Registration Statement:
(I) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after the
effective date of the Registration Statement (or the most recent post-
effective amendment thereof) which, individually or in the aggregate,
represent a
fundamental change in the formation set forth in the Registration Statement.
(iii) To include any additional or changed material information on the
plan of distribution.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, each such post-effective amendment shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(b) Delivery of Certificates.
The undersigned registrant hereby undertakes to provide to the
Transfer Agent at the closing, certificates in such denominations and
registered in such names as are required by the Transfer Agent to permit
prompt delivery to each purchaser.
(c) Indemnification.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the registrant pursuant to the provisions set forth
in
the Company's Articles of Incorporation or otherwise, the registrant has
been
advised that in the opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of
expenses incurred or paid by a director, officer or controlling person of
the
registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the registrant will, unless in the opinion
of its counsel the matter has been settled by controlling precedent, submit
to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
<PAGE>54
SIGNATURES
In accordance with the requirements of the Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets
all
of the requirements of filing on Form SB-2 and authorized this registration
statement to be signed on its behalf by the undersigned, in the City of
Las Vegas, State of Nevada on the 12th the day of September, 1997.
Casinovations, Inc.
/s/Steven Blad
--------------------------------
By:, Steven Blad President
In accordance with the requirements of the Securities Act of 1933, this
registration statement was signed by the following persons in the capacities
and on the dates stated.
<TABLE>
Signature Capacity Date
<S> <C> <C>
/s/Glen (Tom) Pickell Chief Executive Officer
- ------------------- Director Sept. 12,
1997
/s/Jay L. King controller/Director
- ------------------- Principal Financial Officer Sept. 12,
1997
/s/Steven Forte Director Sept. 12,
1997
- -------------------
/s/David Sampson Director Sept. 12,
1997
- -------------------
/s/Norman Kelln Director Sept. 12,
1997
- -------------------
</TABLE>
<PAGE>55
Jody M. Walker
7841 South Garfield Way
Littleton, Colorado 80122
Telephone (303) 850-7637
Facsimile (303) 220-9902
September 12, 1997
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Dear Sirs:
Re: OPINION RE: LEGALITY AND CONSENT OF COUNSEL TO USE OF NAME IN
AMENDMENT 1 TO THE REGISTRATION STATEMENT ON FORM SB-2 OF
CASINOVATIONS, INC.
I am securities counsel for the above mentioned corporation and I have
prepared Amendment 1 to the registration statement on Form SB-2. I hereby
consent to the inclusion and reference to my name in Amendment 1 to the
Registration Statement on Form SB-2 for Casinovations, Inc.
It is my opinion that the securities of Casinovations, Inc. and those which
are registered with the Securities and Exchange Commission pursuant to Form
SB-2 Registration Statement of Casinovations, Inc. have been legally issued
and will be, when sold, legally issued, fully paid and non-assessable.
Yours very truly,
/s/ Jody M.
Walker
-------------------
- -
<PAGE>56
Terms Of collateral Loan For Casinovations Incorporated
Gaming Venture Corp., U.S.A. (GVC) agrees to deposit S200,000 in a
200 day Certificate of Deposit (CD) with Bank West located at 3500
West Sahara Avenue in Las Vegas, Nevada.
GVC agrees to allow Casinovations Incorporated(Casinovations) to
use PVC's CD as collateral for a loan from Bank West.
Bank West has agreed to loan Casinovations up to the full amount of
PVC's CD and charge Casinovations an interest rate which is the
rate of the CD plus 2%.
Terms Between GVC and Casinovations
GVC agrees not to redeem the CD prematurely within the 200 day
period.
Casinovations agrees to pay GVC a payment equal to 8.5% of the
total amount of the CD when Casinovations pays off the principal of
the loan to Bank West. The payment will be 8.5% of the principal
of $200,000 or a total of $17,O00, not the total of the CD after
interest has accrued. If Casinovations cannot pay off the loan
balance after the 200 day period, half of the $17,000 payment must
paid to GVC. GVC will then have the option of renewing the CD and
allowing Casinovations to continue with the loan or convert the
principal balance of the loan into Casinovations common stock with
registration rights. If GVC elects to renew the CD, the same terms
from the first 200 day period will go into effect including a full
8.5% of the principal being due when the loan is repaid. The
$8,500 which is due after the first 200 day period will not be
deducted from the 9.5% due when the, loan is repaid if the CD is
rolled over for another 200 day period.
In the event that Casinovations defaults on the loan to Bank West,
Casinovations agrees to repay the amount of the CD in either
Casinovations stock with registration rights or in a payment plan
based on either additional financing or their revenue stream. GVC,
will make the decision on which option to take. If the repayment
is in Casinovations stock. the amount of shares will be decided by
the average closing price of Casinovations stock the 5 days prior
to the default if Casinovations has achieved status as a publicly
traded company.
Casinovations agrees to utilize a portion of the proceeds from the
exercise of warrants or other financing activities to either pay
down the principal of the outstanding loan or pay GVC directly
against the CD. Casinovations agrees to pay ten cents (.10) of
every dollar raised by warrant conversion or other financing to pay
down the balance of the loan or pay GVC directly. Casinovations
agrees to use their best efforts to utilize a portion of their
revenue stream to pay off parts of the principal balance during
this 200 day period.
Casinovations and GVC agree to allow for amendments to the terms of
this loan over the life of the loan if both sides agree to new
terms through negotiation.
The signature below by both parties indicates acceptance of these
terms.
Alan Woinski
Gaming Venture Corp., U.S.A.
Date
Steven Blad
Casinovations Incorporated
Date:
<PAGE>57
PROMISSORY NOTE
References in the shaded area are for Lender's use only and do not
limit the applicability of this document to any particular loan or
teem.
Borrower: TIN: Lender:
CASINOVATIONS INCORPORATED BankWest of Nevada
91-1696010) Main Office
3909 S. MARYLAND PARKWAY 3600 W. Sahara Avenue
STE 311, Las Vegas, NV 89102
LAS VEGAS, NV 89119
Principal Amount: $197,500.00
Interest Rate: 7.200%
Date of Note: July 17, 1997-
PROMISE TO PAY. CASINOVATIONS INCORPORATED ("Borrower") promises
to pay to BankWest of Nevada ("Lender"), or order, In lawful money
of the United States of America, the principal amount of One
Hundred Ninety Seven Thousand Five Hundred & 00/100 Dollars
($197,500.00) or so much as may be outstanding, together with
Interest at the rate of 7.200% per annum on the unpaid outstanding
principal balance of each advance. Interest shall be calculated
from the date of each advance until repayment of each advance.
PAYMENT. Borrower will pay this loan In one payment of all
outstanding principal plus all accrued unpaid Interest on February
1, 1998. In addition, Borrower will pay regular monthly payments
of accrued unpaid Interest beginning August 17, 1997, and all
subsequent Interest payments are due on the same day of each month
after that. Interest on this Note Is computed on a 365/365 simple
interest basis; that is, by applying the ratio of the annual
interest rate over the number of days in a year, multiplied by the
outstanding principal balance, multiplied by the actual number of
days the principal balance is outstanding. Borrower will pay
Lender at Lender's address shown above or at such other place as
Lender may designate In writing. Unless otherwise agreed or
required by applicable law, payments will be applied first to
accrued unpaid interest. then to principal, and any remaining
amount to any unpaid collection costs and late charges.
PREPAYMENT. Borrower agrees that all loan fees and other prepaid
finance charges are earned fully as of the date of the loan and
will not be subject to refund upon early payment (whether voluntary
or as a result of default), except as otherwise required by law.
Except for the foregoing, Borrower may pay without penalty all or a
portion of the amount owed earlier than it is due. Early payments
will not, unless agreed to by Lender in writing, relieve Borrower
of Borrower's obligation to continue to make payments of accrued
unpaid Interest. Rather, they will reduce the principal balance
due.
LATE CHARGE. If a payment is 10 days or more late, Borrower will
be charged 5.000% of the regularly scheduled payment or $10.00,
whichever Is greater.
DEFAULT. Borrower will be in default if any of the following
happens: (a) Borrower falls to make any payment when due. (b)
Borrower breaks any promise Borrower has made to Lender, or
Borrower fails to comply with or to perform when due any other
term, obligation, covenant, or condition contained in this Note or
any agreement related to this Note, or in any other agreement or
loan Borrower has with Lender. (c) Borrower defaults under any
loan, extension of credit, security agreement, purchase or sales
agreement, or any other agreement, in favor of any other creditor
or person that may materially affect any of Borrower's property or
Borrower's ability to repay this Note or perform Borrower's
obligations under this Note or any of the Related Documents. (d)
Any representation or statement made or furnished to Lender by
Borrower or on Borrower's behalf is false or misleading in any
material respect either now or at the time made or furnished. (9)
Borrower becomes insolvent, a receiver is appointed for any part of
Borrower's property, Borrower makes an assignment for the benefit
of creditors, or any proceeding is commenced either by Borrower or
against Borrower under any bankruptcy or insolvency laws. (f) Any
creditor tries to take any of Borrower's property on or in which
Lender has a lien or security interest. This Includes a
garnishment of any of Borrower's accounts with Lender. (g) Any
guarantor dies or any of the other events described in this default
section occurs with respect to any guarantor of this Note. (h) A
material adverse change occurs in Borrower's financial condition,
or Lender believes the prospect of payment or performance of the
Indebtedness is impaired.
If any default, other than a default in payment, Is curable and it
Borrower has not been given a notice of a breach of the same
provision of this Note within the preceding twelve (12) months, it
may be cured (and no event of default will have occurred) if
Borrower, after receiving written notice from Lender demanding cure
of such default: (a) cures the default within fifteen (15) days; or
<PAGE>58
(b) if the cure requires more than fifteen (15) days, immediately
initiates steps which Lender deems in Lender's sole discretion to
be sufficient to cure the default and thereafter continues and
completes all reasonable and necessary steps sufficient to produce
compliance as soon as reasonably practical.
LENDER'S RIGHTS. Upon default, Lender may declare the entire
unpaid principal balance on this Note and all accrued unpaid
interest immediately due, without notice, and then Borrower will
pay that amount. Upon default, including failure to pay upon final
maturity, Lender, at its option, may also, if permitted under
applicable law, increase the interest rate an this Note 5.000
percentage points. The interest rate will not exceed the maximum
rate permitted by applicable law. Lender may hire or pay someone
else to help collect this Note if Borrower does not pay. Borrower
also will pay Lender that amount. This includes, subject to any
limits under applicable law, Lender's attorneys' fees and Lender's
legal expenses whether or not there Is a lawsuit, including
attorneys' fees and legal expenses for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection
services. If not prohibited by applicable law, Borrower also will
pay any court costs, in addition to all other sums provided by law.
This Note has been delivered to Lender and accepted by Lender In
the State of Nevada. If there Is a lawsuit,
Borrower agrees upon Lender's request to submit to the jurisdiction
of the courts of Clark County, the State of Nevada (initial Here
This Note shall be governed by and construed In accordance with the
laws of the State of Nevada.
DISHONORED ITEM FEE. Borrower will pay a fee to Lender of $15.00
if Borrower makes a payment on Borrower's loan and the check or
preauthorized charge with which Borrower pays Is later dishonored.
RIGHT OF SETOFF. Borrower grants to Lender a contractual
possessory security interest in, and hereby assigns, convoys,
delivers, pledges, and transfers to Lender all Borrower's right,
title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), Including
without limitation all accounts held jointly with someone else and
all accounts Borrower may open in the future, excluding however all
IRA and Keogh accounts, and all trust accounts for which the grant
of a security interest would be prohibited by law. Borrower
authorizes Lender, to the extent permitted by applicable law, to
charge or setoff all sums owing on this Note against any and all
such accounts.
LINE OF CREDIT. This Note evidences a straight fine of credit.
Once the total amount of principal has been advanced, Borrower is
not entitled to further loan advances. Advances under this Note
may be requested orally by Borrower or by an authorized person.
Lender may, but need not, require that all oral requests be
confirmed in writing. All communications, instructions, or
directions by telephone or otherwise to Lender are to be directed
to Lender's office shown above. The following party or parties are
authorized to request advances under the line of credit until
Lender receives from Borrower at Lender's address shown above
written notice of revocation of their authority: JAY L. KING, CHIEF
FINANCIAL. OFFICER. Borrower agrees to be liable for all sums
either: (a) advanced in accordance with the instructions of an
authorized person or (b) credited to any of Borrower's accounts
with Lender. The unpaid principal balance owing on this Note at
any time may be evidenced by endorsements on this Note or by
Lender's internal records, including daily computer print-outs.
Lender will have no obligation to advance funds under this Note If:
(a) Borrower or any guarantor is in default under the terms of this
Note or any agreement that Borrower or any guarantor has With
Lender, including any agreement made in connection with the signing
of this Note; (b) Borrower or any guarantor ceases doing business
or is insolvent; (c) any guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such guarantor's guarantee of
this Note or any other loan with Lender; or (d) Borrower has
applied funds provided pursuant to this Note for purposes other
than those authorized by Lender.-.
GENERAL PROVISIONS. Lender may delay or forgo enforcing any of its
rights or remedies under this Note without losing them. Borrower
and any other person who signs, guarantees or endorses this Note,
to the extent allowed by law, waive presentment, demand for
payment, protest and notice of dishonor. Upon any change in the
terms of this Note, and unless otherwise expressly stated In
writing, no party who signs this Note, whether as maker, guarantor,
accommodation maker or endorser, shall be released from liability.
All such parties agree that Lender may renew or extend (repeatedly
and for any length of time) this loan, or release any party or
guarantor or collateral; or impair, fail to realize upon or perfect
Lender's security interest in the collateral, and take any other
action deemed necessary by Lender without the consent of or notice
<PAGE>59
to anyone- All such parties also agree that Lender may modify this
loan without the consent of or notice to anyone other than the
party with whom the modification Is made.
PRIOR TO SIGNING THIS NOTE, BORROWER READ AND UNDERSTOOD ALL THE
PROVISIONS OF THIS NOTE. BORROWER AGREES TO THE TERMS OF THE NOTE
AND ACKNOWLEDGES RECEIPT OF A COMPLETED COPY OF THE NOTE.
Borrower:
CASINOVATIONS INCORPORATED
By: /s/ Jay L. King
------------------------------------------------
Jay L. King, Chief Financial Officer
<PAGE>60
BUSINESS LOAN AGREEMENT
Borrower: (TIN: Lender:
CASINOVATIONS INCORPORATED Bankwest of Nevada
91-1696010) Main Office
3909 S. MARYLAND PARKWAY 3500 W. Sahara Avenue
STE 311 LAS VEGAS, NV 89102
Las Vegas, NV 89119
THIS BUSINESS LOAN AGREEMENT between CASINOVATIONS INCORPORATED
("Borrower") and BankWest of Nevada ("Lender") Is made and executed
on the following terms and conditions. Borrower has received prior
commercial loans from Lender or has applied to Lender for a
commercial loan or loans and other financial accommodations,
Including those which may be described on any exhibit or schedule
attached to this Agreement. All such loans and financial
accommodations, together with all future loans and financial
accommodations from Lender to Borrower, are referred to In this
Agreement Individually as the "Loan" and collectively as the
"Loans." Borrower understands and agrees that: (a) in granting,
renewing, or extending any Loan, Lender Is relying upon Borrower's
representations, warranties, and agreements, as set forth In this
Agreement; (b) the granting, renewing, or extending of any Loan by
Lender at all times shall be subject to Lender's sole judgment and
discretion; and (c) all such Loans shall be and shall remain
subject to the following terms and conditions of this Agreement.
TERM. This Agreement shall be effective as of July 17, 1997, and
shall continue thereafter until all Indebtedness of Borrower to
Lender has been performed in full and the parties terminate this
Agreement in writing.
DEFINITIONS. The following words shall have the following meanings
when used in this Agreement. Terms not otherwise defined in this
Agreement shall have the meanings attributed to such terms in the
Uniform Commercial Code. All references to dollar amounts shall
mean amounts in lawful money of the United States of America.
Agreement. The word 'Agreement' means this Business Loan
Agreement, as this Business Loan Agreement may be amended or
modified from time to time. together with all exhibits and
schedules attached to this Business Loan Agreement from time to
time.
Borrower. The word 'Borrower' means CASINOVATIONS INCORPORATED.
The word 'Borrower' also includes, as applicable, all subsidiaries
and affiliates of Borrower as provided below in the paragraph
titled "Subsidiaries and Affiliates.'
CERCLA. The word 'CERCLA' means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended.
Collateral. The word 'Collateral' means and includes without
limitation all property and assets granted as collateral security
for a Loan, whether real or personal property, whether granted
directly or indirectly, whether granted now or in the future, and
whether granted in the form of a security interest, mortgage, deed
of trust, assignment. pledge, chattel mortgage, chattel trust,
factor's lien, equipment trust. conditional sale, trust receipt.
lien, charge, lion or title retention contract, lease or
consignment intended as a security device. or any other security or
lien interest whatsoever, whether created by law, contract, or
otherwise.
ERISA. The word 'ERISA" means the Employee Retirement Income
Security Act of 1974, as amended.
Event of Default. The words 'Event of Default' mean and include
without limitation any of the Events of Default set forth below in
the section titled "EVENTS OF DEFAULT."
Grantor. The word "Grantor' means and includes without limitation
each and all of the persons or entities granting a Security
Interest in any Collateral for the Indebtedness. including without
limitation all Borrowers granting such a Security Interest.
Guarantor. The word 'Guarantor" means and includes without
limitation each and all of the guarantors, sureties, and
accommodation parties in connection with any Indebtedness.
Indebtedness. The word 'Indebtedness' means and includes without
limitation all Loans, together with all other obligations, debts
and liabilities of Borrower to Lender, or any one or more of them,
as well as all claims by Lender against Borrower, or any one or
more of them; whether now or hereafter existing, voluntary or
involuntary. due or not due, absolute or contingent, liquidated or
unliquidated; whether Borrower may be liable individually or
jointly with others; whether Borrower may be obligated as a
guarantor, surety, or otherwise; whether recovery upon such
Indebtedness may be or
<PAGE>61
hereafter may become barred by any statute of limitations; and
whether such Indebtedness may be or hereafter may become otherwise
unenforceable.
Lender. The word 'Lender" means BankWest of Nevada, its successors
and assigns.
Loan. The word "Loan" or 'Loans" means and includes without
limitation any and all commercial loans and financial
accommodations from Lender to Borrower, whether now or hereafter
existing, and however evidenced, including without limitation those
loans and financial accommodations described herein or described on
any exhibit or schedule attached to this Agreement from time to
time.
Note. The word "Note" means and includes without limitation
Borrower's promissory note or notes, if any, evidencing Borrower's
Loan obligations In favor of Lender, as well as any substitute,
replacement or refinancing note or notes therefor.
Permitted Liens. The words 'Permitted Liens' mean: (a) liens and
security Interests securing Indebtedness owed by Borrower to
Lender; (b) liens for taxes, assessments, or similar charges either
not yet due or being contested in good faith; (c) liens of
materialmen. mechanics, warehousemen, or carriers, or other like
liens arising in the ordinary course of business and securing
obligations which are not yet delinquent; (d) purchase money liens
or purchase money security interests upon or in any property
acquired or held by Borrower in the ordinary course of business to
secure indebtedness outstanding on the date of this Agreement or
permitted to be incurred under the paragraph of this Agreement
titled 'Indebtedness and Liens'; (e) liens and security interests
which, as of the date of this Agreement, have been disclosed to and
approved by the Lender in writing; and (f) those liens and security
interests which in the aggregate constitute an immaterial and
insignificant monetary amount with respect to the net value of
Borrower's assets.
Related Documents. The words 'Related Documents" mean and include
without limitation all promissory notes, credit agreements, loan
agreements, environmental agreements, guaranties, security
agreements, mortgages, deeds of trust, and all other instruments,
agreements and documents, whether now or hereafter existing,
executed in connection with the Indebtedness.
Security Agreement. The words 'Security Agreement mean and include
without limitation any agreements, promises, covenants,
arrangements, understandings or other agreements, whether created
by law, contract, or otherwise, evidencing, governing,
representing, or creating a Security Interest.
Security Interest. The words 'Security Interest' mean and include
without limitation any type of collateral security, whether in the
form of a lien, charge, mortgage, deed of trust, assignment,
pledge, chattel mortgage, chattel trust, factor's lien, equipment
trust, conditional sale, trust receipt, lien or title retention
contract, lease or consignment intended as a security device, or
any other security or lien Interest whatsoever, whether created by
law, contact, or otherwise,
SARA. The word 'SARA' means the Superfund Amendments and
Reauthorization Act of 1986 as now or hereafter amended.
CONDITIONS PRECEDENT TO EACH ADVANCE. Lender's obligation to make
the initial Loan Advance and each subsequent Loan Advance under
this Agreement shall be subject to the fulfillment to Lender's
satisfaction of all of the conditions set forth in this Agreement
and in the Related Documents.
Loan Documents. Borrower shall provide to Lender in form
satisfactory to Lender the following documents for the Loan: (a)
the Note, (b Security Agreements granting to Lender security
interests in the Collateral, (c) Financing Statements perfecting
Lender's Security Interests; (d evidence of Insurance as required
below; and (e) any other documents required under this Agreement or
by Lender or its counsel, including without limitation any
guaranties described below.
Borrower's Authorization. Borrower shall have provided in form and
substance satisfactory to Lender properly certified resolutions,
duly authorizing the execution and delivery of this Agreement, the
Note and the Related Documents, and such other authorizations and
other documents and Instruments as Lender or its counsel, in their
sole discretion, may require.
Payment of Fees and Expenses. Borrower shall have paid to Lender
all fees, charges, and other expenses which are then due and
payable a specified in this Agreement or any Related Document.
<PAGE>62
Representations and Warranties. The representations and warranties
set forth In this Agreement, in the Related Documents, and in an
document or certificate delivered to Lender under this Agreement
are true and correct.
No Event of Default. There shall not exist at the time of any
advance a condition which would constitute an Event of Default
under this Agreement.
REPRESENTATIONS AND WARRANTIES. Borrower represents and warrants
to Lender, as of the date of this Agreement, as of the date of
each disbursement of Loan proceeds, as of the date of any renewal,
extension, or modification of any Loan, and at all times any
indebtedness exists:
Organization. Borrower is a corporation which is duly organized,
validly existing. and in good standing under the laws of the State
of Washington and is validly existing and in good standing in all
states In which Borrower is doing business. Borrower has the full
power and authority to own its properties and to transact the
businesses in which It is presently engaged or presently proposes
to engage. Borrower also is duly qualified as a foreign
corporation and is in good standing in all states in which; the
failure to so quality would have a material adverse effect on its
businesses or financial condition.
Authorization. The execution, delivery, and performance of this
Agreement and all Related Documents by Borrower, to the extent to
be executed, delivered or performed by Borrower, have been duly
authorized by all necessary action by Borrower; do not require the
consent or approval of any other person, regulatory authority or
governmental body; and do not conflict with, result in a violation
of, or constitute a default under (a) any provision of its articles
of incorporation or organization, or bylaws, or any agreement or
other Instrument binding upon Borrower or (b) any law, governmental
regulation, court decree, or order applicable to Borrower.
Financial Information. Each financial statement of Borrower
supplied to Lender truly and completely disclosed Borrower's
financial condition as of the date of the statement, and there has
been no material adverse change in Borrower's financial condition
subsequent to the date of the most recent financial statement
supplied to Lender. Borrower has no material contingent
obligations except as disclosed In such financial statements.
Legal Effect. This Agreement constitutes, and any instrument or
agreement required thereunder to be given by Borrower when
delivered will constitute, legal, valid and binding obligations of
Borrower enforceable against Borrower in accordance with their
respective terms.
Properties. Except as contemplated by this Agreement or as
previously disclosed in Borrower's financial statements or in
writing to Lender and as ,,cc y Lender, and except for property tax
liens for taxes not presently due and payable, Borrower owns and
has good title to all of properties free and clear of all Security
Interests, and has not executed any security documents or financing
statements relating to such properties. All of Borrower's
properties are titled in Borrower's legal name, and Borrower has
not used, or filed a financing statement under, any other name for
at least the last five (5) years.
Hazardous Substances. The terms 'hazardous waste,' 'hazardous
substance." 'disposal,' 'release,' and 'threatened release," as
used in this Agreement, shall have the same meanings as set forth
in the "CERCLA,' 'SARA " the Hazardous Materials Transportation
Act, 49 U.S.C. Section 1801, at seq., the Resource Conservation and
Recovery Act, 42 U.S.C. Section 6901, et seq., or other applicable
state or Federal laws, rules, or regulations adopted pursuant to
any of the foregoing. Except as disclosed to and acknowledged by
Lender in writing, Borrower represents and warrants that: (a)
During the period of Borrower's ownership of the properties, there
has been no use, generation, manufacture, storage, treatment,
disposal, release or threatened release of any hazardous waste or
substance by any person on, under. about or from any of the
properties. (b) Borrower has no knowledge of, or reason to believe
that there has been (I) any use, generation, manufacture, storage,
treatment, disposal, release, or threatened release of any
hazardous waste or substance on, under, about or from the
properties by any prior owners or occupants of any of the
properties, or (11) any actual or threatened litigation or claims
of any kind by any person relating to such matters. (c) Neither
Borrower nor any tenant, contractor, agent or other authorized user
of any of the properties shall use, generate, manufacture, store,
treat, dispose of, or release any hazardous waste or substance on.
under, about or from any of the properties; and any such activity
shall be conducted in compliance with all applicable federal,
state, and local laws, regulations, and ordinances, including
without limitation those laws, regulations and ordinances described
above. Borrower authorizes Lender and its
<PAGE>63
agents to enter upon the properties to make such inspections and
tests as Lender may deem appropriate to determine compliance of the
properties with this section of the Agreement. Any inspections or
tests made by Lender shall be at Borrower's expense and for
Lender's purposes only and shall not be construed to create any
responsibility or liability on the part of Lender to Borrower or to
any other person. The representations and warranties contained
herein are based on Borrower's due diligence in investigating the
properties for hazardous waste and hazardous substances. Borrower
hereby (a) releases and waives any future claims against Lender for
indemnity or contribution in the event Borrower becomes liable for
cleanup or other costs under any such laws, and (b) agrees to
indemnify and hold harmless Lender against any and all claims,
losses, liabilities, damages. penalties, and expenses which Lender
may direct y or indirectly sustain or suffer resulting from a
breach of this section of the Agreement or as a consequence of any
use, generation, manufacture, storage, disposal, release or
threatened release occurring prior to Borrower's ownership or
Interest in the properties, whether or not the same was or should
have been known to Borrower. The provisions of this section of the
Agreement, including the obligation to indemnity. shall Survive the
payment of the Indebtedness and the termination or expiration of
this Agreement and shall not be affected by Lender's acquisition of
any interest in any of the properties, whether by foreclosure or
otherwise.
Litigation and Claims. No litigation, claim, investigation,
administrative proceeding or similar action (including those for
unpaid taxes) against Borrower is pending or threatened. and no
other event has occurred -which may materially adversely affect
Borrower's financial condition or properties, other than
litigation, claims, or other events, If any, that have been
disclosed to and acknowledged by Lender in writing.
Taxes. To the best of Borrower's knowledge, all tax returns and
reports of Borrower that are or were required to be flied, have
been filed, and all taxes, assessments and other governmental
charges have been paid in full, except those presently being or to
be contested by Borrower in good faith in the ordinary course of
business and for which adequate reserves have been provided.
Lien Priority. Unless otherwise previously disclosed to Lender in
writing, Borrower has not entered into or granted any Security
Agreements, or permitted the filing or attachment of any Security
Interests on or affecting any of the Collateral directly or
indirectly securing repayment of Borrower's Loan and Note, that
would be prior or that may in any way be superior to Lender's
Security Interests and rights in and to such Collateral.
Binding Effect. This Agreement, the Note, all Security Agreements
directly or indirectly securing repayment of Borrower's Loan and
Note and all of the Related Documents are binding upon Borrower as
well as upon Borrower's successors, representatives and assigns,
and are legally enforceable in accordance With their respective
terms.
Commercial purposes. Borrower intends to use the Loan proceeds
solely for business or commercial related purposes.
Employee Benefit Plans. Each employee benefit plan as to which
Borrower may have any liability complies in all material respects
with all applicable requirements of law and regulations, and (1) no
Reportable Event nor Prohibited Transaction (as defined in ERISA)
has occurred with respect to any such plan, (II) Borrower has not
withdrawn from any such plan or initiated steps to do so, (III) no
steps have been taken to terminate any such plan, and (iv) there
are no unfunded liabilities other than those previously disclosed
to Lender in writing.
Location of Borrower's Offices and Records- Borrower's place of
business, or Borrower's Chief executive office, if Borrower has
more than one place of business, is located at 3W9 S- MARYLAND
PARKWAY, STE 31 1, LAS VEGAS. NV 89119. Unless Borrower has
designated otherwise in writing this location is also the office or
offices where Borrower keeps its records concerning the Collateral.
Information- All information heretofore or contemporaneously
herewith furnished by Borrower to Lender for the purposes of or in
connection with third, Agreement or any transaction contemplated
hereby is, and all information hereafter furnished by or on behalf
of Borrower to Lender will be, true and accurate in every material
respect on the date as of which such information is dated or
certified; and none of such information is or will be incomplete by
aiming to state any material fact necessary to make such
information not misleading.
Survival of Representations and Warranties. Borrower understands
and agrees that Lender, without independent investigation, Is
relying upon the above representations and warranties in extending
Loan Advances to Borrower. Borrower further agrees that the
foregoing representations and warranties shall be continuing in
<PAGE>64
nature and shall remain in full force and effect until such time as
Borrower's Indebtedness shall be paid in full, or until this
Agreement Shall be terminated in the manner provided above,
whichever is the last to occur-
AFFIRMATIVE COVENANTS. Borrower covenants and agrees with Lender
that, while this Agreement is in effect, Borrower will:
Litigation. Promptly inform Lender in writing of (a) all material
adverse changes in Borrower's financial condition, and (b) all
existing and all threatened litigation, claims, investigations,
administrative proceedings or similar actions affecting Borrower or
any Guarantor which could materially affect the financial condition
of Borrower or the financial condition of any Guarantor.
Financial Records. Maintain its book, and records in accordance
with generally accepted accounting principles, applied on a
consistent basis, and permit Lender to examine and audit Borrower's
books and records at all reasonable times.
Additional Information. Furnish such additional information and
statements, lists of assets and liabilities, aging of receivable
and payable,
inventory schedules, budgets, forecasts. tax returns, and other
reports with respect to Borrower's financial condition and business
operations as
Lender may request from time to time-
Insurance. Maintain fire and other risk Insurance, public
liability insurance, and such other insurance as Lender may require
with respect to Borrower's properties and operations, in form,
amounts, coverages and with insurance companies reasonably
acceptable to Lender. Borrower, upon request of Lender, will
deliver to Lender from time to time the policies or certificates of
insurance in form satisfactory to Lender, including stipulations
that coverages will not be canceled or diminished without at least
ten (10) days- prior written notice to Lender. Each insurance
policy also shall include an endorsement providing that coverage in
favor of Lender will not be impaired in ,y way by any act, omission
or default of Borrower or any other person. in connection with all
policies covering assets in which Lender holds or is offered a
security interest for the Loans, Borrower will provide Lender with
such loss payable or other endorsements as Lender may require.
Insurance Reports. Furnish to Lender. upon request of Lender,
reports on each existing insurance policy showing such information
as Lender may reasonably request, including -without limitation the
following: (a) the name of the insurer; (b) the risks insured; (c)
the amount of the policy;
(d) the properties insured; (e) the then current property values
on the basis f which insurance has been obtained, and the manner of
Borrower will have an Independent appraiser satisfactory to Lender
determine, as applicable, the actual cash value or replacement cost
of any Collateral . The cost of such appraisal shall be paid by
Borrower.
Guaranties. Prior to disbursement of any Loan proceeds, furnish
executed guaranties of the Loans in favor of Lender, executed by
the guarantor named below, on Lender's forms, and in the amount and
under the conditions spelled out In those guaranties.
Guarantor
Amount
JAY L. KING
$197,500.00
Other Agreements. Comply with all terms and conditions of all
other agreements, whether now or hereafter existing. between
Borrower and any other party and notify Lender immediately in
writing of any default in connection with any other such
agreements.
Loan Proceeds. Use all Loan proceeds solely for Borrower's
business operations, unless specifically consented to the contrary
by Lender in
writing.
Taxes, Charges and Liens. Pay and discharge when due all of its
indebtedness and obligations, including without limitation all
assessments, taxes, governmental charges, levies and liens, of
every kind and nature, imposed upon Borrower or its properties,
income, or profits, prior to the date on which penalties would
attach, and all lawful claims that, if unpaid, might become a lien
or charge upon any of Borrower's properties, income, or profits.
Provided however, Borrower will not be required to pay and
discharge any such assessment, tax, charge, levy, lien or claim so
long as (a) the legality of the same shall be contested in good
faith by appropriate proceedings, and (b) Borrower shall have
established on its books adequate reserves with respect to such
contested assessment, tax,
<PAGE>65
charge, levy, lien, or claim in accordance with generally accepted
accounting practices. Borrower, upon demand of Lender, will
furnish to Lender evidence of payment of the assessments, taxes,
charges, levies, liens and claims and will authorize the
appropriate governmental official to deliver to Lender at any time
a written statement of any assessments, taxes, charges, levies,
liens and claims against Borrower's properties, income, or profits.
Performance. Perform and comply with all terms, conditions, and
provisions set forth in this Agreement and in the Related Documents
In a timely manner, and promptly notify Lender if Borrower learns
of the occurrence of any event which constitutes an Event of
Default under this Agreement or under any of the Related Documents.
Operations. Maintain executive and management personnel with
substantially the same qualifications and experience as the present
executive and management personnel; provide written notice to
Lender of any change in executive and management personnel; conduct
its business affairs in a reasonable and prudent manner and in
compliance with all applicable federal, state and municipal laws,
ordinances, rules and regulations respecting Its properties,
charters, businesses and operations, Including without limitation,
compliance with the Americans With Disabilities Act and with all
minimum funding standards and other requirements of ERISA and other
laws applicable to Borrower's employee benefit plans.
Inspection. Permit employees or agents of Lender at any reasonable
time to inspect any and all Collateral for the Loan or Loans and
Borrower's other properties and to examine or audit Borrower's
books. accounts, and records and to make copies and memoranda of
Borrower's book. accounts, and records- If Borrower now or at any
time hereafter maintains any records (including without limitation
computer generated record and computer software programs for the
generation of such records) in the possession of a third party,
Borrower, upon request of Lender, shall notify such party to permit
Lender free access to such records at all reasonable times and to
provide Lender with copies of any records it ma) request, all at
Borrower's expense.
Compliance Certificate. Unless waived in writing by Lender,
provide Lender at least annually and at the time of each
disbursement of Loan proceeds with a certificate executed by
Borrower's chief financial officer, or other officer or person
acceptable to Lender, certifying that the representations and
warranties set forth in this Agreement are true and correct as of
the date of the certificate and further certifying that, as of this
date of the certificate, no Event of Default exists under this
Agreement.
Environmental Compliance and Reports. Borrower shall comply in all
respects with all environmental protection federal, state and local
laws statutes, regulations and ordinances; not cause or permit to
exist, as a result of an intentional or unintentional action or
omission on its part or on the part of any third party, on property
owned and/or occupied by Borrower, any environmental activity where
damage may result to the environment, unless such environmental
activity is pursuant to and In compliance with the conditions of a
permit issued by the appropriate federal state or local
governmental authorities; shall furnish to Lender promptly and in
any event within thirty (30) days after receipt thereof a copy of
an notice, summons, lien, citation, directive, letter or other
communication from any governmental agency or instrumentality
concerning any intention. or unintentional action or omission on
Borrower's part in connection with any environmental activity
whether or not there is damage to the environment and/or other
natural resources.
Additional Assurances. Make, execute and deliver to Lender such
promissory notes, mortgages, deeds of trust, security agreements,
financing statements, Instruments, documents and other agreements
as Lender or its attorneys may reasonably request to evidence and
secure the Loan and to perfect all Security Interests.
NEGATIVE COVENANTS. Borrower covenants and agrees with Lender that
while this Agreement is in effect, Borrower shall not, without the
prior written consent of Lender:
Indebtedness and Liens. (a) Except for trade debt incurred in the
normal course of business and indebtedness to Lender contemplated
by the Agreement, create, incur or assume Indebtedness for borrowed
money, including capital leases. (b) except as allowed as a
Permitted Lien, se transfer, mortgage, assign, pledge, lease, grant
a security Interest in, or encumber any of Borrower's assets, or
(c) sell with recourse any of Borrower's accounts, except to
Lender.
Continuity of Operations. (a) Engage in any business activities
substantially different than those in which Borrower Is presently
engaged, (I cease operations, liquidate, merge, transfer, acquire
or consolidate with any other entity, change ownership, change its
name, dissolve or transmit or sell Collateral out of the ordinary
course of business, (c) pay any dividends an Borrower's stock
(other
<PAGE>66
than dividends payable in its stock provided, however that
notwithstanding the foregoing, but only so long as no Event of
Default has occurred and is continuing or would result fro the
payment of dividends, if Borrower Is a 'Subchapter S Corporation"
(as defined in the Internal Revenue Code of 1986. as amended),
Borrow may pay cash dividends on its stock to its shareholders from
time to time in a mounts necessary to enable the shareholders to
pay income taxi and make estimated Income tax payments to satisfy
their liabilities under federal and state law which arise solely
from their status as Shareholder of a Subchapter S Corporation
because of their ownership of shares of stock of Borrower, or (d)
purchase or retire any of Borrower's outstanding shares or alter or
amend Borrower's capital structure.
Loans, Acquisitions and Guaranties. (a) Loan, invest In or advance
money or assets, (b) purchase, create or acquire any interest in
any other enterprise or entity, or (c) incur any obligation as
surety or guarantor other than In the ordinary course of business.
CESSATION OF ADVANCES. If Lender has made any commitment to make
any Loan to Borrower, whether under this Agreement or under any
other agreement, Lender shall have no obligation to make Loan
Advances or to disburse Loan proceeds if: (a) Borrower or any
Guarantor is in default under the terms of this Agreement or any of
the Related Documents or any other agreement that Borrower or any
Guarantor has with Lender; (b) Borrower any Guarantor becomes
insolvent, files a petition in bankruptcy or similar proceedings,
or is adjudged a bankrupt; (c) there occurs a material adverse
change in Borrower's financial condition, in the financial
condition of any Guarantor, or in the value of any Collateral
securing any Loan; or (d) a Guarantor seeks, claims or otherwise
attempts to limit, modify or revoke such Guarantor's guaranty of
the Loan or any other loan with Lender.
RIGHT OF SETOFF. Borrower grants to Lender a contractual
possessory security interest in, and hereby assigns, conveys,
delivers, pledges. all transfers to Lender all Borrower's right,
title and interest in and to, Borrower's accounts with Lender
(whether checking, savings, or some other account), including
without limitation all accounts held jointly with someone else and
all accounts Borrower may open In the future, excluding however all
IRA and Keogh accounts, and all trust accounts for which the grant
of a security interest would be prohibited by law. Borrower
authorizes Lender, the extent permitted by applicable law, to
charge or setoff all sums owing on the Indebtedness against any and
all such accounts.
EVENTS OF DEFAULT. Each of the following shall constitute an Event
of Default under this Agreement:
Default on Indebtedness. Failure of Borrower to make any payment
when due on the Loans.
Other Defaults. Failure of Borrower or any Grantor to comply with
or to perform when due any other term, obligation, covenant or
condition contained In this Agreement or in any of the Related
Documents, or failure of Borrower to comply with or to perform any
other term, obligation, covenant or condition contained in any
other agreement between Lender and Borrower.
Default in Favor of Third Parties. Should Borrower or any Grantor
default under any loan, extension of credit, security agreement,
purchase sales agreement, or any other agreement, in favor of any
other creditor or person that may materially affect any of
Borrower's property Borrower's or any Grantor's ability to repay
the Loans or perform their respective obligations under this
Agreement or any of the Related Documents.
False Statements. Any warranty, representation or statement made
or furnished to Lender by or on behalf of Borrower or any Grantor
under t Agreement or the Related Documents is false or misleading
in any material respect at the time made or furnished, or becomes
false or misleading at any time thereafter.
Defective Collateralization. This Agreement or any of the Related
Documents ceases to be in full force and affect (including failure
of any Security Agreement to create a valid and perfected Security
Interest) at any time and for any reason.
Insolvency. The dissolution or termination of Borrower's existence
as a going business, the insolvency of Borrower, the appointment of
a receiver for any part of Borrower's property, any assignment for
the benefit of creditors, any type of creditor workout, or the
commencement of any proceeding under any bankruptcy or insolvency
laws by or against Borrower.
Creditor or Forfeiture Proceedings. Commencement of foreclosure
or forfeiture proceedings, whether by judicial proceeding, self-
help, repossession or any other method, by any creditor of
Borrower, any
<PAGE>67
creditor of any Grantor against any collateral securing the
Indebtedness, or by any governmental agency. This includes a
garnishment. attachment, or levy on or of any of Borrower's deposit
accounts with Lender. However, this Event of Default shall not
apply if there is a good faith dispute by Borrower or Grantor, as
the case may be, as to the validity or reasonableness of the claim
which is the basis of the creditor or forfeiture proceeding, and if
the Borrower or Grantor gives Lender written notice of the creditor
or forfeiture proceeding and furnishes reserves or a surety bond
for the creditor or forfeiture proceeding satisfactory to Lender.
Events Affecting Guarantor. Any of the preceding events occurs
with respect to an Guarantor of any of the Indebtedness or any
Guarantor dies or becomes incompetent, or revokes or disputes the,
validity of, or liability under, any guaranty of the Indebtedness,
Lender, at its option, may, but shall not be required to, permit
the Guarantor's estate to assume unconditionally the obligations
arising under the guaranty in a manner satisfactory to Lender, and,
in doing so, cure the Event of Default.
Change in Ownership. Any change in ownership of twenty-five
percent (25%) or more of this common stock of Borrower.
Adverse Change. A material adverse change Occurs in Borrowers
financial condition, or Lender believes the prospect of payment or
performance of the Indebtedness is Impaired.
Right to Cure. It any default, other than a Default on
Indebtedness, is curable and if Borrower or Grantor, as the case
may be, has not been given a notice of a similar default within the
preceding twelve (12) months, it may be cured (and no Event of
Default will have occurred) if Borrower or Grantor, as the case may
be, after receiving written notice from Len days; or (b) if the
cure requires more than fifteen (15) days, immediately sufficient
to cure the default and thereafter continues and completes all
reasonable and necessary steps sufficient to produce compliance as
soon as reasonably practical.
EFFECT OF AN EVENT OF DEFAULT. If any Event of Default shall
occur, except where otherwise provided in this Agreement or
Documents, all commitments and obligations of Lender under this
Agreement or the Related Documents or any other agreement the
Related ant immediately will immediately will become due terminate
(including any obligation to make Loan Advances or disbursements),
and, at Lender's option, all Indebtedness described in the
'Insolvency' and payable, all without notice of any kind to
Borrower, except that in the case of an Event of Default of the
subsection above, such acceleration shall be automatic and not
optional. In addition, Lender shall have all the rights and
remedies provided in the Related Documents or available at law. in
equity, or otherwise. Except as may be prohibited by applicable
law, all of Lender's rights and remedies shall be cumulative and
may be exercised singularly or concurrently. Election by Lender to
pursue any remedy shall not exclude pursuit of any other remedy,
and an election to make expenditures or to take action to perform
an obligation of Borrower or of any Grantor shall not affect
Lender's right to declare a default and to exercise its rights and
remedies.
MISCELLANEOUS PROVISIONS. The following miscellaneous provisions
are a part of this Agreement:
Amendments. This Agreement, together with any Related Documents,
constitutes the entire understanding and agreement of the parties
as to the matters set forth in this Agreement. No alteration of or
amendment to this Agreement shall be effective unless given in
writing and signed by the party or parties sought to be charged or
bound by the alteration or amendment.
Applicable Law. This Agreement has been delivered to Lender and
accepted by Lender In the State of Nevada. If there Is a lawsuit,
a upon Lender's request to submit to the jurisdiction of the courts
of Clark County, the State of Nevada (Initial Here
This Agreement shall be governed by and construed In accordance
with the laws of the State
Caption Headings. Caption headings in this Agreement are for
convenience purposes only and are not to be used to interpret or
define the provisions of this Agreement.
Multiple Parties; Corporate Authority. All obligations of Borrower
under this Agreement shall be joint and several, and all references
to Borrower shall mean each and every Borrower- This means that
each of the persons signing below is responsible for all
obligations in this Agreement.
<PAGE>67
Consent to Loan Participation. Borrower agrees and consents to
Lender's sale or transfer, whether now or later, of one or more
participation interests in the Loans to one or more purchasers,
whether related or unrelated to Lender. Lender may provide,
without any limitation whatsoever, to any one or more purchasers,
or potential purchasers, any information or knowledge Lender may
have about Borrower or about any other matter relating to the Loan,
and Borrower hereby waives any rights to privacy it may have with
respect to such matters- Borrower additionally waives any and all
notices of sale of participation interests, as well as all notices
of any repurchase of such participation interests. Borrower also
agrees that the purchasers of any such participation interests will
be considered as the absolute owners of such interests in the Loans
and will have all the rights granted under the participation
agreement or agreements governing the sale of such participation
interests. Borrower further waives all rights of offset or
counterclaim that it may have now or later against Lender or
against any purchaser of Such a participation interest and
unconditionally agrees that either Lender or such purchaser may
enforce Borrower's obligation under the Loans irrespective of the
failure or insolvency of any holder of any interest in the Loans.
Borrower further agrees that the purchaser of any such
participation interests may enforce Its interests irrespective of
any personal claims or defenses that Borrower may have against
Lender.
Costs and Expenses, Borrower agrees to pay upon demand all of
Lender's expenses, including without limitation attorneys' fees,
incurred In connection with the preparation, execution,
enforcement, modification and collection of this Agreement or in
connection with the Loans made pursuant to this Agreement, Lender
May pay someone else to help collect the Loans and to enforce this
Agreement, and Borrower will pay that amount. This includes,
subject to any limits under applicable law, Lender's attorneys'
fees and Lender's legal expenses, whether or not there is a
lawsuit, including attorneys' fees for bankruptcy proceedings
(including efforts to modify or vacate any automatic stay or
injunction), appeals, and any anticipated post-judgment collection
services. Borrower also will pay any court costs, in addition to
all other sums provided by law-
Notices. All notices required to be given under this Agreement
shall be given in writing, may be sent by telefacsimile, and shall
be effective when actually delivered or when deposited with a
nationally recognized overnight courier or deposited in the United
States mail. first class, postage prepaid, addressed to the party
to whom the notice is to be given at the address shown above. Any
party may change its address for notices under this Agreement by
giving formal written notice to the other parties. specifying that
the purpose of the notice is to change the party's address. To the
extent permitted by applicable law, if there is more than one
Borrower, notice to any Borrower will constitute notice to all
Borrowers. For notice purposes. Borrower will keep Lender
informed at all times of Borrower's current addressees).
Severability. If a court of competent jurisdiction finds any
provision of this Agreement to be invalid or unenforceable as to
any person or circumstance, such finding shall not render that
provision invalid or unenforceable as to any other persons or
circumstances. if feasible, any such offending provision shall be
deemed to be modified to be Within the limits of enforceability or
validity; however, if the offending provision cannot be so
modified, it shall be stricken and all other provisions of this
Agreement in all other respects shall remain valid and enforceable-
Subsidiaries and Affiliates of Borrower. To the extent the context
of any provisions of this Agreement makes it appropriate, including
Without limitation any representation, warranty or covenant. the
word -Borrower' as used herein shall include all subsidiaries and
affiliates of Borrower. Notwithstanding the foregoing however,
under no circumstances shall this Agreement be construed to require
Lender to make any Loan or other financial accommodation to any
subsidiary or affiliate of Borrower.
Successors and Assigns. All covenants and agreements contained by
or on behalf of Borrower shall bind its successors and assigns and
shall inure to the benefit of Lender, its successors and assigns.
Borrower shall not, however, have the right to assign its rights
under this Agreement or
any Interest therein, without the prior written consent of Lender.
00 Survival. All warranties, representations, and covenants made
by Borrower in this Agreement or in any certificate or other
instrument delivered by
Borrower to Lender under this Agreement shall be considered to have
been relied upon by Lender and will survive the making of the Loan
and delivery to Lender of the Related Documents. regardless of any
investigation made by Lender or on Lender's behalf.
Time is of the Essence. Time is of the essence in the performance
of this Agreement-
<PAGE>69
Waiver. Lender shall not be deemed to have waived any rights under
this Agreement unless such waiver is given in writing and signed by
Lender. No delay or omission on the part of Lender in exercising
any right shall operate as a waiver of such right or any other
right. A waiver by
Lender of a provision of this Agreement shall not prejudice or
constitute a waiver of Lender's, otherwise to demand strict
compliance with that
provision or any other provision of this Agreement. No prior
waiver by Lender, nor any course of dealing between Lender and
Borrow r or between Lender and any Grantor, shall constitute a
waiver of any of Lender's rights or of any obligations of Borrower
or of any Grantor a,- to any future transactions. Whenever the
consent of Lender is required under this Agreement, the granting of
such consent by Lender in any instance shall not constitute
continuing consent in subsequent instances where such consent is
required. and in all cases such consent may be granted or withhold
in the sole discretion of Lender-
BORROWER ACKNOWLEDGES HAVING READ ALL THE PROVISIONS OF THIS
BUSINESS LOAN AGREEMENT, AND BORROWER AGREES TO ITS TERMS. THIS
AGREEMENT IS DATED AS OF JULY 17,1997.
BORROWER:
CASINOVATIONS INCORPORATED
By:
JAY L. KING, CHIEF FINANCIAL OFFICER
LENDER:
BankWest of Nevada
By:
Authorized Officer
<PAGE>70
CORPORATE RESOLUTION TO GRANT COLLATERAL
References in the shaded area are for Lender's use only and do not
limit the applicability of this document to any particular loan or
item.
Borrower: (TIN: Lender:
CASINOVATIONS INCORPORATED BankWest of Nevada
91-1696010) Main Office
3909 S. MARYLAND PARKWAY 3500 W. Sahara Avenue
STE 311 LAS VEGAS, NV 89119 Las Vegas, NV 891 02
Grantor:
GAMING VENTURE CORP., U.S.A.
177 MAIN STREET, SUITE 312
FORT LEE, NJ 07024
1, the undersigned Secretary or Assistant Secretary of GAMING
VENTURE CORP., U.S.A. (the "Corporation"), HEREBY CERTIFY that the
Corporation is organized and existing under and by virtue of the
laws of the State of Nevada with its principal office at 177 MAIN
STREET, SUITE 312, FORT LEE, NJ 07024.
1 FURTHER CERTIFY that at a meeting of the Directors of the
Corporation, duty called and held on at which a quorum was present
and voting, or by other duly authorized corporate action In lieu of
a meeting, the following resolutions were adopted:
BE IT RESOLVED, that any one (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures
are shown below:
NAME POSITION ACTUAL
SIGNATURE
.....
ALAN R. WOINSKI PRESIDENT 14
acting for and on behalf of the Corporation and as its act and deed
be, and he or she hereby is, authorized and empowered-
Grant Security. To mortgage, pledge, transfer, endorse,
hypothecate, or otherwise encumber and deliver to BankWest of
Nevada ("Lender-), as security for the payment of any loans, any
promissory notes, or any other or further indebtedness of
CASINOVATIONS INCORPORATED to Lender at any time owing, however the
same may be evidenced, any property now or hereafter belonging to
the Corporation or in which the Corporation now or hereafter may
have an interest, Including without limitation all real property
and all personal property (tangible or intangible) of the
Corporation. Such property may be mortgaged, pledged, transferred,
endorsed, hypothecated, or encumbered at the time such loans are
obtained or such indebtedness is incurred, or at any other time or
times, and may be either in addition to or In lieu of any property
theretofore mortgaged, pledged, transferred, endorsed,
hypothecated, or encumbered. The provisions of these Resolutions
authorizing or relating to the pledge, mortgage, transfer,
endorsement, hypothecation, granting of a security interest in, or
In any way encumbering, the assets of the Corporation shall
include, without limitation, doing so in order to lend collateral
security for the indebtedness. now or hereafter existing, and of
any nature whatsoever, of CASINOVATIONS INCORPORATED to Lender.
The Corporation has considered the value to itself of lending
collateral In support of such indebtedness, and the Corporation
represents to Lender that the Corporation is benefited by doing so.
Execute Security Documents. To execute and deliver to Lender the
forms of mortgage, deed of trust, pledge agreement, hypothecation
agreement, and other security agreements and financing statements
which may be submitted by Lender, and which shall evidence the
terms and conditions under and pursuant to which such liens and
encumbrances, or any of them, are given; and also to execute and
deliver to Lender any other written Instruments, any chattel paper,
or any other collateral, of any kind or nature, which he or she may
in his or her discretion deem reasonably necessary or proper in
connection with or pertaining to the giving of the liens and
encumbrances.
Further Acts. To do and perform such other acts and things and to
execute and deliver such other documents and agreements as he or
she may in his or her discretion deem reasonably necessary or
proper in order to carry into effect the provisions of these
Resolutions.
BE IT FURTHER RESOLVED, that the Corporation will notify Lender in
writing at Lender's address shown above (or such other addresses as
Lender may designate from time to time) prior to any (a) change in
the name of the Corporation, (b) change In the assumed business
<PAGE>71
name(s) of the Corporation, (c) change in the management of the
Corporation., (d) change In the authorized signer(s), (a)
conversion of the Corporation to a new or different type of
business entity, or (f) change in any other aspect of the
Corporation that directly or indirectly relates to any agreements
between the Corporation and Lender. No change in the name of the
Corporation will take effect until after Lender has been notified.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant
to these Resolutions and performed prior to the passage of these
Resolutions are hereby ratified and approved, that these
Resolutions shall remain in full force and effect and Lender may
rely on these Resolutions until written notice of his or her
revocation shall have been delivered to and received by Lender.
Any such notice shall not affect any of the Corporation's
agreements or commitments in effect at the time notice is given.
I FURTHER CERTIFY that the officer, employee, or agent named above
Is duly elected, appointed, or employed by or for the Corporation,
as the case may be, and occupies the position set opposite the
name; that the foregoing Resolutions now stand of record on the
books of the Corporation; and that the Resolutions are in full
force and effect and have not been modified or revoked in any
manner whatsoever.
IN TESTIMONY WHEREOF, I have hereunto set my hand on July 17,1997
and attest that the signatures set opposite the names listed above
are their genuine signatures.
CERTIFIED TO AND ATTESTED BY:
x
x
<PAGE>72
CORPORATE RESOLUTION TO BORROW
Borrower: (TIN: Lender:
CASINOVATIONS INCORPORATED BankWest of Nevada
91-1696010) Main Office
3909 S. MARYLAND PARKWAY, STE 311 38OO W. Sahara Avenue LAS
VEGAS, NV 89119 Las Vegas, NV 89102
I, the undersigned Secretary or Assistant Secretary of
CASINOVATIONS INCORPORATED (the "Corporation"), HEREBY CERTIFY that
the Corporation is organized and existing under and by virtue of
the laws of the State of Washington as a corporation for profit,
with its principal office at 3909 S. MARYLAND PARKWAY, STE 311, LAS
VEGAS, NV 89119, and Is duly authorized to transact business in the
State of Nevada.
I FURTHER CERTIFY that at a meeting of the Directors of the
Corporation. duly called and held on , at which a quorum was
present and voting, or by other duly authorized corporate action in
lieu of a meeting, the following resolutions were adopted:
BE IT RESOLVED, that any one (1) of the following named officers,
employees, or agents of this Corporation, whose actual signatures
are shown below:
NAMES POSITIONS ACTUAL SIGNATURES
RANDY SINES SECRETARY X.....
.................
......... .....
JAY L. KING CHIEF FINANCIAL OFFICER x
acting for and on behalf of the Corporation and as its act and deed
be, and they hereby are, authorized and empowered:
Borrow Money. To borrow from time to time from BankWast of Nevada
(Lender), on such terms as may be agreed upon between the
Corporation and Lender, such sum or sums of money as in their
judgment should be borrowed, without limitation.
Execute Notes. To execute and deliver to Lender the promissory
note or notes, or other evidence of credit accommodations of the
Corporation, on Lender's forms, at such rates of Interest and on
such terms as may be agreed upon, evidencing the sums of money so
borrowed or any indebtedness of the Corporation to Lender, and also
to execute and deliver to Lender one or more renewals, extensions,
modifications, refinancings, consolidations, or substitutions for
one or more of the notes, any portion of the notes, or any other
evidence of credit accommodations.
Grant Security. To mortgage, pledge, transfer, endorse,
hypothecate, or otherwise encumber and deliver to Lender, as
security for the payment of any loans or credit accommodations so
obtained, any promissory notes so executed (including any
amendments to or modifications, renewals, and extensions of such
promissory notes), or any other or further indebtedness of the
Corporation to Lender at any time owing, however the same may be
evidenced, any property now or hereafter belonging to the
Corporation or in which the Corporation now or hereafter may have
an interest, including without limitation all real property and all
personal property (tangible or intangible) of the Corporation, Such
property may be mortgaged, pledged, transferred, endorsed,
hypothecated, or encumbered at the time such loans are obtained or
such indebtedness is incurred, or at any other time or times, and
may be either in addition to or in lieu of any property theretofore
mortgaged, pledged, transferred, endorsed, hypothecated, or
encumbered.
Execute Security Documents. To execute and deliver to Lender the
forms of mortgage, deed of trust, pledge agreement, hypothecation
agreement, and other security agreements and financing statements
which may be submitted by Lender, and which shall evidence the
terms and conditions under and pursuant to which such liens and
encumbrances, or any of them, are given; and also to execute and
deliver to Lender any other written instruments, any chattel paper,
or any other collateral, of any kind or nature, which they may in
their discretion deem reasonably necessary or proper in connection
with or pertaining to the giving of the liens and encumbrances.
Negotiate Items. To draw, endorse, and discount with Lender all
drafts, trade acceptances, promissory notes, or other evidences of
indebtedness payable to or belonging to the Corporation in which
the Corporation may have an interest, and either to receive cash
for the same or to cause such proceeds to be credited to the
account of the Corporation with Lender, or to cause such other
disposition of the proceeds derived therefrom as they may deem
advisable.
<PAGE>73
Further Acts. In the case of lines of credit, to designate
additional or alternate individuals as being authorized to request
advances thereunder, and in all cases, to do and perform such other
acts and things, to pay any and all fees and costs, and to execute
and deliver such other documents and agreements as they may in
their discretion deem reasonably necessary or proper in order to
carry into effect the provisions of these Resolutions. The
following person or persons currently are authorized to request
advances and authorize payments under the line of credit until
Lender receives written notice of revocation of their authority:
JAY L. KING, CHIEF FINANCIAL OFFICER.
BE IT FURTHER RESOLVED, that any and all acts authorized pursuant
to these Resolutions and performed prior to the passage of these
Resolutions are hereby ratified and approved, that these
Resolutions shall remain in full force and effect and Lender may
rely on these Resolutions until written notice of their revocation
shall have been delivered to and received by Lender. Any such
notice shall not affect any of the Corporation's agreements or
commitments In effect at the time notice Is given.
BE IT FURTHER RESOLVED, that the Corporation will notify Lender in
writing at Lender's address shown above (or such other addresses as
Lender may designate from time to time) prior to any (a) change in
the name of the Corporation, (b) change in the assumed business
name(s) of the Corporation, (c) change in the management of the
Corporation,, (d) change in the authorized signer(s), (a)
conversion of the Corporation to a new or different type of
business entity, or (f) change in any other aspect of the
Corporation that directly or indirectly relates to any agreements
between the Corporation and Lender. No change in the name of the
Corporation will take effect until after Lender has been notified.
I FURTHER CERTIFY that the officers, employees, and agents named
above are duly elected, appointed, or employed by or for the
Corporation, as the case may be, and occupy the positions set
opposite their respective names; that the foregoing Resolutions now
stand of record on the books of the Corporation; and that the
Resolutions are In full force and effect and have not been modified
or revoked In any manner whatsoever. The Corporation has no
corporate seal, and therefore, no seal is affixed to this
certificate.
IN TESTIMONY WHEREOF, I have hereunto set my hand on July 17,1997
and attest that the signatures set opposite the names listed above
are their genuine signatures.
CERTIFIED TO AND ATTESTED BY:
x
............ . .
. ...............................................
...........
NOTE: In case the Secretary or other certifying officer Is
designated by The
<PAGE>74
EXHIBIT "A"
PROMISSORY NOTE
Up to $500,000.00 Spokane, Washington September , 1996
1. Promise to PAY. FOR VALUE RECEIVED, the undersigned,
CASINOVATIONS INCORPORATED, a Washington Corporation ("Borrower"),
promises to pay to the order of RICHARD S, HUSON ("Lender"), at 121
S.W. Morrison, Suite 1400, Portland, Oregon 97204, or at such other
place as Lender may from time to time designate in writing, the
principal sum of up to Five Hundred Thousand and No/100 Dollars
($500,000.00), together with all interest thereon and other sums
herein referred to. The &W principal balance of this Note shall be
determined by adding thereto additional amounts borrowed by Lender,
which amount when added to the initial principal balance shall
accrue as stated below from date borrowed and reduced by principal
and interest payments made thereon.
2. Interest and Payment Terms. The unpaid principal hereof shall
bear interest from the date of this Note until default and after
default at the rate of mine and one-half percent (9-5%) per annum.
This Note shall be due and payable, without demand, on December 31,
1997 except Note principal and interest due may be converted to
stock in Borrower per Agreement of even date. Furthermore,
Borrower agrees to pay 35% of cash proceeds received from equity
financing of Borrower as payment on Note within five (5) days of
receipt of cash proceeds by Borrower.
3. Calculation of Interest and Application of Proceeds. Interest
shall be calculated on a 365 or 366-day year, as applicable, based
on actual days elapsed. Each installment hereunder shall be first
applied to the payment of costs and expenses for which Borrower is
liable hereunder, next to the payment of accrued interest, and
lastly to the reduction of principal. This Note shall continue to
bear interest at the Note rate (or at the Default Rate, as
hereinafter defined, if and so long as any default exists
hereunder) until and including the date of collection, and all
payments hereunder shall be calculated by and shall be payable in
the lawful money of the United States which shall be legal tender
for public and private debts at the @e of payment.
4. Prepayment. Borrower shall have the right at any time to prepay
the whole or any part of this Note without prepayment premium or
fee.
S. Default Rate. If and so long as any default @s under this Note
the interest rate on
this Note. and on any judgment obtained for the collection of this
Note, shall be nine and one-half percent 9,5% per annum (the
"Default Rate").
6. Borrower's Right to Cure. Upon an event of default, except as
otherwise provided below, Lender shall not accelerate this debt,
make any payments for which Borrower is primarily liable. or
foreclose upon or attach any assets of Borrower unless it first
gives Borrower written notice of such default at Borrower's address
and in the manner described for notices described herein below and
unless such default is not fully cured within the following
periods:
(a) ten (10) days after such notice is given in the event of any
failure to make a monetary payment,
(b) fifteen (I 5) days after such notice is given in the event of
non monetary defaults not subject to other provisions of this
Section, provided (I) within five (5) days after such notice is
given Borrower commences its cure and submits to Lender in writing
its plan to cure- and (ii) the cure is continuously pursued by
Borrower with due diligence. If in Lender's sole judgment such
default is not reasonably capable of being cured within fifteen
(15) days, Borrower shall have such additional time as is
reasonably necessary to complete the cure, but in no event more
than thirty (3O) days after the notice of default is given.
7. usury. Borrower hereby represents that this loan is for
commercial use and not for personal family or household purposes.
It is the specific intent of the Borrower and Lender that this Note
bear a lawful rate of interest, and if any court of competent
jurisdiction should determine that the rate herein provided for
exceeds that which is statutory pertained for the type of
transaction evidenced hereby, the 'interest rate shall be reduced
to the highest rate permitted by applicable law, with any excess
interest theretofore collected being applied against principal or,
if such principal has been fully repaid, returned to Borrower on
demand.
<PAGE>75
8. Construction. This Note shall be governed by and construed in
accordance with the laws of the State of Washington, and all sums
referred to herein shall be calculated by reference to and payable
in the lawful currency of the United States.
9. Addresses for Notices: Etc. All notices, requests. demands,
directions and other communications required under this Note shall
be in writing (including telegraphic communication) and mailed by
United States mail or facsimiled or delivered by overnight courier
or by hand to the applicable party at the addresses indicated
below:
if to Borrower:
Casinovations Incorporated
Suite 107
2718 East 57th
Spokane, Washington 99223
if to Lender.-
RICHARD S HUSON
121 S W. Morrison, Suite 1400
Portland, Oregon 97204
or, as to any party, at such other address as shall be designated
by such party in a written notice to each other party complying as
to delivery with the terms of this Section 9. All such notices,
requests, demands, directions and other communication so mailed or
telecopied or delivered shall
be effective when received if sent by mail, when delivered if
delivered by courier or by hand, or when transmitted if sent by
facsimile.
10.. Counterparts. This Note may be executed in one or more
counterparts, all of which shall together constitute one
instrument.
11. counter Provisions Agreement. This Note is in conjunction with
that certain Agreement of even date by and between Richard S. Huson
("Lender") and Casinovations Incorporated ("Borrower") and Randy D.
Sines and Cheryl L. Forte ("Grantors").
BORROWER:
CASINOVATIONS INCORPORATED
By.
Randy Sines, President
<PAGE>76
EXHIBIT "B"
REPLACEMENT PROMISSORY NOTE
$300,000.00
Spokane, Washington
1996
- --------
I. promise to Pay. FOR VALUE RECEIVED, [he undersigned,
CASINOVATIONS INCORPORATED. a Washington corporation ("Borrower"),
does hereby promise to pay to the order of Richard S. HUSON
("Lender"), at 121 S.W. ,Morrison, Suite 1400, Portland, Oregon
97204, or at such other place as Lender may from time to time
designate in writing, the principal amount of Three Hundred
Thousand and No Dollars ($300,000), together with all interest
thereon and other sums herein referred to.
2. Interest and payment Terms. The unpaid principal hereof shall
bear interest from January 15, 1996, until default at the rate of
nine and one-half percent (9.5'7o) per annum. This note shall be
due and payable, without demand, on July 15, 1996.
3. Calculation-of Interest and Application of Payments. Interest
shall be calculated on a 365 or 366-day year, as applicable, based
on actual days elapsed. Each installment hereunder shall be first
applied to the payment of costs and expenses for which Borrower is
liable hereunder, next to the payment of accrued interest, and
lastly to the reduction of principal. This Note shall continue to
bear interest at the Note rate (or at the Default Rate, as
hereinafter defined, if and so long as any default exists
hereunder) until and including the date of collection, and all
payments hereunder shall be calculated by and shall be payable in
the lawful money of the United States which shall be legal tender
for public and private debts at the time of payment.
4. Prepayment. Borrower shall have the right at any time to
prepay the whole or any part of @ Note without prepayment premium
or fee.
5. Default Rate If and so long as any default exists under
this Note or any of the security granted to secure this Note, the
interest rate on this note. and on any judgment obtained for the
collection of this Note, shall be increased from the date the
default is declared to a rate (the 'Default Rate') equal to five
percent (5 %) per annum in excess of the Note rate. Borrower
acknowledges that the imposition of the Default Rate will result in
the then effective interest rate in this Note being increased from
9.5 % per annum to 14.5 % per annum.
6. Costs of Collection. Borrower promises to pay all costs.
expenses and attorneys' fees incurred by Lender in the exercise of
any remedy (with or without litigation) in any proceeding for the
collection of the debt, in any foreclosure of the Partnership
Pledge and Security Agreement or the realization upon any other
security securing this Note, in protecting or sustaining the lien
or priority of said Partnership Pledge and security Agreement or
said other security, or in any litigation or controversy arising
from or connected with this Note or the Partnership Pledge and
Security Agreement, including any bankruptcy. receivership,
injunction or other proceeding, or any appeal from or petition for
review of any of the foregoing, in which Lender prevails. If a
judgment is obtained thereon which includes an award of attorneys'
fees, such attorneys' fees, costs and expenses shall be in such
amount as the court shall deem reasonable. All collection costs,
expenses and attorneys' fees are payable on demand, shall bear
interest at the Default Rate from the date of demand to and
including the date of payment to Lender, and shall be fully secured
by the Partnership Pledge and Security Agreement and other security
granted in connection with this Note.
7. Collateral. This Note is secured by a Partnership Pledge and
Security Agreement relating to certain partnership units owned by
Randy D. Sines and Cheryl L. Forte ("Grantors") in Borrower. The
Partnership Pledge and Security Agreement, the Funding Agreement
among Grantors, Borrower, Lender and Sines Forte Partnership
pursuant to which this Note is executed, and all other documents
executed in connection with this Note are collectively referred to
hereinafter as the "Related Documents."
S. Defaults: Acceleration. Time is of the essence of this Note.
The occurrence of any of the following shall, without notice,
demand or opportunity to cure, constitute an event of default under
this Note and each of the Related Documents:
(I) Failure of Borrower to make any payment required to be paid by
Borrower under this Note or the Related Documents in strict
accordance with the terms thereof;
(ii) Failure of Borrower to perform any other covenant, agreement
or other obligation contained in this Note or the Related
Documents;
<PAGE>77
(iii) Any warranty, representation, or statement made or furnished
to Lender by or on behalf of Borrower proving to be or having been
false in any material respect when made or furnished;
(iv) The occurrence of any event of default under the Related
Documents;
(v) If any assignment by Borrower or any partner of Borrower, or
any of them. for the benefit of creditors shall be made; or
(vi) If Borrower or any partners of Borrower shall voluntarily
file a petition under the Federal Bankruptcy Act, as such Act may
from time to t' e be a mended, or under any similar or successor
Federal seizure relating to bankruptcy, insolvency arrangements or
reorganizations, or under any state bankruptcy or insolvency act,
or file an answer in an involuntary proceeding admitting insolvency
or inability to pay debts, or if Borrower or any partners of
Borrower shall fail to obtain a vacation or stay of involuntary
proceedings brought for the reorganization, dissolution or
liquidation of Borrower or any partners of Borrower, or if Borrower
or any partners of Borrower shall be adjudged a bankrupt, or upon
dissolution, business failure or discontinuance of Borrower or any
partners of Borrower as a going business (except for labor
disputes), or if a trustee or receiver shall be appointed for
borrower or any partners of Borrower, or Borrower's or any partners
of Borrower's property, or if the partnership 'interests of
Borrower shall become subject Lo the jurisdiction of a Federal
bankruptcy court, or similar state court, or if Borrower or any
partners of Borrower shall make an assignment for the benefit of
creditors, or if there is an attachment, execution or other
judicial seizure of any portion of Borrower's or any partners of
Borrower's assets and such seizure is not discharged within ten
(10) days;
then, upon the occurrence of any such event of default, after
expiration of any applicable notice and cure period, the entire
principal sum, with accrued interest thereon due under this Note,
shall, at the option of Lender, become due and payable forthwith,
without further notice. No failure to exercise such option shall
be deemed a waiver on the part of Lender of any right accruing
thereafter
9. Borrower's Right to Cure. Upon an event of default. except as
otherwise provided below, Lender shall not accelerate this debt,
make any payments for which Borrower is primarily liable, or
foreclose upon or attach any assets of Borrower unless it first
gives Borrower written notice of such default at Borrower's address
and in the manner described for notices described in Section 16
below and unless such default is not fully Cured within the
following periods:
(i) three (3) days after such notice is given in the event Of
failure to make a monetary payment;
(ii) fifteen (15) days after such notice is given in the event
of
nonmonetary defaults not subject to other provisions of this
Section, provided (1) within five
(5) days after such notice is Given, Borrower commences its cure
and submits to Lender in writing its plan to cure; and (ii) the
cure is continuously pursued by Borrower with due diligence. If in
Lender's sole judgment such default is not reasonably capable of
being cured within fifteen (15) days, Borrower shall have such
additional time as is reasonably necessary .10 complete the cure,
but in no event more than thirty (30) days after the notice of
default IS given; or sixty (60) days after the filing of any
involuntary petition in bankruptcy against or for the appointment
Of a receiver for Borrower (except for petitions filed by Lender),
with the dismissal of such petitions by the court within such
period being deemed to cure such default.
Notwithstanding the above provisions, the notice and cure periods
provided for in this Section shall not apply in the following
circumstances
(a) any default of the type described in subsection 8(c), if but
only if, as a result of such default, Lender reasonably determines
that the value of all or a substantial portion of the pledged
Collateral (as described in the Partnership Pledge and Security
Agreement), or Lender's security interest in that Pledged
Collateral, is materially impaired; or
(b) if Grantors transfer or encumber all or any portion of their
interest in the Pledged Collateral (as defined in the Partnership
Pledge and Security Agreement) without obtaining any required
consent of Lender or as expressly permitted by this Note or the
Partnership Pledge and Security Agreement; or
<PAGE>78
(C) in any circumstance when a delay effecting a cure is, in the
reasonable judgment of Lender, likely co result in any Pledged
Collateral being damaged, becoming uninsured or rendered
unavailable to Lender or the value thereof being materially
and adversely affected, or Lender's ability to recover its
outstanding balance from Borrower being materially affected; or
(d) any default of the same type or nature which occurs more than
twice; or
(e) any filing of a voluntary petition in bankruptcy by
Borrower, or
any partner in Borrower, or for the appointment of a receiver or
trustee of all or a portion of Borrower's property; or
(f) any assignment for the benefit of Creditors, fraudulent
conveyance, or other plan or action instituted by Borrower or any
partner in Borrower in an attempt to avoid the satisfaction of any
lawful indebtedness unless said other document expressly provides
otherwise. Where additional notice or cure periods are provided in
this or any other such documents or are required by any other
contract or by law, said periods and [hose contained in this
section shall run concurrently. Nothing in this section shall be
construed as extending, the term of this Note or the date upon
which a default occurs, and no decision to forego any remedy for
any given default shall be deemed a waiver on the part of Lender of
any right relating to any other default. No failure to alive any
notice of any default shall constitute a waiver of such default or
any remedy which may be available in connection therewith. This
section shall be strictly construed, and shall not impair the
exercise of any remedy not immediately referred to above upon
default, including, without limitation, the seeking of any
mandatory or prohibitive injunction or restraining order or
appointment of receiver.
10. Usury. Borrower hereby represents that this loan is for
commercial use and not for personal, family or household purposes.
It is the specific intent of the Borrower and Lender that this Note
bear a lawful rate of interest. and if any court of competent
jurisdiction should determine that the rate herein provided for
exceeds that which is statutorily permitted for the type of
transaction evidenced hereby, the interest rate shall be reduced to
the highest rate permitted by applicable law, with any excess
interest theretofore collected being applied against principal or,
if such principal has been fully repaid, returned to Borrower on
demand.
11. Renewals. Borrower, and all others who may become liable
for all or any part of this obligation, consent to any number of
renewals or extensions of the time of payment hereof and to the
release of all or any part of the security for the payment hereof.
Any such renewals, extensions or releases may be made without
notice to any of said parties and without affecting their
liability.
12. Multiple Parties. If Borrower is composed of more than one
person or entity, each of such persons shall be jointly and
severally liable for the indebtedness evidenced hereby. A default
on the part of any one person or entity comprising Borrower or any
guarantor of this Note shall be deemed a default on the part of
Borrower hereunder. Any married person comprising Borrower pledges
his or her marital community properties in satisfaction hereof.
I3. Waiver. Borrower hereby waives presentment, demand of
payment, notice of dishonor, protest, and notice of nonpayment, and
any and all other notices ' and demands whatsoever. No covenant,
condition, right or remedy in this Note may be waived or modified
orally. by course Of conduct or previous acceptance or otherwise
unless such waiver, or modification is specifically agreed to in
writing executed by the Lender.
14. Construction. This Note shall be governed by and construed in
accordance with the laws of the State of Oregon, and all sums
"referred to herein shall be calculated by reference to and payable
in the lawful currency of the United States. This Note and all
Related Documents executed in connection with this Note have been
reviewed and negotiated by Borrower, under and any guarantors at
arms' length with the benefit of or opportunity 10 seek the
assistance of legal counsel and shall not be construed against
either party. The titles and captions in this Note are inserted
for convenience only and in no way define, limit, extend, or modify
the scope or intent of this Note. In any case where Lender is
permitted to act in its "sole discretion," 'sole opinion or the
like, Lender shall be entitled to exercise unfettered discretion
and may act without application of principles of law, if any,
requiring ,good faith or fair dealing or reasonableness 'in
exercising Lender's options.
<PAGE>79
15. Partial Invalidity If any section or provision of this Note
is declared invalid or unenforceable by any court of competent
jurisdiction, said determination shall not affect the validity or
enforceability of the remaining terms hereof. No such
determination in one jurisdiction shall affect any provision of
this Note to the extent it is otherwise enforceable under the laws
of any other applicable jurisdiction.
16. Addresses for Notices. All notices, requests. demands,
directions and other communications required under this Note shall
be in writing (including telegraphic communication) and mailed by
United States mail or facsimiled or delivered by overnight courier
or by hand to the applicable parry at the addresses indicated
below:
if to Borrower:
CASINOVATIONS INCORPORATED
2718 E 57th Avenue, #107
Spokane, WA 99223
if to Lender:
Richard S. Huson
121 S.W. Morrison, Suite 1400
Portland, Oregon 97204
or, as to any parry, at such ocher address as shall be designated
by such party in a written notice to each other party complying as
to delivery with the terms of this Section
16. All such notices, requests, demands, directions and other
communications so mailed or telecopied or delivered shall be
effective when received if sent by mail, when delivered if
delivered by courier or by hand, or when guaranteed if sent by
facsimile.
17. Replacement of Prior Note. This Note is being executed and
delivered by Borrower to evidence Borrower's assumption of the
obligations of Sharps International Limited Partnership under that
certain Promissory Note dated as Of January 15, 1996 (the 'Sharps
Note'). By acceptance, this Note, Lender agrees to destroy the
Sharps Note.
18. Counterparts. This Note may be executed in one or more
counterparts, all of which shall together constitute one
instrument-
BORROWER:
CASINOVATIONS INCORPORATED,
a Washington Corporation
By:
Title:
<PAGE>80
INDEPENDENT AUDITOR'S CONSENT
We do hereby consent to the use of our report dated March 27, 1997 on the
financial
statements Casinovations, Inc. as of December 31, 1996 included in and made
part of the registration statement of Casinovations, Inc. dated September
12, 1997.
September 12, 1997
/s/ Winter, Scheifley & Associates, P.C.
Certified Public Accountant
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> JUN-30-1997
<CASH> 161,998
<SECURITIES> 0
<RECEIVABLES> 8,424
<ALLOWANCES> 0
<INVENTORY> 856
<CURRENT-ASSETS> 176,528
<PP&E> 28,473
<DEPRECIATION> 4,326
<TOTAL-ASSETS> 457,387
<CURRENT-LIABILITIES> 855,389
<BONDS> 0
<COMMON> 5,564
0
0
<OTHER-SE> (403,566)
<TOTAL-LIABILITY-AND-EQUITY> 457,387
<SALES> 632
<TOTAL-REVENUES> 20,706
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> (852,009)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 237,582
<INCOME-PRETAX> (1,069,517)
<INCOME-TAX> 0
<INCOME-CONTINUING> (1,069,517)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,069,517)
<EPS-PRIMARY> (.20)
<EPS-DILUTED> (.20)
</TABLE>
<PAGE>82
EMPLOYMENT AGREEMENT
(Personal Service Agreement)
AND
COVENANT NOT TO COMPETE
THIS AGREEMENT is made and entered into this 31st day of March, 1996, by and
between CASINOVATIONS INCORPORATED, a Washington corporation (hereinafter
referred to as "Employer and/or "Corporation" and/or "Company") and RANDY D.
SINES, a resident of Washington, (hereinafter referred to as "Employee"
and/or Individual).
WHEREAS, Corporation is engaged in the rendering of services related
to the invention, development, marketing, and manufacturing of gaming and
gaming related products, and other related services and areas to come before
the Corporation;
WHEREAS, Corporation desires to employ Employee upon the terms and
conditions hereinafter set forth, and Employee desires to accept such
employment; and
WHEREAS, the Employee entered into a Funding Agreement as of January
15, 1996 with various parties (to include Sharps International Limited
Partnership) and such Funding Agreement provided Employee enter into this
Personal Service Agreement;
Now, Therefore, IT IS AGREED for valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, as follows:
1. Purpose and Employment. The purpose of this agreement is to define
the relationship between Corporation as an employer of Employee and Employee
as an employee of Corporation. hereby employs Employee and Employee hereby
accepts employment by Corporation upon the terms and conditions as set forth
herein.
2. Duties. Corporation hereby employs, engages, and hires Employee as
employee to provide a multitude of services on behalf of Corporation to
include but not be limited to the inventing, developing, conceptualizing,
marketing, manufacturing, and licensing of gaming and gaming related
products
and services. Employee may also be an officer and/or a director of
Corporation. Employee will carry out the policies and procedures relating
to
such employment as such policies and procedures are formulated by
Corporations shareholders, Board of Directors and Officers. Employee hereby
accepts and agrees to such hiring, engagement and employment subject to the
general supervision, orders, advice and direction of Corporation. Employee
shall perform such duties as are customarily performed by one holding such
position in the same or similar businesses or enterprises as that engaged in
by Corporation, and shall additionally render such other related and
unrelated services and duties as may be reasonably assigned to Employee from
time to time by Corporation. Employee agrees that Employee will, at all
times, faithfully, industriously and to the best of Employee's ability,
experience and talents perform all of the duties which may be reasonably
required of and from Employee pursuant to the express and implicit terms of
this agreement and to the reasonable satisfaction of Corporation. Such
duties shall be rendered in the States of Washington and Nevada and such
other place or places as Corporation shall, in good faith, require or as the
interests, needs, businesses or opportunities of Corporation shall require.
Employee shall furnish the hours Employee, in Employee's sole discretion,
deems necessary for the fulfillment of Employee's obligations hereunder and
the rendering services on behalf of Corporation in furtherance of its best
interests.
3. Term. The term of employment under this agreement shall be from
January 15, 1996 and ending at such time as this Agreement is terminated as
hereinafter provided.
4. Compensation. Except as provided in paragraph B. below, Corporation
shall pay to Employee and Employee shall accept from Corporation, in full
payment for Employee's services, compensation at the rate of Ten Thousand
and
no/100 Dollars ('10,000.00) per month for full time employment; or a pro
rata
share of Ten Thousand and no/100 Dollars ($10,000.00) per month in the event
Employee provides services to any other entity(ies), to include Employee's
own businesses.
5. Fringe Benefits. Employee shall be entitled to participate with all
other employees of Corporation in all Employee group fringe benefits which
may be authorized and adopted from time to time by the Board of Directors of
Corporation.
6. Working Facilities and Expenses. Employee is encouraged and
expected, from time to time, to incur reasonable expenses for the promotion
of the business of Corporation, including expenses for an automobile and
transportation, home telephone, maintaining necessary facilities for
consultation with Corporation's clients in Employee's home, social and civic
membership and participation, entertainment, travel and similar items.
Corporation shall solely at the discretion of the Board of Directors,
reimburse Employee for any such legitimate, ordinary, customarily and
necessary expenses upon documentation by Employee pursuant to the provisions
of internal Revenue Code Section 274(d).
<PAGE>183
7. Meetings and Seminars. Employee is encouraged and expected, at
such
time or times as may be approved by Corporation's Board of Directors, to
attend business seminars, meetings and conventions and business education
courses and to freely participate in organized business activities.
The cost of travel, tuition or registration and food and lodging
for
attending such activities shall be paid by Employee. However, because of
unusual circumstances, the Board of Directors of Corporation may determine
that the costs of Employee's attendance at business seminars, meetings and
conventions should be authorized as an expense of Corporation. Should any
such additional expense of attendance be so authorized, Employee shall be
reimbursed therefor upon presentation to Corporation of an itemized expense
voucher that complies with Corporation policy and Internal Revenue Code
requirements for adequate documentation of expenses.
8. Termination. This Agreement is for a two (2) year period effective
as of January 15, 1996 and is subject to automatic renewals for consecutive
two (2) year terms thereafter unless and until Corporation and/or Employee
gives written notice of non-renewal at least sixty (60) days prior to
expiration of then current term, further subject to earlier termination as
provided herein. Except as provided below, in the event of termination,
Corporation shall only be obligated to continue to pay Employee the salary
due Employee under this agreement up to the termination date. Following any
such notice of termination, Employee shall fully cooperate with Corporation
in all matters relating to the winding up of Employee's pending work on
behalf of Corporation and to the orderly transfer of any such pending work
to
other employees of Corporation as may be designated by the Board of
Directors
of Corporation. Such termination shall not affect any liability or other
obligation which may have accrued prior to such termination, including but
not limited to any liability for loss or damage on account of default.
Employee shall not be entitled to retain or copy any corporate information
or
documents in the event of termination and Employee shall remain bound by the
other terms and conditions of this Agreement to include paragraphs 14.
through 18.
The Corporation may terminate this Agreement for Adequate Cause (defined
below) immediately upon giving written notice to the Individual. If
terminated for Adequate Cause, the Corporation's compensation obligations
shall terminate upon the last day of the employment relationship as
specified
in the termination notice.
The Corporation may also terminate this Agreement without Adequate Cause,
but
in such event (other than Disassociation, defined below), the Corporation
shall be obligated to pay Employee compensation for a period equal to the
longer of six (6) months or the balance of the then current term of this
Agreement, at a monthly rate equal to the average monthly compensation paid
by the Company to the Employee during the six (6) month period immediately
preceding the month in which termination occurs. Notwithstanding the
preceding sentence, in the case of a Mandatory Disassociation (defined
below), Employee shall be entitled to compensation at the rate determined in
accordance with the preceding sentence for a period of six (6) months
following the termination. As used herein, the term "Mandatory
Disassociation" means a termination of Employee by the Company as a result
of
any circumstance in which, in the reasonable opinion of counsel to the
Corporation and after giving effect to paragraph 19 below, the continuation
of this Agreement would render the Corporation unable to obtain any material
gaming or other license, franchise, permit or approval required for the
Corporation to sell, lease, license and distribute its products and
otherwise
engage in its business activities.
As used herein, the term "Adequate Cause" means and includes any of
the following:
a. Employee's failure or refusal to carry out the reasonable
directions of the Board of Directors of Corporation, provided that the
directions are reasonably consistent with the normal duties performed by
Employee, which failure or refusal continues for thirty (30 days) after the
Employee's receipt or written notice thereof;
b. Employee's willful failure or refusal to comply in any
material respect with the reasonable policies and procedures of the
Corporation as in effect from time to time, which failure or refusal
continues for thirty (30) days after Employee's receipt of written notice
thereof;
c. Employee's breach of this Agreement, including but not
limited to, his failure, inability, or refusal in any material respect to
perform his or her duties in accordance with this Agreement, which breach
remains uncured for thirty (30) days after Employee's receipt of written
notice of the breach; or
d. Any deceptive, fraudulent, dishonest or illegal act (or failure
to act) or breach of fiduciary duty by the Employee with respect to
Corporation or with respect to Sharps International Limited Partnership, a
Nevada limited partnership.
In addition to the Corporation's rights of termination, the
Employee
may terminate this Agreement voluntarily upon giving at least sixty (60)
days
prior written notice to Corporation and Employee's compensation shall cease
<PAGE>83
on termination date. In addition, after notice of termination has been
given, or prior to such time in the event Employee has decided to terminate
his employment with Employer but not yet notified Employer, Employee
agrees that he will not:
(a). Make any statement or perform any act intended to advance
an interest of any existing or prospective competitor of Employer in any way
that will, or may, injure an interest of Employer in its relationship and
dealings with existing or potential customers and clients, or solicit or
encourage any other employee of Employer to do any act that is disloyal to
Employer, or inconsistent with Employer's
interests, or in violation of any provision of this Agreement;
(b) Discuss with any other employee the formation or operation
of any business intended to compete with Employer, or the possible
future employment of such other Employee by any such business, if Employee
has or expects to acquire a proprietary interest in such business, or is or
expects to be made an officer or director of such business;
(c) Inform any existing or potential customer of Employer that
Employee intends to resign, or make any statement or do any act intended
to cause any existing or potential customer of Employer to learn of
Employee's intention to resign, or to terminate his employment, whether
voluntarily or involuntarily, without having first given a corporate officer
of Employer at least ten (10) days notice, in writing, of such intention,
and
the names of each representative of an existing or potential customer whom
Employer intends to inform or cause to be informed of such intention, and
having gained written approval for such contact in advance; and
(d) Discuss with an existing or potential customer of
Employer,
the present or future availability of services or products by a business, if
Employee has or expects to acquire a proprietary interest in such business,
or such services or products are competitive with services or products which
Employer provides.
On or before the effective date of termination of employment with Employer,
Employee shall tender his resignation as an officer and director of that
company if he is then serving in that capacity. In addition, in the event
Employee gives notice of termination, such notice shall also include his
tender of resignation as an officer and director of the Corporation.
9. Notices. Any and all notices required or permitted to be
given under this Agreement shall be sufficient if furnished in writing and
sent by registered or certified mail to the last known residence of Employee
or to the principal office of Corporation.
10. Choice of Law and Venue. This agreement shall be
interpreted, construed and governed according to the laws of the State of
Washington, and venue shall be in Spokane County, State of Washington.
11. Captions. Headings used in this Agreement are solely for
convenience and shall not affect or be used in connection with the
interpretation of this Agreement.
12. Internal Revenue Code References. Whenever reference is
made herein to the Internal Revenue Code or any section thereof, such
reference shall be construed to mean the Internal Revenue Code of 1986 as
amended, or such section thereof as the case may be as heretofore or
hereafter amended, supplemented or superseded by subsequent laws of similar
effect.
13. Amendments. Except as otherwise provided herein, no
amendments or additions to this Agreement shall be binding unless in writing
and signed by both parties.
14. Non-Competition. In consideration of the compensation and
other benefits to be paid to the Employee under this Agreement and other
additional valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, and in view of the unique value to Corporation of the
services of Employee and the confidential information obtained by or
disclosed to Employee pursuant to the employment relationship embodied
herein, for and in additional consideration of One Hundred and no/100
Dollars
($100.00), which is payable within ninety (90) days of termination of
employment and additional valuable consideration (such additional
consideration acknowledged by Corporation and Employee as including but not
limited to Employee's employment and Employee's continued employment), the
Employee agrees that, beginning on the data of this agreement and continuing
for two (2) years after the date which is the later of (a) the termination
of
the Employee's employment with the Corporation (including any period of this
Employee's continued employment or engagement as an employee or consultant
following expiration of the term of this Agreement) (the "Termination Date")
he shall not, directly or indirectly, for his own account or as agent,
employee, officer, director, trustee, member, consultant or partner, or as a
stockholder or equity owner of any corporation or any other entity (except
that he may own securities constituting less than five percent (5%) of any
class of securities of a public company) , or member of any firm or
otherwise, (a) engage or attempt to engage, in the Restricted Territory (as
hereinafter defined) , in the business (as hereinafter defined) or any other
business or activity which is the same as, substantially similar to or
directly or
indirectly competitive with the business conducted by the corporation at the
Employee's termination date,
(b) employ or solicit the employment of any person who is employed by the
Corporation at the Employee's termination date or at any time during the
six-
month period preceding the Employee's termination date, (c) canvass or
solicit business in competition with the business conducted by the
Corporation immediately prior to the termination date from any person or
entity who during the six-month period preceding the termination date shall
have been a customer or client of the Corporation, or from any person or
<PAGE>85
entity which the Employee has reason to believe might thereafter become a
customer or client of the Corporation as a result of marketing, contacts or
other facts and circumstances of which the Employee is aware, (d) willfully
dissuade or discourage any person or entity from using, employing or
conducting business with the Corporation or (e) disrupt or interfere with,
or
seek to disrupt or interfere with, the business or contractual relationship
between the Corporation and any supplier who during the six-month period
preceding the termination date shall have supplied components, materials or
services to the Corporation. For purposes of this Agreement, the term
Restricted Territory shall mean anywhere in the world. Business is defined
as the inventing, developing, marketing, sales, and manufacture of gaming
and
gaming related products and services and any other lawful business activity
engaged in by the Corporation on the termination date.
Notwithstanding the foregoing, the restrictions imposed by this
Section 14. or Sections 15. through 17. hereof shall not in any manner be
construed to prohibit, directly or indirectly, the Employee from serving as
an employee of the Corporation in accordance with the terms and conditions
of
this Agreement.
15. Confidential Information. Employee shall take all
reasonable precautions to safeguard the confidential nature of all
confidential information of or belonging to the Corporation and its
Affiliates and shall take any other precautions with respect thereto which
the Corporations in its sole discretion, may reasonably request. For
purposes of this Agreement, "confidential information" shall mean all
information pertaining to the business and operations of the Corporation and
its Affiliates which is not generally available to the public and which the
Corporation desires to keep confidential, including, but not limited to,
trade secrets, proprietary rights and information, technology, concepts,
inventions, ideas, financial information, developments, information as to
customers and customer lists, sales and marketing information, information
as
to suppliers, manufacturing, production and pricing information, information
as to business methods, practices and strategies, and all documents,
electronic records and other tangible items relating to or containing any
such information.
16. Personal Property. The Employee agrees that the
Corporation shall own all right, title, and interest in and to all
developments and confidential information the Employee receives, invents,
conceives, or develops, either alone or with others, during the term of his
employment hereunder. Without limiting the generality of the foregoing, all
notes, notebooks, memoranda, working papers, graphs, charts, pictures, data,
drawing, documents and all other items containing or relating in any way to
confidential information made, compiled or obtained by the Employee, and all
copies thereat, together with all rights associated with ownership of such
items (such as copyright, patent, trade secret and other proprietary rights)
shall become the property of the Corporation when so made, compiled or
obtained, whether or not delivered to the Corporation, and shall be held by
the Employee in trust for the Corporation and shall be delivered to
the Corporation upon request and, in any event, upon termination of the
Employee's employment hereunder.
17. Developments.
(a) The Employee agrees to immediately communicate to the
Board
of Directors of the Corporation or to such other individual the Board of
Directors may designate, a full and complete disclosure of each Development
(as defined in subsection (e) below) conceived, made, or otherwise developed
by the Employee prior to December 31, 1992 during the term of his employment
hereunder and during the two (2) year covenant period per paragraph 14.,
whether solely or jointly with others, and whether or not while actually
engaged in performing work for the Corporation.
(b) The Employee agrees to assign and transfer to the
Corporation, without any separate remuneration or compensation, his entire
right, title and interest in and to all Developments and any United States
and foreign patent, copyright and any other proprietary rights in and
respect
to all such Developments, conceived, made or otherwise developed by the
Employee after December 31, 1992 and during the term of his employment
hereunder, whether a full or partial interest, and whether or not while
engaged in performing work for the Corporation. The Employee understands
and
agrees that the Corporation will determine, in its sole and absolute
discretion, whether an application for a copyright, patent or other
proprietary right registration will be filed on the Employee's Development
and whether any such application will be abandoned prior to issuance of a
patent, copyright or other proprietary right registration.
(c) The Employee shall take such action including, but not
limited to, execution, acknowledgment, delivery and assistance in
preparation
of documentation as may reasonably be requested by the Corporation for the
Implementation or continuing performance of subsection 17. (b) of this
Agreement. Without limiting the generality of the foregoing, the Employee
shall execute, acknowledge, deliver and assist in preparing such instrument
of conveyance, patent or copyright application, or assignment or further
assurance as the Corporation may reasonably request, to evidence, transfer,
vest and confirm the right, title and interest transferred or granted or to
be transferred or granted to the Corporation under subsection 17. (b) of
this
Agreement. The Employee shall not contest the validity of any patent,
copyright or other proprietary right, either United States or foreign, which
is transferred, conveyed, granted, vested or otherwise assured to the
Corporation for concepts or inventions conceived or invented after December
<PAGE>85
31, 1992, or while an Employee, to which the Employee made any contribution
or in which the Employee participated in any way, and shall not assist any
other party in any way to contest the validity of such patent, copyright, or
proprietary right.
(d) The Employee has prepared and attached hereto as Exhibit
"A" a list of all inventions, developments, patent applications and patents
that were made, developed, conceived or first reduced to practice by the
Employee prior to December 31, 1992 and the commencement of the term of his
employment hereunder that are subject to prior agreements or that the
Employee desires to exclude from this Agreement. If no such list is
attached, the Employee represents and warrants that there are no such
inventions, developments, patent applications or patents.
(e) "Developments" means (1) any invention, discovery, concept
or idea, whether or not patentable; (2) any writing, drawing, design or
other
creative expression, whether or not copyright or trademark applications are
filed thereon; (3) any computer program, discovery, idea, device, process,
design, development, improvement, conception, concept, application,
technique
or know-how; or (4) any other invention, whether patentable or
copyrightable,
and whether or not reduced to practice, and, with respect to all of items
(1)
through (4) of this subsection (e) , that is (a) within the scope of the
Corporation's business, research or investigation; (b) results from or is
suggested by any work performed by the Employee for Corporation and related
to the business of the Employee's employment with the Corporation or under
the Employee's direction, whether or not it is made or discovered,
conceived,
made or discovered during normal working hours or on the premises of the
Corporation; or (c) results from the use of the Corporation's
facilities, equipment, property, or other assets. Developments shall
include, but not be limited to articles, processes, methods, formulas,
systems, computer source codes and techniques as well as improvements
thereof
and know-how related thereto. All developments are the property of the
Corporation with the exception of the "Literary Rights" as defined in
Section
19.
18. Equitable Remedies. The Employee represents and warrants
that he has had an opportunity to consult with his attorney regarding this
Agreement, has thoroughly and completely reviewed Agreement with his
attorney, and fully understands the hereof. Furthermore, the Employee (a)
acknowledges that a remedy at law for his failure to comply with Sections
14., 15.,16 and 17 of this Agreement may be inadequate; and (b) consents to
the Corporation obtaining from a court having jurisdiction specific
performance, an injunction, a restraining order or any equitable relief in
order to enforce any such provision. The right to obtain such equitable
relief shall be in addition to any remedy to which the Corporation is
entitled under applicable law (including, but not limited to, monetary
damages). The Parties acknowledge that Douglas J. Brajcich, P.C. is
attorney
only for the Corporation and not for Employee and Employee has been advised
to consult independent legal counsel and has had sufficient time to do so.
19. Transfers. Employee hereby transfers to the Corporation,
without additional compensation, royalty or other consideration, full
ownership of any inventions, ideas, or other intellectual property (other
than the Literary Rights) heretofore developed by the Employee and/or Sines-
Forte, a Nevada partnership, or hereafter developed by Employee while
employed or retained by the Corporation that (a) relate to the present or
future business of the Corporation or (b) are developed on the Corporation's
premises or using the facilities, property or the assets of the Corporation.
The transfers herein shall not be deemed to restrict the ability of
Employee to write or develop articles, books, movie scripts, motion
pictures,
sound recordings or other literary works about the Inventions transferred to
Corporation by Employee and future Corporation Inventions or the story
behind
the development thereof, including any copyrights therein (collectively the
"Literary Rights") ; provided, however, exercise of such rights shall not
involve disclosure of confidential information of Corporation which may have
commercial value to the business of Corporation or its successors.
The Employee agrees to timely take all actions and execute all
documents to transfer all right, title, and interest to Corporation in all
gaming and other inventions, licenses, developments, franchises, permits and
approvals required for the Company to sell, lease, license and distribute
its
products and otherwise engage in its business activities.
20. Restrictions. In the event any provision of Paragraphs 14
and 15 relating to time period and/or areas of restriction shall be declared
by a court of competent jurisdiction to exceed the maximum time period or
areas as such court deems reasonable and enforceable, said time period
and/or
areas of restriction shall be deemed to become and thereafter be the maximum
time period and/or areas which such court deems reasonable and enforceable.
21. Burden and Benefit. This agreement shall be binding upon
and inure to the benefit of Employee and Corporation and their respective
successors, heirs, and assigns.
22. Survival of Covenants. The covenants and provisions of
this Agreement shall survive the termination of the employment relationship
embodied herein.
23. Schedules and Exhibits. All schedules and exhibits
attached to this Agreement shall be deemed part of this Agreement and
incorporated herein where applicable, as if fully set forth herein.
24. Interpretation. This Agreement is the product of
negotiation and amendment, and shall not be interpreted particularly for or
against either party because that party's legal representative drafted
this Agreement or a portion of it.
<PAGE>87
25. Timely Compensation. In the event the compensation due
Employee by Employer is not timely made, Employee shall be entitled to
interest, along with all Employee's other rights and remedies available,
at the rate of nine and one-half percent (9 1/2%) per annum.
26. Funding Agreement. Incorporated by reference as Exhibit
"B" is a Funding Agreement dated January 15, 1996 by and among Richard S.
Huson, an individual, Sharps International Limited Partnership, Nevada
limited partnership, Randy D. Sines, an individual, Cheryl L. Forte an
individual, Sines-Forte Partnership, a Nevada general partnership, and
Steven
L. Forte, an individual. Said Exhibit "B" sets forth terms and conditions
not otherwise provided for in this Agreement.
IN WITNESS WHEREOF, the parties have executed this agreement as of the day
and year first above written.
"CORPORATION"
CASINOVATIONS INCORPORATED
a Washington corporation
By: Randy D. Sines, President
"EMPLOYEE"
By: Randy D. Sines
<PAGE>88
FUNDING AGREEMENT
THIS FUNDING AGREEMENT is entered into as of the 15th day of
January, 1996, by and among RICHARD S. HUSON, an individual
("Huson"), SHARPS INTERNATIONAL LIMITED PARTNERSHIP, a Nevada
limited partnership ("Sharps"), RANDY D. Sines, an individual
("Sines"), CHERYL L. FORTE, an individual ("Forte"), SINES FORTE
PARTNERSHIP, a Nevada general partnership consisting of Sines and
Forte (the "Partnership") and, solely for purposes of Sections 4
and 5 below, STEVEN L. FORTE.
RECITALS:
Huson, Sines, and Forte each own a significant percentage of the
outstanding partnership interests ("Units") in Sharps;
The Partnership licenses certain inventions, ideas, patents,
trademarks and other intellectual property to Sharps,
Huson wishes to purchase from Sines and -Forte some of their
limited partnership Units and acquire from them an option to
purchase additional limited partnership Units, and Sines and Forte
wish to sell such Units and provide such an option to Huson;
Sharps has requested a loan from Huson, and Huson is willing to
make such a loan on certain terms and conditions, including certain
modifications of the Partnership's licensing arrangements with
Sharps, and the Partnership is willing to commit to such
modifications.
The parties wish to clarify prior agreements and understandings and
make certain additional agreements concerning the reorganization of
Sharps' business.
In consideration of the mutual promises and covenants contained
herein, the parties hereto agree as follows:
AGREEMENT:
SECTION 1. PURCHASE OF PARTNERSHIP UNITS AND RELATED MATTERS
1.1 Purchase of Partnership Units. Subject to the terms and
conditions set forth herein, Sines and Forte (collectively the
"Sellers") hereby sell to Huson and Huson hereby purchases from the
Sellers a total of 42 limited partnership Units, 21 from Sines and
21 from Forte (the 'Transferred Units"). The transfer of the
Transferred Units shall be duly reflected on Sharps' books and
records as provided in the Sharps International Limited Partnership
Agreement ("Sharps Partnership Agreement").
1.2 Purchase Price. Subject to the adjustments listed in Section
1.4, Huson will pay to the Sellers an aggregate amount equal to Two
Hundred Sixty Five Thousand and No/100 Dollars ($265,000.00) (the
"Purchase Price") for the Units.
1.3 Payment of Purchase Price. The Purchase Price will be paid to
the Sellers as follows.
1.3.1 Upon execution of this Agreement, Huson shall deliver a check
to
Sellers in the amount of ONE HUNDRED THOUSAND AND No/100 DOLLARS
($100,000.00) payable to Sellers; and
1.3.2 Upon execution of this Agreement, Huson and his wife shall
execute and deliver to Sellers a promissory note in the form
attached hereto as Exhibit A (the "Purchase Price Promissory
Note").
1.4 Adjustments to Purchase Price. Upon complete repayment of the
Loan to
Sharps (as defined and described in Section 2), and if one of the
two contingencies listed below is met by July 15, 1996, the
Purchase Price shall be increased to THREE HUNDRED NINETY SEVEN
THOUSAND FIVE HUNDRED DOLLARS ($397,500.00). The contingencies are:
1.4.1 (a) (i) The "Random Ejection Card Shuffler" product shall be
licensed by Sharps to Shufflemaster, Inc. substantially pursuant to
the terms of the draft agreement attached hereto as Exhibit B, or
(ii) Sharps' products shall be licensed or sold to a third party
pursuant to an agreement which provides for a payment to Sharps
concurrently with the execution of such agreement of at least
$1,000,000 in cash or cash equivalents, which payment shall not be
subject to any contractual right of offset, cancellation,
rescission, return or other condition, and (b) a minimum of ONE
MILLION FIVE HUNDRED THOUSAND AND No/100 DOLLARS ($1,500,000.00) in
cash or cash equivalents shall be received by Sharps from investors
who have purchased Units in Sharps after the date of this Agreement
at a minimum amount of $9,456 per Unit. If, pursuant to Section 5,
<PAGE>89
the Reorganization described therein has then been completed,
clause (b) of the preceding sentence shall be deemed to require
that any shares of Casinovations stock be purchased for a minimum
per-share price of $1.50; OR
1.4.2 A total of Two MILLION FIVE HUNDRED THOUSAND AND No/100
DOLLARS ($2,500,000.00) in cash or cash equivalents shall be
received by Sharps from investors who have purchased Units in
Sharps after the date of this Agreement at a minimum amount of
$9,456 per Unit (or $1.50 per-share of Casinovations stock).
Payment of Adjusted Purchase Price. in the event the Purchase Price
is adjusted as set forth in Section 1.4 of this Agreement, the
additional ONE HUNDRED THIRTY Two THOUSAND FIVE HUNDRED DOLLARS AND
No/100 ($132,500.00) shall be paid by Huson in cash upon repayment
of the Loan.
SECTION 2. LOAN
2.1 Loan by Huson to Sharps. Upon execution of this Agreement,
Huson shall loan to Sharps Three Hundred Thousand and No/100
Dollars ($300,000) (the "Loan"), and Sharps shall execute and
deliver to Huson a promissory note in the form attached hereto as
Exhibit C (the "Loan Promissory Note"). The Loan shall be secured
by a pledge of certain limited partnership Units ("Pledged Units")
of Sharps owned by Sines and Forte in accordance with the terms of
a Partnership Pledge and Security Agreement attached hereto as
Exhibit D (the "Partnership Pledge Agreement"). Upon execution of
this Agreement, Sines and Forte shall execute and deliver to Huson
the Partnership Pledge Agreement and shall cause their spouses to
execute and deliver spousal consents in the forms attached hereto
as Exhibits E-1 and E-2. If Huson acquires ownership of any or all
of the Pledged Units, Sines and Forte shall have an option to re-
purchase 50% of the acquired Units pursuant to the terms of the
Partnership Pledge Agreement.
2.2 Assignment of Loan Promissory Note. Notwithstanding any other
provision of this Agreement, if Huson should at any time acquire
all or a portion of the Pledged Units, then Huson shall immediately
assign and endorse the Loan and Note to Sines and Forte who shall
have unconditional right, title and interest in the Note and Loan
in the principal amount of $300,000, without recourse to Huson.
The foregoing shall be in addition to any rights of subrogation
which Sines and Forte may have under applicable law.
SECTION 3. OPTION TO PURCHASE ADDITIONAL UNITS
3.1 Option to Purchase Additional Units. Subject to the terms and
conditions contained in Sections 3.2. and 3.3. below, Huson shall
have an option (the "Option") to purchase from Sellers up to an
additional 43 Units ("Option Units"), 21.5 limited partnership
Units from Sines and 21.5 limited partnership Units from Forte, at
the price of $405,000 for all such Option Units or $9,456 per Unit
(the "Option Price"). The Option shall be exercised, if at all,
within 90 days from the date the Loan is repaid in full.
3.2 Default on Loan. In the event the Loan is not repaid in fall
on or before the maturity date specified in the Loan Promissory
Note, the Option described in Section 3.1 shall be extinguished and
Huson shall have no rights with respect to it.
3.3 Adjustment to Option Price, In the event that the Loan is
repaid in full on or before the maturity date specified in the Loan
Promissory Note but neither of the contingencies listed in Section
1.4.l. or 1.4.2 is satisfied as of the date the Loan is repaid, the
Option Price shall be reduced from $9,456 per Option Unit to $6,304
per Option Unit.
3.4 Exercise of Option. To exercise the Option, Huson shall give
written notice to Sellers of his election to exercise the Option.
The notice shall specify the number of Option Units which Huson
elects to purchase, The sale and purchase of the Option Units which
Huson has elected to purchase shall be closed at a mutually agreed
time and place within 30 days after Huson's notice of exercise. At
the closing of such purchase, Huson shall pay 50 % of the Option
Price and the purchase of the Option Units shall be duly reflected
on Sharps' books and records in accordance with the Sharps
Partnership Agreement. At the closing Huson shall also execute and
deliver to Sellers a promissory note in substantially the form
attached as Exhibit F for the balance of the Option Price, except
that the principal amount and related terms of the Note shall be
appropriately adjusted in the actual note to reflect any change in
the Option Price pursuant to Section 3.3 or to reflect a purchase
of less than all of the Option Units.
3.5 Conversion to Casinovations Shares. If the Reorganization has
then been effected, the Option shall apply to 270,000 shares of
Casinovations stock at $1.50 per share, subject to reduction to
$1.00 per share on the terms described above.
<PAGE>90
SECTION 4. INTELLECTUAL PROPERTY RIGHTS
4.1 Intellectual Property Rights. Sharps and the Partnership have
previously entered into an Exclusive License Agreement dated June
6, 1994 (the "Licensing Agreement") pursuant to which the
Partnership granted to Sharps a license with respect to certain
inventions. The Partnership, Sines, Forte, and Steven L. Forte
hereby transfer, convey and assign to Sharps all of the right,
title and interest in and to the Licensed Inventions, Licensed
Technology, Licensed Patent Rights, Copyrights, Licensed Copyright
Works, Licensed Technology Rights, Licensed Products, Licensed
Trademarks, and Licensed Trademark Rights as those terms are
defined and used in the Licensing Agreement (the "Total
Inventions"), excluding from such transfer the "Safety Peek Dealing
Shoe" and the Slow "Roll-Reel Vision" slot machine concept (the
"Retained Inventions"). The Total Inventions, excluding the
Retained Inventions and the Literary Rights, defined below, are
referred to herein as the "Transferred Inventions". The transfers
herein shall not be deemed to restrict the ability of Sines, Forte
or Steven L, Forte to write or develop articles, books, movie
scripts, motion pictures, sound recordings or other literary works
about the Total Inventions or the story behind the development
thereof, including any copyrights therein (collectively, the
"Literary Rights"); provided, however, exercise of such rights
shall not involve disclosure of confidential information of Sharps
which may have commercial value to the business of Sharps or its
successors.
4.1.1 Forte, Steven L. Forte, Sines and the Partnership will take
any and all steps necessary to enable Sharps to record the
assignment of the Transferred Inventions. Forte, Steven L. Forte,
Sines and the Partnership will sign all documents necessary to
confirm that the Transferred Inventions is owned by Sharps, and
will take all steps necessary to otherwise effect transfer of
Forte, Steven L. Forte's, Sines' and the Partnership's rights in
the Transferred Inventions to Sharps.
4.1.2 Forte, Steven L. Forte, Sines and the Partnership will, at
the request of Sharps, assist in preparing United States and
foreign trademark and or patent applications covering the
Transferred Inventions. Forte, Steven L. Forte, Sines and the
Partnership will sign and deliver to Sharps all such applications.
Sharps will bear all expenses to be incurred in connection with all
trademark and patent applications.
4.2 Royalties for Initial Products. The Licensing Agreement is
hereby terminated as to the Transferred Inventions but shall remain
in full force and effect in all other respects. In lieu of the
royalties, license fees and other consideration provided for in the
License Agreement, the Partnership shall receive from Sharps (a) a
quarterly royalty fee of 3 % of the "Net Revenues" (as defined
below) earned by Sharps with respect to the Initial Products, and
(b) an option to purchase from Sharps 6 of its limited partnership
Units at a price of $6,304.00 per Unit or 40,000 shares of
Casinovations at a price of $1.00 per share upon completion of the
Reorganization described in Section 5 below (the "Inventions
Option"). The term "Initial Products" means the following
products: the "Random Ejection Shuffler" (including future
improvements thereto and variations thereof), the "Safety Peek
Cards" and the table-game version of "Fantasy 21 " (but not any
computer, home version or other variation thereof). The term "Net
Revenues" means gross cash revenues received by Sharps for the
relevant quarter attributable to sales of the Initial Products,
minus Sharps' cost of such goods sold for such quarter. Unless
otherwise agreed, the determination of the cost of goods sold shall
be made in accordance with generally accepted accounting
principles, consistently applied. The royalty fee provided for
herein shall be paid in accordance with and subject to the terms of
a Royalty Agreement which Sharps and the Partnership shall enter
into by April 1, 1996. The other terms and conditions of the
Royalty Agreement shall be as provided in the Licensing Agreement
(including the duration of the royalty obligations and provisions
for termination), but if not provided for therein, shall be
mutually acceptable to Sharps, the Partnership and Huson.
4.2.1 To exercise the Inventions Option, the Partnership shall
give written notice to Sharps of its election to exercise the
Inventions Option. The notice shall specify the number of
Inventions Option Units which the Partnership elects to purchase.
The sale and purchase of the Inventions Option Units which the
Partnership has elected to purchase shall be closed at a mutually
agreed time and place within 30 days after the Partnership's notice
of exercise. At the closing of such purchase, the Partnership
shall pay Sharps the applicable purchase price for the Units, and
the purchase of the Inventions Option Units shall be duly reflected
on Sharps' books and records in accordance with the Sharps
Partnership Agreement.
4.2.2 The Inventions Option may be exercised by the one year period
beginning on the second anniversary of the date of this Agreement.
<PAGE>91
4.3 Consideration. The par-ties agree that the transfer of the
Transferred Inventions, of the License Agreement, the agreement to
enter into a Royalty Agreement with respect to the Initial Products
and the Inventions Options reflect a negotiated resolution by the
parties.
4.4 Personal Services Agreements.
4.4.1 On or before the closing of the Reorganization (defined
below), but in any event by April 1, 1996, Sines and Steven L.
Forte, individually, (as applicable, the Individual"), shall each
enter into employment or consulting agreements with Sharps or
Casinovations, as applicable, as the "Company" (the "Personal
Services Agreements").
4.4.2
(a) Each of the Personal Services Agreements shall obligate the
Company to pay compensation to the Individual at a rate of $10,000
per month, subject to pro rata reductions for any amount of work
time spent by the Individual on business not related to the
Company. Each Personal Services Agreement shall be for a term of
two years subject to automatic renewals for consecutive two year
terms thereafter unless and until either the Company or the
Individual gives written notice of non-renewal at least sixty (60)
days prior to expiration of the then current term, and subject to
earlier termination as provided in the remainder of this Section
4.4.2.
(b) The Company may terminate a Personal Services Agreement for
Adequate Cause (defined in Section 4.4.3 below) immediately upon
the Company giving written notice to the Individual. If terminated
for Adequate Cause, the Company's compensation obligations shall
terminate upon the last day of the employment or consulting
relationship as specified in the termination notice.
(c) The Company may also terminate a Personal Services Agreement
without Adequate Cause, but in such event (other than a Mandatory
Disassociation, defined below), the Company shall be obligated to
pay the terminated Individual compensation for a period equal to
the longer of six (6) months or the balance of the then current
term, at a monthly rate equal to the average monthly compensation
paid by the Company to the terminated Individual during the six (6)
month period immediately preceding the month in which termination
occurs. Notwithstanding the preceding sentence, in the case of a
Mandatory Disassociation (defined below), the terminated Individual
shall be entitled to compensation at the rate determined in
accordance with the preceding sentence for a period of six (6)
months following the termination. As used herein, the term
"Mandatory Disassociation" means a termination of the Individual by
the Company as a result of any circumstance in which, in the
reasonable opinion 4.4.7 below, the opinion of counsel to the
Company and after giving effect to the continuation of the Personal
Services Agreement would render the Company unable to obtain any
material gaming or other license, franchise, permit or approval
required for the Company to sell, lease, license and distribute its
products and other-wise engage in its business activities.
(d) In addition to the Company's rights of termination, the
Individual may terminate his Personal Services Agreement
voluntarily upon giving at least sixty (60 days prior written
notice.
4.4.3 As used herein, the term "Adequate Cause" means and includes
any of the following: (a) The Individual's failure or refusal to
carry out the reasonable directions of the Board of Directors of
Casinovations following the Reorganization described in Section 5,
provided that the directions are reasonably consistent with the
normal duties performed by the Individual, which failure or refusal
continues for thirty (30) days after the Individual's receipt of
written notice thereof;
(b) The Individual's willful failure or refusal to comply in any
material respect with the reasonable policies and procedures of the
Company as in effect from time to time, which failure or refusal
continues for thirty (30) days after the Individual',- receipt of
written notice thereof-,
(c) The Individual's breach of the Personal Services Agreement,
including but not limited to, his failure, inability or refusal in
any material respect to perform his or her duties in accordance
with the Personal Services Agreement, which breach remains uncured
for thirty (30) days after the Individual's receipt of written
notice of the breach; or
(d) Any deceptive, fraudulent, dishonest or illegal act (or
failure to act) or breach of fiduciary duty by the Individual with
respect to Sharps or Casinovations.
4.4.4 Each Personal Services Agreement shall include provisions
transferring to the Company, without additional compensation,
royalty or other consideration, full ownership of any inventions,
<PAGE>92
ideas or other intellectual property (other than the Literary
Rights) heretofore developed by the Individual or hereafter
developed by the Individual while employed or retained by the
Company that (a) relate to the present or future business of the
Company or (b) are developed on the Company's premises or using the
facilities, property or the assets of the Company Each of the
Personal Services Agreements shall contain confidentiality
provisions, provisions preventing the Individual from competing,
directly or indirectly, with the business of the Company during the
employment or consulting term and for a period of two (2) years
thereafter and provisions preventing the use of the Company's trade
secrets and other proprietary information at any time except in
furtherance of the interests of the Company.
4.4.5 The Personal Services Agreement for Steven L. Forte shall
permit him to continue to engage in his gaming industry consulting
business as presently conducted (which does not include product
development or improvement), and shall allow Steven L. Forte to
maintain ownership of intellectual property inventions for
products, other patentable matter and information developed under
clause (b) in Section 4.4.4, all of which shall be the property of
the Company pursuant to Section 4.4.4,
4.4.6 The other terms and provisions of the Personal Services
Agreements shall be reasonably acceptable to the Company and Sines
or Steven L. Forte, as applicable.
4.4.7
NotwithstandingSections4.4.lthrough4.4.6,thepartiesagreetostructure
(or subsequently restructure as appropriate) the terms of the
Personal Services Agreement in such a manner as to enable the
Company to obtain all gaming and other licenses, franchises,
permits and approvals required for the Company to sell, lease,
license and distribute its products and otherwise engage in its
business activities.
4.5 Transfer of Retained Inventions. Each of Sines, Forte, Steven
L. Forte, Huson, the Partnership and Sharps agree and consent that,
as part of the Reorganization, (a) the Partnership shall acquire
from Sines, Forte and Steven L. Forte any residual interest or
rights any of such individuals may have in the Retained Inventions,
(b) the Partnership will transfer all right, title and interest in
the Retained Inventions to Casinovations in an Internal Revenue
Code Section 351 transaction, and (c) Casinovations will issue the
Partnership 1,261,000 Casinovations Shares (defined below).
SECTION 5. AGREEMENT TO REORGANIZE
5.1 Capitalization of Casinovations. As soon as reasonably
practicable following the date of this Agreement, but in no event
later than March 15, 1996, all parties hereto agree to vote their
Units and/or take all other actions necessary or appropriate
consistent with their respective obligations set forth below to
attempt in good faith to cause a reorganization of Sharps involving
substantially the following elements (the "Reorganization"):
5.1.1 Sellers have formed Casinovations, Inc., a Washington
corporation ("Casinovations").
5.1.2 Sellers represent that at the time of the Reorganization
Casinovations' articles of incorporation and bylaws will (a)
authorize Casinovations to issue only up to 10,000,000 shares of
common stock, $1.00 par value (the "Shares") and no other class of
securities, (b) provide for pre-emptive rights to the extent
permitted under Washington law, including RCW 23B.02.010 and
23B.06.3W.
5.1.3 The Reorganization shall involve the issuance by
Casinovations of a
maximum of 5,390,000 Shares, allocated as follows and issued or
reserved for issuance as described below:
92,513,000 Shares shall be issued to all of the existing holders of
Units in Sharps in exchange for all such Units, on a pro rata basis
so that the relative ownership interests among such holders
following such transaction is the same as immediately prior to such
transaction.
1,261,900 Shares shall be issued to the Partnership in return for
its contribution of the Retained Inventions pursuant to Section
4.5.
*Up to 1,020,000 Shares shall be offered by Casinovations for sale
in a private placement of securities at a price per Share of not
less than $1.50.
555,000 Shares shall be issued or reserved for issuance to the
persons listed on exhibit H to this Agreement.
<PAGE>93
40,000 Shares shall be reserved for issuance to the Partnership in
connection with the option under Section 4.2.
5.1.4 Casinovations shall, directly or indirectly, succeed to and
assume all of the assets and liabilities of Sharps.
5.1.5 The transactions described in Sections 5.1.1, 5.1.2, 5.1.3
and 5.1.4 shall have no material adverse tax consequences to
Sharps, Casinovations and the existing holders of Units in Sharps.
5.1.6 Casinovations will enter into the Personal Services
Agreements described in Section 4.3 if Sharps has not already done
so.
5.1.7 All the parties hereto agree that if all outstanding Units
of Sharps are not transferred in exchange for Shares in
Casinovations as provided in Section 5.1.3 by March 15, 1996, they
shall vote their respective Units in favor of the transfer of, and
otherwise attempt to cause Sharps to transfer, all of Sharps'
assets and liabilities to Casinovations by April 10, 1996 in
exchange for 2,513,100 Shares issued to Sharps.
5.1.8 All parties hereto agree to vote to eliminate (a) Article X,
Section
10. 1 (c)(2) of the Sharps Partnership Agreement, (b) and the
requirement in Article X, Section 10.2(a) of the Sharps Partnership
Agreement that the general partner receive an opinion of counsel
for Sharps stating that the transfer or encumbrance of Units by the
general partner will not cause the termination of Sharps for
federal income tax purposes, and (c) any other related sections of
the Sharps Partnership Agreement and to bring such changes to a
vote of all Sharps' partners as soon as possible following the
execution of this Agreement.
5.2 Effect of Reorganization on Contemplated Transactions. The
parties agree, upon closing of the Reorganization, that:
5.2.1 Casinovations shall assume all liabilities of Sharps under
this Agreement and the documents executed in connection herewith.
5.2.2 Huson shall permit the Pledged Units to be converted to
Shares (at 6304 Shares per Unit) upon his receipt of the
certificates evidencing the shares and an executed Stock Pledge
Agreement from Sellers on terms and conditions substantially
identical to the Partnership Pledge Agreement
5.2.3 The rights and obligations of Sellers and Huson with respect
to the Transferred Units, the Pledged Units, the Option Units and
the Eligible Re-Purchase Units (as defined and described in the
Partnership Pledge Agreement) shall attach to the Shares which are
attributable thereto, and all numerical adjustments shall be made
as necessary to reflect the Reorganization.
SECTION 6. REPRESENTATIONS AND WARRANTEES OF SHARPS, THE SELLERS
AND THE PARTNERSHIP
As a material inducement to Buyer to enter into this Agreement and
purchase the Units and make the Loan, Sharps, the Sellers and the
Partnership (collectively, the "Warranting Parties"), jointly and
severally, represent and warrant that:
6.1 Organization and Corporate Power. To the best of each
Warranting Party's knowledge, Sharps is a limited partnership
validly existing, and in good standing under the laws of the State
of Nevada. To the best of each Warranting Party's knowledge,
Sharps has all requisite power and authority and all licenses,
permits, and authorizations necessary to own and operate its
properties, and to carry on its business as now conducted.
Notwithstanding the foregoing, the parties acknowledge that Sharps
presently has no gaming licenses.
6.2 Capital Securities and Related Matters. Sharps' Units are
distributed as set forth on Exhibit G, attached hereto, and copies
of all outstanding options are attached hereto as Exhibit H and no
other partnership Units of Sharps are issued and outstanding.
Other than as set forth in this Agreement, Sharps does not have
outstanding and has not agreed, orally or in writing, to issue any
Units convertible or exchangeable for any of its Units, nor does it
have outstanding nor has it agreed, orally or in writing, to issue
any options or rights to purchase or otherwise acquire any Units of
Sharps. Sharps is not subject to any obligation (contingent or
otherwise) to repurchase or otherwise acquire or retire any of its
Units. All of the outstanding Units of Sharps are validly issued,
fully paid, and nonassessable, The Sellers have, and upon purchase
thereof by Buyer pursuant to the terms of this Agreement Buyer will
have, good and marketable title to the Transferred Units, the
Pledged Units and the Option Units, free and clear of all security
interests, liens, encumbrances, or other restrictions or claims,
subject only to restrictions as to marketability imposed by
securities laws and the Sharps Partnership Agreement.
<PAGE>94
6.3 Authorization; No Breach. The execution, delivery, and
performance of this Agreement and all other agreements contemplated
hereby to which Sharps, the Sellers or the Partnership are parties
have been duly authorized by Sharps, or the Sellers, or the
Partnership, as the case may be, To best of each Warranting Party's
knowledge, this Agreement and each other agreement contemplated
hereby, when executed and delivered by the parties thereto, will
constitute the legal, valid, and binding obligation of Sharps, the
Sellers, or the Partnership, or all of them as the case may be,
enforceable against such parties in accordance with its terms
except as the enforceability thereof may be limited by the
Partnership Agreement, the application of bankruptcy, insolvency,
moratorium, or similar laws affecting the rights of creditors
generally or judicial limits on the right of specific performance.
Except as provided in this Agreement, the execution and delivery by
Sharps, the Sellers and the Partnership of this Agreement and all
other agreements contemplated hereby to which Sharps or the Sellers
or the Partnership is a party, the offering and sale of the Units
hereunder and the fulfillment of and compliance with the respective
terms hereof and thereof by Sharps, the Sellers and the Partnership
do not and will not (1) conflict with or result in a breach of the
terms, conditions or provisions of, (2) constitute a default under,
(3) result in the creation of any lien, security interest, charge,
or encumbrance upon the capital securities or assets of the Sellers
or Sharps pursuant to, (4) give any third party the right to
accelerate any obligation under, (5) to the best of each Warranting
Party's knowledge, result in a violation of, or (6) to the best of
each Warranting Party's knowledge, require any authorization,
consent, approval, exemption, or other action by or notice to any
court or administrative or governmental body pursuant to the
charter or bylaws of Sharps or any law, statute, rule, or
regulation to which the Sellers, Sharps or the Partnership is
subject, or any agreement, instrument, order, judgment, or decree
to which the Sellers, Sharps or the Partnership is subject,
including but not limited to the Sharps Partnership Agreement.
Huson acknowledges that he has been informed that his acquisition
of the Option Units and/or Pledged Units may result in a
"termination" of Sharps for federal income tax purposes, which may
cause him to suffer adverse tax consequences and may be contrary to
the Sharps Partnership Agreement.
6.4 Litigation. There are no actions, suits, proceedings, orders,
investigations, or claims pending or threatened against Sharps, the
Sellers or the Partnership, or any of their respective properties,
at law or in equity, or before or by any governmental department,
commission, board, bureau, agency, or instrumentality; Sharps, the
Sellers and the Partnership are not currently participating in any
arbitration proceedings under collective bargaining agreements or
otherwise, or any governmental investigations or inquiries; and
there is no basis for any of the foregoing,
6.5 Tax Matters. To the best of each Warranting Party's
knowledge, (a) Sharps has filed all federal, state, local, and
foreign tax returns and reports heretofore required to be filed by
it and has paid all taxes shown as due thereon (including interest
and penalties), (b) no taxing authority has asserted any
deficiency in the payment of any tax or informed Sharps that it
intends to assert any such deficiency or to make any audit or other
investigation of Sharps for the purpose of determining whether such
a deficiency should be asserted against Sharps and (c) Sharps has
paid any and all withholding, payroll or employment taxes required
to be paid by, or assessed against, Sharps.
6.6 Compliance with Laws. To the best of each Warranting Party's
knowledge, Sharps is, in the conduct of its business, in compliance
with all laws, statutes, ordinances, regulations, orders,
judgments, or decrees applicable to it, the enforcement of which,
if Sharps were not in compliance therewith, would have a materially
adverse effect on the business of Sharps taken as a whole. Neither
the Sellers nor Sharps has received any notice of any asserted
present or past failure by Sharps to comply with such laws,
statutes, ordinances, regulations, orders, judgments, or decrees.
SECTION 7. MISCELLANEOUS PROVISIONS
7.1 Amendment and Modification. Subject to applicable law, this
Agreement may be amended, modified, or supplemented only by a
written agreement signed by Buyer, the Sellers and the Partnership.
7.2 Waiver of Compliance; Consents
7.2.1 Any failure of any party to comply with any obligation,
covenant, agreement, or condition herein may be waived by the party
entitled to the performance of such obligation, covenant, or
agreement or who has the benefit of such condition, but such waiver
or failure to insist upon strict compliance with such obligation,
covenant, agreement, or condition will not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
<PAGE>95
7.2.2 Whenever this Agreement requires or permits consent by or on
behalf of any party hereto, such consent will be given in a manner
consistent with the requirements for a waiver of compliance as set
forth above.
7.3 Notices. All notices, requests, demands, and other
communications required or permitted hereunder will be in writing
and will be deemed to have been duly given when delivered by hand
or two days after being mailed by certified or registered mail,
return receipt requested, with postage prepaid:
If to Huson:
Richard S. Huson
The Crabbe Huson Company
121 S.W. Morrison Street
Suite 1400
Portland, Oregon 97204
with a copy to: Ater Wynne Hewitt Dodson & Skerritt 222 S.W.
Columbia, Suite 1800 Portland, Oregon 97201 Attn-. Steven D.
Stadum
or to such other person or address as Buyer furnishes to the
Sellers pursuant to the above.
If to Sharps,
Randy D. Sines, or the
Partnership:
c/o Randy Sines
4056 South Madelia
Spokane, Washington 99203
with a copy to: Thomas F. Pitaro
Attorney At Law
815 South 3rd Street, Las Vegas, Nevada 89101
If to Steven L. Forte
or Cheryl L. Forte: Steven and Cheryl Forte
315 Francisco Street
Henderson, Nevada 89014
or to such other address as any of such parties furnishes to Buyer
pursuant to the above.
7.4 Assignment. This Agreement can be assigned by a party hereto
upon such party's giving prior written notice to the other parties
hereto. No assignment will release the assignor from its
obligations hereunder. Subject to the foregoing, this Agreement
and all of the provisions hereof will be binding upon and inure to
the benefit of the parties hereto and their respective successors,
assigns, heirs, executors, and personal representatives. Nothing
in this Agreement, express or implied, is intended to confer on any
person other than the parties hereto, or their respective
successors, any rights, remedies, obligations, or liabilities under
or by reason of this Agreement.
7.5 Governing Law. All matters with respect to this Agreement,
including but not limited to matters of validity, construction,
effect, and performance, will be governed by the laws of the State
of Oregon applicable to contracts made and to be performed therein
between residents thereof, regardless of the laws that might be
applicable under principles of conflicts of law.
7.6 Counterparts. This Agreement may be executed in two or more
fully or partially executed counterparts, each of which will be
deemed an original binding the signer thereof against the other
signing parties, but all counterparts together will constitute one
and the same instrument.
7.7 Entire Agreement. This Agreement and the agreements to be
entered into pursuant to the provisions hereof (the terms of which
are incorporated herein by this reference) embody the entire
agreement and understanding of the parties hereto as to the subject
matter contained herein. There are no restrictions, promises,
representations, warranties, covenants, or undertakings other than
those expressly set forth or referred to in such documents. This
Agreement and such documents supersede all prior agreements and
understandings among the parties with respect to the subject matter
hereof.
7.8 Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any jurisdiction will, as to such
jurisdiction, be ineffective to the extent of such invalidity or
unenforceability without rendering invalid or unenforceable the
remaining terms and provisions of this Agreement, or affecting the
validity or enforceability of any of the terms or provisions of
this Agreement.
<PAGE>95
7.9 Attorney Fees. If any action is brought by any party to this
Agreement to enforce or interpret its terms or provisions, the
prevailing party will be entitled to reasonable attorney fees and
costs incurred in connection with such action prior to and at trial
and on any appeal therefrom.
7.10 Payment of Fees and Expenses. Each party to this Agreement
will be responsible for, and will pay, all of its own fees and
expenses, including those of its counsel and accountants, incurred
in the negotiation, preparation, and consummation of the Agreement
and the Purchase.
7.11 Further Assurances. Upon the reasonable request of a party,
the other parties will take all action and will execute all
documents and instruments necessary or desirable to consummate and
give effect to this Agreement.
7.12 Legal Representation. Each party to this Agreement has been
advised to obtain independent legal counsel prior to executing this
Agreement and has had a full and fair opportunity to do so and
either obtained such representation or voluntarily declined to do
so. Each party acknowledges that Douglas J. Brajcich, P.C. is the
attorney only for Randy D. Sines individually and that Ater Wynne
Hewitt Dodson & Skerritt are the attorneys only for Richard S.
Huson.
7.13 Effective Date. Regardless of when it is signed by any or
all of the parties, this Agreement and the agreements to be
executed concurrently herewith shall be effective as of January 15,
1996.
7.14 Securities Laws. The Units which are the subject to the
transactions
contemplated by this Agreement have been issued pursuant to the
Sharps Partnership Agreement and have not been registered with the
Securities and Exchange Commission under the Securities Act of
1933, as amended, or under the securities acts of Washington,
Oregon, Nevada, or under any other state securities laws. The sale
or other disposition of the Units is restricted, as stated in the
Sharps Partnership Agreement, By acquiring any Unit represented by
the Sharps Partnership Agreement, the acquiring party represents
that such party has acquired the Units for investment and that such
party will not sell or other-wise dispose of the Units without
registration or other compliance with the aforesaid acts and the
rules and regulations thereunder. Each of the parties acknowledges
that such party has read the Sharps Partnership Agreement and
agrees to remain bound by its terms and conditions.
[SIGNATURES ON NEXT PAGE]
WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the day and year first above written.
SINES/FORTE international LIMITED PARTNERSHIP, a Nevada limited
partnership
By:
Title:
RANDY D. SINES
CHERYL L. FORTE
Sines FORTE PARTNERSHIP, a Nevada general
partnership
By:
Randy D. Sines, Partner
By:
Steven L. Forte, Partner
RICHARD S. HUSON
STEVEN L. FORTE, solely for purposes of
Sections 4 and 5
<PAGE>97
EXHIBIT A
PROMISSORY NOTE
$165,000.00
Portland, Oregon
January 15, 1996
1. Promise to Pay. FOR VALUE RECEIVED, the undersigned, Richard
S.
HUSON ("Maker"), does hereby promise to pay to the order of Randy
D. Sines and CHERYL L. FORTE ("Holders"), at 4056 South Madelia,
Spokane, Washington 99203, or at such other place as Holders may
from time to time designate in writing, the principal sum Of ONE
HUNDRED SIXTY-FIVE THOUSAND AND No/100 DOLLARS ($165,000.00),
together with all interest thereon and other sums herein referred
to.
2. Interest and Payment Terms. The unpaid principal hereof shall
bear interest from the date of this Note until default at the rate
of nine and one-half percent (9.5%) per annum.
This Note shall be paid in eight (8) equal monthly installments of
principal, together with all accrued interest on the date of each
such payment. The first monthly payment shall be due May 15, 1996,
and subsequent monthly payments shall be due on the 15th day of
each month thereafter until December 15, 1996, when the remaining
principal balance and all accrued, unpaid interest shall be due and
payable.
3. Calculation of Interest and Application of payments. Interest
shall be calculated on a 365 or 366-day year, as applicable, based
on actual days elapsed. Each installment hereunder shall be first
applied to the payment of costs and expenses for which Maker is
liable hereunder, next to the payment of accrued interest, and
lastly to the reduction of principal. This Note shall continue to
bear interest at the Note rate (or at the Default Rate, as
hereinafter defined, if and so long as any default exists
hereunder) until and including the date of collection, and all
payments hereunder shall be calculated by and shall be payable in
the lawful money of the United States which shall be legal tender
for public and private debts at the time of payment.
4. prepayment. Maker shall have the right at any time to prepay
the whole or any part of this Note without prepayment premium or
fee.
5. Default Rate. If and so long as any default exists under this
Note, the interest rate on this Note, and on any 'judgment obtained
for the collection of this Note, shall be increased from the date
the default is declared to a rate (the "Default Rate") equal to
five percent (5 %) per annum in excess of the Note rate. Maker
acknowledges that the imposition of the Default Rate will result in
the then effective interest on this Note being increased from 9.5 %
per annum to 14.5 % per annum.
6. Costs of Collection. Maker promises to pay all costs, expenses
and attorneys' fees incurred by Holders in the exercise of any
remedy (with or without litigation), in any proceeding for the
collection of the debt, or the realization upon any security
securing this Note, in protecting or sustaining the lien or
priority of said security, or in any litigation or controversy
arising from or connected with this Note, including any bankruptcy,
receivership, injunction or other proceeding, or any appeal from or
petition for review of any of the foregoing, in which Holders
prevail. If a 'judgment is obtained thereon which includes an
award of attorneys' fees, such attorneys' fees, costs and expenses
shall be in such amount as the court shall deem reasonable. All
collection costs, expenses and attorneys' fees are payable on
demand, shall bear interest at the Default Rate from the date of
demand to and including the date of payment to Holders.
7. Defaults, Acceleration. Time is of the essence of this Note.
The occurrence of any of the following shall, without notice,
demand or opportunity to cure, constitute an event of default under
this Note:
(a) Failure of Maker to make any payment required to be paid by
Maker under this Note in strict accordance with the terms thereof;
(b) Failure of Maker to perform any other covenant, agreement or
other obligation contained in this Note;
(c) Any warranty, representation, or statement made or furnished
to Holders by or on behalf of Maker proving to be or having been
false in any material respect when made or furnished;
(d) If any assignment by Maker for the benefit of creditors
shall be made, or
<PAGE>98
(e) If Maker shall voluntarily file a petition under the Federal
Bankruptcy Act, as such Act may from time to time be amended, or
under any similar or successor Federal statute relating to
bankruptcy, insolvency arrangements or reorganizations, or under
any state bankruptcy or insolvency act, or file an answer in an
involuntary proceeding admitting insolvency or inability to pay
debts, or if Maker shall fail to obtain a vacation or stay of
involuntary proceedings brought for the reorganization, dissolution
or liquidation of Maker or if Maker shall be adjudged a bankrupt,
or upon dissolution, business failure or discontinuance of Maker as
a going business (except for labor disputes), or if a trustee or
receiver shall be appointed for Maker, or Maker's property, or if
the partnership interests of Maker shall become subject to the
jurisdiction of a Federal bankruptcy court, or similar state court,
or if Maker shall make an assignment for the benefit of creditors,
or if there is an attachment, execution or other judicial seizure
of any portion of Maker's assets and such seizure is not discharged
within ten (10) days;
then, upon the occurrence of any such event of default, after
expiration of any applicable notice and cure period, the entire
principal sum, with accrued interest thereon due under this Note,
shall, at the option of Holders, become due and payable forthwith,
without further notice. No failure to exercise such option shall
be deemed a waiver on the part of holders of any right accruing
thereafter.
8. Maker's Right to Cure. Upon an event of default, except as
otherwise provided below, Holders shall not accelerate this debt,
make any payments for which Maker is primarily liable, or foreclose
upon or attach any assets of Maker unless it first gives Maker
written notice of such default at Maker's address and in the manner
described for notices described in Section 15 below and unless such
default is not fully cured within the following periods:
(a) three (3) days after such notice is given in the event of any
failure to make a monetary payment to any person;
(b) fifteen (15) days after such notice is given in the event of
nonmonetary defaults not subject to other provisions of this
Section, provided (i) within five (5) days after such notice is
given, Maker communicates its cure and submits to Holders in
writing its plan to cure; and (ii) the cure is continuously pursued
by Maker with due diligence, If in Holders' sole judgment such
default is not reasonably capable of being cured within fifteen
(15) days, Maker shall have such additional time as is reasonably
necessary to complete the cure, but in no event more than thirty
(30) days after the notice of default is given; or
(c) sixty (60) days after the filing of any involuntary petition
in bankruptcy against or for the appointment of a receiver for
Maker (except for petitions filed by Holders), with the dismissal
of such petitions by the court within such period being deemed to
cure such default.
Notwithstanding the above provisions, the notice and cure period
provided for in this Section shall not apply:
(1) if a petition shall be filed by Maker under the Federal
Bankruptcy Act, or Acts amendatory thereof or supplemental thereto,
or under any statute either of the United States or any state in
connection with insolvency or reorganization, or for the
appointment of a receiver or trustee of all or a portion of Maker's
property; or
(ii) if any assignment by Maker for the benefit of creditors shall
be made.
The provisions of this Section shall apply to defaults under all
documents executed as such documents any security for this Note,
and unless expressly stated to the contrary in such notice or cure
period referred to therein shall be deemed to incorporate said
provisions. If any of said documents are inconsistent with this
Section, this section shall be controlling, unless said other
document expressly provides otherwise. Where additional notice or
cure periods are provided in this or any other such documents or
are required by any other contract or by law, said periods and
those contained in this ' section shall run concurrently. Nothing
in this section shall be construed as extending the term of this
Note or the date upon which a default occurs, and no decision to
forego any remedy for any given default shall be deemed a waiver on
the part of Holders of any right relating to any other default. No
failure to give any notice of any default shall constitute a waiver
of such default or any remedy which may be available in connection
therewith. This section shall be strictly construed, and shall not
impair the exercise of any remedy not referred to above immediately
upon default, including, without limitation, the seeking of any
mandatory or prohibitive injunction or restraining order or
appointment of receiver.
<PAGE>99
9. Usury. Maker hereby represents that this loan is for
commercial use and not for personal, family or household purposes.
It is the specific intent of the Maker and Holders that this Note
bear a lawful rate of interest, and if any court of competent
jurisdiction should determine that the rate herein provided for
exceeds that which is statutorily permitted for the type of
transaction evidenced hereby, the interest rate shall be reduced to
the highest rate permitted by applicable law, with any excess
interest theretofore collected being applied against principal or,
if such principal has been fully repaid, returned to Maker on
demand.
10. Renewals. Maker, and all others who may become liable for all
or any part of this obligation, consent to any number of renewals
or extensions of the time of payment hereof and to the release of
all or any part of the security for the payment hereof. Any such
renewals, extensions or releases may be made without notice to any
of said parties and without affecting their liability.
11. Waivers. Maker hereby waives presentment, demand of payment,
notice of dishonor, protest, and notice of nonpayment, and any and
all other notices and demands whatsoever. No covenant, condition,
right or remedy in this Note or modified orally, by course of
conduct or previous acceptance or other-wise unless such waiver or
modification is specifically agreed to in writing executed by the
Holders.
12. Construction. This Note shall be governed by and construed in
accordance with the laws of the State of Oregon, and all sums
referred to herein shall be calculated by reference to and payable
in the lawful currency of the United States. This Note has been
reviewed and negotiated by Maker and Holders at arms' length with
the benefit of or opportunity to seek the assistance of legal
counsel and shall not be construed against either party. The
titles and captions in this Note are inserted for convenience only
and in no way define, limit, extend, or modify the scope or intent
of this Note. In any case where Holders is permitted to act in its
"sole discretion," "sole option" or the like, Holders shall be
entitled to exercise unfettered discretion and may act without
application of principles of law, if any, requiring good faith or
fair dealing or reasonableness in exercising Holder's options.
13. Partial Invalidity. If any section or provision of this Note
is declared invalid or unenforceable by any court of competent
Jurisdiction, said determination shall not affect the validity or
enforceability of the remaining terms hereof. No such
determination in one jurisdiction shall affect any provision of
this Note to the extent it is otherwise enforceable under the laws
of any other applicable jurisdiction.
14. Addresses for Notice, Etc. All notices, requests, demands,
directions and other communications required under this Note shall
be in writing (including telegraphic communication) and mailed by
United States mail or facsimiled or delivered by overnight courier
or by hand to the applicable party at the addresses indicated
below:
if to Maker:
Richard S. HUSON
121 S.W. Morrison, Suite 1400
Portland, Oregon 97204
if to Holders:
Randy D. Sines
4056 South Madelia
Spokane, Washington 99203
Cheryl. FORTE
315 Francisco Street
Henderson, Nevada 89014
or, as to any party, at such other address as shall be designated
by such party in a written notice to each other party complying as
to delivery with the terms of this Section 15. All such notices,
requests, demands, directions and other communications so mailed or
telecopied or delivered shall be effective when received if sent by
mail, when delivered if delivered by courier or by hand, or when
transmitted if sent by facsimile.
Maker:
Richard S. Huson
<PAGE>100
EXHIBIT B
EXCLUSIVE LICENSE AGREEMENT
CASINOVATIONS INCORPORATED
AND
SHUFFLER MASTER, INC.
TABLE OF CONTENTS
i. Parties,.; 1
2. Background 1
3. Definitions 1
4. Grant of Exclusive Technology and Patent License 2
5, Geographical Scope of the Exclusive Technology
and Patent License 2
6. License to Sublicense Technology and Patent Rights 1
2
7. Grant of Trademark License 3
8. Geographical Scope of Trademark license 3
9. License to Sublicense Trademarks 3
10. Quality Control Involving Trademarks 3
11. Inspection Involving Trademarks 3
12. Marking of Trademarks 4
13. License of Copyright Works 4
14. Development of Prototypes of Licensed Products 4
15. Limitation on Licensee's Rights 4
16. Sublicense 4
17. Certification of Products 5
18. Manufacture of Licensed
Products for Sale to Licensor 5
19, Initial Production Run 5
20. Continuing Sales of Licensed Products 5
21. Compensation to Licensor 6
22. Transfer of Documentation 8
23. Disclosure of Technology 8
24. Confidentiality of Disclosure and Licensed Products 8
25. Patent Applications 9
26. Registration of License 9
27. Performance by Licensee 9
28. Reimbursement for Expenses 10
29. Improvements and Developments in Licensed Technology 11
30. Employee Invention Agreements 11
31. Reports and Accounting 11
32. Marking of Products Embodying Patent
Rights and Copyrights 12
33. Assignment of Rights and Obligations 12
34. Liability Risk 12
35. Insurance Policy for Manufacturing and Sale
of Products 12
36. Best Efforts and Diligence 13
37. Warranties of Licensor 13
38. Disclaimer of Warranties by Licensor 13
39. Enforcement of Patent Rights 13
40. Notification of Infringement 13
41. Interchange of Technical and Market Information 13
42. Compliance with Export of Technology and Other LAWS 13
43. Conversion 14
44. Termination by Licensor 14
45. Effect of Termination by Licensor 14
46. Termination by Licensee 15
47. Effect of Termination by licensee 15
48. Modification of Agreement 15
49. No Waiver 15
50. Severability 15
51. Applicable Law 15
52. Jurisdiction and Venue 15
53. Headings 16
54. Notices 16
55. Relationship of die Parties 16
56. Attorney's Fees 16
57. Integration, Entire Agreement 16
58. Counterpart Original Agreements 16
59. Effective Date of Agreement and Term of Agreement 16
60. Arbitration .. 17
61. Execution by Licensor - Casinovations Incorporated 18
62. Execution by Licensor - Shuffle Master, Inc 18
63. Appendix A - Licensed Trademarks 19
1. Parties
1.1 This Agreement is made by and between:
(a) Casinovations Incorporated, a Washington corporation, whose
business address is Spokane WA 99204, hereinafter referred to as
"Licensor":
and.
(b) Shuffle Master, whose address is 10921 Valley View Road, Eden
Prairie, MN 55344, hereinafter referred to as 'Licensee".
<PAGE>101
2. BACKGROUND
2.1 Licensor has developed improved technology directed EOM an
apparatus for automatically shuffling playing cards in random
sequence and has devoted substantial time, effort and money to that
development. As a result of Licensor's efforts it now owns certain
claims to patent rights, trade secrets, know-how and other
proprietary information relating to such technology.
2.2 Licensee is engaged in the development of equipment in the
gaming industry. Licensee desires to acquire exclusive rights in
the technology developed by or for Licensor and to distribute,
sell, lease, use, service and promote products utilizing such
technology, or sublicense others to do so.
2.3 In consideration of the premises, covenants and agreements
contained herein, and intending to be legally bound hereby. the
parties hereto have agreed to the terms and 2)conditions provided
in this Agreement.
3. Definitions
3.1 Licensor is the owner of all right, title. and inventions
described in.
(a) U.S. Patent Application Serial No. 081228,609, filed April 18,
1994, entitled '?laying Card Shuffler".
(b) U.S. Patent Application Serial No. 08/423,408; filed April 18,
t995, entitled 'Playing Card Shuffling Machines and Methods".
(c) Any and all foreign patents and/or patent applications claiming
priority to any one of the above-reference patents or patent
applications.
3.2 The inventions so described will be referred to herein as the
"Licensed inventions". Licensed Inventions also include any
inventions included in any application filed on Licensed Technology
as defined hereinafter. Said patent applications and any other
patents granted on the Licensed Inventions will be referred to
herein as the 'Licensed Patents'. 'The Licensed Patents have
associated 'Licensed Patent Rights".
3.3 In addition to the technical information contained in the
referenced patent applications, other related technical and
business information have also been developed by Licensor generally
relating to the inventions described in the above-referenced patent
applications and prototypes and subsequent designs developed for
the filing of such patent applications. Exclusive rights under the
laws of trade secrets and know-how protect all or substantially all
of such proprietary information. The Licensed Inventions, all
Licensed Patent Rights which may be granted thereon, and related
trade secrets, know-how and other proprietary information arc to be
licensed under this Agreement and are hereinafter referred to for
convenience and brevity As 'Licensed Technology'.
3.4 Additionally, Licensor may provide works having copyrights
(herein referred to as the "Copyrights") in certain writings,
including computer software, business plans. technical
descriptions, and related drawings, writings and other works
produced by or for Licensor which relate specifically to the
Licensed Technology. Such works are also being licensed under this
Agreement and are hereinafter referred to as the "Licensed
Copyright Works". The subject matter of such Licensed Copyright
Works may include proprietary, trade secret or know-how information
within the definition of Licensed Technology.
3.5 Licensor has exclusive property rights under the laws of the
United States and foreign countries in such Licensed Technology
including potential patent rights, copyrights, trade secret rights,
know-how rights and technical information rights. Such exclusive
rights shall herein be referred to as the Licensed Technology
Rights. Additionally, there are rights in the Licensed Copyright
Works which exist for the written. graphic or other expression
which is legally and conceptually separable from the technological
content being expressed. Such expressions are protected under the
Copyrights associated with such Licensed Copyright Works. and the
Copyrights associated therewith may outlive any exclusive rights in
the Licensed Technology.
3.6 Products which use the Licensed Technology are herein
referred to as 'Licensed Products'. Use of the Licensed Technology
for purposes of this definition shall include products which
incorporate designs which are based on the Licensed Technology,
products which use any products included in the Licensed
Technology, and products which are produced using any new
production processes included in the Licensed Technology.
3.7 Licensor further desires to license certain trademarks which
may be created for use in connection with the Licensed
'[Technology. Any such trademarks art agreed to be licensed
hereunder by the parties and herein referred to as "Licensed
Trademarks". The
<PAGE>102
rights associated with such Licensed Trademarks are the "Licensed
Trademark Rights'. Further trademarks created by Licensor may be
added to the subject matter of licensed Trademarks
through written Trademark Addenda submitted by Licensor and
accepted by Licensee.
3.8 Licensee wishes to gain access to the proprietary information
embodying and describing the Licensed Technology and to obtain
exclusive licenses under the Licensed Technology Rights, Licensed
Copyrights and Licensed Trademark Rights for purposes of conducting
business using such Licensed Technology, Licensed Copyrights and
Licensed Trademarks and for potentially sublicensing such Licensed
Technology Rights, Licensed Copyrights and Licensed
trademark Rights to others for similar purposes.
4. GRANT of exclusive, Technology AND Patent LICENSE
4.1 Licensor hereby grants to Licensee exclusive licenses under the
Licensed Technology to:
(a) Distribute, sell. lease, use, service and promote products or
practice methods under the Licensed Patents,
(b) Distribute, sell. lease, use, service and promote products
which incorporate or use the Licensed Technology;
(c) Practice methods contained in the Licensed Technology; and
(d) Practice methods or processes contained in the Licensed
Technology.
4.2 The rights provided in this part include an exclusive license
under the Licensed Patent Rights obtained by Licensor on the
Licensed Technology, except as otherwise provided in this
Agreement.
Geographical Scope OF THE ExCLUSIVE TECHNOLOGY AND PATENT RIGHTS
The licenses granted under part 4 above shall apply to the U.S. and
all foreign countries, except as otherwise provided in this
Agreement.
6. LICENSE To SUBLICENSE TECHNOLOGY AND PATENT RIGHTS
6.1 Licensor hereby grants to Licensee an exclusive license
allowing it to sublicense others to exclusively or non-exclusively
practice the following rights within the scope of rights licensed
to Licensee under part 4.
(a) Distribute, sell. lease, use. service and promote products or
practice methods protected under the Licensed Patents;
(b) Distribute, sell, lease, use, service and promote products
which incorporate or use the Licensed Technology., and
(c) Practice methods contained in the Licensed Technology.
6.2 Part 5 shall apply to define the geographical scope of the
exclusive license to sublicense granted in this part.
6.3 The grant of all or substantially all of the exclusive Patent
Rights by Licensee to another party shall be considered an
assignment and not a sublicense.
7. GRANT of TRADEMARK LICENSE
Licensor hereby grants to Licensee a non-exclusive trademark
license to use the Licensed Trademarks, in connection with the
sale, distribution, promotion or use the Licensed Products.
8. Geographical SCOPE OF TRADEMARK LICENSE,
The geographical scope of the trademark license of part 7 shall be
the United States of America and all foreign countries, except as
otherwise provided in this Agreement.
9. LICENSE TO SUBLICENSE MARKS 2t) Licensor agrees that Licensee
shall have the right to sublicense others to use one or more 2 1 of
the Licensed Trademarks in one or more of the manners of use
allowed to Licensee. All
agreements to sublicense by Licensee shall include terms requiring
at least the requirements of parts 10-12 below.
10. QUALITY CONTROL INVOLVING TRADEMARKS
10.1 Licensee shall notify Licensor in writing prior to the initial
distribution of any new 2 7 products marked with the Licensed
Trademarks, hereinafter 'Trademarked Products'. The notification
shall explain the Trademarked Products to be distributed and the
planned date of first distribution. Licensor shall have at least
four weeks to review each such Trademarked Product prior to the
planned date of first distribution. Thereafter Licensor shall
approve distribution, or indicate the reasons for which approval is
denied, or indicate the changes needed for approval. The Licensee
may not distribute any such Trademarked Product until written
approval from the Licensor. Licensor shall not make requirements
for quality which are unreasonable in light of standard industry
practices.
<PAGE>103
10.2 The Licensee agrees to permit the Licensor or its
representative to inspect facilities where Trademarked Products are
being manufactured and packaged.
10.3 In the event that the above-stated quality standards are not
met or maintained throughout the term of this Agreement, the
Licensor has the right to require that the Licensee comply with
such quality standards.
10.4 The provisions of 10.1-10.3 immediately above shall apply
fully to all sublicensees and all sublicenses shall so provide.
11. INSPECTION INVOLVING TRADEMARKS
Licensor shall have the right at any reasonable time to enter upon
or have its representatives enter upon the premises of Licensee or
any sublicenses to inspect the quality of goods being sold,
services being rendered, or goods of services which otherwise use
the Licensed Trademark.
12. MARKING OF TRADEMARKS
Licensee agrees to mark all labels, advertising, packaging and
other instances of use of the Licensed Trademarks with the
notification (TM) or with the symbol consisting of an R within a
circle to indicate such trademarks are registered, if and when such
trademarks do become registered by the United States Patent and
Trademark Office. usage of the Licensed Trademarks by Licensee
or any Sublicensees in the U.S. and/or any foreign country shall
comply with all established practices of such Countries for
notifying or indicating that the Licensed Trademarks are claimed as
exclusive.
13, license OF COPYRIGHT WORKS
Licensor hereby grants to Licensee a non-exclusive license to
exercise any rights available under copyrights in the United States
and all foreign countries in which there are rights in the
Licensed Copyright Works, except as otherwise provided in this
Agreement, The license granted under this part also includes the
right to sublicense others to perform any acts Licensee has a right
to perform with respect to the Licensed Copyright Works in the
United States and all foreign countries, except as otherwise
provided in this Agreement.
14. DEVELOPMENT OF PROTOTYPES OF LICENSED PRODUCTS
14.1 Licensor agrees to develop six (6) prototype units of the
Licensed Product for Licensee by July 1. 1996. These prototypes
shall be used for testing and submission for certification to
various certifying entities, as described in part 17 below.
14.2 Licensee shall advance Licensor $80,000 for the development of
said prototypes. Any funds remaining from the $80,000 following
development of the prototypes shall be returned to Licensee within
sixty (60) days of completion of development of the prototypes.
Licensee agrees to provide Licensor with engineering and machining
assistance as requested by Licensor to allow Licensor to
manufacture said prototypes.
15. LIMITATION ON LICENSEES RIGHTS
15.1 All rights granted herein to Licensee shall be limited to only
apply with respect to automated playing card shuffling machines
which are capable of simultaneously shuffling at least four (4)
playing card decks, each playing card deck having approximately
fifty-two playing Cards.
15.2 Licensee shall have no rights with respect to other card
shuffling machines which are protected by the Licensed Technology.
15.3 All rights not granted to Licensee herein arc specifically
reserved to Licensor of Licensor's designee.
16. SUBLICENSING
16.1 Sublicenses granted hereunder shall be limited to the scope of
rights and privileges granted to Licensee and subject to the same
terms, renditions and obligations.
16.2 Licensee shall notify Licensor of any sublicense granted
hereunder.
16.3 If Licensee grants any sublicense hereunder for which Licensee
receives monetary or other remuneration or value other than profits
on the sale of Licensed Products, then Licensee shall report such
grant of sublicensed rights and one third of all value received
shall be paid to Licensor.
16.4 Any Sublicensee authorized by Licensee shall be obligated to
pay royalties or make other payments as specified herein as
obligations of Licensee, if any such Sublicensee receives benefits
equivalent to those granted to Licensee and Licensee fails to pay,
and any sublicense shall so provide. Any such Sublicense shall
only be obligated with respect to benefits received by that
Sublicensee and not benefits granted to other Sublicensees or
retained by Licensee.
<PAGE>104
17. CERTIFICATION of licensed PRODUCTS
17.1 Licensee shall submit prototypes developed under part 14 to
the following state gaming commissions and laboratory for approval.
licensing, or other certification as required or deemed desirable:
Nevada, New Jersey, Mississippi and Gaming Laboratories, Inc.
(individually, "Certifying Authority', collectively, 'certifying
Authorities'). Should the prototype not receive certification,
licensing or approval by the above-listed entities, then Licensor
shall cc have the opportunity to redesign and remanufacture a
prototype, and Licensee shall resubmit said prototype to said
Certifying Authorities for certification, licensing or approval
Thereinafter collectively known as 'Certification').
17.2 licensee and Licensor shall share evenly all such costs of
certification. Licensee shall advance to Licensor, Licensor's
share of such costs.
1S. MANUFACTURE OF LICENSED PRODUCTS FOR SALE TO LICENSOR
18.1 Licensed or Manufactured Product. Licensor shall be the
exclusive supplier of Licensed Product to Licensee. Licensor may
either manufacture the Licensed Products directly or have such
manufactured by other-, in its behalf.
19. INITIAL PRODUCTION RUN
19.1 Licensor shall initially manufacture 100 units of Licensed
Product for Licensee. Licensee shall advance Licensor $689.445 for
the manufacture of said 100 units. This includes: (a) $300,125 of
costs for initial tooling; and, (b) The remaining $389,320 includes
the expected variable costs and costs for testing.
19.2 Licensee will pay $3893.20 per unit for each of the initial
production run of 100 units of the Licensed Product. Licensee will
be obligated to purchase the initial production run up to 100
units. Said first 100 units shall be delivered to Licensee on or
before December 31, 1996. Licensee shall not be obligated to pay
royalties under part 21.2 for the initial production run of 100
units.
19.3 The tooling costs will be advanced by Licensee to Licensor or
its designated manufacturing subcontractor. Licensee may treat the
amounts actually advanced for tooling costs is prepayment of
royalties. However, the amounts advanced for such tooling costs
will only be deductible to the extent of reducing the royalties
otherwise owed by fifty percent (50%), The reduction of royalties
for tooling costs will also not be allowed until any other
applicable setoff against royalties have been fully setoff and
cannot be taken simultaneously with any other diminution in
royalties provided for in this agreement.
19.4 Licensor shall be the owner of all production tooling
developed by or for Licensor for manufacture of Licensed Product.
Licensee shall acquire a security interest in any production
tooling purchased or produced using the advance of funds from
Licensee. However, Licensee shall acquire a security interest in
said tooling only to the extent that advances for the first 100
units to be produced have not been repaid 29 provided under part
20. Continuing Sale of Licensed Products
20.1 The Licensor will the sole supplier of Licensed Products
to Licensee. The sales price for units delivered by Licensor to
Licensee other than the initial production run under part 19, shall
be $2,500 per unit F.O.B. Spokane, Washington. After December 31.
1996, Licensor shall be allowed to increase the cost of Licensed
Product sold to Licensee. Increases will be no more than the
increase in the reported increases in the U.S. Government producer
price index plus an additional 0.5 percent per year. Price
increases are adjustable by Licensor with the same frequency that
changes are published by U.S. Government in such index.
20.2 The pricing provided for in this part of the Agreement shall
not be in effect beyond December 31, 1997 if Licensor can
demonstrate actual costs of production are in excess of $2000 per
unit. In Such case. Licensor and Licensee shall negotiate in good
faith for a modified sale price.
21.1 Advance Payments.
(a) Licensor shall make payments to Licensee of $1.2 million upon
the following schedule
(1) $600,000 to be paid as follows: S200,000 at the time of
signing this Agreement, and $100,000 per month for four (4) months
following the signing of this Agreement, with the first $100,000
payment due 30 days from the date of signing this Agreement,
(2) $600,000 following certification as described in part 17 per
the following schedule: S300,000 following certification by Nevada,
$100.000 following certification by New Jersey; $100,000 following
certification by Mississippi. $100,000 following certification by
Gaming Laboratories, Inc.
(b) The payments made under this part shall be advances against
royalties owed by Licensee to Licensor.
<PAGE>105
21.2 Royalties
(a) Licensee shall pay to Licensor royalties equal to 20 percent
of' Gross Profits associated with the sale of all Licensed
Products. 'gross Profit' shall be defined as the difference
between Net Invoice Price less the price charged by Licensor to
Licensee for Licensed Product per part 20.1. 'Net Invoice Price"
shall be the price invoiced by Licensee to its customers for
Licensed Product. Net Invoice Price does not include packing and
shipping charges, rebates, normal trade discounts nor the
deductions listed in part 21.7 hereof, but only if such items are
shown on the sales invoice for the Licensed Product as a separate
charge item. No royalties shall be due on the initial production
run of 100 units.
(b) The minimum Net Invoice Price charged by Licensee shall be
$7.500 per unit.
(c) Licensee is only obligated to pay royalties as provided for in
parts 21.2 and 21.6 for a period which expires with the expiration
date of the last of any Licensed Patent. If no Licensed Patent
issues, then royalties shall be paid for twenty (20) years from the
filing date of the last filed Licensed Patent.
21.3 Options to Purchase Shares of Licensee Stock
(a) In addition to the royalties to be paid to Licensee under parts
21.2 and 21.6, Licensee shall also make available to Licensor
shares in Licensee's company as follows:
(1) An option to purchase up to 50,000 shares of common stock in
Licensee's at the fair market price of such stock at the date of
signing this Agreement. Such options to vest after the successful
completion of certification under part 17. The above described
stock options shall be exercisable for five (5) years following the
date of signing of this Agreement.
(2) Licensee shall make available to Licensor additional stock
options in Licensee based on sales or leases of Licensed Product by
Licensor to Licensee according to the following schedule: the first
option shall be for 10,000 shares after the sale or lease of the
next 1,000 units of Licensed Product; the second option shall be
for 7,500 shares following the sale or lease of the next 1,000
units of Licensed Products; the third option shall be for 5,000
shares of stock following the sale or least of the subsequent 1,000
units of Licensed Product; the fourth option shall be for 2,500
shares following the sale or lease of the next 1,000 units of
Licensed Products. Each of these options shall be granted within
30 days of achieving the sales or leases indicated and will be
offered at the fair market value of the stock on the date that the
sales level was achieved. Each option shall be exercisable a
period of five (5) years from the date of maturing. Licensor shall
require any entity which acquires Licensee's company or any
substantial part thereof to offer an equivalent option in the
acquiring company's stock to Licensor as are made available
hereunder. The above-described options shall be to stock in
Licensee, or upon Licensor's acceptance. any company which Licensee
intends to operate as or under for purposes of the licensing
activities under this Agreement.
21.4 Setoff Against Royalties
(a) Payments actually made to Licensor under part 21.1 shall be
setoff against royalties owed under parts 21.2 and 21.6. No
interest shall be calculated or due to Licensee on any advances
paid to Licensor hereunder, and no royalties shall be withheld to
repay any interest or other fees associated with the advances.
(b) Following full setoff of the advances under part 21.4(a) above,
shall be entitled to diminish royalty payments owed to Licensor by
50 percent to setoff against the expenses actually advanced to
Licensor under parts 14-2. 17 and 19.1(a) until the amounts
advanced under these parts has been fully set off. No interest
shall be due on any amounts to be set off under this section.
21.5 Royalties on Licensed Products sold in conjunction with or
as part of products sold by Licensor.
(a) It is anticipated that Licensor will sell gaming tables, or
gaming systems other than shuffling machines which require or
incorporate Licensed Products therein or therewith 'Licensor
Products'. Any Licensor Products for which Licensee provides
Licensed Products, or for which Licensee seances such Licensed
Product or such Licensor Product shall bear royalties US follows:
for any Licensed Product sold in conjunction with a Licensor
Product. Licensee shall pay to Licensor the royalty described under
part 21.2 but at a royalty rate of 50 percent instead of 20
percent; for any services provided to Licensed Product sold as part
of a Licensor Product, or for services" provided for Licensor
Product, Licensee Shall pay to Licensor 50 percent of the Net
Invoice Price for such services.
21.6 Royalties on Licensed Products. If Licensee leases Licensed
Product instead of selling or having others sell on their behalf,
or if a lease of Licensed Product otherwise occurs under this
Agreement, then Licensee shall be obligated to pay Licensor
royalties at a rate of 20 percent of Gross Lease Profit. Gross
Lease Profit is defined as the monthly lease price minus the cost
of
<PAGE>106
Licensed Product sold which will include the monthly depreciation
cost for the Licensed Product as well as depreciation on backup
units of Licensed Products, plus the cost of servicing the leased
units of Licensed Product. The cost of such servicing shall not
exceed 20 percent of the net lease revenues derived from Licensee
by lease of Licensed Products. Such treatment of leasing for
determination of royalties shall not apply where third party pays
Licensee and acts as a financial leasing agent, or where Licensee
actually receives payments on a basis other than the actual lease
payments. In such cases royalties are determined based on the
amount and timing of payments received by Licensee and not those
received by any financing and leasing organization.
21.7 Licensee shall be entitled to a deduction for the amount of
royalties otherwise payable or paid for:
(a) Licensed Product sold rendered by Licensee under this Agreement
but for which full credit is granted to a customer due to defect in
the Licensed Product. and
(b) Licensed Product that arc lost or damaged in transit and for
which Licensee is not reimbursed by insurance payments or
otherwise.
21.8 If any product sold by Licensee or any Sublicensee
incorporates or uses Licensed Copyright Works after the obligation
to pay royalties under parts 21.2 or 21.6 has ceased, then
Licensee and all Sublicensees shall pay royalties in an amount
equal to five (5.0%) of the Net Invoice Price and shall otherwise
be treated in a manner similar to Licensed Products.
21.9 If no royalties ire being paid on the Licensed Product as
provided for in part 21.2 or 21.6. then Licensee agrees to pay a
royalty on products sold or services tendered which use the
Licensed Trademarks in an amount equal to ten percent (10.0%) of
the Net Invoice Price and shall otherwise be created in a manner
similar to Licensed Products.
21.10 Royalties and any other payments owed under this Agreement
will be paid four times a year unless specified otherwise herein.
Payment will be made by January 31 for amounts owed which accrued
during the previous royalty period including October, November and
December (last quarter). Payment will be made by April 30 for
amounts owed which accrued during the previous period including
January, February, and March (first quarter). Payment will be made
by July 31 for amounts owed which accrued during the previous
period including April. May and June (second quarter). Payment
will be made by October 31 for amounts owed which accrued during
the previous period including July, August. and September (third
quarter).
21.11 All monetary amounts specified in this Agreement are in
United States Dollars.
21.12 Licensee bears all risk of exchange rate changes with any
invoices made in foreign currencies considered converted at the
average of buy and sell rates specified in the Wall Street Journal
for the invoiced date.
21.13 All payments made by Licensee hereunder shall be made to
Licensor at Licensor's address indicated herein. or at such place
as shall be designated by Licensor from time to time.
21.14 Any royalties, payments or other compensation not paid by the
due date shall bear interest at the rate of one and one-half
percent (l 1/2%) per month or any part of a month overdue, unless a
smaller rate applies by law in which case the legal rate nearest
thereto shall apply.
22. TRANSFER OF DOCUMENTATION
Licensor shall disclose to Licensee at its chosen location,
equipment and documentation, including without limitation,
drawings, lab books, sketches, design layouts. software, hardware,
source codes, copies of patents, copies of patent applications, and
related matters reasonably needed by Licensee to sell, lease and
service the Licensed Product.
23. DISCLOSURE OF TECHNOLOGY
23.1 The Licensed Technology communicated to Licensee hereunder
shall remain the exclusive property of Licensor subject to the
licenses granted herein. Except as otherwise expressly
contemplated, Licensee agrees to use its best efforts to prevent
the disclosure of the Licensed Technology insofar as it 'Ls
proprietary to Licensor to any third party not affiliated with
Licensee
23.2 Licensor agrees to disclose all pertinent information
concerning the Licensed Technology to Licensee including:
(a) All information concerning designs for the Licensed Technology;
(b) Licensor further agrees to disclose improvements as set forth
in part 29 10 this Agreement.
<PAGE>107
24, CONFIDENTIALITY OF DISCLOSURE AND LICENSED TECHNOLOGY
24.1 Licensee agrees (hat &U disclosure from Licensor to Licensee
under this Agreement is done in confidence except for the
information contained in any issued Licensed Patent. All materials
embodying Licensed Technology shall be maintained in confidence as
a trade secret 1949 and not disclosed except ax expressly allowed
in this Agreement. Incidental writings and information included in
the materials describing and disclosing Licensed Technology are not
bound to secrecy and nondisclosure if such writings and information
are generally known in the trade or if such writings or information
later become generally known in the trade or to the public through
no fault of Licensee, and such writings and information do not
contain confidential information concerning the Licensed
Technology.
24.2 Licensor agrees that Licensee can disclose confidential
information contained in the Licensed Technology to sublicensees
who are also bound by agreement to receive such information in
confidence, to maintain the secrecy thereof, and to not disclose
the content of such information. under at least the same conditions
as described above with respect to Licensee.
24.3 Licensee agrees to mark all materials which include
confidential information relating to the Licensed Technology and
that said materials shall be marked 'proprietary", `Confidential",
'Secret". or with words of similar meaning. All materials embodying
confidential Licensed Technology shall remain the property of
Licensor. All sublicenses shall similarly require that
materials embody in confidential Licensed Technology shall be the
property of Licensee. subject to the rights of Licensor as
indicated in this Agreement.
24.5 Nothing herein shall be implied as restricting Licensee's
ability to market Licensed Products.
25. PATENT APPLICATION
25.1 Rights to File - Licensor shall have the right to have
applications for patents, utility models. design patents and
similar forms of legal protection (hereinafter collectively
referred to as 'patents') filed on all patentable inventions or
otherwise protectible interests contained within the Licensed
Technology. Licensee agrees that Licensor shall have primary
responsibility
for preparing, filing and prosecuting any such patent applications,
and that all such work shall be done with expenses shared equally
between Licensor and Licensee. except as provided below. If
Licensee elects in writing not to pay or pursue efforts, refuses to
pay Licensee's share of the costs, or to elects to terminate
efforts to secure patent protection in any country, then Licensor
may proceed at its own expense. If Licensor Proceeds with efforts
to obtain patent protection in any such country, then all patent
rights and other Technology Rights in such country(s) shall be the
exclusive property of Licensor, and Licensee shall not have any
license under this Agreement in the country(s) in which Licensor
elects not to proceed.
26, REGISTRATION OF LICENSE
If under the law of any jurisdiction other than the United States
of America the execution or registration of any registered user or
similar agreement in respect of any of the Patents or Licensed
Technology is required or permitted in order for Licensee to obtain
the full benefit of this Agreement, Licensee may, at its own cost
and expense. register this Agreement or execute or register the
appropriate registered user or similar agreement in order that
Licensee shall obtain such full benefit as aforesaid.
27. PERFORMANCE BY LICENSEE
27.1 Licensee shall sell or lease Licensed Product according to
the schedule below. Failure by Licensee to achieve the specified
sale or lease of Licensed Products shall be deemed a material
breach of the contract and shall justify Licensor in immediate
termination under part 44.1. For purposes of this section, "Start
Date' shall be defined as the day the second Certification is
received under part 17.
27.2 Licensee shall sell or lease 200 units of Licensed Product
within 18 months of the Start Date. Thereafter Licensee shall sell
or lease 300 additional units of Licensed Product per each calendar
year.
27.3 Should Licensee fail to sell or lease the minimum units
described under part 27.2, then Licensor shall, at its sole
discretion. have the option to either a) terminate this License
Agreement as provided under part 44.1 or b) convert Licensee's
rights hereunder so that all rights are non-exclusive.
<PAGE>108
27.4 If Licensee fails to meet the 18 month minimum sales or
leases of Licensed Products, and Licensor elects to terminate under
part 27.3. then Licensor shall repay the advances paid i to
Licensor under part 21.1. Licensor shall have no obligation to
repay To Licensee any advances paid under parts 14. 17, or 18, for
development, certification. or manufacture respectively of Licensed
Products.
27.5 If in months 19 through 30 following the Start Date.
Licensee fails to sell an additional 300 units of licensed Product
and Licensor elects to terminate under part 27.3 then Licensor
shall repay to Licensee S600,000 of the advance paid under part
21.1. and no other refunds of any advances paid hereunder shall be
due. No interest shall be due or payable on any amounts to be
refunded hereunder.
27.6 If in months 33 through 42 following the Start Date.
Licensee fails to sell an additional 400 units of Licensed Product
and Licensor elects to terminate under part 27,3 then Licensor
shall repay to Licensee $300,000 of the advance paid under part
21.1. and no other refunds of any advances paid hereunder shall be
due. No interest shall be due or payable on any amounts to be
refunded hereunder.
27.7 If in months 43 through 54 following the Start Date,
Licensee fails to sell an additional 500 units of Licensed Product
and Licensor elects to terminate under part 27.3 then Licensor
shall repay to Licensee $150,000 of the advance paid under part 21
, and no other refunds of any advances paid hereunder shall be due.
No interest shall be due or payable on any amounts to be refunded
hereunder.
27.8 If in months 55 through 66 following the Start Date.
Licensee fails to sell an additional 500 units of Licensed Product
and Licensor elects to terminate under part 27.3 then Licensor
shall repay to Licensee $75,000 of the advance paid under part
21.1, and no other refunds of any advances paid hereunder shall be
due. No interest shall be due or payable on any amounts to be
refunded hereunder,
27.9 Should Licensee fail to meet the sales and lease minimums of
500 Licensed Product in any calendar year following month 67 after
the Start Date and Licensor elects to terminate as authorized under
part 273, then no financial compensation to Licensor by Licensee
shall he required.
27.10 Minimum Royalty. Notwithstanding any of the other provisions
in this part 27, Licensee shall make the following minimum royalty
payments to Licensor:
(a) In the eighteen (18) months following the Start Date, $
(b) In months 19 through 30 following the Start Date, $
(c) In months 33 through 42 following the Start Date, $
(d) In months 43 through 54 following the Start Date. $
(e) In months 55 through 66 following the Start Date, $
(f) In any month following month 66 from the Start Date, $
27.11 The obligations to make minimum sales and loans and pay
minimum royalties is contingent upon Licensor's ability to provide
Licensed Product to Licensee. The obligations to provide minimum
sales and royalty payments shall be adjusted proportionately should
any shortfall in the supply of Licensed Product which is the fault
of Licensor occur.
27.1.2 Should the manufacture Or certification of Licensed Product
be delayed or restricted as a result of the design and/or
manufacture of the Licensed Product, then the Parties agree to
negotiate in good faith to reschedule the minimum sales and lease
requirements and the minimum royalty payments required hereunder.
28. REIMBURSEMENT FOR EXPENSES
Licensor in its sole discretion may make available to Licensee
technical support at Licensee's request. Licensee agrees to
reimburse Licensor for any such services at Licensor then
prevailing rates. including travel and other expenses incurred in
providing such services.
29. IMPROVEMENTS AND DEVELOPMENTS IN LICENSED TECHNOLOGY
29.1 Improvements by Licensor - Improvements, enhancements and
additional inventions hereinafter 'Licensor Improvements) shall
Technology unless such falls within the scope part 3.1. Licensee
shall have the same rights and obligations with respect to such
Licensor Improvements, starting with disclosure to Licensee, as
applies to Licensed Technology in general under this Agreement.
patent applications on any Licensor Improvements shall be handled
as indicated in part 25.
29.2 Improvements by Licensee - Improvements, enhancements and
additional inventions relating to the Licensed Technology by
employees Of Licensee (hereinafter "Licensee Improvements"), shall
<PAGE>109
be disclosed to Licensor within one, (1) month of discovery, Rights
in any improvements shall revert to Licensor. Licensee shall be
responsible for any and all costs of obtaining patent protection on
any Licensee in movements. Licensee employees shall be responsible
for any and all costs of obtaining patent protection on any
Licensee Improvements. Licensee employees shall provide Licensor
such reasonable assistance as is necessary to allow Licensor to
file any patent applications on Licensee improvements.
29-3 Improvements by Sublicensees - Improvements. enhancements and
additional inventions relating to the Licensed Technology by
employees of any sublicensees (hereinafter 'Sublicensee
Improvements'), shall be governed by the sublicense under which the
Sublicensee is licensed. Sublicensees must agree to disclose all
such Sublicensee improvements to Licensee within one (1) month of
discovery. Licensee agrees to disclose any such Sublicensee
Improvements to Licensor within one (1) month of disclosure by a
Sublicensee to Licensee. Licensor shall accede to all rights
granted to Licensee in any Sublicensee Improvements as 2i provided
in the sublicenses governing the license of Licensed Technology to
the Sublicensee. The filing of patent applications and allocation
of costs and responsibility therefor on Sublicensee Improvements
shall be as provided in part 25 to the extent possible under the
rights and obligations of Licensee under the applicable sublicense.
30. EMPLOYEE INVENTION AGREEMENTS
Licensee agrees that all Licensee employees, agents and consultants
given access to the Licensed Technology shall sign a
confidentiality agreement and invention assignment agreement
whereby any improvements. enhancements and new inventions relating
to the Licensed Technology are required to be disclosed and
assigned to the Licensee.
31. REPORTS AND ACCOUNTING
31.1 Reports - Licensee shall provide to Licensor quarter-yearly
reports indicating the total quantity of Licensed Product sold.
rented, or leased by Licensee, any sublicensees or others who have
been authorized by Licensee to practice any of rights licensed by
Licensor to Licensee under this Agreement. Such reports shall
indicate the total number of such Licensed product categorized by
each organization and the total value of the Net Invoice Price and
Gross Profit associated with the total number of such Licensed
Product. Such reports shall also indicate the number of products
sold in each certifying state identified under part 17. The
reports shall further indicate the royalties and any other payments
owed by Licensee and all sublicensees. The reports shall be made
to Licensee by the same due date as any royalty payments which are
due or would be due. Reports shall be made even if no royalties
are believed owed.
31.2 Accounting - Licensor shall have the right to inspect the
records of Licensee and sublicensees which are relevant to indicate
the amount of royalties or other compensation owed or paid in
connection with this Agreement. Licensor shall also have the right
to inspect the records of Licensee and all Sublicensee which are
relevant to the quality of Licensed Products so produced by or for
Licensee and all sublicensees. The rights to inspect indicated
herein include the right to have an audit conducted by an
appropriate auditing or accounting firm. If an audit indicates
that an amount in excess of Five Thousand Dollars is owed Lo
Licensor which should have been previously paid under the
provisions of this Agreement, then the cost of the audit shall be
fully paid by Licensee or the Sublicensee who owes such amount.
32. MARKING OF PRODUCTS EMBODYING PATENT RIGHTS AND COPYRIGHTS
32.1 Licensee agrees that all Products and equipment sold, leased
or distributed hereunder which is within the scope of any claim
issued in a U.S. or foreign patent shall be marked with one or more
patent numbers or other notices in a manner consistent with and as
required by the laws of the jurisdiction in which the products and
equipment are to be sold or otherwise used or distributed. Failure
to so mark all patented products and equipment will subject
Licensee to liability to Licensor for losses associated with such
failure to mark.
32.2 Licensee also agrees to mark all reproductions. copies and
derivative works based on Licensed Copyright Works with notice of
the claim to copyrights as required to fully protect such Licensed
Copyright Works under the laws of the jurisdiction in which the
reproductions, copies or derivative works are to be sold or
distributed.
32.3 The provisions of this part shall apply to sublicensees and
all sublicenses shall provide.
32.4 Licensee agrees to indicate Licensor's invention of Licensed
Products in promotional and advertising materials.
<PAGE>110
33. ASSIGNMENT OF RIGHTS AND OBLIGATIONS
33.1 Because of the nature of Rights and obligation granted
hereunder, neither Licensor nor Licensee can assign any rights or
obligations under this Agreement unless the proposing assignor has
received written authorization from the other party.
34. LIABILITY RISK
34.1 Licensee agrees to assume all risk of legal liability which
may arise from Licensee activities, including without limitation,
providing services, sublicensing, designing, manufacturing
transporting, distributing and selling products licensed under this
Agreement. Licensee further warrants and agrees to hold harmless,
defend and indemnify Licensor against claims arising from
Licensee's activities.
35. INSURANCE POLICY FOR MANUFACTURING AND SALE OF PRODUCTS
If Licensee is engaged in the manufacture or sale of any services
other than technical consulting relating to the Licensed
Technology, then Licensee shall, throughout the term of this
Agreement, obtain and maintain at its own cost and expense, from a
qualified insurance company, standard Product Liability Insurance,
the form of which must be acceptable to the Licensor, naming the
Licensor as an additional named insured. Such policy shall provide
protection against any and all claims, demands, and cause of
action-arising out of any defects or failure to perform, alleged or
otherwise, of the Licensed Products, or any use thereof. The
amount of coverage shall be in an amount which License and Licensor
shall establish from time to time. The policy shall provide for
thirty (30) days notice to the Licensor from the insurer by
Certified Mail, return receipt requested, in the event of any
modification, cancellation, or termination. The Licensee agrees
to furnish the Licensor a certificate of insurance evidencing same
before beginning manufacture or sale of any product or beginning
services other than technical consulting services relating to the
Licensed Technology. All sublicenses shall Provide for similar or
better coverage by all sublicensees.
36. BEST EFFORTS AND DILIGENCE
Licensee shall use its best efforts to diligently market Licensed
Products and Licensed Services. A determination of best efforts
and diligence under this part may consider various relevant
factors.
37, WARRANTIES OF LICENSOR
37.1 Licensor makes only the warranties expressly made below.
(a) Licensor has no information indicating that the subject matter
of the Licensed patents infringes any U.S. or foreign patents.
(b) Licensor warns that the Licensed products which it provides to
Licensee shall meet the warranties of fitness for a particular
purpose.
(c) Licensor makes no other warranties.
38. DISCLAIMER OF WARRANTIES BY LICENSOR
38.1 Licensor hereby disclaims all warranties not expressly made
herein and further specifically disclaims as set forth below.
(a) No warranty or representation is made that practice of the
Licensed Technology by Licensee or its sublicensees as allowed
under this Agreement will not infringe upon patent or trademark
rights of a third party.
(b) No warranty or representation is made that additional patent
protection will necessarily be obtained on the Licensed Technology.
(c) No warranty is made to indemnify Licensee for any claims
arising from Licensee's activities under this Agreement.
39, - ENFORCEMENT OF PATENT rights
Licensee shall be primarily responsible for enforcing any U.S.
patents against infringers thereof. Licensee shall not be
obligated to institute legal proceedings for infringement. If
Licensee refuses to institute legal action, then Licensor may at
its election sue for infringement or other cause. Any recovery
under such legal actions shall be first used to pay attorney fees,
court costs and all other litigation expenses, and second be used
to pay Licensor for any payments which are due under this
Agreement. The remainder shall be divided between the parties based
upon their relative payment of the total litigation costs.
Licensor agrees to allow Licensee to take legal action solely in
Licensee's name and to additionally include or join Licensor as a
party, if necessary.
40. notification OF Infringement
Licensee and Licensor both agree to notify the other within ten
(10) days of becoming aware of any infringement of Licensed
Technology by third parties.
<PAGE>111
41, INTERCHANGE OF TECHNICAL AND MARKET INFORMATION
Licensor and Licensee agree to Interchange all technical and market
information which relates to the Licensed Technology in the
marketing, sale, distribution, design and other aspects of
licensing development and marketing of the Licensed Technology.
42. COMPLIANCE WITH EXPORT OF TECHNOLOGY AND OTHER LAWS
Licensee agrees to comply with all U.S. and foreign government
statutes governing import and export of technological information,
taxes and other applicable laws. Since the technological
information licensed hereunder is initially subject to the laws of
the United States, no disclosure to individuals or organizations
which constitutes a violation of the export of technology laws or
other U.S. or state statute of similar nature or effect, shall
occur by Any further improvements or inventions which become part
of the Licensed Technology shall similarly be controlled by U.S.
law or the law of any foreign nation in which such inventions or
improvements are created, or as otherwise made applicable under
such U.S. or foreign law.
43. CONVERSION
43.1 If Licensee fails to comply with the terms of this Agreement,
then Licensor may convert one or more of the exclusive licenses
granted to Licensee hereunder into non-exclusive license(s).
Conversion shall also be possible if Licensee becomes insolvent.
bankrupt or unable to conduct business. Such conversion shall be
effectuated by Licensor sending a certified letter, return receipt
requested, containing a notice indicating the breach of this
Agreement upon which conversion is to be based. Licensee shall
then have a cure period with a duration as set forth in part 43.2
of this part starting from the date the notice of breach is
delivered or presented at the last known notification address
during which to cure the breach. If Iicensee fails to cure, then
conversion shall occur upon Licensor's mailing of a notice of
conversion after the expiration of the cure period. Conversion
shall not diminish Licensee's obligation to make
payments hereunder. Conversion of this Agreement from an exclusive
to a nonexclusive license shall not change the status of
sublicenses entered into by Licensee in accordance with this
Agreement, unless the sublicense(s) are exclusive in which case
they shall become non-exclusive and limited to the same extent as
the licenses held after conversion by Licensee. No further
sublicenses shall be granted by Licensee after conversion without
specific written authorization and confirmation from Licensor.
43.2 The cure period used in this part shall be six (6) months
under part 36; thirty (30) days under part 24 and with respect to
monetary payments due under part 21; zero (0) days under part 32,
and ninety (90) days in all other cases.
44. TERMINATION By LICENSOR
44.1 If Licensee fails to comply with any of the provisions of
parts 4-25 or 27-36. or if Licensee falls to make payments under
this Agreement, or if Licensee becomes insolvent, bankrupt or
unable to conduct business, or if Licensee otherwise materially
breaches this Agreement, then Licensor may terminate the licenses
granted herein. Such termination shall he effectuated by Licensor
sending a certified letter, return receipt requested, containing a
notice indicating the breach and that termination pursuant to this
Agreement will be made if Licensee does not cure the breach.
Licensee shall then have a cure period with a duration as set forth
in part 44.2 of this part starting from the date the notify of
breach is delivered or presented at the last known notification
address during which to cure the breach. If Licensee fails to
cure. then termination shall occur upon Licensor's mailing of a
notice of termination after the expiration of the cure period.
44.2 The cure period used in this part shall be six (6) months
under part 36; thirty (30) days under part 24 and with respect to
monetary payments due under part 21, zero (0) days under part 32;
and ninety (90) days in all other cases.
45, EFFECT OF TERMINATION BY LICENSOR
45.1 If this Agreement is terminated, no Licensed Products may be
sold or distributed or any promotional material used, or any
Technology Rights, Trademark Rights or Copyrights sublicensed
without the prior express approval of the Licensor, except that
Licensee may continue to use the same for a period of six (6)
months thereafter to complete Licensee's performance under any
contracts which were awarded prior to such termination and to
dispose of stocks of inventory and Licensed Products subject to the
payment of the royalties provided herein. Such continued action
shall accrue royalties which must be paid to Licensor.
<PAGE>111
45.2 Upon termination of this Agreement, all payments then owed
shall become immediately due and payable, All amounts owed after
termination shall be paid within thirty (30) days of the invoiced
sale, rental payment or other event creating an obligation to pay.
45.3 After termination of this Agreement, all rights licensed
herein shall revert to the Licensor who may assign or license
others to use the Licensed Technology, Licensed Trademarks,
Licensed Copyrights. Licensee agrees to stop all further use of
the Licensed Technology and turn over to the Licensor materials
which relate to the Licensed Technology. 'The Licensee shall be
responsible for any damages caused by the unauthorized use of Such
materials or reproduction materials which are not turned over.
45.4 Sublicenses entered into by Licensee will be transferred to
Licensor if Licensee's rights and obligations under this Agreement
are terminated, and Licensor shall accede to all of Licensee's
rights in and under the applicable sublicenses.
46. TERMINATION BY LICENSEE
46.1 Licensee shall have the right to terminate this Agreement for
material breaches by Licensor.
46.2 Termination shall be effected in a manner consistent with the
procedure set out in part 44. The cure period shall be ninety (90)
days.
47. EFFECT OF TERMINATION BY LICENSEE
47.1 Termination by Licensee shall require all materials embodying
Licensed Technology to be returned to Licensor by the Licensee and
any sublicensees. Licensee's obligation to make payments under
this Agreement shall end after termination except with respect to
future sales or other events for which payments are still owed at
or after the time of termination,
47.2 Following termination by Licensee, Licensor shall have no
obligation to repay to Licensee any advances paid by Licensee under
this Agreement.
48. modification OF AGREEMENT
No modification of this Agreement shall be valid or binding unless
the modification is executed in writing signed by all parties to
this Agreement.
49. NO WAIVER
No waiver by either party of a breach or a default hereunder shall
be deemed a waiver by such party of a subsequent breach or default
of a like or similar nature.
50, SEVERABILITY
In the event that any term or provision of this Agreement shall for
any reason be held to be invalid, illegal, or unenforceable in any
respect, such invalidity, illegality, or unenforceability shall not
affect any other term or provision of this Agreement and shall be
interpreted and construed as if such term or provision, to the
extent the same shall have been held to be invalid. Illegal. or
unenforceable, had never been contained herein.
51. APPLICABLE LAW
This Agreement shall be construed and governed in accordance with
tile laws of the State of Washington,
52. JURISDICTION AND VENUE
The parties hereto agree that jurisdiction and venue shall be
proper as provided for under law.
53, HEADINGS
The headings, titles and subtitles in this Agreement are inserted
for convenience of reference only, and do not limit the terms and
provisions of this Agreement.
54. notices
54.1 All notices required to be sent to either party shall be in
writing and sent by registered or certified mail. postage prepaid,
return receipt requested, or by telex or telegram, charges prepaid
to the parties at the addresses given hereinabove, or such future
addresses as the parties shall designate in writing. Notices ran
also be communicated by fax but are not
considered effective unless the party being notified confirms
receipt of the fax in writing or by a return fax indicating receipt
of the notice previously sent by fax. Payments can be sent by first
class mail.
55. Relationship OF THE PARTIES
This Agreement does not create a partnership or joint venture
between the parties and the Licensee shall have no power to
obligate or bind the Licensor in any manner whatsoever, except as
specifically expressed in this Agreement.
<PAGE>112
56. Attorney's Fees
If either of the parties to this Agreement institute arbitration or
legal proceedings to enforce the terms of this Agreement, the
parties agree that the unsuccessful party to such arbitration or
legal proceedings shall pay the reasonable attorney's fees and
legal Costs Of both parties, as the same may be approved by the
arbitrator or court having jurisdiction over such
proceedings.
57. INTEGRATION, ENTIRE AGREEMENT
This instrument constitutes the entire agreement between the
parties. Neither party shall be bound by any terms, conditions,
understandings, warranties, statements or representations, oral or
written, not contained in this Agreement. Both parties hereby
acknowledge that the execution of this Agreement was not induced or
motivated by any promise or representation
made by any other party, other thin the promises and
representations expressly set forth in this Agreement. All previous
negotiations, statements, and preliminary instruments by the
parties or their representatives are merged into this Agreement.
except as expressly provided herein.
58. COUNTERPART ORIGINAL AGREEMENTS
This Agreement shall be executed in multiple original counterparts
with each party retaining one copy thereof.
59, EFFECTIVE DATE OF AGREEMENT AND TERM OF AGREEMENT
59.1 The effective date of this Agreement is the date as of which
this Agreement has been executed by all parties hereto.
59.2 This Agreement shall terminate when terminated by Licensor or
Licensee as provided in this Agreement. If neither party
terminates this Agreement as provided herein. then appropriate
provisions of this Agreement shall be applied until complete
cessation of all use of the Licensed Trademarks. Licensed
Copyrights, and Licensed Technology by Licensee or any Sublicensee,
or until no further payments are due hereunder. whichever is
longer.
60, - ARBITRATION
60.1 Any controversy or claim arising out of or relating to this
Agreement or tile breach of any representation, warranty, covenant
Or agreement contained herein, shall be decided by arbitration in
accordance with the Commercial Arbitration Rules (C.A.R.') of the
American Arbitration Association (A.A.A.) then obtaining, unless
the parties otherwise mutually agree in writing, The dispute shall
be decided by a panel of three arbitrators (each an Arbitrator' and
collectively, the 'Arbitrators) one arbitrator chosen by each of
the Licensor and Licensee, and the third by the two selected
arbitrators in accordance with C.A.R. and A.A.A. The decision and
the award of damages rendered by a majority of the Arbitrators
shall be final and in binding and judgment may be entered upon it
in any court having jurisdiction thereof.
60.2 The arbitration shall be held as promptly as practicable
after actual receipt of notice that the other party has filed a
notice for arbitration with the A.A.A. (the "Notice') on such dare,
and at such a place and time convenient to the parties and to the
Arbitrators, except that if the parties cannot agree, the
Arbitrators shall decide such date, place and time. The
Arbitrators shall make their decision promptly and any award of
damages shall be made, unless otherwise mutually agreed by the
parties in writing, no later than fifteen (15) days from the date
of closing of the hearings or if oral hearings have been waived.
from the date of transmitting the final statements and proofs to
the Arbitrators.
61. EXECUTION BY LICENSOR - CASINOVATIONS INCORPORATED
Date: By:
State of
Ss
County of
I certify that I know or have satisfactory evidence that
signed this instrument, and upon oath acknowledged that he had
authority to act in behalf of Casinovations, Incorporated and
further acknowledged this instrument to be the free and voluntary
act of such party for the uses and purposes mentioned in this
instrument.
Dated:
Notary Public
Residing it
[SEAL] My appointment expires:
<PAGE>114
62. execution By LICENSEE- SHUFFLE MASTER, INC.
Date: By:
State of
) Ss
County of
I certify that I know or have satisfactory evidence that
signed this
J9 instrument, and upon oath acknowledged that he had authority to
act in behalf of Shuffle Master, Inc. and further acknowledged this
instrument to be the free and voluntary act of such party for the
uses and purposes mentioned in this instrument.
Dated:
Notary Public
Residing at
[SEAL) My appointment expires:
63. APPENDIX A - LICENSED TRADEMARKS
The Licensed Trademarks at the time of execution include.
CASINOVATIONS
RANDOMIZER
RANDOM EJECTION SHUFFLER
mm 19 OF, 19
<PAGE>115
EXHIBIT C
PROMISSORY NOTE
S300,000.00
Spokane, Washington
January 15, 1996
1. Promise to Pay. FOR VALUE RECEIVED, the undersigned, SHARPS
INTERNATIONAL LIMITED PARTNERSHIP, a Nevada limited partnership
("Borrower"), does hereby promise to pay to the order of RICHARD S.
HUSON ("Lender"), at 121 S.W. Morrison, Suite 1400, Portland,
Oregon 97204, or at such other place as Lender may from time to
time designate in writing, the principal sum of Three Hundred
Thousand and No/100 Dollars ($300,000.00), together with all
interest thereon and other sums herein referred to.
2. Interest and Payment Terms. The unpaid principal hereof shall
bear
interest from the date of this Note until default at the rate of
nine and one-half percent (9.5%) per annum. This Note shall be due
and payable, without demand, on July 15, 1996.
3. Calculation of Interest and Application of Payments. Interest
shall
be calculated on a 365 or 366-day year, as applicable, based on
actual days elapsed. Each installment hereunder shall be first
applied to the payment of costs and expenses for which Borrower is
liable hereunder, next to the payment of accrued interest, and
lastly to the reduction of principal. This Note shall continue to
bear interest at the Note rate (or at the Default Rate, as
hereinafter defined, if and so long as any default exists
hereunder) until and including the date of collection, and all
payments hereunder shall be calculated by and shall be payable in
the lawful money of the United States which shall be legal tender
for public and private debts at the time of payment.
4. Prepayment. Borrower shall have the right at any time to
prepay the whole or any part of this Note without prepayment
premium or fee.
5. Default Rate. If and so long as any default exists under this
Note or any of the security granted to secure this Note, the
interest rate on this Note, and on any judgment obtained for the
collection of this Note, shall be increased from the date the
default is declared to a rate (the "Default Rate") equal to five
percent (5%) per annum in excess of the Note rate. Borrower
acknowledges that the imposition of the Default Rate will result in
the then effective interest rate in this Note being increased from
9.5 % per annum to 14.5 % per annum.
6. Costs of Collection. Borrower promises to pay all costs,
expenses and attorneys' fees incurred by Lender in the exercise of
any remedy (with or without litigation), in any proceeding for the
collection of the debt, in any foreclosure of the Partnership
Pledge and Security Agreement or the realization upon any other
security securing this Note, in protecting or sustaining the lien
or priority of said Partnership Pledge and Security Agreement 'd
other security, or in any litigation or controversy arising from or
connected with this Note or the Partnership Pledge and Security
Agreement, including any bankruptcy, receivership, injunction or
other proceeding, or any appeal from or petition for review of any
of the foregoing, in which Lender prevails. If a judgment is
obtained thereon which includes an award of attorneys' fees, such
attorneys' fees, costs and expenses shall be in such amount as the
court shall deem reasonable. All collection costs, expenses and
attorneys' fees are payable on demand, shall bear interest at the
Default Rate from the date of demand to and including the date of
payment to Lender, and shall be fully secured by the Partnership
Pledge and Security Agreement and other security granted in
connection with this Note.
7. Collateral. This Note is secured by a Partnership Pledge and
Security Agreement relating to certain partnership units owned by
Randy D. Sines and Cheryl L. Forte ("Grantors") in Borrower. The
Partnership Pledge and Security Agreement, the Funding Agreement
among Grantors, Borrower, Lender and Sines Forte Partnership
pursuant to which this Note is executed, and all other documents
executed in connection with this Note are collectively referred to
hereinafter as the "Related Documents."
S. Defaults, Acceleration. Time is of the essence of this Note.
The occurrence of any of the following shall, without notice,
demand or opportunity to cure, constitute an event of default under
this Note and each of the Related Documents:
(a) Failure of Borrower to make any payment required to be paid by
Borrower under this Note or the Related Documents in strict
accordance with the terms thereof;
<PAGE>116
(b) Failure of Borrower to perform any other covenant, agreement
or other obligation contained in this Note or the Related
Documents;
(c) Any warranty, representation, or statement made or furnished
to Lender by or on behalf of Borrower proving to be or having been
false in any material respect when made or furnished;
(d) The occurrence of any event of default under the Related
Documents;
(e) If any assignment by Borrower or any partner of Borrower, or
any of them, for the benefit of creditors shall be made; or
(f) If Borrower or any partners of Borrower shall voluntarily file
a
petition under the Federal Bankruptcy Act, as such Act may from
time to time be amended, or under any similar or successor Federal
statute relating to bankruptcy, insolvency arrangements or
reorganizations, or under any state bankruptcy or insolvency act,
or file an answer in an involuntary proceeding admitting insolvency
or inability to pay debts, or if Borrower or any partners of
Borrower shall fail to obtain a vacation or stay of involuntary
proceedings brought for the reorganization, dissolution or
liquidation of Borrower or any partners of Borrower, or if Borrower
or any partners of Borrower shall be adjudged a bankrupt, or upon
dissolution, business failure or discontinuance of Borrower or any
partners of Borrower as a going business (except for labor
disputes), or if a trustee or receiver shall be appointed for
Borrower or any partners of Borrower, or Borrower's or any partners
of Borrower's property, or if the partnership interests of Borrower
shall become subject to the jurisdiction of a Federal bankruptcy
court, or similar state court, or if Borrower or any partners of
Borrower shall make an assignment for the benefit of creditors, or
if there is an attachment, execution or other judicial seizure of
any portion of Borrower's or any partners of Borrower's assets and
such seizure is not discharged within ten (10) days;
then, upon the occurrence of any such event of default, after
expiration of any applicable notice and cure period, the entire
principal sum, with accrued interest thereon due under this Note,
shall, at the option of Lender, become due and payable forthwith,
without further notice. No failure to exercise such option shall
be deemed a waiver on the part of Lender of any right accruing
thereafter.
9. Borrower's Right to- Cure. Upon an event of default, except as
otherwise provided below, Lender shall not accelerate this debt,
make any payments for which Borrower is primarily liable, or
foreclose upon or attach any assets of Borrower unless it first
gives Borrower written notice of such default at Borrower's address
and in the manner described for notices described in Section 16
below and unless such default is not fully cured within the
following periods:
(a) three (3) days after such notice is given in the event of any
failure to make a monetary payment,
(b) fifteen (15) days after such notice is given in the event of
nonmonetary defaults not subject to other provisions of this
Section, provided (i) within five (5) days after such notice is
given, Borrower commences its cure and submits to Lender in writing
its plan to cure; and (ii) the cure is continuously pursued by
Borrower with due diligence. If in Lender's sole judgment such
default is not reasonably capable of being cured
within fifteen (15) days, Borrower shall have such additional time
as is reasonably necessary to complete the cure, but in no event
more than thirty (30) days after the notice of default is given; or
(c) sixty (60) days after the filing of any involuntary petition
in bankruptcy against or for the appointment of a receiver for
Borrower (except for petitions filed by Lender), with the dismissal
of such petitions by the court within such period being deemed to
cure such default.
Notwithstanding the above provisions, the notice and cure periods
provided for in this Section shall not apply in the following
circumstances:
(a) any default of the type described in subsection 8(c), if but
only if, as a result of such default, Lender reasonably determines
that the value of all or a substantial portion of the Pledged
Collateral (as described in the Partnership Pledge and Security
Agreement), or Lender's security interest in that Pledged
Collateral, is materially impaired; or
(b) if Grantors transfer or encumber all or any portion of their
interest in the Pledged Collateral (as defined in the Partnership
Pledge and Security Agreement) without obtaining any required
consent of Lender or as expressly permitted by this Note or the
Partnership Pledge and Security Agreement; or
<PAGE>117
(c) in any circumstance when a delay in effecting a cure is, in
the reasonable judgment of Lender, likely to result in any Pledged
Collateral being damaged, becoming uninsured or rendered
unavailable to Lender or the value thereof being materially and
adversely affected, or Lender's ability to recover its outstanding
balance from Borrower being materially affected; or
(d) any default of the same type or nature which occurs more than
twice; or
(e) any filing of a voluntary petition in bankruptcy by Borrower
or any partner in Borrower, or for the appointment of a receiver or
trustee of all or a portion of Borrower's property; or
(f) any assignment for the benefit of creditors, fraudulent
conveyance, or other plan or action instituted by Borrower or any
partner in Borrower in an attempt to avoid the satisfaction of any
lawful indebtedness.
The Provisions of this Section shall apply to defaults under all
documents executed as security for this Note, and unless expressly
stated to the contrary in such documents any notice or cure period
referred to therein shall be deemed to incorporate said provisions.
If any of said documents are inconsistent with this Section, this
section shall be controlling, unless said other document expressly
provides otherwise. that additional notice or cure periods are
provided in this or any other such documents or are required by any
other contract or by law, said periods and those contained in this
section shall run concurrently. Nothing in this section shall be
construed as extending the term of this Note or the date upon which
a default occurs, and no decision to forego any remedy for any
given default shall be deemed a waiver on the part of Lender of any
right relating to any other default. No failure to give any notice
of any default shall constitute a waiver of such default or any
remedy which may be available in connection therewith. This
section shall be strictly construed, and shall not impair the
exercise of any remedy not referred to above immediately upon
default, including , without limitation, the seeking of any
mandatory or prohibitive injunction or 9
restraining order or appointment of receiver.
10. Usury . Borrower hereby represents that this loan is for
commercial use
and not for personal, family or household purposes. It is the
specific intent of the Borrower and Lender that this Note bear a
lawful rate of interest, and if any court of competent jurisdiction
should determine that the rate herein provided for exceeds that
which is statutorily permitted for the type of transaction
evidenced hereby, the interest rate shall be reduced to the highest
rate permitted by applicable law, with any excess interest
theretofore collected being applied against principal or, if such
principal has been fully repaid, returned to Borrower on demand.
11. Renewals. Borrower, and all others who may become liable for
all or
any part of this obligation, consent to any number of renewals or
extensions of the time of payment hereof and to the release of all
or any part of the security for the payment hereof.
Any such renewals, extensions or releases may be made without
notice to any of said parties and without affecting their
liability.
12. Multiple P If Borrower is composed of more than one
person
or entity, each of such persons shall be jointly and severally
liable for the indebtedness evidenced hereby. A default on the
part of any one person or entity comprising Borrower or any
guarantor of this Note shall be deemed a default on the part of
Borrower hereunder.
Any married person comprising Borrower pledges his or her marital
community properties in satisfaction hereof.
13. Waivers. Borrower hereby waives presentment, demand of
payment,
notice of dishonor, protest, and notice of nonpayment, and any and
all other notices and demands whatsoever. No covenant, condition,
right or remedy in this Note may be waived or modified orally, by
course I of conduct or previous acceptance or otherwise unless such
waiver or modification is specifically agreed to in writing
executed by the Lender.
14. Construction. This Note shall be governed by and construed
in accordance with the laws of the State of Oregon, and all sums
referred to herein shall be calculated by reference to and payable
in the lawful currency of the United States. This Note and all
Related Documents executed in connection with this Note have been
reviewed and negotiated by Borrower, Lender and any guarantors at
<PAGE>118
arms' length with the benefit of or opportunity to seek the
assistance of legal counsel and shall not be construed against
either party. The titles and captions in this Note are inserted
for convenience only and in no way define, limit, extend, or modify
the scope or intent of this Note. In any case where Lender is
permitted to act in its "sole discretion," "sole option" or the
like, Lender shall be entitled to exercise unfettered discretion
and may act without application of principles of law, if any,
requiring good faith or fair dealing or reasonableness in
exercising Lender's options .
15. Partial Invalidity If any section or provision of this
Note is declared invalid or unenforceable by any court of competent
Jurisdiction, said determination shall not affect the validity or
enforceability of the remaining terms hereof. No such
determination in one jurisdiction shall affect any provision of
this Note to the extent it is otherwise enforceable under the laws
of any other applicable jurisdiction.
16. Addresses . All notices, requests, demands, directions
and other communications required under this Note shall be in
writing (including telegraphic communication) and mailed by United
States mail or facsimiled or delivered by overnight courier or by
hand to the applicable party at the addresses indicated below:
if to Borrower:
Sharps International Limited Partnership
4056 South Madelia
Spokane, Washington 99203
if to Lender:
RICHARD S. HUSON
121 S.W. Morrison, Suite 1400
Portland, Oregon 97204
or, as to any party, at such other address as shall be designated
by such party in a written notice to each other party complying as
to delivery with the terms of this Section 16. All such notices,
requests, demands, directions and other communications so mailed or
telecopied or delivered shall be effective when received if sent by
mail, when delivered if delivered by courier or by hand, or when
transmitted if sent by facsimile.
17. COUNTERPARTS - This Note, may be executed in one or more
counterparts, all Of which shall together constitute one
instrument.
BORROWER:
SHARPS INTERNATIONAL LIMITED
PARTNERSHIP, a Nevada limited partnership
By:
RANDY D. SINES
Managing General Partner
By:
CHERYL L. FORTE
Managing General Partner
<PAGE>119
EXHIBIT D
PARTNERSHIP PLEDGE AND SECURITY AGREEMENT
THIS PARTNERSHIP PLEDGE AND SECURITY AGREEMENT ("Partnership Pledge
Agreement") is made and entered into as of January 15, 1996, by @Y
D. SINES and CHERYL L. FORTE ("Grantors"), in favor of Richard S.
HUSON ("Huson").
RECITALS
A. Huson has agreed to provide a loan to SHARPS INTERNATIONAL
LIMITED PARTNERSHIP, a Nevada limited partnership ("Borrower") in
the principal amount of $300,000.00 (the "Loan") as set forth in
the Funding Agreement dated as of January 15, 1996 (the "Funding
Agreement") among Grantors, Borrower and Huson. Grantors own
partnership units in Borrower and have agreed to pledge some of
their limited partnership units to secure the repayment of the
Loan. Funding of the Loan is conditioned, among other things, upon
Huson's receipt of this Partnership Pledge Agreement.
B. Each Grantor owns the partnership units and percentage
interest (exclusive of options) designated next to such Grantor's
name as follows:
General Limited %
Partnership Partnership Ownership
Name Units Units Interest
Randy D. Sines 4 139 29.36
Cheryl L. Forte 4 139 29.36
("Partnership Units"). Grantors deem it in Grantors' best interest
to enter into this Partnership Pledge Agreement.
NOW, THEREFORE, the parties agree as follows:
1. Grant of Security Interest. To secure the prompt and complete
payment and performance of all of the Secured Obligations (as
defined in Section 2 below), Grantors hereby pledge, assign and
grant to Huson a continuing first priority lien upon and security
interest in:
(a) all of their right, title and interest in 55.5 limited
Partnership Units each, or a combined pledge of 111 limited
Partnership Units (the "Pledged Partnership Units), but none of the
obligations with respect thereto; and
(b) all Proceeds of the foregoing.
Subparagraphs (a) and (b) above are hereinafter collectively
called the "Pledged Collateral."
The Pledged Collateral includes, to the extent of the Pledged
Partnership Units, (1) any and all interest of each Grantor based
upon or arising out of the partnership agreements associated with
the specified partnership; (2) any and all right of each Grantor to
receive a share of the profits or other compensation of such
partnership and the right to a return of each Grantor's
contribution to the partnership; and (3) any and all interest each
Grantor has in the property of such partnership.
As used herein, the term "Proceeds" means all cash and non-cash
proceeds of the Pledged Partnership Units, including all revenues,
issues and profits arising from the sale or other disposition of
the Pledged Partnership Units, and all cash or non-cash proceeds of
any proceeds.
2. Secured Obligations. As used in this Partnership Pledge
Agreement, the teem "Secured Obligations" includes (a) each
agreement and liability of Grantors herein and in the Funding
Agreement and; (b) Borrower's indebtedness to Huson evidenced by a
Promissory Note dated January 15, 1996 in the amount of the Loan
(the "Note"). Grantors agree that this is a continuing security
interest and shall remain in full force and effect unless
terminated by a written agreement executed by Huson, or so long as
there may be Secured Obligations from time to time outstanding
pursuant to the Note or the Funding Agreement.
3. Representations, Warranties and Covenants. Grantors jointly
and severally represent, warrant and covenant to Huson that:
<PAGE>120
(a) Attached hereto as Exhibit A is a true, correct and complete
copy of the partnership agreement establishing Borrower, including
all modifications and supplements thereto and restatements thereof,
current as of the date of this Partnership Pledge Agreement (the
"Partnership Agreement");
(b) To the best of Grantors' knowledge the Partnership Agreement
is valid, binding and in full force and effect. Except as
otherwise permitted or contemplated in the Funding Agreement,
Grantors agree, so long as any portion of the Loan shall remain
outstanding not to terminate, rescind, cancel or modify in any
material respect the Partnership Agreement without Huson's
permission except as necessary as Managing General Partners to
effectuate the transactions contemplated by this Pledge Agreement
and the Funding Agreement;
(c) This Partnership Pledge Agreement has been duly authorized,
executed and delivered by Grantors and, to the best of Grantors'
knowledge, constitutes a legal, valid and binding obligation of
Grantors enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy, insolvency
or other similar laws affecting the rights of creditors generally
or by the application of general principles of equity;
(d) Except as contained in the Partnership Agreement, no
consent, approval, authorization or other order of any person and,
to the best of Grantors' knowledge, no consent, authorization,
approval or other action by, and no notice to or filing with, any
governmental authority or regulatory body is required to be made or
obtained by Grantors either (i) for the pledge of the Pledged
Collateral pursuant to this Partnership Pledge Agreement or for the
execution, delivery or performance of this Partnership Pledge
Agreement by Grantors, or (ii) for the exercise by Huson of the
voting or other rights provided for in this Partnership Pledge
Agreement or the remedies in respect of the Pledged Collateral
pursuant to this Partnership Pledge Agreement, except as may be
required in connection with any disposition of the Pledged
Collateral by laws relating to the offering and sale of securities
generally;
(e) Except for the security interest granted to Huson pursuant to
this Partnership Pledge Agreement, Grantors are, on the date
hereof, the sole record and beneficial owners of the Pledged
Collateral, having good title thereto, free and clear of any lien,
pledge, mortgage, claim, charge, security interest or other
encumbrance ("Liens");
(f) Grantors have the right and requisite authority to pledge,
assign, transfer and deliver the Pledged Collateral to Huson as
provided herein except that the acquisition of the title to the
Pledged Partnership Units by Huson could be contrary to certain
provisions of the Partnership Agreement, such as provisions
restricting the transfer of more than 50% of all Units within the
Partnership during any 12-month period; and
(g) This Partnership Pledge Agreement will create a valid,
perfected and enforceable first priority lien on and security
interest in the Pledged Collateral and the Proceeds thereof
securing the Secured Obligations.
The representations and warranties set forth in this Section 3
shall survive the execution and delivery of this Partnership Pledge
Agreement.
4. Covenants. Grantors covenant and agree with Huson that from
and after the date of this Partnership Pledge Agreement and until
the Termination Date (as defined in Section 10):
(a) Further Assurances and Documentation. Grantors will
reasonably cooperate with Huson and, at any time and from time to
time, upon the written request of Huson, and will promptly and duly
execute and deliver any and all such further instruments and
documents and take such further action as Huson may reasonably deem
desirable to obtain the full benefits of this Partnership Pledge
Agreement, of the rights and powers herein granted and of the liens
granted to Huson hereunder.
(b) Limitation on Disposition of Pledged Collateral. Grantors may
not sell, transfer, lease, license or other-wise dispose of any of
the Pledged Collateral unless
(1) such sale or other disposition is to an independent third
party for cash and for fair value, and (ii) the net cash proceeds
to Grantors are simultaneously delivered to Huson for application
to the repayment of the Secured Obligations.
(c) Notices. Grantors will advise Huson promptly, in reasonable
detail, (i) of any Lien asserted or claim made against any of the
Pledged Collateral or the assets or properties of Borrower, (ii) of
any material change in the composition of the assets and properties
of Borrower, and (iii) of the occurrence of any other event that
<PAGE>121
would have a material adverse effect on the aggregate value,
enforceability-, priority or collectibility of the assets and
properties of Borrower or on the security interests created
hereunder.
(d) Right of Inspection. Huson shall at all times have full and
free access during normal business hours to all the books,
correspondence and records of Borrower, and Huson or its
representatives may examine the same, take extracts therefrom and
make photocopies thereof, and Grantors agree to render to Huson,
such clerical and other assistance as may be reasonably requested
with regard thereto. Huson agrees to maintain the confidentiality
of any information of a proprietary nature made available to it.
5. Huson's Appointment as Attorney-in-Fact.
(a) Effective in the event a Default shall have occurred and be
continuing, Grantors hereby irrevocably constitute and appoint
Huson and any officer or agent thereof, with full power of
substitution, as their true and lawful attorney-in-fact with full,
irrevocable power and authority in the place and stead of Grantors
and in the name of Grantors or in their own names, from time to
time in Huson's reasonable discretion after Default shall have
occurred and be continuing, for the purpose of carrying out the
terms of this Partnership Pledge Agreement. Without limiting the
generality of foregoing, if any Default shall have occurred and be
continuing, Huson shall have the right and power to receive,
endorse and collect all checks made payable to the order of
Grantors representing any distribution in respect of the Pledged
Collateral or any part thereof and to give full discharge for the
same.
Grantors hereby ratify all that said attorney-in-fact shall
lawfully do or cause to be done by virtue hereof. This power of
attorney is a power coupled with an interest and shall be
irrevocable until the Secured Obligations have been fully and
indefeasibly paid.
(b) The powers conferred on Huson in this Partnership Pledge
Agreement are solely to protect its interest in the Pledged
Collateral and shall not impose any duty upon Huson to exercise any
such powers. Huson shall be accountable only for amounts that he
actually receives as a result of the exercise of such powers and
neither Huson nor any of his employees or agents shall be
responsible to Grantors for any act or failure to act, except for
Huson's own negligence or willful misconduct and except for the
negligence or willful misconduct of Huson's employees and agents.
(c) In the event a Default shall have occurred and be continuing,
Grantors also authorize Huson, at any time and from time to time,
to execute, in connection with the sale of the Pledged Collateral
provided for in Section 7 hereof, any endorsements, assignments or
other instruments of conveyance or transfer with respect to the
Pledged Collateral.
6. Certain Rights of Grantors and Huson.
(a) So long as a Default shall not have occurred and be
continuing, Grantors shall be entitled, to the extent not
inconsistent with this Partnership Pledge Agreement, (i) to
exercise the voting power with respect to the Pledged Collateral,
and for that purpose Huson shall execute or cause to be executed
from time to time, at the expense of Grantors, such proxies or
other instruments in favor of Grantors, or their nominees, in such
form and for such purposes shall be reasonably required by Grantors
and as shall be specified in a written request therefor, to enable
Grantors to exercise such voting power with respect to the Pledged
Collateral, and (ii) to receive and retain for its own account any
and all cash dividends at any time from time to time declared or
paid upon any of the Pledged Collateral.
(b) If a Default shall have occurred and be continuing, (i) Huson
shall have the right to receive any and all cash dividends or cash
dividends or other Proceeds in respect of the Pledged Collateral
and, upon notice to Grantors, to apply such payments.
Proceeds to the payment of the Secured Obligations, and (ii) Huson
or its nominee may exercise all voting, corporate and other rights
pertaining to the Pledged Collateral at any meeting of the
shareholders of Borrower or otherwise.
7. Default and Remedies.
(a) Default. Grantors agree that time is of the essence and the
occurrence of any of the following shall constitute a default
("Default"):
I) If Borrower fails to pay (a) any installment of interest on
the Note when due, or (b) any payment of Note principal precisely
when due.
<PAGE>122
ii) If any representation or warranty contained in this
Partnership Pledge Agreement or in the Funding Agreement, or made
in writing in connection with the transactions contemplated by this
Partnership Pledge Agreement or in the Purchase Agreement shall be
knowingly false in any material respect on the date made, or
iii) If Grantors fail to perform any covenant or observe any
condition contained in this Partnership Pledge Agreement or the
Purchase Agreement;
or
iv) If Borrower admits in writing its inability to pay its debts
generally as they come due, or at any time is generally not paying
its debts as such debts become due, or has filed any petition or
action for relief under any bankruptcy, reorganization, insolvency
or moratorium law, or any other law or laws for the relief of, or
relating to, debtors; or
v) If an involuntary petition has been filed under any bankruptcy
or insolvency statute against Grantors or Borrower, or a custodian,
receiver or trustee has been appointed to take possession of other
assets of Grantors or Borrower, unless such petition or appointment
is or has been set aside or withdrawn or ceases or has ceased to be
in effect within 60 days from the date of said filing or
appointment; or
vi) If there is filed in good faith by or against Borrower a
petition seeking the liquidation or dissolution of Borrower or the
commencement of any other procedure to liquidate or dissolve
Borrower, or there occurs any event, condition or circumstance
which causes the liquidation or dissolution of Borrower; or
vii) If Grantors or Borrower conceal, remove, or permit to be
concealed or removed, any part of their property, with intent to
hinder, delay or defraud their creditors or any of them, or make or
suffer a transfer of any of their property which may be fraudulent
under any bankruptcy, fraudulent conveyance or similar law; or
makes any transfer of their property to or for the benefit of a
creditor at a time when other creditors similarly situated have not
been paid; or suffer or pen-nit while insolvent, any creditor to
obtain a lien upon any of their property through legal proceedings
which is not vacated within 60 days from the date thereof; or
viii) If Grantors or Borrower make a general assignment of the
assets of Grantors or Borrower for the benefit of Grantors' or
Borrower's creditors; or
ix) If there is any sequestration or attachment of, or any levy or
execution upon any Pledged Collateral provided by Grantors under
this Partnership Pledge Agreement or the Purchase Agreement; any
Loan proceeds; or a substantial portion of the other assets of
Grantors, which is not released, expunged or dismissed prior to the
earlier of ten (10) days after such sequestration. attachment or
execution, or the sale of such assets; or
x) If any governmental authority has taken or instituted legal
action against Borrower which is reasonably likely to materially
adversely affect Borrower's financial condition, operations or
ability to repay the Loan, and Borrower has not remedied or
provided for such situation to Huson's reasonable satisfaction
within 30 days of Huson's written notice to Borrower of Huson's
opinion; or
(b) Acceleration. Upon the occurrence of a Default and subject to
subsection (c) and any other right expressly granted by Huson in
writing to cure any Default to the extent applicable, (I) the
entire principal balance of the Loan, together with all accrued.
unpaid interest and other amounts owing in connection with the Loan
shall, at the option of Huson, become immediately due and payable,
and (ii) Huson shall be immediately entitled to enforce the
collection of all outstanding secured obligations under the Note
and Purchase Agreement and to pursue any other remedy or remedies
herein or in the Note or Purchase Agreement.
(c) Notice and Cure Periods. Except as otherwise stated below in
subsection (d), upon the occurrence of a Default, Huson shall not
accelerate the Loan or pursue its other rights and remedies unless
it first gives Grantors written notice of such Default in the
manner prescribed for notices in this Partnership Pledge Agreement
and such Default is not fully cured within the following periods:
I) three (3) days after such notice is given in the event of any
failure to make a monetary payment;
ii) fifteen (15) days after such notice is given in the event of
nonmonetary Defaults not subject to other provisions of this
Section, provided (a) within five (5) days after such notice is
given, Grantors commence their cure and submit to Huson in writing
their plan to cure; and (b) the cure is continuously pursued by
Grantors with due diligence. If such Default is not reasonably
<PAGE>123
capable of being cured within fifteen (15) days, Grantors shall
have such additional time as is reasonably necessary to complete
the cure, but in no event more than thirty (30) days after the
notice of Default is given; or
iii) sixty (60) days after the filing of any involuntary petition
in bankruptcy against or for the appointment of a receiver for
Grantors (except for petitions filed by Huson), with the dismissal
of such petitions by the court within such period being deemed to
cure such Default.
(d) Exception to Notice and Cure Periods, Notwithstanding the
above provisions, the notice and cure periods provided for in this
Section shall not apply in the following circumstances
I) any Default of the type described in subsection (a)(ii), if but
only if, as a result of such Default, the value of all or a
substantial portion of the Pledged Collateral, or Huson's security
interest in that Pledged Collateral, is materially impaired; or
ii) if Grantors transfer or encumber all or any portion of their
interest in the Pledged Collateral without obtaining any required
consent of Huson or as expressly permitted by this Partnership
Pledge Agreement; or
iii) in any circumstance when a delay in effecting a cure is, in
the reasonable judgment of Huson, likely to result in any Pledged
Collateral being damaged, becoming uninsured or rendered
unavailable to Huson or the value thereof being materially and
adversely affected, or Huson's ability to recover its outstanding
balance from Borrower being materially affected; or
iv) more than twice or
v)any Default of the same type or nature which occurs
any filing of a voluntary petition in bankruptcy by
Grantors, or for the appointment of a receiver or trustee of all or
a portion of Grantors' property; or
vi) any assignment for the benefit of creditors, fraudulent
conveyance, or other plan or action instituted by Grantors in an
attempt to avoid the satisfaction of any lawful indebtedness.
Nothing in this Section is to be construed as extending the term of
the Loan or the date upon which a Default occurs, and no decision
to forego any remedy for any given Default shall be deemed a waiver
on the part of Huson of any right relating to any other Default.
No failure to give any notice of any Default shall constitute a
waiver of such Default or any remedy which may be available in
connection therewith. The cure periods set forth in this Section
shall be narrowly construed, and shall not impair the exercise of
any remedy not referred to above immediately upon Default,
including, without limitation, the seeking of any mandatory or
prohibitive injunction or restraining order.
(e) Retention of Collateral. If any Default has occurred and is
continuing then Huson, after any applicable cure period provided
for in subsection (c) above has lapsed. but other-wise immediately,
shall retain the Pledged Collateral in accordance with ORS 79 '
5050(2) (the "Retention Remedy") to the extent Grantors or any
third par-ties do not object to his exercise of the Retention
Remedy. Grantors hereby waive, to the fullest extent permitted by
applicable law, their rights to object to Huson's exercise of the
Retention Remedy.
(f) General Remedies Provision. If, notwithstanding Section
7(e), Huson is required to foreclose or exercise remedies other
than the Retention Remedy, then Huson may proceed to enforce his
rights under Sections 7(g)-(I), 8 and 9 of this Partnership Pledge
Agreement and the Note and Funding Agreement by exercising such
other remedies as are available under applicable law, either by
nonjudicial self-help, or by suit in equity or action at law,
including specific performance of any covenant contained in this
Partnership Pledge Agreement. Among other such remedies, or prior
to or in conjunction with his exercise of the Retention Remedy, if
Grantors fail to pay any sum that they are required to pay to third
party, fail to perform the other covenants and agreements contained
in this Partnership Pledge Agreement or the Note and Purchase
Agreement, or if any action or proceeding is commenced which
affects the Pledged Collateral or title thereto or the interest of
Huson therein, including, but not limited to, eminent domain,
insolvency, or arrangements or proceedings involving a bankrupt or
decedent, then Huson, at Huson's option may pay such sums, per-form
such acts, make such appearances, and take such action as is
reasonably necessary to protect Huson's interest, including, but
not limited to, disbursement of attorneys' fees.
<PAGE>124
(g) Sale of Collateral-, Exercise of Voting- Rights, etc. If a
Default shall have occurred and be continuing, in addition to the
rights and remedies provided in Section 7(f), if applicable, Huson
may, at its option, immediately do any or all of the following,
except as otherwise provided in the Partnership Agreement, and
subject to the provisions of Section 20 below:
(I) Cause the Pledged Partnership Units to be registered in its
name or in the name of its nominee;
(ii) Exercise all voting powers pertaining to such securities and
otherwise act with respect thereto as though Huson were the
outright owner thereof (Grantors hereby irrevocably constituting
and appointing Huson their proxy and attorney-in-fact with full
power of substitution so to do);
(iii) Receive all distributions of any kind whatsoever on all or
any of such securities;
(iv) Exercise any and all rights of collection, conversion or
exchange, and any and all other rights. privileges, options or
powers of Grantors pertaining or relating to such securities
(Grantors hereby irrevocably constituting and appointing Huson
their proxy and attorney-in-fact with fall power of substitution so
to do),
(v) Sell, assign and deliver the whole, or from time to time, any
part of such securities at any broker's board or at any private
sale or at public auction provided such sale is conducted in a
commercially reasonable manner; and
(vi) Exercise any other remedy specifically granted under this
Partnership Pledge Agreement or now or hereafter existing in
equity, at law, by virtue of statute or otherwise.
(h) For the purposes of Section 7(g), an agreement to sell all or
any part of the Pledged Collateral shall be treated as a sale
thereof and Huson shall be free to carry out such sale pursuant to
such agreement, and except as otherwise provided herein including
in Section 20 below, Grantors shall not be entitled to the return
of any of the same subject thereto, notwithstanding that after
Huson shall have entered into such an agreement, all Defaults may
have been remedied or all obligations under the Note may have been
paid and performed in full.
(I) At any sale made pursuant to this Section 7(g), Huson may bid
for and purchase (free from any right or equity of redemption on
the part of Grantors, and except as other-wise provided in Section
20 below), any part of or all securities included in the Pledged
Collateral that are offered for sale and may make payment on
account thereof by using any claim then due and payable to Huson or
Grantors as a credit against the purchase price, and Huson may,
upon compliance with the terms of sale, hold, return and dispose of
such securities without further accountability therefor except as
otherwise provided in the Partnership Agreement and this Agreement.
Huson shall not have any duty to exercise any of the rights,
privileges, options or powers or to sell or otherwise realize upon
any of such securities, as herein authorized, and Huson shall not
be responsible for any failure to do so or delay in so doing.
0) Except as otherwise provided herein, including in Section 20
below, any sale of, or the grant of options to purchase, or any
other realization upon, all or any portion of such securities,
under Section 7(f) shall operate to divest all right, title,
interest, claim and demand, either at law or in equity, of Grantor
in and to such securities so sold, optioned or realized upon, or
any part thereof, from, through and under Grantors.
(k) Grantors recognize that Huson may be unable to effect a
public sale of all or a part of the Pledged Collateral by reason of
certain prohibitions contained in the Securities Act of 1933 as
amended (the "Act"), or that Huson may be able to do so only after
delay which might adversely affect the value that might be realized
upon the sale of the Pledged Collateral. Accordingly, except as
otherwise provided in the Partnership Agreement, Grantors agree
that Huson may, without the necessity of attempting to cause any
registration of the Pledged Collateral to be effected under the
Act, sell the Pledged Collateral or any part thereof in one or more
private sales to a restricted group of purchasers who may be
required to agree, among other things, that they are acquiring the
Pledged Collateral for their own account for investment and not
with a view to the distribution or resale thereof. Grantors agree
that any such private sale may be at prices or on terms less
favorable to the owner of the Pledged Collateral than would be the
case if they were sold at public sale, but that any such private
sale shall otherwise be conducted in a commercially reasonable
manner.
(1) If Section 7(f)-(k) are applicable, then each and every
right, remedy and power granted to Huson thereunder shall be
cumulative and in addition to any other right, remedy or power
specifically granted
<PAGE>125
herein or in any other related document, or now or hereafter
existing in equity, at law, by virtue of statute or otherwise and
may be exercised by Huson, from time to time, concurrently or
independently and as often and in such order as Huson may deem
expedient.
8. Non-Interference with Remedies; Specific Performance.
(a) Grantors agree that they will not unreasonably interfere with
any right, power and remedy of Huson provided for in this
Partnership Pledge Agreement or now or hereafter existing at law or
in equity or by statute or otherwise, or the exercise by Huson of
any one or more of such rights, powers or remedies. The preceding
sentence shall not constitute a waiver of Grantors' rights herein,
including under Section 20 below.
(b) Grantors agree that a breach of any of the agreements or
covenants contained in this Partnership Pledge Agreement may cause
irreparable injury to Huson, that Huson has no adequate remedy at
law in respect of such breach and, as a consequence. agree that
each and every agreement and covenant contained in this Partnership
Pledge Agreement shall be specifically enforceable against
Grantors.
9. Application of Proceeds. If the Retention Remedy cannot be
exercised
and Sections 7(g)-(i) are applicable, Grantors agree that all cash
proceeds received by Huson in respect of any sale of, liquidation
of, or other realization upon all or any part of the Pledged
Collateral shall be applied by Huson as follows:
(a) First, to the payment of all reasonable costs and expenses
(including the reasonable fees, disbursements and other charges of
attorneys) paid or incurred by Huson in enforcing Huson's security
interest in the Pledged Collateral, whether by sale or otherwise,
or otherwise enforcing Huson's rights hereunder;
(b) Next, to the payment in full of the Secured Obligations then
due and owing-, and (c) Finally, after payment in full of all
Secured Obligations then due and owing, to the payment to Grantors,
or their successors or assigns, or to whomsoever may be lawfully
entitled to receive the same, or as a court of competent
jurisdiction may direct. of any surplus then remaining.
10. Termination of Agreement. Upon payment and performance in
full of all Secured Obligations (the "Termination Date"), this
Partnership Pledge Agreement shall terminate and Huson shall
promptly release all of his right, title and interest in and to the
Pledged Collateral.
11. Unconditional Obligations. The obligations of Grantors under
this Partnership Pledge Agreement shall be absolute and
unconditional, and shall remain in full force and effect without
regard to, and shall not be released or discharged or in any way
affected by:
(a) Any exercise or non-exercise of any right, remedy or
privilege under or in respect of this Partnership Pledge Agreement
or the Note or Funding Agreement, or the granting of any
postponements or extensions for time of payment or other
indulgences to Grantors, Borrower, or any other person, or the
settlement or adjustment of any claim or the release or discharge
or substitution of Grantors or any person which may be or become
primarily or secondarily liable with respect to the Note; and
(b) Any assumption by any person of the obligations of Borrower
under the Note or Funding Agreement, or any assignment by Huson
referred to in Section 12(b).
12. Successors, Assignments. This Partnership Pledge Agreement
shall be binding upon and inure to the benefit of the parties and
their respective heirs, executors, administrators, legal
representatives, successors and assigns.
13. Amendments. Except as otherwise provided herein, no
amendment, modification, termination or waiver of any provision of
this Partnership Pledge Agreement, nor consent to any departure
therefrom, shall in any event be effective unless the same shall be
in writing and signed by the parties. Any such waiver or consent
shall be effective only in the specific instance and for the
specific purpose for which it is given.
14. Perfection of Security Interest. Upon execution of this
Partnership Pledge Agreement Grantors agree to execute and deliver
to Huson UCC financing statements describing the Pledged
Partnership Units and all certificates, if any, evidencing the
Pledged Partnership Units. Grantors further agree that in the
future they will, at any time upon the reasonable request of Huson,
execute and
<PAGE>126
deliver such further documents within ten (10) days and do such
further acts and things as Huson may reasonably request in order to
fully effect the purpose of this Partnership Pledge Agreement.
15. Notices. All notices, requests, demands, directions and
other communications required under this Note shall be in writing
(including telegraphic communication) and mailed by United States
mail or facsimile or delivered by overnight courier or by hand to
the applicable party at the addresses indicated below:
if to Grantors:
Randy D. Sines
4056 South Madelia
Spokane, Washington 99203
CHERYL L. FORTE
315 Francisco Street
Henderson, Nevada 89014
if to Huson:
RICHARD S. HUSON
121 SW Morrison, Suite 1400
Portland, OR 97204
or, as to any party, at such other address as shall be designated
by such party in a written notice to each other party complying as
to delivery with the terms of this Section 16. All such notices,
requests, demands, directions and other communications so mailed or
telecopied or delivered shall be effective when received if sent by
mail, when delivered if delivered by courier or by hand, or when
transmitted if sent by facsimile.
16. Severability of Provisions. Any provision of this Partnership
Pledge Agreement which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be ineffective to the
extent of such prohibition or unenforceability without invalidating
the remaining provisions hereof or thereof or affecting the
validity or enforceability of such provision in any other
jurisdiction.
17. Attorneys' Fees; Costs. In the event litigation is initiated
to enforce any remedy contained in this Partnership Pledge
Agreement, then the prevailing party in that litigation shall be
entitled to recover its reasonable costs, charges, expenses and
attorneys' fees incurred in that litigation from the nonprevailing
party.
Litigation shall include any action at law or in equity, the appeal
of any trial court decision, any arbitration proceeding, any action
contesting or seeking to restrain, enjoin, stay or postpone the
exercise of any remedy and any bankruptcy, probate or other
proceeding involving Grantor including but not limited to the
following actions and proceedings in bankruptcy: (a) filing an
involuntary bankruptcy petition; (b) seeking dismissal, abstention
or conversion of a bankruptcy proceeding; (c) challenging venue of
a bankruptcy proceeding; (d) filing and defending a proof of claim;
(e) opposing or conditioning the debtor's right to operate its
business; (f) serving on a creditors' committee; (g) seeking
appointment of a trustee, examiner or disbursing agent; (h)
proposing, challenging or seeking modification of a plan of
reorganization; (i) seeking relief from stay and/or adequate
protection; 0) opposing the debtor's use of cash collateral or
obtaining credit; and (k) opposing discharge.
For the purpose of this Partnership Pledge Agreement, the terms
"attorney fees" and "costs" shall include the reasonable fees and
expenses of counsel, which may include reporting (for depositions),
printing, copying, duplicating and other expenses, air freight and
facsimile transmission charges, and fees billed for law clerks,
paralegals, production assistants, expert witnesses and others not
admitted to the bar but performing services under the supervision
of any attorney. Such costs, expenses and fees shall be due and
payable upon demand and shall bear interest from the date of such
demand to and including the date of collection at the highest rate
of interest stated in the Loan Agreement (including any Default
Rate).
18. Governing Law. This Partnership Pledge Agreement shall be
governed by. and construed in accordance with, the laws of the
State of Oregon (excluding the laws applicable to conflicts or
choice of law).
19. Legal Representation. Each party to this Agreement has been
advised to obtain independent legal counsel prior to executing this
Agreement and has had a full and fair opportunity to do so and
either obtained such representation or voluntarily declined to do
<PAGE>127
so. Each party acknowledges that Douglas J. Brajcich, P.C. is the
attorney only for Randy D. Sines individually and that Ater Wynne
Hewitt Dodson & Skerritt are the attorneys only for Richard S.
Huson.
20. Option to Repurchase Partnership Units. Notwithstanding any
other provision of this Partnership Pledge Agreement to the
contrary, if any person or entity should at any time acquire
ownership of any of the Pledged Partnership Units, then Grantors
shall have an option to purchase up to 50% of the Pledged
Partnership Units acquired by Huson ("Eligible Re-Purchase Units")
on the following terms and conditions (the "repurchase Option"):
(a) The Re-Purchase Option cannot be exercised until the second
anniversary of the date on which Huson becomes the owner of any or
all of the Pledged Partnership Units and can only be exercised
until the fifth anniversary of such date.
(b) The purchase price payable by Grantors shall be $5,357 per
Eligible Re-Purchase Unit, for a maximum purchase price of
approximately $300,000 if Huson acquires ownership of all of the
Pledged Partnership Units and Grantors elect to repurchase 50% of
such Units.
(c) To exercise the Re-Purchase Option, Grantors shall give
written notice to Huson of their election to exercise the Re-
Purchase Option. The notice shall specify the number of Eligible
Re-Purchase Units which Grantors elect to purchase. The sale and
purchase of the Eligible Re-Purchase Units which Grantors elect to
purchase shall be closed within 30 days after Grantors' notice of
exercise. On the closing date for such purchase. Grantors shall
deliver the entire purchase price for the Eligible Re-Purchase
Units to Huson in cash.
21. Assignment of Loan and Note. Notwithstanding any other
provisions of this Agreement, pursuant to Section 2 of the Funding
Agreement, if Huson should at any time acquire any of the Pledged
Partnership Units then Huson shall immediately assign and endorse
the Loan and Note to Grantors, who shall have unconditional right,
title and interest in the Loan and Note in the principal amount of
$300,000, without recourse to Huson. The foregoing shall be in
addition to any rights of subrogation which Grantors may have under
applicable law.
22. Substitution of Shares. Pursuant to Section 5 of the Funding
Agreement, the parties intend that, as part of the Reorganization,
shares of Casinovations, Inc. common stock shall be substituted for
the Pledged Partnership Units, at which time this Partnership
Pledge Agreement shall be appropriately amended and restated as a
Stock Pledge Agreement.
23. Securities Laws. The Partnership Units pledged herein have
been issued pursuant to the Partnership Agreement and have not been
registered with the Securities and Exchange Commission under the
Securities Act of 1933, as amended, or under the securities acts of
Washington, Oregon, Nevada, or under any other state securities
laws. The sale or other disposition of the Units is restricted, as
stated in the Partnership Agreement. By acquiring any Unit
represented by the Partnership Agreement, the acquiring party
represents that such party has acquired the Units for investment
and that such party will not sell or otherwise dispose of the Units
without registration or other compliance with the aforesaid acts
and the rules and regulations thereunder. Huson acknowledges he
has read the Partnership Agreement and agrees to remain bound by
its terms and conditions.
24. Counterparts. This Agreement may be executed in two or more
fully
or partially executed counterparts, each of which will be deemed an
original binding the signer thereof against the other signing
parties, but all counterparts together will constitute one and the
same instrument.
IN WITNESS WHEREOF, Grantors have caused this Partnership Pledge
Agreement to be executed as of the date first above written.
Grantors:
RANDY D. SINES
CHERYL L. FORTE
ACKNOWLEDGED By HUSON:
RICHARD S. HUSON
<PAGE>128
EXHIBIT E-1
CONSENT OF SPOUSE
I, IRENE C. SINES, spouse of RANDY D. SINES, acknowledge that I
have read the Partnership Pledge and Security Agreement and the
Funding Agreement, each dated as of January 15, 1996, (the "Pledge
Agreement" and the "Funding Agreement") and that I know their
contents. I am aware that by the provisions of the Pledge
Agreement, my spouse has pledged a portion of his partnership
interests in SHARPS INTERNATIONAL LIMITED PARTNERSHIP, a Nevada
limited partnership (the "Partnership"), to Richard S. Huson to
guarantee repayment of a loan by Richard S. Huson to the
Partnership. Under the terms of the Funding Agreement, Richard S.
Huson is purchasing certain Partnership Units owned by my spouse
and has the option to purchase certain additional Partnership Units
owned by my spouse.
I hereby consent to all of the transactions described in the
Funding Agreement and the Pledge Agreement and agree that my
interest, if any, in the Partnership Units subject to the Pledge
Agreement and Funding Agreement, shall be irrevocably bound by such
Agreements and further understand and agree that any community
property interest I may have in the Partnership Units shall be
similarly bound by such Agreements. I further consent to the
reorganization of the Partnership as described in the Funding
Agreement and agree that any interest I may hereafter acquire in
shares of stock of a company to be known as Casinovations, Inc.
shall be subject to the terms of the Funding Agreement and the
Pledge Agreement.
I am aware that the legal, financial and related matters contained
in such Agreements are complex and that I am free to seek
independent professional guidance or counsel with respect to this
Consent. I have either sought such guidance or counsel or
determined after reviewing such Agreements carefully that I will
waive such right.
DATED the _ day of February, 1996.
IRENE C. SINES
SPOUSE OF RANDY D. SINES
<PAGE>129
EXHIBIT E-2
CONSENT OF SPOUSE
I, STEVEN L. FORTE, spouse of CHERYL L. FORTE, acknowledge that I
have read the Partnership Pledge and Security Agreement and the
Funding Agreement, each dated as of January 15, 1996, (the "Pledge
Agreement" and the "Funding Agreement") and that I know their
contents. I am aware that by the provisions of the Pledge
Agreement, my spouse has pledged a portion of her partnership
interests in SHARPS INTERNATIONAL Limited PARTNERSHIP, a Nevada
limited partnership (the "Partnership"), to Richard S. Huson to
guarantee repayment of a loan by Richard S. Huson to the
Partnership. Under the terms of the Funding Agreement, Richard S.
Huson is purchasing certain Partnership Units owned by my spouse
and has the option to purchase certain additional Partnership Units
owned by my spouse.
I hereby consent to all of the transactions described in the
Funding Agreement and the Pledge Agreement and agree that my
interest, if any, in the Partnership Units subject to the Pledge
Agreement and Funding Agreement, shall be irrevocably bound by such
Agreements and further understand and agree that any community
property interest I may have in the Partnership Units shall be
similarly bound by such Agreements. I further consent to the
reorganization of the Partnership as described in the Funding
Agreement and agree that any interest I may hereafter acquire in
shares of stock of a company to be known as Casinovations, Inc.
shall be subject to the terms of the Funding Agreement and the
Pledge Agreement.
I am aware that the legal, financial and related matters contained
in such Agreements are complex and that I am free to seek
independent professional guidance or counsel with respect to this
Consent. I have either sought such guidance or counsel or
determined after reviewing such Agreements carefully that I will
waive such right.
DATED the day of February, 1996.
STEVEN L. FORTE
SPOUSE OF CHERYL L. FORTE
<PAGE>130
EXHIBIT F
PROMISSORY NOTE
$202,500.00
Portland, Oregon
1996
- -------------
1. Promise to Pay. FOR VALUE RECEIVED, the undersigned, RICHARD
S. HUSON ("Maker"), does hereby promise to pay to the order of
RANDY D. SINES and CHERYL L. FORTE ("Holders"), at 4056 South
Madelia, Spokane, Washington 99203, or at such other place as
Holders may from time to time designate in writing, the principal
sum of Two HUNDRED Two THOUSAND FIVE HUNDRED AND No/100 DOLLARS
($202,500-00), together with all interest thereon and other sums
herein referred to.
2. Interest and Payment Terms. The unpaid principal hereof shall
bear interest from the date of this Note until default at the rate
of nine and one-half percent (9.5%) per annum.
This Note shall be paid in four (4) equal quarterly installments of
principal, together with all accrued interest on the date of each
such payment. The first quarterly payment shall be due
, 19-, and subsequent quarterly payments shall be due on the same
day every three months thereafter until - 19-, when the
remaining principal balance and all accrued unpaid interest shall
be due and payable.
3 Calculation of Interest and Application of Payments. Interest
shall be calculated on a 365 or 366-day year, as applicable, based
on actual days elapsed. Each installment hereunder shall be first
applied to the payment of costs and expenses for which Maker is
liable hereunder, next to the payment of accrued interest, and
lastly to the reduction of principal. This Note shall continue to
bear interest at the Note rate (or at the Default Rate. as
hereinafter defined, if and so long as any default exists
hereunder) until and including the date of collection, and all
payments hereunder shall be calculated by and shall be payable in
the lawful money of the United States which shall be legal tender
for public and private debts at the time of payment.
4. Prepayment. Maker shall have the right at any time to prepay
the whole or any part of this Note without prepayment premium or
fee.
5. Default Rate. If and so long as any default exists under this
Note, the interest rate on this Note, and on any judgment obtained
for the collection of this Note, shall be increased from the date
the default is declared to a rate (the "Default Rate") equal to
five percent (5 %) per annum in excess of the Note rate. Maker
acknowledges that the imposition of the Default Rate will result in
the then effective interest rate in this Note being increased from
9.5 % per annum to 14.5 % per annum.
6. Costs of Collection. Maker promises to pay all costs,
expenses and attorneys' fees incurred by Holders in the exercise of
any remedy (with or without litigation), in any proceeding for the
collection of the debt, or the realization upon any security
securing this Note, in protecting or sustaining the lien or
priority of said security, or in any litigation or controversy
arising from or connected with this Note, including any bankruptcy,
receivership, injunction or other proceeding, or any appeal from or
petition for review of any of the foregoing, in which Holders
prevail. If a judgment is obtained thereon which includes an award
of attorneys' fees, such attorneys' fees, costs and expenses shall
be in such amount as the court shall deem reasonable. All
collection costs, expenses and attorneys' fees are payable on
demand, shall bear interest at the Default Rate from the date of
demand to and including the date of payment to Holders.
7. Defaults; Acceleration Time is of the essence of this Note.
The occurrence of any of the following shall, without notice,
demand or opportunity to cure, constitute an event of default under
this Note:
(a) Failure of Maker to make any payment required to be paid by
Maker under this Note in strict accordance with the terms thereof;
(b) Failure of Maker to perform any other covenant, agreement or
other obligation contained in this Note;
(c) Any warranty, representation, or statement made or furnished
to Holders by or on behalf of Maker proving to be or having been
false in any material respect when made or furnished;
(d) If any assignment by Maker for the benefit of creditors shall
be made; or
<PAGE>131
(e) If Maker shall voluntarily file a petition under the Federal
Bankruptcy Act, as such Act may from time to time be amended, or
under any similar or successor Federal statute relating to
bankruptcy, insolvency arrangements or reorganizations,
or under any state bankruptcy or insolvency act, or file an answer
in an involuntary proceeding admitting insolvency or inability to
pay debts, or if Maker shall fail to obtain a vacation or stay of
involuntary proceedings brought for the reorganization, dissolution
or liquidation of Maker or if Maker shall be adjudged a bankrupt,
or upon dissolution, business failure or discontinuance of Maker as
a going business (except for labor disputes), or if a trustee or
receiver shall be appointed for Maker, or Maker's property, or if
the partnership interests of Maker shall become subject to the
Jurisdiction of a Federal bankruptcy court, or similar state court,
or if Maker shall make an assignment for the benefit of creditors,
or if there is an attachment, execution or other judicial seizure
of any portion of Maker's assets and such seizure is not discharged
within ten (10) days;
then, upon the occurrence of any such event of default, after
expiration of any applicable notice and cure period, the entire
principal sum, with accrued interest thereon due under this Note,
shall, at the option of Holders, become due and payable forthwith,
without further notice. No failure to exercise such option shall
be deemed a waiver on the part of Holders of any right accruing
thereafter.
8. Maker's Right to Cure. Upon an event of default, except as
otherwise provided below, Holders shall not accelerate this debt,
make any payments for which Maker is primarily liable, or foreclose
upon or attach any assets of Maker unless it first gives Maker
written notice of such default at Maker's address and in the manner
described for notices described in Section 14 below and unless such
default is not fully cured within the following periods:
(a) three (3) days after such notice is given in the event of any
failure to make a monetary payment to any person-,
(b) fifteen (15) days after such notice is given in the event of
non-monetary defaults not subject to other provisions of this
Section, provided (a) within five (5) days after such notice is
given, Maker commences its cure and submits to Holders in writing
its plan to cure; and (ii) the cure is continuously pursued by
Maker with due diligence. If in Holders' sole judgment such
default is not reasonably capable of being cured within fifteen
(15) days, Maker shall have such additional time as is reasonably
necessary to complete the cure, but in no event more than thirty
(30) days after the notice of default is given; or
(c) sixty (60) days after the filing of any involuntary petition
in bankruptcy against or for the appointment of a receiver for
Maker (except for petitions filed by Holders), with the dismissal
of such petitions by the court within such period being deemed to
cure such default.
Notwithstanding the above provisions, the notice and cure period
provided for in this Section shall not apply:
if a petition shall be filed by Maker under the Federal
Bankruptcy Act, or Acts amendatory thereof or supplemental thereto,
or under any statute either of the United States or any state in
connection with insolvency or reorganization, or for the
appointment of a receiver or trustee of all or a portion of Maker's
property; or
(ii) if any assignment by Maker for the benefit of creditors shall
be made.
The provisions of this Section shall apply to defaults under all
documents executed as security for this Note, and unless expressly
stated to the contrary in such documents any notice or cure period
referred to therein shall be deemed to incorporate said provisions.
If any of said documents are inconsistent with this Section, this
section shall be controlling, unless said other document expressly
provides otherwise. Where additional notice or cure periods are
provided in this or any other such documents or are required by any
other contract or by law, said periods and those contained in this
section shall run concurrently. Nothing in this section shall be
construed as extending the term of this Note or the date upon which
a default occurs, and no decision to forego any remedy for any
given default shall be deemed a waiver on the part of Holders of
any right relating to any other default. No failure to give any
notice of any default shall constitute a waiver of such default or
any remedy which may be available in connection therewith. This
section shall be strictly construed, and shall not impair the
exercise of any remedy not referred to above immediately upon
default, including, without limitation, the seeking of any
mandatory or prohibitive injunction or restraining order or
appointment of receiver.
<PAGE>132
9. Usury. Maker hereby represents that this loan is for
commercial use and not for personal, family or household purposes.
It is the specific intent of the Maker and Holders that this Note
bear a lawful rate of interest, and if any court of competent
jurisdiction should determine that the rate herein provided for
exceeds that which is statutorily permitted for the type of
transaction evidenced hereby, the interest rate shall be reduced to
the highest rate permitted by applicable law, with any excess
interest theretofore collected being applied against principal or,
if such principal has been fully repaid, returned to Maker on
demand.
10. Renewals. Maker, and all others who may become liable for all
or any part of this obligation, consent to any number of renewals
or extensions of the time of payment hereof and to the release of
all or any part of the security for the payment hereof. Any such
renewals, extensions or releases may be made without notice to any
of said parties and without affecting their liability.
11. Waivers. Maker hereby waives presentment, demand of payment,
notice of dishonor, protest, and notice of nonpayment, and any and
all other notices and demands whatsoever. No covenant, condition,
right or remedy in this Note may be waived or modified orally, by
course of conduct or previous acceptance or otherwise unless such
waiver or modification is specifically agreed to in writing
executed by the Holders.
12. Construction. This Note shall be governed by and construed in
accordance with the laws of the State of Oregon, and all sums
referred to herein shall be calculated by reference to and payable
in the lawful currency of the United States. This Note has been
reviewed and negotiated by Maker and Holders at arms' length with
the benefit of or opportunity to seek the assistance of legal
counsel and shall not be construed against either party. The
titles and captions in this Note are inserted for convenience only
and in no way define, limit, extend, or modify the scope or intent
of this Note. In any case where Holders is permitted to act in its
"sole discretion," "sole options' or the like, Holders shall be
entitled to exercise unfettered discretion and may act without
application of principles of law, if any, requiring good faith or
fair dealing or reasonableness in exercising Holder's options.
13. Partial Invalidity. If any section or provision of this Note
is declared invalid or unenforceable by any court of competent
jurisdiction, said determination shall not affect the validity or
enforceability of the remaining terms hereof. No such
determination in one Jurisdiction shall affect any provision of
this Note to the extent it is otherwise enforceable under the laws
of any other applicable Jurisdiction.
14. Addresses for Notices: Etc. All notices, requests, demands,
directions and other communications required under this Note shall
be in writing (including telegraphic communication) and mailed by
United States mail or facsimile or delivered by overnight courier
or by hand to the applicable party at the addresses indicated
below:
if to Maker:
RICHARD S. HUSON
121 S.W. Morrison, Suite 1400
Portland, Oregon 97204
if to Holders:
RANDY D. Sines
4056 South Madelia
Spokane, Washington 99203
CHERYL L. FORTE
315 Francisco Street
Henderson, Nevada 89014
or, as to any party, at such other address as shall be designated
by such party in a written notice to each other party complying as
to delivery with the terms of this Section 14. All such notices,
requests, demands, directions and other communications so mailed or
telecopied or delivered shall be effective when received if sent by
mail, when delivered if delivered by courier or by hand, or when
transmitted if sent by facsimile.
Maker:
Richard S. Huson
<PAGE>133
EXHIBIT G
<TABLE>
<CAPTION>
General Limited
Partnership Partnership
Units Units %
<S> <C> <C>
1. Dick Huson 147 30.18
2. Cheryl Forte 4 139 29.36
3. Randy Sines 4 139 29.36
4. Norman Kelln 22 4.52
5. Dave Krise 12 2.46
6. Dave Sampson 6 1.23
7. Stacy Haskins 3 .62
8. Leonard Hale 3 .62
9. Marty Petri 3 .62
10. Mike Szeremeta 3 .62
11. John Curran 2 .41
4 479 %100.00
<PAGE>134
EXHIBIT H
The following persons have, or under certain circumstances, may
have, options to purchase or otherwise acquire Units in Sharps or
shares of Casinovations:
Name
David M. Goldsmith
John Carl Larson
Stacy L. Haskins
Jay Willoughby
C. Culver Smith
Donald Peterson
David E. Sampson
Jay King
Norman G. Kelln
Sines-Forte Partnership
<PAGE>135
AMENDMENT
TO
EMPLOYMENT AGREEMENT
(Personal Service Agreement)
AND
COVENANT NOT TO COMPETE
This is an Amendment to the Employment Agreement and Covenant Not To
Compete
dated March 1, 1996 by and between CASINOVATIONS INCORPORATED, a
Washington
Corporation and RANDY D. SINES ("Employee").
FOR VALUABLE CONSIDERATION, the receipt and sufficiency of which is
hereby acknowledged, the parties amend the Agreement as follows:
1. The Employment Agreement and Covenant not to Compete dated
March 31, 1996 remains in full force and effect as originally agreed to
except as provided below. The attached pages 1, 4, 5, 6, 8, 9, 10, 11, 14,
15 and Exhibit "A" are changes and replacements to the respective pages of
the Employment Agreement and are incorporated into the original Agreement as
part of the Agreement.
DATED this day of June, 1996.
"CORPORATION"
CASINOVATIONS INCORPORATED
a Washington Corporation
By: Randy D. Sines, President
"EMPLOYEE"
By: Randy D. Sines
</TABLE>
<PAGE>135
AGREEMENT
(Third Round Funding)
THIS AGREEMENT, made and entered into this 30th day of September,
1996, by and between RICHARD S HUSON, hereinafter referred to as
"Lender", and CASINOVATIONS INCORPORATED, a Washington corporation,
(hereinafter referred to as "Borrower") and RANDY D. SINES, a
married person, and CHERYL L. FORTE, a married person (Randy D.
Sines and Cheryl L Forte hereinafter collectively referred to as
"Grantors"). Lender, Borrower, and Grantors, hereinafter
collectively referred to as "Parties".
WHEREAS, Parties desire to enter into a Third Round Funding
contract to lend money and grant proxies on the terms and
conditions provided herein, and
NOW THEREFORE, for valuable consideration the receipt and
sufficiency of which is hereby acknowledged, IT IS AGREED AS
FOLLOWS.
I. Lender hereby agrees to lend to Borrower upon request of
Borrower and Borrower hereby borrows from Lender up to the sum of
Five Hundred Thousand and no/100 Dollars ($500,000.00) on terms and
conditions contained herein and on the attached Exhibit "A"
Promissory Note. Parties acknowledge Lender's prior Loan to
Borrowers of $150,000.00 is paid in full and the Stock Pledge and
Security Agreements between the Parties are fully completed and
performed contracts and Lenders' prior Loan (Exhibit "B") for
$300,000.00 has been fully assigned to Grantors by Lender with full
rights and remedies as provided for in the January 15, 1996 Funding
Agreement and Note, except as otherwise provided for herein..
2. In the event the Exhibit "A" Note has not been fully repaid by
Borrower by December 31, 1997 Borrower grants to Lender, subject to
the terms and conditions of this Agreement and the pre-emptive
rights of all Shareholders, the option to convert Exhibit "A" Loan
to Borrower's common voting shares at S.82 per share. Said option
must be exercised by Lender declaring paid in full the Exhibit "A"
Note and by Lender notifying Borrower in writing of Lender's intent
to exercise
the option on or before January 31, 1998.
3. Provided that Grantors or their spouses each receive at least
$I 0.000.00 per month from Borrower (such amounts to be paid first
from salaries, second from accrued salaries and third from interest
and/or principal payments on the Exhibit "B" $300,000 00 Loan due
Grantors by Borrower), the Parties agree the Exhibit "A" Note will
be repaid before or concurrent with the $300,000.00 Loan payable by
Borrower to Grantor per F-exhibit "B" except that the Exhibit "B",
$300,000.00 Loan may be paid as Provided above. This provision to
pay Exhibit "E" Note concurrent with or after Exhibit "A" Note
shall tenant January 1, 1998. The Exhibit "A" Note shall be due
and payable, without demand, on December 31, 1997 except Note
principal and interest due may be converted to stock in Borrower as
provided herein. Furthermore, Borrower agrees to pay J'5% of cash
proceeds received from equity financing of Borrower as payment on
Note within five (5) days of receipt of cash proceeds by Borrower,
4. If any legal action or other probing is brought for the
enforcement of this Agreement, or because of an alleged dispute,
break default, or misrepresentation in connection with any of the
provisions of this Agreement, the successful or prevailing party or
parties shall be entitled to recover from the losing party
reasonable attorney's fees and other costs incurred in connection
with that action or proceeding, in addition to any other relief to
which it or they may be entitled.
5. The terms and conditions of this Agreement shall inure to the
benefit of, and shall be binding upon, the Parties hereto, their
respective heirs, personal representatives, successors and assigns.
6. Parties agree to execute any and all documents required by this
Agreement or to effect the intent of this Agreement. Each party
has consulted or has been advised to consult independent legal
counsel and has had sufficient time to do so. Douglas J- Brajcich
P.C. represents only Borrower.
7. This Agreement may be executed in any number of counterparts
and/or by facsimile (fax) each of which will be deemed to be an
original and all of which together will constitute a single
agreement.
8 . Every provision of this Agreement is subject to and conditioned
upon the pre-emptive rights of all Borrower's shareholders-
<PAGE>136
9. No Shares have been registered with the Securities and Exchange
Commission under the Securities Act of 19'@3, as amended, or under
the securities acts of Washington, Oregon, Nevada, or under an),
other state securities laws. B), acquiring any Shares, the
acquiring party represents that
<PAGE>138
AMENDMENT TO EMPLOYMENT AGREEMENT
(PERSONAL SERVICE AGREEMENT) AND COVENANT NOT TO COMPETE
AND FUNDING AGREEMENTS
This Amendment to the Employment Agreement (Personal Service
Agreement) and Covenant Not to Compete and Funding Agreements is
entered into this ______ day of ___________, 1997, by and between
CASINOVATIONS INCORPORATED, a Washington corporation
("Corporation") and RANDY D. SINES ("Employee").
The Parties Recite:
A. The Corporation and the Employee have previously entered into
an Employment Agreement (Personal Service Agreement) and Covenant
Not to Compete dated March 31, 1996. This Agreement has
subsequently been amended twice. (The above referenced agreement
and its amendments are collectively referred to as the "Employment
Agreement").
B. In connection with the Employment Agreement, the parties have
previously entered into a Funding Agreement dated January 15, 1996
and Third Round Funding Agreement dated September 30, 1996. The
Third Round Funding Agreement subordinated the $300,000 promissory
note assigned to Cheryl Forte/Steve Forte and the Employee to the
$500,000 promissory note, dated September 30, 1996, payable to
Richard S. Huson. This subordination requires payments of $10,000
each to Employee and Cheryl Forte. The $300,000 promissory note
was further subordinated by the agreement, dated July 8, 1997, to
the $45,000 promissory note, dated July 8, 1997, payable to Richard
S. Huson. (These agreements and their amendments are referred to
as the "Funding Agreements").
C. The Employee has resigned as an officer, director and employee
of the Corporation effective August 27, 1997.
D. The parties have raised allegations concerning the legality of
a purported transfer of the Drop Slot and Anticipation Slot
inventions/concepts to the Employee from the Corporation.
E. As a result of the Employee's resignation, the parties desire
to confirm and modify each other's obligations under the Employment
Agreement and Funding Agreements.
NOW THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, the parties agree to amend the
Employment Agreement and Funding Agreements as follows:
1. Assignment of Drop Slot and Anticipation Slot Concepts.
Pursuant to a letter dated June 26, 1997, the Corporation attempted
to transfer to the Employee all of the Corporation's right, title
and interest in the Drop Slot and Anticipation Slot
inventions/concepts for the sum of $15,000. Pursuant to the above
referenced letter, the payment was reflected in a reduction of the
debt owed to the Employee from the
Corporation. The parties have raised questions surrounding the
purported transfer and have agreed to restate and settle on the
terms and conditions of the assignment as follows:
a. The Corporation has assigned all of its right, title and
interest to the Drop Slot and Anticipation Slot concepts to the
Employee.
b. The obligations owed by the Corporation to the Employee
contained in the Funding Agreements will be decreased by the sum of
$5,000, not the $15,000 as previously agreed, in return for the
assignment of the Royalty to the Corporation provided herein below.
c. The Employee agrees to reduce the monetary obligations owed by
the Corporation to him under the Funding Agreements to an interest
rate at nine and one-half percent (9 1/2%) per annum, effective
October 1, 1997 and to extend the due date of such obligations for
a twelve (12) month period from this same date. If the obligations
are not paid on or before September 30, 1998, the interest rate
shall increase at such date to fourteen and one-half percent (14
1/2%) per annum. All other terms of the Funding Agreements,
including the subordination provisions, shall remain unchanged.
d. The Employee agrees to pay to the Corporation a five percent
(5%) Royalty on the Net Revenue received by the Employee, his heirs
or assigns from the sale, development, or manufacture of the Drop
Sot and Anticipation Slot concepts, including any derivatives or
accessories pertaining thereto. The term "Net Revenue" shall be
<PAGE>139
defined as gross cash (or equivalents) revenues received by the
Employee, his heirs or assigns from the sale, development, or
manufacture of the Drop Slot and Anticipation Slot concepts minus
the cost of goods sold for such products. In determining the cost
of goods sold, Generally Accepted Accounting Principles shall be
used. The Employee shall remit the Royalty payments to the
Corporation on a calendar quarter basis. The Royalty payments due
for each calendar quarter shall be paid within thirty (30) days
after the expiration of each quarter. Interest shall accrue at the
rate of nine and one-half percent (9 1/2%) per annum on any Royalty
payments that are not paid when due as proscribed herein.
The Employee will use prudent efforts to protect the intellectual
and proprietary rights associated with the Drop Slot and
Anticipation Slot concepts, including but not limited to, the
procurement and the filing of patents, trade names or copyrights as
may be applicable. Upon thirty (30) days written notice, the
Employee agrees to provide access to the Corporation or its
auditors to review and audit the Employee's books and records
containing information pertinent to calculating the Royalty due the
Corporation under this agreement.
2. Effective Date of Termination. The Employment Agreement in
Paragraph 8 permits the Employee to terminate his employment upon
sixty (60) days written notice to the Corporation. The Corporation
agrees to waive this sixty (60) day period and allow the Employee's
termination to be effective August 27, 1997. Notwithstanding the
foregoing, the Employee remains obligated under the terms and
conditions of the Employment Agreement, as amended herein, for
those clauses which by their terms survive termination and consist
only of the Non-Competition, Confidential Information, and Personal
Property clauses. It is agreed and understood that the execution
of this agreement is additional consideration from the parties for
the amendment to the Non-Competition clause of the Employment
Agreement as contained herein.
3. Amendment. The parties agree to amend Paragraph 14, Non-
Competition, ("Non-Competition Clause") of the Employment Agreement
to increase the term to three (3) years and to limit its scope as
follows:
a. The Non-Competition Clause shall be amended to exclude from
its restrictions the Drop Slot and Anticipation Slot
inventions/concepts and any accessories or derivatives pertaining
thereto. The Employee shall be permitted to market, develop and
sell the Drop Slot and Anticipation Slot concepts so long as such
business actions are limited solely to such products and do not
involve any other gaming product not otherwise excluded herein
below.
b. It is understood and agreed by the parties that the Employee
will not be in violation of the Non-Competition Clause as amended
herein for those activities that are limited to the invention and
development of gaming products (not manufacturing or marketing),
provided that such invention and development does not pertain to
the Corporation's Current Products and Future Products defined
herein below in sub-paragraph (d).
c. The Employee shall only be required to abide by the terms of
the Non-Competition Clause as it is currently written and as
amended herein by Paragraph 3(a) and (3)(b) for a period of six (6)
months, beginning as of August 27, 1997, with the exception of
Paragraphs 3(d) and 3(e).
d. After the expiration of the six (6) month period stated above,
the Employee agrees to remain obligated under the terms of the Non-
Competition Clause for an additional eighteen (18) months, but this
restriction shall be limited solely to products that are
substantially similar to the Corporation's current products (the
"Current Products") and to the Corporation's future products
referred to or described in the letter dated August 28, 1997,
executed by Steve Forte, attached hereto as Exhibit A and
incorporated herein by reference ("Future Products").
e. After the expiration of the two (2) year period stated above
in sub-paragraph (b) and (c), the Employee agrees to not compete
with the Corporation as defined in the Employment Agreement for an
additional one (1) year period only as to such products that are
substantially similar to the Future Products defined previously
herein.
4. No Unresolved Issues. The parties agree that there are no
unresolved issues that each party may be aware of and that were
raised by the parties pertaining to the assignment of the Drop Slot
and Anticipation Slot concepts.
5. Securities. The Employee is in possession of certain
Warrants, Shares of Stock and Options (the "Securities")
individually, or derivatively through the Sines Forte Partnership.
The Employee acknowledges that such Securities were issued to him
while he was an
<PAGE>140
Officer, Director and Shareholder of the Corporation and that for
purposes of the resale of the same, the Securities and Exchange
Commission will view him as an "affiliate" of the Corporation. As
a result, the Employee agrees to abide to a "Lock-Up" of such
Securities as required by the SEC and agrees to execute any and all
documents that may be required in this regard.
6. Default. A "Default" of this agreement shall occur upon a
material breach by either party of this agreement, the Employment
Agreement and the Funding Agreements which goes uncured for thirty
(30) days after written notice of such breach by the non-breaching
party. Upon Default by the Corporation, the Employee shall be
relieved from any future obligations pertaining to the non-
competition restrictions arising from this agreement, the
Employment Agreement and the Funding Agreements and will be
entitled to seek its damages as allowed by law or equity, including
those damages allowed under the Employment Agreement and the
Funding Agreements. Upon a Default by the Employee, the Corporation
shall have the right to reduce the amount owed to the Employee
under the terms of the Funding Agreements, as amended herein, by
the amount of its damages and shall be permitted to seek such
damages that are allowed by law or equity, including those damages
allowed under the Employment Agreement and Funding Agreements.
CORPORATION
CASINOVATIONS INCORPORATED
by its:
EMPLOYEE
Randy D. Sines
<PAGE>141
August 28, 19,97
Fax # (509) 389-4409
Pages 11
Dear Tom:
I have pulled every item on my computer pertaining to "future
projects" and compiled the following list. As per your request,
and to the best of my recollection, I have provided a brief
description (and an occasional comment where I thought it was
appropriate).
In regards to than Slot concepts, many were described in some
detail during the preparation of a proposal to Sigma. We never
did present the proposal. I have used that documentation, when
applicable.
FUTURE PROJECTS
New Games
1. "Speed Go
Asian Game format that adds jackpots yet eliminates ties &
commissions. The hands can be reduced to 5 or 6 cards and set to
2-3, and 2-4 respectively.
2. US Roulette
Put all numbers into a sequential pattern Vs a scattered pattern.
This would make it easier for the players to visually follow and
track the winning numbers. A mirror, simplified layout & Payouts,
possibly a counter-rotating LED ring(s) introducing 300, 400, 500
to 1 Payouts could all be added to the game.
3, "High Roller"
Combine Faro, Skin and Red Dog so that each results rests on the
turn of a single card. Pitch the game as the fastest card game in
the world.
4. "Jokers"
A specialty deck comprised of 1/2 Jokers and 1/2 "blanks" (or
advertising cards), Played just like Baccarat, two cards to each
Side; the players can bet on either side, the hand with the most
jokers wins. Ties would be broken with additional draws thus
creating a "long odds" situation for introducing jackpots.
5. Bingo Bang
A game played with two different colored decks. The players are
dealt the red cards, the dealer the blue. The dealer forms a
square, or sequence, or any pattern where the players can match
first in color, then suit and then value. Payouts are based on
"match difficulty," This is essentially a form of Bingo played as
a table game.
C. California BJ - "Player Pool"
Fantasy 21, for the California market (Native American & Cardroom)
with multimedia presentation.
7. "Ups and Downs'
Previously referred to any new game developed with the one-way face
design. These games were to incorporate Randy's rotary shuffler. We
have discussed concepts using puzzles, arrows and parts of currency
(a number of cards aligned properly might read "win $1,O00,000").
8, "Ups and Downs' (Streakers")
The current name for a "Gin Rummy" style game where the players can
discard from their hand--the longer they wait, the bigger the
payoff. Currently, the game has the players continuing a streak of
progressively higher cards, or lower cards, based an dealer drawing
rules
Slot Concepts
9. The "Slow Roll' (see attachment)
Now known as the 'Anticipation Slot' and no longer the property of
Casinovations--see Sigma attachment,
10. Consecutive Hand Result Format (see attachment)
Can now use simplified schedules & results (fewer symbols - more
sevens)
Accumulative format-. 'x spins to got x results'
11. Video Poker (see attachment)
High or Low VP (after the hand is dealt and at the player's
discretion) Multiple Pay Stud (card by card basis)
Artificial Intelligence (incorporates bluffing)
12, No Spin - "Lock them Up"
See attachment
<PAGE>142
13. Two Hand VP
See attachment
14. Personalized Slots - autograph, photo, or other "selection."
This concept would enable players to sign their name, have a photo
taken, or select the "graphics" prior to playing. These images
could either become a "symbol" or part of the graphic display thus
personalizing the machine.
Equipment
15. Plastic Cards
16. Poker Tracking System
This item is on my earliest list but I have no idea what it refers
to.
17. Remote Video Machines (see attachment)
18. Room to Table Gambling via Video Link
Players could gamble from the hotel room via a live television link
to the casino floor.
19. New Dealing Shoe & Card System (Complements Safety Peek Card
A dealing shoe with "peeking" capabilities for reading our Safety
Peek Cards. This would eliminate the center table peeking devices.
The shoe was to incorporate a unique, sensor driven cover for the
top of the shoe
20. Software Security System - Keith Taft
KT is the pioneer of "player electronic assistance" and an
associate from many years ago. He called and asked if we would be
interested in distributing his player detection software--probably
the most sophisticated software ever made available to the
industry. We have met on a few occasions to discuss this
possibility.
21. Rotary Shuffler for unsymmetrical cards
Randy's concept for "rotating" the cards versus shuffling--to be
used with specialty cards (one way designs) and specialty games.
22. Card Control & Cancellation System
Used cards are typically out or punched and resold in the gift
shops. These damaged cards have little value in the home games and
therefore are not as attractive as they could be. We wanted to
develop a "spray" (for lack of a better term), that could be easily
applied to, and penetrate, the cards thus identifying them as
"used." We would then provide a recognition system for identifying
this mark. Originally, this was to be a UV spray--with penetrating
qualities--and black light for identification.
23 Sensor Chip rack
A chip rack with sensors that automatically counts the float (has
already been done)
24. Video Recognition System
Utilizing a computer recognition software known as "neuronet," a
surveillance camera, alone could recognize the cards played, their
order, the player's bets, and essentially create a "model" of a
live game. This system would allow handsfree tracking of any table
game--all existing systems are either intrusive (Safejack) or
require operator intervention (BJ Survey Voice System).
I came across the following file called "Slot Miscellaneous."
Clearly, it consists of many undeveloped ideas, and a few already
mentioned.
1. Pay on four card flushes and straights
2. What would have happened ?
3. Short decks (Aces and Faces)
4. Mega-Video Poker (Dave, Randy etc.)
5. Multi Hand VP - choose your opponent.
6. Change the suit of any one card.
7. Spin any reel "one more time" (I believe it already exists).
8. Player index capabilities (top-bottom, right- left), speed
<PAGE>143
9. Player can "back-up" one symbol or "go forward one symbol"
(already done).
10. Play from either side - Each side produces different payout
schedules
11. Player chooses first symbol, jackpot sequence or "Pick the
Jackpot".
12 Personalized Slots - Draw a jackpot symbol or enter initials
Draw and Hold "twice" or even "three times" (Buy a card)8.
13. Puzzle Slots - 8 liners - 3 "wide reels"
Instead of nine 7's needed to win super jackpot, a puzzle/picture
is formed.
14. Two reels, 13 hearts -- pay on pairs, consecutive pairs, O/U
A two reel machine with all 13 hearts, running consecutively, an
each reel. Pay on pairs, consecutive pairs make four of a kind, 2
card straights and flushes etc. A wild card/joker on each reel
would help support a attractive payout schedule.
15. A single symbol reel -- "ARROW" -- three arrows would cascade
spin with decay. The arrow must end up pointing in the top half.
When this happens, the arrow automatically moves to the 12:00
position. Three arrows pointing straight up wins jackpot. Any
arrow that end up in the 12:00 position on its own, doubles the
jackpot, two 12:00 arrows triple the jackpot and three 12:00 arrows
pay the super jackpot.
This is the Sigma attachment:
"THE SLOW ROLL"
The "Slow Roll" concept eliminates the impersonal nature of many
slot and video machines. The concept allows one or more reels, or
graphic images, to "move" in a "visually identifiable" manner.
This is accomplished in one, or a combination of the following
means: slowing down the overall speed(constant) of one or more
reels/graphic images; slowing down the speed gradually (consistent
or geometric rate of decay) of one or more reels/graphic images;
implementation of various graphic/symbol strategies; implementation
of various indexing strategies; and allowing more symbols to be
visible to the players thus allowing the player to anticipate the
time and distance a desired symbol must travel to reach the payout
line. The goal of the "Slow Roll" is to add a "real" anticipation,
suspense and a constant player interaction/excitement element.
When compared to the traditional slot "instant result" format, the
excitement of playing slots and videos is greatly enhanced by
introducing any or all of the "Slow Roll" features.
An excellent analogy comes from the sport of horse racing. Imagine
a race where the distance between start to finish was only ten
yards. The race produces an instant result with no "time" for
players to become "emotionally involved". However, with the
standard track the races are much longer allowing a drama to evolve
- -- the very allure of horse racing. The "Slow Roll" features are
designed to create that same "time element" allowing anticipation,
excitement and suspense.
MODIFICATION OF THE REEL STRIP AND REEL INDEX SPEEDS
Any symbol(s) combination/graphic that can be visually anticipated
are all elements of this concept.
Examples:
1 Animation
Currency - Each symbol shows a bill in a different stage of
"unfolding". The stages can range from folded in 16th's to open.
Spinning Chip/Coin - produce an effect similar to seeing the chip
very fast, slow down and eventually land in slow motion
2. Progressions
Any "progression" that affects size, shape, color, contrast or
animation. Lights - A "WIN" symbol can light up at various stages
- - all lights must be on to win. The progression can start with a
single, small star, progress to a circle of stars and finally with
prize/payoff inside. Others might include: from dot to chip, from
blank to symbol, rotation of arrows/clock/wheel.
3. Sequentially
Sequentially producing cards, numbers or chips. Card images - the
same suit displayed in order (2, 3 or 4 reels).
<PAGE>144
4. Repetition
Any combination of symbols can be "repeated" producing a
recognizable pattern. The same repeating sequence - LLWLLW etc.
An entire 1/2 reel - same symbols.
The time elapsed between the start of the "slow-roll" mode and the
result should vary little, if at all. In this manner the player
can truly anticipate the final outcome. Utilizing uniform reel(s)
decay times enhances player anticipation, however, decay rates may
vary.
If the complete outcome is deemed to be too slow, from a
productivity standpoint, one can speed up the front side (produce
an instant result on the first two reels), increase the player cost
(2 coin minimum) or use fewer symbols -- even fewer reels.
If the first one and/or two reels do not produce a potential
winning combination, the "slow roll" can be suspended, (no winning
combination to anticipate). For those examples in which the Slow
Roll builds anticipation for one winning symbol/reel only, the
first and second reels must be of a high frequency payout format.
In example #1, the unfolding bill, one would expect the first reel
to be predominately "unfolded bills", the second reel a lesser
amount and the third reel only a few "winning" bills. This concept
of "loading up" the earlier reel(s) plays an integral part of many
"Slow Roll" variations.
SLOW ROLL WITH VISIBLE DISK(see laser prints)
Although a significant change from tradition, to further enhance
the principle, the third reel is converted to a "disk" that spins
like a "mini" Big-6-wheel "facing the player". The axis of the
disk is rotated 90 degrees pointed towards the player so all
symbols are visible. The anticipation and suspense element is now
automatically "built-in". After the first two reels index, the
player looks to the disk to visually follow the desired winning
symbol and its position to the payout line/position.
Aesthetically, the visible disk concept seems to work best in the
center position(s) as shown in the accompanying drawings.
Another variation ma have all three reels converted to the disk
configuration facing the player. All disks vary in size from small
to large with the smallest disk closest to the player. The disks
may also be "contained within one another," leaving all disk
symbols on the same plane. These approaches allow all symbols on
all reels to be visible. This is an exceptionally novel approach.
Another variation utilizes one or more transparent disks with
symbols indexing directly on top of one another. For example, each
reel could index a "part of" a symbol. Only when all three symbols
are lined up, is the complete symbol visible.
REAL VISION(see laser prints)
Through the use of Fiber Optics, mirrors, prisms, lenses, or a
combination thereof, virtually all of the reel can be made visible
to the player. Optimal viewing is anticipated to be from 1/3 to
2/3's of a reel. We view this approach as being the most
practical, direct, and effective approach to accomplish the desired
result. It's anticipated that the Slow Roll plus previously
mentioned embodiments, cannot only be produced on an OEM level,
but, if desired, can be produced in a "conversion form".
Finally, to further enhance the Slow Roll Concept, the use of non-
traditional "indexing strategies" and "sound" can be employed.
Index Strategies
The "Slow Roll" concept can be accomplished without physically
slowing down the reels or graphics -- simply slow down the result.
This is accomplished by programming the reels so that the index
order becomes a function of which order produces the most
suspense/anticipation. For example, indexing in any desired order
so as the "deciding" symbol indexes last.
Examples:
Assume the machine/chip produces a result of "bar, X, bar". In
this scenario, after the player sees the second reel index the
suspense is over. Instead, the software converts the original
order to a "bar, bar, X" order allowing the "X" reel to index last.
This has the effect of adding anticipation and suspense.
Another option is for the software to allow the reels to index out
of order. For example, the reels may index traditionally, from
left to right, or from right to left. Consider a traditional
machine/chip producing a result of "X, bar, bar". Generally, if
the first reel indexes a non-winning symbol or "blank", indexing of
the following reels is meaningless. Directing the reels to index,
"bar, bar, X" order gets the player more emotionally involved thus
making the game more exciting. Additionally, the software
randomizes the
<PAGE>145
order of jackpots, near-jackpot and no-pay results. This
eliminates a player's potential realization that every time the
machine indexes
from the right to left, for example, the order can not be
associated with certain results.
Another option has the first and third reels indexing quickly
always followed by a "slow roll" center reel index. This sequence
allows some interesting variation.
1. "Match the Center Reel to Win". Once the outer reels index,
any one of two symbols can win.
2. Card symbols - Example: If the center reel/card is higher than
either side, the game pays even money, higher than both sides wins
2-1, trips win jackpot, three card straight flush wins super
jackpot.
Sound
Sound can add considerably to the anticipation element of the Slow
Roll.
For example:
1. Repetitive sound may slow down as the reel indexes. This is a
lot like the "Wheel of Fortune" TV show or any "Big 6" wheel where
you can hear the "pointer" hit the circle of "pegs" at a varying
speed. You can close your eyes and still anticipate the wheel
stopping.
2. A sound accompanying the reel spin may get louder, or softer,
as the reel gets closer to indexing. Another variation would to be
use "pitch" going from a high to a low frequency, or visa versa.
3. More than one sound may accompany the reel spin and change at
various speeds. The sound starts off as a series of "dings" and
then changes to "another sound" as the reel gets ready to index.
4. A consistent duration of sound also adds anticipation. For
example, let's say that a bell always rings 5 times. Players
quickly realize that the reel always indexes as the fifth bell
rings. One may use a small excerpt from a song or "jingle"--
"Yankee Doodle went to town" is one example where the reel would
always index on "town".
A combination of any or all of these concepts may work together.
To maximize anticipation, the Slow Roll, and sound enhancements,
can be utilized on any single reel, a combination of multiple
reels, or all reels (two, three or more).
This file refers to the possibility of combining #20 and #24 in the
original list.
Ultimate Player Tracking System ("UPTS")
The UPTS eliminates the need for the floor personnel to "swipe" a
magnetically coded VIP card or manually input the information into
a database via computer. Any player with a UPTS VIP card simply
places the VIP card on the table momentarily prior to making
his/her first bet to activate the system. The UPTS instantly
identifies the player, date, time, gaming table, credit-line, hotel
accommodations, and all other relevant information.
The UPTS then begins to monitor and track all of the following
data:
Time played, total money in action, an exact theoretical win, Basic
Strategy, Card Counting, Shuffle Tracking (Sequence and Segment),
Holecard, Topcard, evaluates "unshuffled" slugs of cards, evaluates
play for all types of electronic player assistance, a complete
history of all previous visits, length of stay, wins/losses etc.
The UPTS utilizes the most sophisticated "player evaluation"
algorithms to date.
Methodology.
All BJ tables have player spots, logos, circles, or boxes. As the
first card is dealt to begin a round, the Neural Net Software (NNS)
would recognize the "position" of this first card (the first card
will always be "closer" to the correct player position than any
other player position). The same logic applies to all other
player's first cards and the dealer's upcard--the only card dealt
in the center position, directly in front of the chip rack. The
player's second card is always dealt in an over lapping manner.
The NNS would recognize and "attach" these second cards to the
first cards dealt to comprise all player hands. The dealers
holecard is then dealt face-down. The NNS would recognize the
card being dealt from the shoe to the "dealer-center-position."
The dealer's holecard would almost appear to "disappear" as it is
aligned, almost
<PAGE>146
perfectly, under the dealer's upcard. The NNS would either
recognize this "alignment action" or simply count the number of
cards dealt from the shoe to recognize that the first phase of the
round is complete.
As each player acts on their hands the NNS recognize the individual
hit cards as they over lap, the first cards dealt thus connecting
them to a particular player position. If the player doubles down,
the NNS not only recognize the double wager, but sees one card
dealt perpendicular to the player original cards. This is the
standard dealing procedure for double downs. Int he case of pair
splitting, the NNS recognize two cards of the same value (or all
ten valued), sees the two cards "separated," and a double wager to
indicate a pair split.
The same logic would apply for any rule or dealing procedure.
I also have some files on the video version of Fantasy 21.
I have faxes a copy of the list and documentation to Randy. He
feels that some of these ideas already exists (they do) and where
this is true--already in the public domain--they probably shouldn't
be included as proprietary products. I just wanted to leave the
lists and documentation in their most current form. He has also
wanted to clarify the point that all "Slow Roll"
concept/descriptions are in fact part of the "Anticipation Slot."
They are in fact the same product.
Hopefully this list will suffice---I did not expand the
Miscellaneous Slot list as most items are self explanatory.
Leave for Australia on Friday around 5:00 PM. If you need me
before then, give me a call.
Randy will be home on Saturday evening or Sunday mid-day.
Best,
/s/Steve
Steve Forte
