<PAGE>2
As filed with the Securities and Exchange Commission on July 14, 1997
Commission File Number
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM SB-2
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> 1,919,041 $3.50 $6,716,644 $2,316.08
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> 200,000 $1.50 $300,000 $103.45
Total 2,869,041 $11,366,644 $3,919.53
</TABLE>
[FN]
<F1>Represents Common Stock to be registered on behalf of Selling
Shareholders.
<F2>Represents Common Stock underlying the A Warrants to be registered on
behalf of Selling Shareholders.
<F3>Represents Common Stock underlying the B Warrants to be registered on
behalf of Selling Shareholders.
<F4>Represents Common Stock underlying the C Warrants to be registered
on behalf of Selling Shareholders.
<F5>Represents Common Stock underlying the D Warrants to be registered on
behalf of Selling Shareholders.
The registrant hereby amends this registration statement on such date or
dates as may be necessary to delay its effective date until the registrant shall
file a further amendment which specifically states that this registration
statement shall thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section
8(a), may determine.
<PAGE>3
PRELIMINARY PROSPECTUS DATED JUNE 30, 1997
SUBJECT TO COMPLETION
Up to a Maximum of 100,000 Common Shares
1,919,041 Common Shares on behalf of Selling Shareholders
200,000 Common Shares underlying the A Warrants
200,000 Common Shares underlying the B Warrants
250,000 Common Shares underlying the C Warrants
200,000 Common Shares underlying the D Warrants
CASINOVATIONS INCORPORATED
Common Stock
($.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 1,919,041 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 1,919,041 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 July 14, 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.
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.
DOCUMENTS 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 (not
including exhibits to the information that is incorporated by reference
unless the exhibits are themselves specifically incorporated by reference).
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 12
DILUTION 12
THE COMPANY 13
BUSINESS ACTIVITIES 14
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION 15
MANAGEMENT 17
CERTAIN TRANSACTIONS 21
PRINCIPAL SHAREHOLDERS 25
SHARES ELIGIBLE FOR FUTURE SALE 25
MARKET FOR REGISTRANT'S COMMON EQUITY 26
TERMS OF THE OFFERING 26
DESCRIPTION OF SECURITIES 26
LEGAL MATTERS 27
LEGAL PROCEEDINGS 27
EXPERTS 27
INTERESTS OF NAMED EXPERTS AND COUNSEL 27
</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") and others which are
indirectly affiliated with the Company. 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 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 $1.50 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. 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 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.
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."
<PAGE>8
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. 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."
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
<PAGE>9
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. 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.
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 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. 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
<PAGE>10
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
$150,000, the actual price of $1.50 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".
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 such individuals. There can be no assurance that the
Company will be successful in retaining its key employees or that it can
attract or retain additional skill personnel required. 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 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."
<PAGE>11
SELLING SECURITY HOLDERS
The Company shall register pursuant to this prospectus 1,919,041 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.
<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 2,122,285 37.62% 1,910,056 33.27%
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%
<PAGE>12
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%
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]
<F1> Mr. Pickell is currently an officer and director of the Company.
<F2> Randy Sines and Steven Forte, current officers and directors of the
Company are general partners of Sines-Forte Partnership.
<F3> Cheryl Forte is married to Randy Sines, a 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 is 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
- --------------------------------------------------------------
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>13
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 $4,300,000. 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 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.
- -------------------------------------------------------
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
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."
<PAGE>14
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.
- -------------------------------------------------
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.
<PAGE>15
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.
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. Proprietary
information is available to investors upon signature of a Non-Disclosure
Agreement.
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 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.
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.
The Company currently has an exclusive distributorship agreement with Sodak
Gaming, Inc. 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
<PAGE>16
corporation. 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 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.
Capital and Source of Liquidity. The Company currently has no material
commitments for capital expenditures. The Company has planned expenditures
as discussed in "Business Activities" and "Source and Use of Proceeds." The
Company intends to use a majority of the proceeds of this offering to make
the proposed expenditures. If this offering is not successful, the
Company's cash flow will be negatively effected if the expenditures are
attempted.
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 three months ended March 31, 1997, the Company acquired plant and
equipment valued at $5,410. The Company had an increase in patents and
trademarks of $5,613. As a result, the Company had net cash used in
investing activities of $11,022 for the three months ended March 31, 1997.
For the three months ended March 31, 1996, the Company acquired plant and
equipment valued at $2,600. The Company had an increase in patents and
trademarks of $30,896. As a result, the Company had net cash used in
investing activities of $33,496 for the three months ended March 31, 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 three months ended March 31, 1997, the Company sold common stock for
cash in the amount of $602,623. As a result, the Company had net cash
provided by financing activities of $602,623 for the three months ended
March 31, 1997.
For the three months ended March 31, 1996, the Company sold common stock for
cash in the amount of $30,000. As a result, the Company had net cash provided
by financing activities of $30,000 for the three months ended March 31, 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.
<PAGE>17
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 three months ended March 31, 1997, the Company
has a net loss of $382,816. The Company had depreciation and amortization
of $812 for the three months ended March 31, 1997. Due to the commencement
of operations, the Company had an increase in accounts receivable of $28,245,
an increase in prepaid expenses of $177,941, and an increase in accounts
payable of $81,963, an increase in accrued interest receivable of $3,294, an
increase in wages payable of $29,200, an increase in notes payable of $57,912
and an increase in taxes payable of $12,055 for the three months ended March
31, 1997. For the three months ended March 31, 1997, the Company had net
cash used in operative activities of $772,614.
The Company had general and administrative expenses of $389,623. These
expenses consisted of salaries of $59,300, payroll taxes & benefits of
$10,900, travel and entertainment of $27,177, gaming show expenses of
$35,567, office expense of $14,294, fees to consultants of $130,681, research
and development of $46,606, legal expenses of $19,618, interest expense of
$21,991 and miscellaneous expenses of $23,489.
For the three months ended March 31, 1996, the Company has a net loss of
$205,328. The Company had depreciation and amortization of $5,222 for the
three months ended March 31, 1996. Due to the commencement of operations,
the Company had an increase in accounts receivable of $122, an increase in
accounts payable of $119,134, an increase in wages payable of $39,000, an
increase in taxes payable of $7,218 and an increase in notes payable of
$300,668 for the three months ended March 31, 1996. For the three months
ended March 31, 1996, the Company had net cash used in operative activities
of $232,852.
The Company had general and administrative expenses of $205,328. These
expenses consisted of salaries of $59,000, payroll taxes & benefits of
$5,439, travel and entertainment of $5,723, rent expense of $1,300, fees to
consultants of $15,100, research and development of $47,061, legal expenses
of $32,332, interest expense of $8,637 and miscellaneous expenses of $30,850
for the three months ended March 31, 1997.
For the year ended December 31, 1996, the Company has a net loss of
$1,638,227. 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.
<PAGE>18
The principal executive officers and directors of the Company will be as
follows:
<TABLE>
<CAPTION>
Name Position Term(s) of Office
<S> <C> <C>
Randy D. Sines, age 49 President and Director From Sept. 20, 1996
to September, 1996
Vice President From Sept. 24, 1996
of Research and to present
Product Development
and Director
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
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
Resumes:
Randy D. Sines. Mr. Sines is the holder of over 30 different patents for
products designed for many different industries and purposes, including
automotive and sports equipment, gaming and other areas as well. These
include the Random Ejection Shuffler and the Rocker Stringing System.
Mr. Sines has been involved in several start-up organizations based on these
patents and engineering innovations including SNS Motor Imports, Inc., an
importer of a line of off-road specialty vehicles largely sold to the
government sector and MITT USA Corporation. From 1991 to present, Mr. Sines
has been CEO of MITT USA Corporation, a wholesale sporting goods
manufacturer. Mr. Sines attended Washington State University from 1966-
1967 and the University of Washington from 1968 to 1971 taking courses in
various disciplines.
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 November 1995. 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 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
<PAGE>19
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.
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.
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 is currently
General Manager of Rendova Boats, L.L.C., a boat manufacturer located in
Olympia, Washington. 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<F1> Year ($) ($) ($) ($) ($) ($) ($)
Randy Sines<F2> 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>
[FN]
<F1> 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.
<F2> 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
<PAGE>20
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
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
<PAGE>21
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
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 net
payment 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 fee to GVC was 200,000 Common Shares,
cash of $45,000 and Warrants to acquire an additional 100,000 Common Shares
at $1.50 per Common Share with a Warrant period of 24 months.
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
<PAGE> 22
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).
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.
<PAGE>23
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 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.
- ----------------------------------------------------------------
PRINCIPAL SHAREHOLDERS
- ----------------------------------------------------------------
There are currently 5,640,640 Common Shares outstanding. The following
tabulates holdings of shares of the Company by each person who, subject to
the above, at the date of this Memorandum, 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.
<PAGE>24
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 2,122,285 37.62% 1,910,056 33.27%
121 S.W. Morrison
Suite 1400
Portland, Oregon 97204
Steve and Cheryl Forte<F2><F3> 45,122 .80% 40,610 .73%
315 San Francisco Street
Henderson, Nevada 89014
Cheryl Forte<F2><F3> 254,610 4.58% 229,149 4.12%
315 San Francisco Street
Henderson, Nevada 89014
Randy D. Sines<F2><F3> 254,610 4.58% 229,149 4.12%
4056 South Madelia
Spokane, Washington 99203
Sines-Forte Partnership 1,261,900 22.78% 1,135,710 19.78%
315 Francisco Street
Henderson, Nevada 89014
Steven Blad 10,000 .18% 9,000 .16%
286 Doe Run Circle
Henderson, Nevada 89012
Norman G. Kelln<F3> 113,628 2.04% 102,266 1.84%
2031 S. Eastern Lane
Spokane, Washington 99212
Glen (Tom) Pickell 7,000 .12% 6,300 11%
115 NW Oregon Avenue, Suite 20
Bend, Oregon 97701
Jay L. King
4600 North Donna Street
North Las Vegas, Nevada 89031 25,000 .45% 22,500 .40%
David E. Sampson<F3> 40,955 .74% 36,864 .66%
4009 - 205th Avenue N.E.
Woodinville, Washington 98072
All Officers and Directors 2,012,825 35.68% 1,811,548 31.56%
as a Group (7 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>General Partners of Sines-Forte Partnership and would be deemed to be
beneficial owners of the 1,261,900 Common Shares shown above.
<F3>Former partners of Sharps International Limited Partnership.
<F4> 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.
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.
<PAGE>25
<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%
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 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.
<PAGE>26
<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%
Richard Huson 64,483 25.79% 64,483 25.79%
All Officers and
Directors
As a Group (7) 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%
Randy Sines 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 (7) 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.
<PAGE>27
- ----------------------------------------------------------
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.
- ----------------------------------------------------------
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.
<PAGE>28
- ----------------------------------------------------------
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. 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.
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.
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.
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
<PAGE>29
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. 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.
- --------------------------------------------------------
INTERESTS OF NAMED
EXPERTS AND COUNSEL
- --------------------------------------------------------
None of the experts or counsel named in the Prospectus are affiliated with
the Company.
<PAGE>30
Casinovations Incorporated
(A Development Stage Company)
Balance Sheet
Unaudited
March 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
1997
Current assets:
Cash $ 374,170
Accounts receivable 34,372
Inventory 856
Prepaid expenses 178,655
-----------
Total current assets 588,064
Property and equipment, at cost, net of
accumulated depreciation of $2,498 16,714
Other assets:
Patents and trademarks, net of
accumulated amortization of $2,305 149,181
Other 7,175
-----------
171,233
-----------
$ 760,078
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable, trade $ 24,781
Accounts payable - related parties 109
Accrued wages 62,750
Accrued expenses 345
Amounts due affiliates 681,902
-----------
Total current liabilities 769,867
Long Term Liabilities -
Stockholders' equity:
Common stock, $.001 par value,
20,000,000 shares authorized,
5,381,000 issued and outstanding 5,381
Additional paid-in capital 2,558,365
(Deficit) accumulated during
development stage (2,573,555)
-----------
(9,809)
-----------
$ 760,078
==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>31
Casinovations Incorporated
(A Development Stage Company)
Statement of Operations
For the Three Months Ended March 31, 1997 and 1996
Unaudited
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Revenues $ 632 $ 114
Other income 6,175 -
----------- -----------
$ 6,807 $ 114
Costs and expenses:
General and administrative expenses $ 389,623 $205,442
----------- -----------
Net Loss $(382,816) $(205,328)
=========== ===========
Earnings (loss) per share:
Net income (loss) $ (.07) $ (.04)
=========== ===========
Weighted average shares outstanding 5,381,000 4,983,510
=========== ===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>32
Casinovations Incorporated
(A Development Stage Company)
Statements of Cash Flows
For the THREE MONTHS Ended March 31, 1997 and 1996
Unaudited
<TABLE>
<CAPTION>
1997 1996
------ ------
<S> <C> <C>
Net income (loss) $(382,816) $(205,328)
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 812 5,222
Changes in assets and liabilities:
(Increase) in accounts receivable (28,245) (122)
(Increase in accrued interest receivable (3,294)
(Increase) in prepaid expenses (177,941)
Increase (decrease) in accounts payable (81,963) (119,134)
Increase (decrease) in Wages payable (29,200) 39,000
Increase (decrease) in Notes Payable (57,912) 300,668
Increase (decrease) in Taxes payable (12,055) 7,218
----------- -----------
Total adjustments $(389,798) 232,852
----------- -----------
Net cash provided by (used in)
operating activities $(772,614) $27,524
Cash flows from investing activities:
Acquisition of plant and equipment (5,410) (2,600)
Increase patents and trademarks (5,613) (30,896)
----------- -----------
Net cash provided by (used in)
investing activities (11,022) (33,496)
Cash flows from financing activities:
Common stock sold for cash 602,623 30,000
----------- -----------
Net cash provided by (used in)
financing activities $602,623 $30,000
----------- -----------
Increase (decrease) in cash $(181,013) $24,027
Cash and cash equivalents,
beginning of period (552,878) (1,462)
----------- -----------
Cash and cash equivalents,
end of period 374,170 25,489
=========== ===========
Supplemental cash flow information:
Cash paid for interest $ - $ -
Cash paid for income taxes $ - $ -
</TABLE>
See accompanying notes to financial statements.
<PAGE>33
Casinovations Incorporated
Notes to Financial Statements
March 31, 1997 and 1996
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 $812 and $299 for the years ended March 31, 1997
and 1996, 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 $0.0 at March 31, 1997.
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.
<PAGE>34
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
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 September 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 to the
Company financial consulting services. 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. Additionally, 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
amounts 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 October 1996 the Company began offering shares of its common
stock at $1.50 per share pursuant to a private placement. Through
March 31, 1997, the Company issued 828,177 shares of common stock
for net cash proceeds aggregating $1,232,265.50.
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.
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.
<PAGE>35
Note 4. RELATED PARTY TRANSACTIONS
During the three months ended March 31, 1997, certain officers and
shareholders made advances to the Company for working capital purposes. The
balances payable by the Company aggregated $604,090 at March 31, 1997. The
advances accrue interest at between 9.5% and 14.5% per annum. One of the
advances in the amount of $260,417 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 $23,500 for the three
months ended March 31, 1996 and $2,792 for the three months ended March 31,
1997 to a company controlled by one of its officers for administrative
services provided to the Company. At March 31, 1997, the Company had a
balance due to this company of $0.00. The Company incurred research and
development costs aggregating $100,450 and $0.00 during the three months
ended March 31, 1996 and 1997, respectively from a company controlled by a
member of its board of directors, and had a balance due to this company of
$0.00 at March 31, 1997.
<PAGE>36
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>37
Casinovations Incorporated
(A Development Stage Company)
Balance Sheet
December 31, 1996
<TABLE>
ASSETS
1996
<S> <C>
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>38
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>39
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
<S> <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) (1,638,227)
---------- ---------- ---------- ----------
Balance, December 31, 1996 5,640,640 4,963,510 $ 4,964 $ 1,956,159
========== ========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>40
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>41
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
<PAGE>42
for rescission of said sales if such exemption was found not to
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 September 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 to the
Company financial consulting services. 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. Additionally, 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
amounts 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 591,510 shares of common stock
for net cash proceeds aggregating $887,265. Additionally during 1996
the Company issued an aggregate of 467,000 shares (including the
consulting shares described above) to consultants and others. The
shares were valued at fair value of $1.50 per share.
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.
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.
<PAGE>43
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's 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.
Note 7. SUBSEQUENT EVENT
Subsequent to December 31, 1996, the Company continued the private
sale of its $.001 par value common stock to a limited investor group.
The Company sold an aggregate of 236,667 shares of stock for gross
proceeds of $355,000.
<PAGE>44
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.
<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.
<TABLE>
<CAPTION>
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>
<PAGE>45
The Company also 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 other than a NASD selected broker/dealer.
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 3/26/95 $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
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
<PAGE>46
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.
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.
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.
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.
<TABLE>
<CAPTION>
Name Total Number Services
of Shares Date Issued Valued At
<S> <C> <C> <C>
Gaming Venture Corp. 200,000 12/28/96 $350,000
Pratt, Wylce & Lords 29,100 12/2/96 $37,500
Clinton Clark 60,900 12/11/96 $75,000
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
During May and June, 1997, the Corporation issued the following Common Shares
to sophisticated investors for cash consideration or services pursuant to an
exemption from registration under Section 4(2) of the Securities Act of 1933.
<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.
Item 27. Exhibit Index.
(1) Not Applicable
(2) Not Applicable
(3) Certificate of Incorporation
(3.1) Amendment to Articles of Incorporation dated October 14, 1996
(3.2) Amendment to Articles of Incorporation dated February 18, 1997
(3.3) Bylaws
(4) Specimen certificate for Common Stock
(4.1) Specimen Warrant certificate
(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
<PAGE>47
(6) Not Applicable
(7) Not Applicable
(8) Not Applicable
(9) Not Applicable
(10.1) Consulting Agreement of GameTek and Steven J. Blad
(10.2) Consulting Agreement with Gaming Venture Corp., U.S.A.
(10.3) Exclusive Distributorship Agreement with Sodak Gaming, Inc.
(10.4) Exclusive Distributorship Agreement with RGB SDN BHD
(10.5) Exclusive Distributorship Agreement with B. Joel Rahn
(10.6) Exclusive License Agreement with George C. Matteson Co., Inc.
(10.7) License Agreement with United States Playing Card Company
(10.8) Royalty Agreement with Sines/Forte Partnership
(10.9) Promissory Note with Richard Huson
(11) Not Applicable
(12) Not Applicable
(13) Not Applicable
(14) Not Applicable
(15) Not Applicable
(16) Not Applicable
(17) Not Applicable
(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.
(25) Not Applicable
(26) Not Applicable
(27) Financial Data Schedule
(28) Not Applicable
(99) Employment Agreement of Jay L. King
(99.1) Employment Agreement with Randy D. Sines
(99.2) Employment Agreement with Steven L. Forte
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>46
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 14th the day of July, 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 July 14, 1997
/s/Jay L. King controller/Director
- ------------------- Principal Financial Officer July 14, 1997
/s/Steven Forte Director July 14, 1997
- -------------------
/s/David Sampson Director July 14, 1997
- -------------------
/s/Norman Kelln Director July 14, 1997
- -------------------
/s/Randy Sines Director July 14, 1997
- -------------------
</TABLE>
<PAGE>49
ARTICLES OF INCORPORATION
OF
CASINOVATIONS INCORPORATED
The Undersigned, RANDY D. SINES, for the Purpose of forming a corporation
under the Washington Business Corporation Act, hereby certify and adopt the
following Articles of Incorporation:
Article I
NAME
The name of the corporation shall be "Casinovations Incorporated", and its
existence shall be perpetual.
Article II
SHARES
The total authorized number of shares of this corporation is ten million
(10,000,000) shares, with a Par value per share of One Dollar ($1.00).
Article III
REGISTERED AGENT
The registered agent of this Corporation and the street address
of the registered office of this Corporation are as follows;
Registered Agent Registered Office Street
and Mailing Address
Randy D. Sines South 4056 Madelia
Spokane, WA 99203
Article IV
DIRECTORS
1. Number. The number of Directors of this Corporation and the manner
in which such directors are to be elected shall be as set forth in the
Bylaws. The names and addresses of the initial directors are as follows:
Name Address
Randy D. Sines South 4056 Madelia
Spokane, WA 99203
Cheryl L. Forte 315 Francisco Street
Henderson, NV 89014
Norman G. Kelln 2031 S. Eastern Lane
Spokane, WA 99212
David E. Sampson 14009 205th Avenue NE
Woodinville, WA 98072
Richard S. Huson 121 SW Morrison
Suite 1400
Portland, OR 97204
2. Limitation on Liability. A director of the Corporation shall not be
personally liable to the Corporation or its shareholders for monetary damages
for conduct as a director, except for:
(a) Acts or omissions involving intentional misconduct by the director or
a knowing violation of law by the director;
(b) Conduct violating RCW 23B.08.310 (which involves certain distributions
by the corporation); or
(c) Any transaction from which the director will personally receive a
benefit in money, property, or services to which the director is not legally
entitled. If the Washington Business Corporation Act is amended to authorize
corporate action further eliminating or limiting the personal liability of
directors, then the liability of a director of the Corporation shall be
eliminated or limited to the fullest extent permitted by the Washington
Business Corporation Act, as so amended. Any repeal or modification of the
foregoing paragraph by the shareholders of the Corporation shall not
adversely affect any right or protection of a director of the Corporation
with respect to any acts or omissions of such director occurring prior to
such repeal or modification. The Corporation shall indemnity its directors
and officers to the full extent permitted by the Washington Business
Corporation Act now or hereafter in force. The Corporation shall indemnify
and advance all corporate expenses to its directors, officers, agents and
employees.
<PAGE>50
Article V
INCORPORATOR
The names and addresses of the incorporators are as follows:
Name: Address:
Randy D. Sines South 4056 Madelia
Spokane, WA 99203
IN WITNESS WHEREOF, the incorporators hereunto set their hand this 19th day
of September, 1995.
/s/ RANDY D. SINES
Incorporator
<PAGE>51
ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION
OF
CASINOVATIONS INCORPORATED
Articles of Amendment to the Articles of Incorporation of Casinovations
Incorporated are herein executed by said Corporation pursuant to the
provisions of RCW 23B.10, as follows:
1. The name of the Corporation is "Casinovations Incorporated".
2. The amendment to the Articles of Incorporation of said Corporation
were duly approved by all the Directors of the Corporation in accordance with
the provisions of RCW 23B.10.020 as follows:
Article II
The total authorized number of shares of this Corporation is ten million (I
0,000,000) shares. Each of such shares shall have a par value of $.001.
1. The date of the adoption of said amendment by the shareholders of the
Corporation is October 2,
1996.
2. This Amendment was unanimously adopted by the Board of Directors without
Shareholder approval pursuant to RCW 23B.10.020.
3 . The number of Directors voting for and against said amendment,
respectively, was as follows:
Director Votes
For Amendment All six (6) Directors
Against Amendment Zero Directors
4. The amendment does not provide for cancellation, exchange, or
reclassification of issued shares of the Corporation.
DATED this 2nd day of October, 1996.
CASINOVATIONS INCORPORATED
By: Randy D. Sines
President & Member of Board of Directors
PAGE>52
ARTICLES OF AMENDMENT TO ARTICLES OF INCORPORATION
OF
CASINOVATIONS INCORPORATED
Articles of Amendment to the Articles of Incorporation of Casinovations
Incorporated are herein executed by said Corporation pursuant to the
provisions of RCW 23B. 10, as follows:
1. The name of the Corporation is "Casinovations Incorporated".
2. The amendment to the Articles of Incorporation of said Corporation were
duly approved by all the Directors of the Corporation in accordance with the
provisions of RCW 23B. 10.020 as follows:
Article II
The total authorized number of shares of this Corporation is twenty million
(20,000,000) shares. Each of such shares shall have a par value of $.001.
Article VI
NO PREEMPTIVE RIGHTS, NO CUMULATIVE VOTING RIGHTS. Shareholders of
this
corporation shall have no preemptive rights to acquire additional shares
issued by the Corporation and no cumulative voting rights.
3. The date of the adoption of said amendment by the shareholders of the
Corporation is January 14,
1997.
4. The number of shares outstanding of said Corporation was five million
ninety-four thousand five hundred ten (5,094,510) shares; and the number of
shares entitled to vote thereon was five million ninety-four thousand five
hundred ten (5,094,510).
5. The number of shares voting for the amendment was more than 2/3rds of
outstanding shares and against said amendments, respectively, was as follows:
Shares
For Amendment 4,032,987.5
Against Amendment -0-
Not Voting 1,061,522.5
Total 5,094,510
6. The amendment does not provide for cancellation, exchange, or
reclassification of issued shares of the Corporation.
Dated this ___ day of January, 1997.
CASINOVATIONS INCORPORATED
By: Tom Pickell
President & Member of Board of Directors
<PAGE>53
BYLAWS
OF
CASINOVATIONS INCORPORATED
ARTICLE I
Shareholders
Section 1. Annual Meeting The annual meeting of the
shareholders of this corporation shall be held during the third week
__________ of each year. The failure to hold an annual meeting at the
time stated in these Bylaws does not affect the validity of any
corporate action.
Section 2. Special Meeting. Except as otherwise provided by
law, special meetings of shareholders of this Corporation shall be held
whenever called by any officer or by the Board of Directors or one or
more shareholders who hold at least ten percent (10%) of all shares
entitled to vote at the meeting.
Section 3. Place of Meetings. Meetings of shareholders shall
be held at Spokane, Washington, or at such place within or without the
State of Washington as determined by the Board of Directors, pursuant to
the proper notice.
Section 4. Notice. Written notice of each shareholders'
meeting stating the time and place and, in case of a special meeting,
the purpose(s) which such meeting is called, shall be given by the
Corporation, not less than ten (10) (unless a greater period of notice
is required by law in a particular case) nor more than sixty (60) days
prior to the date of the meeting, to each shareholder of record entitled
to vote (unless required by law to send notice to all shareholders
regardless of whether or not such shareholders are entitled to vote), to
the shareholder Is address as it appears on the current record of
shareholders of this Corporation. If mailed with first-class postage,
such notice shall be deemed to be effective when mailed to the
shareholders at such address as provided above. If notice is sent to a
shareholder's address, telephone number or other number appearing on the
records of the corporation, the notice is effective when dispatched.
Section 5. Waiver of Notice. A shareholder may waive any notice
required to be given by these Bylaws, or the Articles of Incorporation
of the Corporation, or any of the corporate laws of the State of
Washington before or after the meeting that is the subject of such
notice. A valid waiver is created by any of the following three
methods: (a) in writing, signed by the shareholder entitled to the
notice and delivered to the Corporation for inclusion in its corporate
records; (b) attendance at the meeting, unless the shareholder at the
beginning of the meeting objects to holding the meeting or transacting
business at the meeting; or (c) failure to object at the time of
presentation of a matter not within the purpose or purposes described in
the meeting notice.
Section 6. Quorum. At any meeting of the shareholders, a majority in
interest of all the shares entitled to vote represented by shareholders
of record in person or by proxy, shall constitute a quorum of that
voting group for action on that matter. When a quorum is present at any
meeting, action on a matter is approved by a voting group if the votes
cast within the voting group favoring the action exceed the votes cast
within the voting group opposing the action, unless the question is one
upon which by express provision of law or of the Articles of
Incorporation or of these Bylaws a different vote is required. Once a
quorum is present, shareholders may continue to transact business at the
meeting notwithstanding the withdrawal of enough shareholders to leave
less than a quorum.
Section 7. Proxy and Voting Shareholders of record may vote at any
meeting either in person or by proxy executed in writing. A proxy is
effective when received by the person authorized to tabulate votes for
the Corporation. A proxy is valid for eleven (11) months unless a
longer period is expressly provided in the proxy. Subject to the
provisions of the laws of the State of Washington, and unless otherwise
provided in the Articles of Incorporation, each holder of shares of
stock in this Corporation shall be entitled at each shareholder's
meeting to one vote on each matter submitted to a vote for every share
of stock standing in such shareholder's name on the books of this
Corporation.
Section 8. Action Without a Meeting . Any action required or permitted
to be taken at a meeting of the shareholders may be taken without a
meeting if a consent in writing, setting forth the action so taken,
shall be signed by all the shareholders entitled to vote with respect to
the subject matter thereof. Action taken by consent is effective when
all consents are in possession of the Corporation, unless the consent
specifies a later date.
<PAGE>54
If the corporate laws of the State of Washington require that notice of a
proposed action be given to nonvoting shareholders, and the action is to be
taken by unanimous consent of the voting shareholders, the Corporation must
give its nonvoting shareholders written notice of the proposed action at
least ten (10) days before the action is taken. The notice must contain or be
accompanied by the same material that would have been required to be sent to
the nonvoting shareholders in a notice of meeting at which the proposed
action would have been submitted to such shareholders for action.
Section 9. Conference Telephone. Meetings of the shareholders may be
effectuated by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can
hear each other at the same time, participation by such means shall
constitute presence in person at such meeting.
Section 10. Adjournment. A majority of the shares represented at the
meeting, even if less than a quorum, may adjourn the meeting from time
to time. At such reconvened meeting at which a quorum is present, any
business may be transacted which might have been transacted at the
meeting as originally notified. If a meeting is adjourned to a different
date, time, or place, notice need not be given of the new date, time, or
place if a new date, time or place is announced at the meeting before
adjournment however, if a new record date for the adjourned meeting is
or must be fixed in accordance with the corporate laws of the State of
Washington, notice of the adjourned meeting must be given to persons who
are shareholders as of the new record date.
ARTICLE II
Board of Directors
Section 1. Number, Tenure and Qualifications. The business affairs and
property of this Corporation shall be managed by a Board of not less
than one (1) director nor more than nine (9) directors. The number of
directors may at any time be increased or decreased by the shareholders
or by the Board of Directors at any regular or special meeting.
Directors need not be shareholders of this Corporation or
residents of the State of Washington.
Section 2. Election - Term of Office. The directors shall be elected
by the shareholders at each annual shareholders' meeting to hold office
until the next annual meeting of the shareholders or until their
respective successors are elected and qualified.
Section 3. Powers of Directors. The Board of Directors shall have the
entire management of the business of this Corporation. In addition to
the powers and authorities by these Bylaws and the Articles of
Incorporation expressly conferred upon it, the Board of Directors may
exercise all such corporate powers of this Corporation and do all such
lawful acts and things as are not by statute or by the Articles of
Incorporation or by these Bylaws directed to be exercised or done by the
shareholders.
Section 4. Regular Meetings. Regular meetings of the Board of
Directors shall be held at such places, and at such times as the Board
by vote may determine, and, if so determined, no notice thereof need be
given.
Section 5. Special Meetings. Special meetings of the Board of Directors
may be held at any time or place whenever called by any officer or two
or more directors, notice thereof being given to each Director by the
officer calling or by the officer directed to call the meeting.
Section 6. Notice. Notice of special meetings of the Board of
Directors, stating the date, time, and place thereof, shall be given at
least two (2) days prior to the date of the meeting. Such notice may be
oral or written. Oral notice may be communicated in person or by
telephone, wire or wireless equipment, which does not transmit a
facsimile of the notice. Oral notice is effective when communicated.
Written notice may be transmitted by mail, private carrier, or personal
delivery; telegraph or teletype; or telephone, wire, or wireless
equipment which transmits a facsimile of the notice. Written notice is
effective at the earliest of the following: (a) when dispatched, if
notice is sent to the director's address, telephone number or their
number appearing upon the records of the Corporation; (b) when received;
(c) five (5) days after its deposit in the U.S. mail if mailed with
first-class postage; (d) on the date shown on the return receipt, if
sent by registered or certified mail, return receipt requested, and the
receipt is signed by or on behalf of the addressee.
Section 7. Waiver of Notice. A director may waive notice of a
special meeting of the Board either before or after the meeting, and
such waiver shall be deemed to be equivalent of the giving notice. The
waiver must be in writing, signed by the director and entitled to the
notice and delivered to the Corporation for inclusion in its corporate
records. Attendance of a director at a meeting shall constitute waiver
of notice of that meeting unless said director attends for the express
purpose of objecting to the transaction of business because the meeting
has not been lawfully called or convened.
<PAGE>55
Section 8. Conference Telephone. Meetings of the Board of Directors
or any committee designated by the Board of Directors may be effectuated
by means of a conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each
other at the same time, and participation by such means shall constitute
presence in person at such meetings.
Section 9. Quorum of Directors. A majority of the members of the Board
of Directors shall constitute a quorum for the transaction of business.
when a quorum is present at any meeting, a majority of the members
present thereat shall decide any question brought before such meeting,
except as otherwise provided by law or the Articles of Incorporation or
by these Bylaws.
Section 10. Adjournment. Any meeting of the Board of Directors may be
adjourned and continued at a later time, including a meeting at which a
quorum is not present. Notwithstanding Section 6 of this Article,
notice of the adjourned meeting or of the business to be transacted
there, other than by announcement at the meeting of which the
adjournment is taken, shall not be necessary. At an adjourned meeting
at which a quorum is present, any business may be transacted which could
have been transacted at the meeting as originally called.
Section 11. Action Without a Meeting. Any action required or permitted
to be taken by the Board of Directors at a meeting may be taken Without
a meeting if a consent in writing, setting forth the action so taken,
shall be signed by all of the directors. Action by consent is effective
when the last director signed the consent, unless the consent specifies
a later date.
Section 12. Resignation and Removal. Any director of this Corporation
may resign at any time by giving written notice to the Board of
Directors, or to its Chairperson, or the President or Secretary of this
Corporation. Any such resignation is effective when the notice is
delivered, unless the notice specifies a later date.
The shareholders, at a special meeting called expressly for that
purpose, may remove from office with or without cause one or more
directors and elect their successors. A director may be removed only if
the number of votes cast for removal exceeds the number of votes cast
against removal.
Section 13. Vacancies. Unless otherwise provided by law, if the office
of any director becomes vacant by any reason other than removal, the
directors may, by the affirmative vote of the majority of the remaining
directors, though less than a quorum, choose a successor or successors
who shall hold office for the unexpired term of the predecessor
director. Vacancies in the Board of Directors may also be filled for
the unexpired term by the shareholders at a meeting called for that
purpose, unless such vacancies shall have been filled by the directors.
Vacancies resulting from an increase in the number of directors may be
filled in the same manner.
Section 14. Compensation. By resolution of the Board of Directors, each
director may be paid expenses, if any, of attendance at each meeting of
the Board of Directors, and may be paid a stated salary as director, or
a fixed sum for attendance at each meeting of the Board of Directors, or
both. No such payment shall preclude any director from serving this
Corporation in any other capacity and receiving compensation therefor.
Section 15. Presumption of Assent. A director of this Corporation who
is present at a meeting of the Board of Directors at which, action on
any corporate matter is taken shall be presumed to have assented to the
action taken unless: (a) the director objects at the beginning of the
meeting, or promptly upon the director's arrival, to the holding of the
meeting or transacting business at the meeting; (b) the director's
dissent or abstention from the action taken is entered in the minutes of
the meeting; or (c) the director shall file written dissent or
abstention with the presiding officer of the meeting before such
adjournment or to the Corporation within a reasonable time after the
adjournment of the meeting. Such right to dissent shall not apply to a
director who voted in favor of such action.
Section 16. Committees. The Board of Directors may, by resolution
adopted by a majority of the full Board of Directors, designate from
among its members an Executive Committee and one or more other
committees, each of which, to the extent provided in such resolution,
shall have and may exercise all the authority of the Board of Directors,
except no such committee shall have the authority to (a) authorize or
approve a distribution except according to a general formula or method
prescribed by the Board of Directors; (b) approve or propose to
shareholders action which the corporate law requires to be approved by
shareholders; (c) f ill vacancies on the Board of Directors or on any of
its committees; (d) amend Articles of Incorporation; (e) adopt, amend,
or repeal Bylaws; (f ) approve a plan of merger not requiring
shareholder approval; or (g) authorize or approve the issuance or sale
<PAGE>56
or contract for sale of shares, or determine the designation and
relative rights, preferences, and limitations on a class or series of
shares, except that the Board of Directors may authorize a committee, or
a senior executive officer of the Corporation, to do so within limits
specifically prescribed by the Board of Directors.
ARTICLE III
Officers
Section 1. Positions. The officers of this Corporation may be a
President, one or more Vice-Presidents, and a Treasurer, as appointed-
by the Board. The Board of Directors shall appoint a Secretary. The
Board of Directors in its discretion may appoint a Chairman from amongst
its members to serve as Chairman of the Board of Directors, who, when
present, shall preside at all meetings of the Board of Directors, and
who shall have such other powers as the Board may determine. No officer
need be a shareholder of this Corporation.
Section 2. Additional Officers and Agents. The Board of Directors, at
its discretion, may appoint a general manager, one or more 'assistant
treasurers, and one or more assistant secretaries and such other
officers or agents as it may deem advisable, and prescribe duties
thereof.
Section 3. Appoint and Term of Office. The officers of the Corporation
shall be appointed annually by the Board of Directors at the first
meeting of the Board of Directors held after each annual meeting of the
shareholders. if officers are not appointed at such meeting, such
appointment shall occur as soon possible thereafter. Each officer shall
hold office until a successor shall have been appointed and qualified or
until said officer's death or until said officer shall have resigned or
shall have been removed in the manner hereafter provided. The
appointment of an officer does not itself create contract rights.
Section 4. Powers and Duties. If the Board appoints persons to fill the
officer positions, such officer shall have the following powers and
duties:
a. President. The President shall be the chief executive officer
of this Corporation, shall have general supervision of the business of
this Corporation, and, when present, shall preside at all meetings of
the shareholders and, unless a Chairman of the Board of Directors has
been elected and is present, shall preside at meetings of the Board of
Directors. The President, or any Vice President or such other person(s)
as are specifically authorized by vote of the Board of Directors, shall
sign all bonds, deeds, mortgages, and any other agreements, and such
signatures) shall be sufficient to bind this Corporation. The President
shall perform such other duties as the Board of Directors shall
designate.
b. Vice-President. During the absence or disability of the
President, the Vice-President (or in the event that there be more than
one Vice-President, the Vice-Presidents in the order designated by the
Board of Directors) shall exercise all functions of the President. Each
Vice-President shall have such powers and discharge such duties as may
be assigned from 'time to time to such Vice-President by the President
or by the Board of Directors.
c. Secretary. The Secretary shall keep accurate minutes of all meetings
of the shareholders and the Board of Directors, and shall perform all
the duties commonly incident to this office, and shall perform such
other duties and have such other powers as the Board of Directors shall
designate. In the Secretary's absence, an Assistant Secretary shall
perform the Secretary's duties.
d. Treasurer. The Treasurer, an agent, or such other person as
authorized by the Board of Directors shall have the care and custody of
the money, funds, valuable papers, and documents of this Corporation,
and shall have and exercise, under the supervision of the Board of
Directors, all the powers and duties commonly incident to this office.
Section 5. Salaries. The salaries, if any, of the officers shall be
fixed from time to time by the Board of Directors. No officers shall be
prevented from receiving such salary by reason of the fact that said
officer is also a director of this Corporation.
Section 6. Resignation or Removal. Any officer of this Corporation may
resign at any time by giving written notice to the Board of Directors,
or to any officer of this Corporation. Any such resignation is
effective when the notice is delivered, unless the notice specifies a
later date.
The Board of Directors , by vote of not less than a majority of the
entire Board, may remove f from of f ice any of f officer or agent
appointed by it. The removal shall be without prejudice to the contract
rights if any, of the person so removed. The appointment of an officer
or agent shall not of itself create contract rights.
Section 7. Vacancies, If the of f ice of any of f officer or agent
becomes vacant by any reason, the directors may, by the affirmative f
affirmative vote of a majority of the directors, choose a successor or
successors who shall hold office for the unexpired term.
<PAGE>57
ARTICLE IV
Certificates of Shares and Their Transfer
Section 1. Issuance;-Certificates of Shares. No shares of this
Corporation shall be issued unless authorized by the Board or a
committee of the Board. Such authorization shall include the maximum
number of shares to be issued, the consideration to be received, and a
statement that the Board considers the consideration to be adequate.
Certificates for shares of the Corporation shall be in such form as is
consistent with the provisions of the Washington Business Corporation
Act and shall state:
a. The name of the Corporation and that the Corporation is
organized under the laws of the State of Washington;
b. The name of the person to whom issued; and
c. The number and class of shares and designation of the series, if any,
which such certificate represents. The certificate shall be signed by
original or facsimile signature of two officers of the Corporation, and the
seal of the Corporation may be affixed thereto.
Section 2. Transfer of Stock. Shares of stock may be transferred by
delivery of the certificate accompanies by either an assignment in
writing on the back of the certificate or by a written power of attorney
to sell, assign, and transfer the same on the books of this Corporation,
signed by the person appearing on the certificate to be the owner of the
shares represented thereby, and shall be transferable on the books of
this Corporation upon surrender thereof so assigned or endorsed.
Section 3. Loss of Certificates. In case of the loss,, mutilation, or
destruction of a certificate of stock, a duplicate certificate may be
issued upon such terms as the Board of Directors shall prescribe.
Section 4. Transfer Books. For the purpose of determining shareholders
entitled to notice of or to vote at any meeting of shareholders or any
adjournment thereof, or entitled to receive payment of any dividend, or
in order to make a determination of shareholders for any other proper
purpose, the Board of Directors may fix in advance a record date for any
such determination of shareholders, such date in any case to be not more
than seventy (70) days and, in case of a meeting of shareholders, not
less than ten (10) days prior to the date on which the particular
action, requiring such determination of shareholders, is to be taken.
If no record date is fixed for the determination of shareholders
entitled to notice of or to vote at a meeting of shareholders, or
shareholders entitled to receive payment of a dividend, the date on
which notice of the meeting is mailed or that date on which the
resolution of the Board of Directors declaring such dividend is adopted,
as the case my be, shall be the record date f or such determination of
shareholders. when a determination of shareholders entitled to vote at
any meeting of shareholders has been made as provided in this Section,
such determination shall apply to any adjournment thereof.
Section 5. Voting Record. The of f officer or agent having charge of
the stock transfer books for shares of this Corporation shall make at
least ten (10) days before each meeting of shareholders a complete
record of the shareholders entitled to vote at such meeting or any
adjournment thereof, arranged in alphabetical order, with the address of
and the number of shares held by each. Such record shall be produced
and kept open at the time and place of the meeting and shall be subject
to the inspection of any shareholder during the whole time of the
meeting for the purposes thereof.
ARTICLE V
Books and Records; Financial Statements
Section 1. Books and Records. The Corporation:
a . Shall I keep as permanent records minutes of all meetings of its
shareholders and Board of Directors, a record of all actions taken by
the shareholders and Board of Directors without a meeting, and a record
of all actions taken by a committee of the Board of Directors on behalf
of the Corporation;
b. Shall maintain appropriate accounting records;
c. Or its agent shall maintain a record of its shareholders, in a
form that permits preparation of a list of the names and addresses of
all shareholders, in alphabetical order by class of shares showing the
number and class of shares held by each; and
d. Shall keep a copy of the following records at its principal
office:
(1) The Articles or Restated Articles of Incorporation and all
amendments to them currently in effect;
(2) The Bylaws or Restated Bylaws and all amendments to them
currently in effect;
(3) The minutes of all shareholder's meetings, and records of
all actions taken by shareholders without a meeting, for the past three
(3) years;
<PAGE>58
(4) Its financial statements for the past three (3) years,
including balance sheets showing in reasonable detail the financial
condition of the Corporation as of the close of each fiscal year, and an
income statement showing the results of its operations during each
fiscal year prepared on the basis of generally accepted accounting
principles or, if not, prepared on a basis explained therein;
(5) All written communications to shareholders generally
within the past three (3) years;
(6) A list of the names and business addresses of its
current directors and officers; and
(7) Its most recent annual report delivered to the
Secretary of State of Washington.
Section 2. Financial Statements. Not later than four (4) months after
the close of its fiscal year, and in any event prior to the annual
meeting of shareholders, the Corporation shall prepare a balance sheet
and income statement as of the close of the fiscal year. upon written
request, the Corporation shall mail to any shareholder a copy of the
most recent balance sheet and income statement. If the annual financial
statements are reported upon by a public accountant, the accountant's
report must accompany them. If not, the statements must be accompanied
by the statement required in under the laws of the State of Washington,
which is signed by the President or a person responsible for the
Corporation's accounting records.
ARTICLE VI
Indemnification of Officers
Directors, Employees and Agents
Section 1. Definitions. As used in this Article:
a. "Act" means the Washington Business Corporation Act, as now or
hereafter amended.
b. "Another enterprise" means a corporation (other than the
Corporation), partnership, joint venture, trust, association, committee,
employee benefit plan, or other group or entity.
c. "Corporation" means Casinovations Incorporated, and any
domestic or foreign predecessor entity which, in merger or other
transactions, ceased to exist.
d. "Director" means each person who is or was a director of the
Corporation or an individual who, while a director of the Corporation,
is or was serving, at the request of the Corporation, as a director,
officer, partner, trustee, employee, or agent of Another Enterprise.
e. "Expenses" includes counsel fees.
f. "Indemnitee" means each person who was, is or is threatened to
be made a party to or is involved (including without limitation as a
witness) in any Proceeding because the person is or was a director,
officer , employee, or agent of the Corporation and who possesses
indemnification rights pursuant to the Articles, these Bylaws or other
corporate action. The term shall also include, for officers, employees,
or agents, service at the Corporation's request as a director, officer,
partner, trustee, employee, or agent of Another Enterprise.
g. "Loss" means the obligation to pay a judgment, settlement,
penalty, fine, including an excise tax assessed with respect to an
employee benefit plan, or reasonable Expenses incurred with respect to a
Proceeding.
h. "Party" includes an individual who was, is, or is threatened to
be, named a defendant or respondent in a Proceeding.
Section 2. Right to indemnification. The Corporation shall indemnify
and hold each director and officer harmless against any and all Loss
except for Losses arising out of: (a) the Indemnity's acts or omissions
finally adjudged to be intentional misconduct or a knowing violation of
law, (b) the Indemnity's approval of certain distributions or loans by
such Indemnity which are finally adjudged to be in violation of RCW
23B.08.310, or (c) any transaction in which it is finally adjudged that
the Indemnitee personally received a benefit in money, property, or
services to which the Indemnitee was not legally entitled. Except as
provided in Sections 5. and 6. of this Article, the Corporation shall
not indemnify an Indemnitee in connection with a Proceeding (or part
thereof) initiated by the Indemnitee unless such Proceeding (or part
thereof) was authorized by the Board of Directors of the Corpora-
Corporation. If, after the effective date of this Article, the Act is
amended to authorize further indemnification of directors or officers,
then directors and officers of this Corporation shall be indemnified to
the fullest extent permitted by the Act, as so amended.
Section 3. Contribution. If the indemnification provided in Section 2
of this Article is not available to be paid to Indemnitee for any reason
other than those set forth in subparagraphs (a), (b) and (c) of Section
2 of this Article (for example, because indemnification is held to be
against public policy even though otherwise permitted under Section 2
(then in respect of any Proceeding in which the Corporation is jointly
liable with Indemnitee (or would be if joined in such Proceeding), the
Corporation shall contribute to the amount of loss paid or payable by
Indemnitee in such proportion as is appropriate to reflect (a) the
relative benefits received by the Corporation on the one hand and the
Indemnitee on the other hand from the transaction from which such
Proceeding arose, and (b) the relative fault of the Corporation on the
one hand and the Indemnitee on the other hand in connection with the
events which resulted in such loss, as well as any other relevant
<PAGE>59
equitable consideration. The relative fault of the Corporation on the
one hand and the Indemnitee on the other shall be determined by a court
of appropriate jurisdiction (which may be the same court in which the
Proceeding took place) with reference to, among other things, the
parties, relative intent, knowledge, access to information, and
opportunity to correct or prevent the circumstances resulting in such
loss. Corporation agrees that it would not be just and equitable if
contribution pursuant to this Section 3 was determined by pro rata
allocation or any other method of allocation which does not take account
of the foregoing equitable considerations.
Section 4. Notification and Defense of Claim. Promptly after receipt by
Indemnitee of notice of commencement of any Proceeding, Indemnitee must,
if a claim in respect thereof is to be made against the Corporation
under this Article, notify the Corporation of the commencement thereof;
with respect to any such Proceeding as to which Indemnitee has notified
Corporation of the
commencement thereof:
a. The Corporation will be entitled to participate therein at its
own expense.
b. Except as otherwise provided below, to the extent that it may
wish, the Corporation, jointly with any other indemnifying party
similarly notified, will be entitled to assume the defense thereof, with
counsel satisfactory to Indemnitee. After notice from the Corporation
to Indemnitee of its election to assume the defense thereof, the
Corporation will not be liable to Indemnitee under this Article for any
legal or other expenses subsequently incurred by Indemnitee in
connection with the defense thereof, other than reasonable costs of
investigation or as otherwise provided below. Indemnitee shall have the
right to employ its counsel in such Proceeding, but the fees and
expenses of such counsel incurred after notice from the Corporation of
its assumption of the defense thereof shall be at the expense of
Indemnitee unless (1) the employment of counsel by Indemnitee has been
authorized by the Corporation, (2) Indemnitee shall have reasonably
concluded that there may be a conflict of interest between the
Corporation and Indemnitee in the conduct of the defense of such
Proceeding, or (3) the Corporation shall not in fact have employed
counsel to assume the defense of such Proceeding, in any of which cases
the fees and expenses of counsel shall be at the expense of the
Corporation. The Corporation shall not be entitled to assume the
defense of any Proceeding brought by or on behalf of the Corporation or
as to which Indemnitee shall have made the conclusion provided in (2)of
this subparagraph; and
c. The Corporation shall not be liable to indemnify Indemnitee
under this Article for any amounts paid in settlement of any Proceeding
affected without its written consent. The Corporation shall not settle
any Proceeding in any manner which would impose any penalty or
limitation on indemnitee without Indemnity's written consent. Neither
the Corporation nor Indemnitee will unreasonably withhold its consent to
a proposed settlement.
Section 5. Certain Procedures Relating to Indemnification,
a. For the purpose of pursuing rights to indemnification under
this Article, the Indemnitee shall (1) submit to the Board a sworn
statement of request of indemnification " Indemnification Statement") of
averring that he is entitled to indemnification hereunder; and (2)
present to the Corporation reasonable evidence of all amounts for which
indemnification is requested. Submission of an Indemnification
Statement to the Board shall create a presumption that the Indemnitee is
entitled to indemnification hereunder, and the Corporation shall, within
sixty (60) calendar days after submission of the Indemnification
Statement, make the payments requested in the Indemnification Statement
to or for the benefit of the Indemnitee, unless (i) within such sixty
(60) calendar day period it shall be resolved by a majority vote of the
directors who were not and are not parties to the threatened Proceeding
(Disinterested Director) that the Indemnitee is not entitled to the
indemnification under this Article; provided, however, in no event shall
the number of directors be less than two (2); (ii) such vote shall be
based upon clear and convincing evidence (sufficient to rebut the
foregoing presumption, (iii) the Indemnitee shall receive such period
notice in writing of such vote, which notice shall disclose with
particularity the evidence upon which the vote is based.
If there are not at least two (2) Disinterested Directors, then the
Board of Directors shall send notice to all shareholders indicating that
the Indemnitee will be entitled to receive payment unless shareholders
owning at least fifty percent (50%) of the outstanding stock object to
the payment and such objection complies with Sections 5(a) (ii) and
(iii) of this Article. The notice shall also contain a copy of the
Indemnification Statement. If the necessary number of shareholders do
not object, then the payment shall be made.
The provisions of this section are intended to be procedural only and
shall not affect the right of the Indemnitee to indemnification under
this Article so long as the Indemnitee follows the prescribed procedure,
in any determination that the Indemnitee is not entitled to
indemnification and any failure to make the payments requested in the
Indemnification Statement shall be subject to judicial review by any
court of competent jurisdiction.
<PAGE>60
b. The right to indemnification conferred in this Article shall
include the right to be paid by the Corporation all expenses (including
attorney's fees) incurred in defending any Proceeding in advance of its
final disposition; provided, however, that the payment of such expenses
in advance of the final disposition of a Proceeding shall be made upon
delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced in the event and
only to the extent it shall ultimately be determined that such director
or officer is not entitled to be indemnified by the Corporation, under
the Act, Articles of Incorporation, or this Article, or otherwise, for
such expenses.
Section 6. Right of Indemnitee to Bring Suit. If a claim under this
Article is not paid in full by the Corporation within sixty (60) days
after a written claim has been received by the Corporation, except in
the case of a claim for expenses incurred in defending a proceeding in
advance of its final disposition, in which case the applicable period
shall be twenty (20) days, the Indemnitee may at any time thereafter
bring suit against the Corporation to recover the unpaid amount of the
claim and, to the extent successful in whole or in part, the Indemnitee
shall be entitled to be also paid the expense of prosecuting such claim.
Neither, -the failure of the Corporation (including its Board of
Directors, its shareholders, or independent legal counsel) to have made
a determination prior to the commencement of such Proceeding that
indemnification of or reimbursement or advancement of expenses to the
Indemnitee is proper in the circumstances, nor an actual determination
by the Corporation (including its Board of Directors, its shareholders,
or independent legal counsel) that the Indemnitee is not entitled to
indemnification or to the reimbursement or advancement of expenses,
shall be a defense to the Proceeding or create a presumption that the
Indemnitee is not so entitled.
Section 7. Indemnification of Employees and Agents of the Corporation.
The Corporation may, by action of its Board of Directors from time to
time, provide indemnification and pay expenses in advance of the final
disposition of an action to employees and agents of the Corporation,
with the same scope and effect as the provisions of this Article with
respect to the indemnification and advancement of expenses of directors
and officers of the Corporation or pursuant to rights granted pursuant
to, or provided by, the Act or otherwise.
Section 8. Contract Right. Rights of indemnification under this Article
shall continue as to an Indemnitee who has ceased to be a director or
officer, as long as Indemnitee shall be subject to any possible action,
by reason of the fact that Indemnitee was a director or of f officer of
the Corporation or serving in any other capacity referred to herein, and
shall inure to the benefit of his or her heirs, executors, and
administrators. The right to indemnification conferred in this Article
shall be a contract right upon which each director or of f officer shall
be presumed to have relied in determining to serve or to continue to
serve as such. Any amendment to or repeal of this Article shall not
adversely affect any right or protection of a director or officer of the
Corporation for or with respect to any acts or omissions of such
director or officer occurring prior to such amendment or repeal.
Section 9. Severabilitv. If any provision of this Article or any
application thereof shall be invalid, unenforceable or contrary to
applicable law, the remainder of this Article, or the application of
such provisions to persons or circumstances other than those as to which
it is held invalid, unenforceable, or contrary to applicable law, shall
not be affected thereby and shall continue in full force and effect.
ARTICLE VII
Amendments
Section 1. By the Shareholders. These Bylaws may be amended or repealed
by the affirmative vote of a majority of the shares present at any
meeting of the shareholders if notice of the proposed amendment is
contained in the notice of the meeting.
Section 2. By the Board of Directors. These Bylaws may be amended or
repealed by the affirmative vote of a majority of the whole Board of
Directors at any meeting of the Board, if notice of the proposed
amendment is contained in the notice of the meeting. However, the
directors may not modify the Bylaws fixing their qualifications,
classifications, or term of office.
The undersigned Secretary of Casinovations Incorporated does hereby
certify that the above and foregoing Bylaws of said Corporation were
adopted by the directors as the Bylaws of Casinovations Incorporated and
that the same do now constitute the Bylaws of this Corporation.
DATED this day of September, 1995.
DAVID E. SAMPSON Secretary
ATTEST: By: RANDY D. SINES
President
<PAGE>61
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, NOR ANY OTHER SECURITIES ACT, BY
ACCEPTING THE WARRANTS EVIDENCED BY THIS CERTIFICATE ALL SHARES OF STOCK ARE
ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD OR TRANSFERRED FOR VALUE
IN THE ABSENCE OF ANY EFFECTIVE REGISTRATION UNDER APPLICABLE SECURITIES LAWS
AND ACTS OR AN EXEMPTION THEREOF. BY ACCEPTING THE SHARES OF STOCK EVIDENCED
BY THIS CERTIFICATE THE SHAREHOLDER HEREOF AGREES TO BE BOUND BY THE
RESTRICTIONS IMPOSED BY LAW.
A
WARRANT
For the Purchase of Common Stock, Par Value $0.001 per Share, of
CASINOVATIONS INCORPORATED
(Incorporated Under the Laws of the State of Washington)
Void after 5:00 P.M.
Warrant to Purchase No. Shares
THIS IS TO CERTIFY that, for value received, ________________("Underwriter") or
registered assigns, is entitled, subject to the terms and conditions
hereinafter set forth, at any time prior to 5:00 P.M., pacific time, on July
21, 2000 but not thereafter, to purchase the number of shares set forth above
("Shares") of common stock, par value $1.00 per share at time Warrant was
granted and subsequently amended to $0.001 par value per share ("Common Stock"),
of Casinovations Incorporation, a Washington corporation ("Company" or
"Corporation"), from the Company upon payment to the Company of $4.00 per
share ("Purchase Price") if and to the extent this Warrant is exercised, in
whole or in part, during, the Period this Warrant remains in force and to
receive a certificate or certificates represented ( the Shares so purchased,
upon presentation and surrender to the Company of this Warrant, with the form of
subscription attached hereto duly executed, and accompanied by payment of the
Purchase price of each Share purchased. This "A" Warrant is one of a class of
warrants ("Warrants") initially exercisable for the purchase of a total of
200,000 shares of Common Stock of the Company. Additional "B" warrants for
purchase of 200,000 common shares of Company stock at S6.00 per share and "C"
warrants for purchase of 250,000 shares of Company stock for $8.00 per share
were also issued effective the same date.
ARTICLE I
TERMS OF THE WARRANT
Section 1.01. Subject to the provisions of this agreement, this Warrant may
be exercised at any time after 9:00 A.M., pacific. on July 22, 1996
("Exercise Commencement Date"), but no later than 5:00 P.M., pacific time, on
July 21, 2000 ("Expiration Time"). If this Warrant is not exercised on or
before the Expiration Time it shall become void, and all rights hereunder
shall thereupon cease.
Section 1.02. (1) The holder of this Warrant ("Holder") may exercise this
Warrant, in whole or in part, upon surrender of this Warrant with the form of
exercise attached hereto as Exhibit "A" duly executed., to the Company at its
office in Spokane, Washington, together with the full Purchase Price of $4.00
for each Share to be purchased in lawful money of the United States, or by
certified check, bank draft or postal or, express money order payable in
United States dollars to the order of the Company, and upon compliance with
sold subject to the conditions set forth herein.
(2) Upon receipt of this Warrant with the Exhibit "A" form of exercise duly
executed and accompanied by payment of the aggregate Purchase Price for the
Shares for which this Warrant is then being exercised, the Company shall
cause to be issued certificates for the total number of whole Shares for
which this Warrant is being exercised in such denominations as are required
for delivery to the Holder, and the Company shall thereupon deliver such
certificates to the Holder or its nominee.
(3) In case the Holder shall exercise this Warrant with respect to less than
all of the Shares that may be purchased under this Warrant, the Company shall
execute a new Warrant for the balance of the Shares that may be purchased
upon exercise of this Warrant and deliver such new Warrant to the Holder.
(4) The Company, covenants and agrees that it will pay when due and payable
any and all of the Company's taxes which may be payable in respect of the
issue of this Warrant, or the issue of any Shares upon the exercise of this
Warrant. The Company shall not, however, be required to pay any tax which
may be payable in respect of any transfer involved in the issuance or
delivery of this Warrant or of the Shares in a name other than that of the
Holder at the time of surrender, and until the payment of such tax the
Company shall not be required to issue such Shares.
<PAGE>62
Section 1.03. Prior to due presentment for registration of transfer of this
Warrant, the Company may deem and treat the Holder as the absolute owner of
this Warrant (notwithstanding any notation of ownership or other writing
hereon) for the purpose of any exercise hereof and for all other purposes,
and the Company shall not be affected by any notice to the contrary.
Section 1.04. Except per Article II, this Warrant may not be sold,
hypothecated, exercised, assigned or transferred, except to individuals who
are of officers of the Company per Article II or any successor to its
business or pursuant to the laws of descent and distribution, and thereafter
and until its expiration shall be assignable and transferable in accordance
with and subject to the Securities Act of 1933 and all other Federal and
State securities laws.
Section 1.05. Nothing contained in this Warrant shall be construed as
conferring upon the Holder the right to vote or to consent or to receive
notice as a stockholder in respect of any meetings of stockholders for the
election of directors or any other matter, or as having any rights whatsoever
as a stockholder of the Company.
Section 1.06. If this Warrant is lost, stolen, mutilated or destroyed, the
Company shall, on such reasonable terms as to indemnity or otherwise as it
may impose (which shall, in the case of a mutilated Warrant, include the
surrender thereto, issue a new Warrant of like denomination and tenor as, and
in substitution for, this Warrant, which shall thereupon become void. Any
such new Warrant shall constitute an additional contractual obligation of the
Company.
Section 1.07, (1) The Company covenants and agrees that at all times it shall
reserve and keep available for the exercise hereof sufficient authorized
Shares to permit the exercise in full of this Warrant.
(2) Prior to the issuance of any Shares upon exercise of this Warrant, the
Company may but is not required to secure the listing of such Shares upon any
securities exchange or automated quotation system upon which the shares of
the Company's Common Stock are listed for trading.
(3) The Company covenants that all Shares when issued upon the exercise of
this Warrant will be validly issued, fully paid, and non-assessable.
ARTICLE II
COMPANY'S RIGHT TO CALL WARRANT
Section 2.01. (1) By resolution of its Board of Directors, the Corporation
may call this warrant at any time and from time to time on or after July 22,
1996, in whole or in part, by paying to the registered owner or owners hereof
the sum of $.001 per share.
(2) The Corporation shall give notice of its election to call this Warrant
by mailing a copy of such notice, postage prepaid, to the registered owner or
owners hereof, not less than 30 or more than 90 days prior to the date
designated as the date for the call, addressed to their respective addresses
appearing on the books of the Corporation. Failure to give notice, or any
defect in a notice or in the mailing thereof, will not affect the validity of
the call.
(3) If only a portion of the warrants of the same tenor as this Warrant then
outstanding is to be called at a given time, the Corporation shall select the
warrants to be called in whatever manner the Board of Directors of the
Corporation determines. Subject to the provisions and limitations contained
herein, the Board of Directors shall have full power and authority to
prescribe the manner in which and the terms and conditions upon which this
Warrant shall from time to time be callable.
(4) On and after the date of call specified in the notice, the owner or
owners of this Warrant shall be entitled to receive the call price of $.001
per share, upon presentation and surrender of this Warrant at the place
designated in the notice. If called the registered owners agree to execute
all documents required by the Corporation to transfer the warrants to the
Corporation.
(5) From and after the date of call specified in the notice (unless the
Corporation defaults in providing money for the payment of the call price),
all rights of the holder or holders hereof as a warrant holder in the
Corporation shall cease, except for the right to receive the call price
hereof without interest and this Warrant shall be available for sale,
transfer and/or issuance of stock by the Company.
ARTICLE III
REGISTRATION UNDER THE SECURITIES ACT OF 1933
Section 3.01. This Warrant and the Shares of Common Stock issuable upon
exercise of this Warrant have not been registered under the Securities Act of
1933, nor any other securities act. Upon exercise, in part or in whole, of
this Warrant, the Shares shall bear the following legend:
<PAGE>63
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, NOR ANY OTHER SECURITIES ACT. BY
ACCEPTING THE WARRANTS EVIDENCED BY THIS CERTIFICATE ALL SHARES OF STOCK ARE
ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD OR TRANSFERRED FOR VALUE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER APPLICABLE SECURITIES LAWS
AND ACTS OR AN EXEMPTION THEREFROM. BY ACCEPTING THE SHARES OF STOCK
EVIDENCED BY THIS CERTIFICATE, THE SHAREHOLDER HEREOF AGREES TO BE BOUND BY THE
RESTRICTIONS IMPOSED BY LAW.
ARTICLE IV
OTHER MATTERS
Section 4.01. All the covenants and provisions of this Warrant by or for the
benefit of the Company shall bind and inure to the benefit of its successors
and assigns hereunder.
Section 4.02. The validity, interpretation and performance of this Warrant
shall be governed by the laws of the State of Washington.
Section 4.03. Notices or demands pursuant to this Warrant to be given or
made by the Holder to or on the Company shall be sufficiently given or made
if sent by certified or registered mail, return receipt requested, postage
prepaid, and addressed, until another address is designated in writing by the
Company, as follows:
Casinovations Incorporated
Suite 107
2718 East 57th
Spokane, Washington 99223
Notices to the Holder provided for in this Warrant shall be deemed given or
made by the Company if sent by certified or registered mail, return receipt
requested, postage prepaid, and addressed to the Holder at his last known
address as it shall appear on the books of the Company.
Section 4.04. Nothing in this Warrant expressed and nothing that may be
implied from any of the provisions hereof is intended, or shall be construed,
to confer upon, or give to, any person or corporation other the Company and
the Holder any right, remedy or claim under promise or agreement hereof, and
all covenants, conditions, stipulations, promises and agreements combined in
this Warrant shall be for the sole and exclusive benefit of the Company and
its successors and of the Holder, its successors and, if permitted, its
assignees.
Section 4.05. The Article headings herein are for convenience only and are
not part of this Warrant and shall not affect the interpretation thereof.
IN WITNESS WHEREOF, this Warrant has been duly executed by the Company under
its corporate seal as of the _______ day of ___________, ______.
CASINOVATIONS INCORPORATED
By: By:
Secretary President
<PAGE>64
EXHIBIT "A"
The undersigned hereby: (1) irrevocably subscribes for and offers to
purchase _____ shares of Common Stock of Casinovations Incorporated, pursuant
to the "A" warrant to which this Exhibit is attached, (2) encloses payment of
for these shares at a price of $4.00 per share; and (3) requests that a
certificate for the shares be issued in the name of the undersigned and
delivered to the undersigned at the address specified below.
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, NOR ANY OTHER SECURITIES ACT. BY
ACCEPTING THE WARRANTS EVIDENCED BY THIS CERTIFICATE ALL SHARES OF STOCK ARE
ACQUIRED FOR INVESTMENT ONLY AND MAY NOT BE SOLD OR TRANSFERRED FOR VALUE
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER APPLICABLE SECURITIES LAWS
AND ACTS OR AN EXEMPTION THEREFROM. BY ACCEPTING THE SHARES OF STOCK
EVIDENCED BY THIS CERTIFICATE, THE SHAREHOLDER HEREOF AGREES TO BE BOUND BY THE
RESTRICTIONS IMPOSED BY LAW.
Dated this day of _______________, _____
_________________________
ADDRESS:
___________________________
___________________________
Signature Guaranteed by:
____________________________
CASINOVATIONS INCORPORATED
ASSIGNMENT
(To be executed by the registered holder to effect a transfer of the
Foregoing Warrant to the Company)
FOR VALUE RECEIVED,
-----------------------------------
hereby sells, assigns and transfers unto the within Warrant and all of the
rights represented thereby, and does hereby irrevocably constitute and
appoint Attorney, to transfer said Warrant on the books of the
Company, with full power of substitution.
Dated: ________________________
Signature of Holder
Signature guaranteed:
__________________________
<PAGE>65
Jody M. Walker
7841 South Garfield Way
Littleton, Colorado 80122
Telephone (303) 850-7637
Facsimile (303) 220-9902
July 14, 1997
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Dear Sirs:
Re: CONSENT OF COUNSEL TO USE OF NAME IN REGISTRATION
STATEMENT ON FORM SB-2 OF CASINOVATIONS INCORPORATED
I am securities counsel for the above mentioned Company. I hereby consent to
the inclusion and reference to our name in the Registration Statement on Form
SB-2 for Casinovations Incorporated dated July 14, 1997.
Yours very truly,
/s/ Jody M. Walker
<PAGE>66
CONSULTING AGREEMENT
OF
GAMETEK and STEVEN J. BLAD
THIS CONSULTING AGREEMENT (hereafter the "Agreement"), is entered into this
1st day of February, 1997, effective January 1, 1997, by and between
CASINOVATIONS INCORPORATED, a Washington corporation, authorized to do
business in Nevada (hereafter the "Company"), GAMETEK, a Nevada Corporation
("GameTek") and STEVEN J. BLAD (GameTek and Blad are collectively referred to
as "Consultant").
The parties recite that:
(a) Blad is a consultant of GameTek and the Company desires to retain
the services of Blad as an Consultant under the terms and conditions of this
Agreement.
(b) Both GameTek and Blad will receive benefits from this contract; and
as such, each agree to each be bound under the terms and conditions of this
Agreement, including the non-compete and non-disclosure
provisions herein.
(c) Blad shall not be considered an Consultant of the Company, but shall
remain a consultant of GameTek, and as such GameTek and Blad shall be
responsible for all related federal and state withholding and payroll tax
obligations relative to this agreement.
(d) The Company desires the knowledge, skills and ability of the
Consultant for the benefit of the Company.
(e) The Consultant wishes to be retained by the Company in accordance
with the terms of this agreement.
(f) The Consultant recognizes the legitimate need of the Company for
protection of its confidential information.
(g) The Company recognizes and acknowledges the value of the
Consultant's services and deems it necessary and desirable to retain the
Consultant's services for the period herein described.
NOW THEREFORE, in consideration of the mutual promises set forth herein,
the Company and the Consultant agree as follows:
1. CONSULTING
The Company hereby retains the Consultant upon the terms and conditions
hereinafter set forth, and the Consultant hereby accepts said terms and
conditions.
2. TERM AND RENEWAL
Except as otherwise provided, this agreement shall be for a term of two (2)
years, commencing on January 1, 1997, subject to the early termination
provisions of Article 8. At the expiration date of this agreement, it shall
be considered renewed for regular successive periods of one (1) year terms
unless either party submits a notice of termination thirty (30) days prior to
the end of the preceding period.
3. DUTIES
The Company hereby retains the Consultant as an Executive Vice-President, and
the Consultant hereby promises to perform the duties related thereto and to
perform such other duties as the Company may from time to time assign. As
directed by the appropriate representative(s) of the Company, the Consultant
shall also render services for and perform duties for entities related to the
Company and for persons or entities having a contractual relationship with
the Company requiring the Company to provide such services. The Consultant
will be under the supervision of the President and Chief Executive Officer
and shall perform such tasks and duties as assigned by him. The Consultant
shall perform all of his duties at such place or places and at such times as
the Company shall in good faith require and as the interest, needs, business
or opportunity of the Company shall require. The Company, through its
designated representatives, retains the right to supervise the Consultant in
the performance of his duties.
4. TIME AND EFFORTS OF CONSULTANT
So long as this agreement continues in effect, the Consultant promises to
devote his exclusive time and energies to the business affairs of the Company
necessary to achieve the business objectives of the Company; use his best
efforts, skills, and abilities to promote the Company's interest; perform the
duties described in Article 3 of this agreement; and to perform such other
duties as may be assigned to him by the Company.
<PAGE>67
5. COMPENSATION AND BENEFITS
%.1 Compensation. Form all services rendered by the Consultant under
this agreement and the Consultant's obligation under Articles 6 and 7 herein,
Consultant will be compensated as follows:
(a) Base Salary. The Consultant shall receive a "Base Salary" for
each calendar month under the term of this agreement of Twelve Thousand Five
Hundred Dollars ($12,500.00). The Base Salary shall be payable in equal
semi-monthly installments on the first and fifteen of each month.
(b) Commissions. In additional to the Base Salary stated herein
above, the Consultant shall be entitled to "Commissions" of ----- percent on
the Gross Margin received by the Company on its product sold through sales
arranged and completed primarily by the efforts of the Consultant. For
purposes herein "Gross Margin" shall be defined as the Net Cash Receipts
from the sale of its product less the Cost of Goods Sold. The "Gross
Margin" consists of the costs incurred by the Company in producing the
Cost of Goods Sold for the Company's products shall be in compliance with
Generally Accepted Accounting Procedures. If there is any dispute as to
whether the Consultant thereunder, the Consultant shall bear the burden of
proof to establish Commissions as defined in this paragraph. All
commissions shall become due and payable within thirty (3) days after receipt
of the Net Cash Receipts by the Company. The term "Net Cash Receipts" is
defined as the gross cash receipts received by the Company on a sales of its
product, less discounts and returns. The Consultant must be retained by the
Company under this agreement at the time the sale is complete in order to
receive the Commissions due on any such sale.
(c) Licensing Bonus. The Consultant shall be entitled to a one time
Licensing Bonus of ten thousand (10,000) shares of the Company's common stock
each time the Consultant successfully obtains for the Company a license from
the Nevada Gaming Commission approving one of the following products for use
in the gaming industry as required by Nevada Revised Statutes, chapter 463 et
al.
(I) Multi Deck Shuffler
(ii) Fantasy 21 Table Game
(iii) Single Deck Shuffler
The Licensing Bonus shall be issued to the Consultant within (30) days after
final approval of the product and issuance of the license by the Nevada State
Gaming Commission. The Consultant must be retained under this agreement at
the time of the final approval and issuance of the license in order to
receive the Licensing Bonus.
(d) Quarterly Bonus. The Consultant shall be entitled to receive a
bonus, payable on a quarterly basis and in amount not to exceed Two Thousand
Dollars per month ($2,000) upon the Company achieving its goals as set by the
Board of Directors, upon the fulfillment of the Consultants duties and the
Company achieving its goals. The determination of whether the Consultant
has fulfilled his duties and the Company has met its goals is in the
discretion of the President of the Company. However, the Consultant shall
be afforded, on a quarterly basis, a meeting with the President to discuss
the Consultant's performance under this agreement and his right to receive
the bonus. The bonus payable under this paragraph shall be reduced by the
commissions received during the same period as Commissions pursuant to
Article 5.1(b) herein above.
(e) Stock Bonus. 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 this agreement, the Consultant shall have 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, as provided on Schedule 1, 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 under this subparagraph
shall be vested in the Consultant no later than January 31, 1998.
(iii) Upon the Consultant fulfilling his obligations and the
Company has met 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 Consultant's obligations and
the Company's goals for 1998 and also to a meeting in January of 1999 to
discuss the bonus to be paid hereunder, if any. The Stock Options to be
issued under this subparagraph shall be vested in the Consultant no later
than January 31, 1999
<PAGE>68
(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 this 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 1988) 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).
5.1 Payment of Compensation. All payments made hereunder shall be
made to GameTek unless Blad and GameTek notify the Company otherwise, or
Federal or State laws and regulations require the payments to be made to the
Consultant. Blad shall remain a consultant for GameTek and shall be
responsible for all payroll withholding, taxes and workers compensation
obligations for himself. In the event that the Company incurs any payroll
liability, including withholding, workers compensation and unemployment
premiums, solely by reason of its making the payments to GameTek, GameTek and
Blad agree to indemnify and hold harmless the Company from any such
liabilities.
5.2 Other Benefits. The Consultant shall be entitled to participate
on a reasonable basis in any deferred compensation, medical reimbursement,
pension, profit sharing, thrift, savings, vacation, group insurance, or other
plan or program, and to receive any other benefits for which he is eligible
and which the Company may provide for him or for its Consultants generally.
The Consultant is entitled to a car allowance of Seven Hundred and Fifty
Dollars ($750.00) per month.
6. CONFIDENTIAL INFORMATION
6.1 Disclosure of Confidential Information.
(a) Definition. "Confidential information" shall mean and include
all records of the accounts of customers, route books, customer lists, and
any other records and books relating in any manner to the customers and/or
suppliers of the Company (whether such records, books or lists are prepared
by the Consultant or otherwise come into the possession or use of the
Consultant). "Confidential information" shall also mean and include any
product information, technical data, know-how, specifications, processes,
drawings, sketches, formulas, computations and any other information of any
kind whatsoever, whether written or not, concerning any process, manufacture,
composition of matter, plant, design, idea, method, system or plan in which
the Company has a possessory interest and which becomes known to Consultant.
The Consultant acknowledges that the Company's primary assets consist of its
gaming products or accessories. Any unauthorized disclosure of the design
or marketing of such products by the Consultant shall violate this Article.
"Confidential information" shall also mean and include any accounting,
sales, advertising, marketing or management information, methods or
techniques, any business plans, any computer programs and routines of the
Company and any other information of any kind whatsoever, whether written or
not, concerning, directly or indirectly, the Company, its plans, programs or
operations, which information is not generally known in the businesses or
industries in which the Company is or may become engaged during Consultant's
term of this agreement.
(b) Restriction on Use. Any confidential information received or
developed by Consultant shall be used only in the conduct by the Consultant
of the business of the Company. Such confidential information shall not be
used by Consultant for any other purpose unless otherwise directed or
authorized in writing by the Company.
<PAGE>69
(c) Protection of Confidential Information. The Company and the
Consultant expressly recognize and acknowledge that any confidential
information disclosed to or developed by Consultant will not, at any time
either during or after the term of this agreement, in any manner, either
directly or indirectly be divulged, disclosed, or communicated to any person,
firm or corporation, or any other business entity by the Consultant, nor
shall the Consultant use for his own benefit or for any other purpose than
the exclusive benefit of the Company, its subsidiaries, successors, or
assigns, confidential information or any information whatsoever concerning
matters affecting or relating to the business of the Company which the
Consultant knows or has reason to know would be valuable to competitors or
potential competitors of the Company, including but not limited to,
confidential information or information relating to the Company's
relationships with actual or potential customers or suppliers and to the
needs and requirements of any such actual or potential customers.
Furthermore, but not by was of limitation of the foregoing, the Consultant
shall not (I) make known to any firm, person or corporation the names or
addresses of any of the customers of the Company or any other information
pertaining to them or (ii) call on, solicit, or take away or attempt to call
on, any of the customers of the Company on whom the Consultant called or with
whom he became acquainted during his consulting with the Company, either for
himself or for any other person, firm or corporation.
6.2 Books and Records. The Consultant promises further that he shall
not, without the prior written approval of the Company, make copies of any
books, drawings, documents, records or other written or printed,
photographic, encoded, taped, electrostatically or electromagnetically
encoded data or information of whatever nature (hereinafter the "documents"
of the Company; that he shall not, without the prior written approval of the
Company, remove any of the foregoing from the premises of the Company; and
that he shall not, without the prior written approval of the Company, make
available to third parties access to said documents of the Company. The
Consultant agrees that all records and books relating in any manner
whosoever to the customers (whether actual or potential) of the Company,
whether prepared by the Consultant or otherwise coming into his possession
shall be the exclusive property of the Company regardless of who actually
purchased the original book or record. All such books and records shall be
immediately returned to the Company by the Consultant upon any termination of
this agreement. If the Consultant purchases any original book or record, he
shall immediately inform the Company, which shall immediately reimburse the
Consultant.
6.3 Limitation. Nothing contained int his Article or in any other
part of this agreement shall restrict the ability of the Consultant to make,
with the written consent of the Company and in the ordinary course of his
consulting, such disclosures as may be necessary or appropriate to the
effective and efficient discharge of his duties to the Company.
6.4 Term. Notwithstanding any other provision of this agreement, the
provisions of this Article 6 shall continue in full force and effect for a
period of two (2) years following the expiration or other termination of this
agreement.
6.5 Liquidated Damages. In addition to an injunction preventing the
dissemination or unauthorized use of Confidential Information as permitted by
law, the parties agree that the reasonable amount of damages the Company will
suffer for a breach of the provisions of Article 6 or Article 7 shall be
$100,000; provided, however, that a breach of both Articles 6 and 7 shall
total $200,000 in damages.
7. CONSULTANTS COVENANT NOT TO COMPETE
7.1 Covenant Not to Compete.
(a) General. The Company and the Consultant expressly recognize and
acknowledge that the Company is engaged in a business which is highly
competitive; that any knowledge of the Company's confidential information or
business affairs would give a competitor or potential competitor unfair
competitive advantage over the Company' that consulting or employment,
directly or indirectly, of the Consultant anywhere in the area in which the
Company conducts its business would give to such competitor an unfair
competitive advantage; and that the Consultant possesses valuable skills and
knowledge. In recognition of the above, the Consultant and the Company
hereby expressly agree that the restrictions on competition by the Consultant
contained in this Article 7 are reasonable, will not overburden the
Consultant, and are in the best interest of both the Consultant and the
Company.
(b) Time Period and Area Covered. The Consultant promises that,
during the term of this agreement, as set forth in Article 2 hereof, and for
a period of two (2) years after the expiration or other termination of this
agreement, he shall not either directly or indirectly engage in competition
with the Company, or with any subsidiary, successor or appointee of the
Company, as constituted during the term of this agreement as of his
resignation, departure, discharge or termination with the Company in, Nevada,
<PAGE>70
and within a fifty (50) mile radius of any other place of business operated
by the Company as of such date. The Consultant acknowledges that the
Company's business is international and that the solicitation of the
Company's international clients in competition of the Company is a violation
of this agreement.
(c) Affiliations Covered. The Consultant further promises that, during
the term of this agreement, as set forth in Article 2 hereof, and for a
period of two (2) years after the expiration or other termination of said
agreement, he shall not engage directly or indirectly as a proprietor,
partner, shareholder, director, officer, Consultant, agent, consultant, or in
any other capacity or manner whatsoever, in any business activity competitive
with the business of the Company or of any subsidiary, successor or appointee
of the Company, as constituted during his consulting.
(d) Board of Directors Approval. Either or both of the provisions
contained in Subsections (b) and (c) above may be waived at any time in
writing by the board of directors of the Company. Such waiver shall
not be unreasonable withheld but no such waiver shall be considered as a
waiver of any other term, covenant or provision of this agreement, nor shall
it be considered a waiver of any subsequent action by the Consultant.
7.2 Limitation. Nothing contained in this Article 7 shall prevent
the Consultant from purchasing or causing or permitting to be purchased for
his direct or indirect benefit securities of any corporation whose securities
are regularly traded on any national or regional securities exchange;
provided, however, that such purchase must not result in the direct or
indirect beneficial ownership of more than one percent of any outstanding
class of equity securities of any corporation engaged directly or indirectly
in any trade or business activities competitive with that carried on by the
Company without the written approval of the Company.
7.3 Liquidated Damages. In addition to an injunction prevent the
Consultant from competing with the Company as allowed by law, the parties
agree that the reasonable amount of damages the Company will suffer for a
breach of the provisions of Article 6 or Article 7 shall be $100,000;
provided, however, that a breach of both Articles 6 and 7 shall total
$200,000 in damages.
8. TERMINATION
8.1 Grounds for Termination. This agreement shall terminate as it
relates to the Consultant upon the first to occur of the following events:
(a) The death of the Consultant;
(b) Immediately upon five (5) days written notice form the Company to
the Consultant "for cause".
For cause is defined as:
(i) a breach of the terms and conditions of this agreement by the
Consultant (other than a breach described in subparagraph 8.1(b)(ii) herein
below), including the performance of the Consultant's obligations and duties
herein, which remains uncured for a period of twenty (2) days after written
notice by the Company to the Consultant of any such breach;
(ii) a breach of the terms and conditions of this agreement by the
Consultant which breach consists of dishonest or criminal conduct, or such
breach constitutes gross negligence by the Consultant in failing to perform
his duties and obligations under this agreement.
(c) Upon the passing of fifteen (15) days after notice from the
Company to the Consultant of a bona fide decision by the Company to terminate
its business.
8.2 Severance Pay. If the agreement is terminated for any reason,
other than for a reason under Section 8.1(b)(ii), the Company shall pay the
Consultant, upon termination, severance pay in a one time lump
sum equal to nine (9) months of the Consultant's Base Salary in effect at the
time of severance.
Under no circumstances shall the Consultant be entitled to any Commissions,
Quarterly Bonus, Licensing Bonus, or Stock Bonus, which has not vested or
accrued prior to the Consultant's termination.
8.3 Effect of Termination on Articles 6 and 7. Notwithstanding the
provisions of this Article, the provisions of Articles 6 and 7 will not
terminate upon the occurrence of an event described above, but will
continue in full force and effect for the term described in those Articles.
The severance pay shall constitute additional consideration for the
enforcement of such provisions.
<PAGE>71
9. MISCELLANEOUS
9.1 Assignment of Agreement. The knowledge and skills of the
Consultant are unique and his services bargained for by this agreement may
not be delegated by the Consultant to any other person. This agreement
shall inure to the benefit of and be binding upon the Consultant and his
testate or intestate distributes, and the Company, its successors and assigns
including, without limitation, any person, partnership, trust, corporation or
other legal entity which may acquire all or substantially all of the
Company's assets or which may acquire a controlling interest, either direct
or beneficial, in the Company or with or into which the Company may be
consolidated or merged. As used in this agreement, the term "Company" shall
include any such successor or assignee.
9.2 Remedies. It is agreed that any breach of Article 6 or 7 of this
agreement by the Consultant will result in irreparable injury to the Company
and will authorize recourse by the Company to equitable remedies, including,
but not limited to , affirmative or negative injunctive relief. It is
further agreed that in the event of such breach, violation, or evasion of any
of the Articles hereinbefore mentioned, or of any other Article herein, the
Company may forthwith terminate this agreement and thereafter be released
from all claims of the Consultant hereunder; provided, however, that such a
termination shall not release the Consultant from any warrant, covenant,
term, or condition under Articles 6 or 7 of this agreement. Nothing
contained herein shall be deemed to obligate the Company to undertake such
termination and nothing contained herein shall be deemed to preclude the
Company from pursuing any remedy, whether legal or equitable, which
is available to it in the event of any breach, violation or evasion of any
Article of this agreement.
9.3 Enforcement Costs. The prevailing party shall be entitled to all
costs of enforcing this agreement, regardless of whether an action at law or
in equity is commenced or maintained, including but not limited to, court
costs and reasonable attorney's fees.
9.4 Waiver of Breach. The waiver of the breach of any term of
condition of this agreement shall not be deemed to constitute the waiver of
any other or subsequent breach of the same or any other terms of
condition.
9.5 Severability. All terms and conditions contained herein are
severable, and in the event that any of them shall be held or considered to
be unenforceable by any Court of competent jurisdiction, this agreement shall
be interpreted as if such unenforceable term or condition was not contained
herein.
9.6 Law to Apply. This agreement shall be governed by and
interpreted according to the laws of the State of Nevada. Each party
submits to the personal jurisdiction of all courts, whether Federal or State,
within Nevada, and agrees that any action pertaining to this agreement shall
be brought in a court in Nevada.
9.7 Notice. Any notice required or permitted to e given under this
agreement shall be sufficient if in writing, and if sent by registered mail
to his last residence as recorded on the records of the Company in the case
of the Consultant, or to the principal offices of the Company in the case of
the Company.
9.8 Modification of Agreement. No waiver or modification of this
agreement or of any term or condition herein contained shall be valid unless
in writing and duly executed, nor shall any waiver or modification of this
agreement not duly executed as provided herein be deemed to be a part of this
agreement under any circumstances.
9.9 Gender, Number, Etc. Where applicable, the singular includes the
plural, the masculine includes the feminine, and vice versa.,
IN WITNESS WHEREOF, the parties have executed this agreement, delivery
of which is hereby acknowledged, as of the date first above written.
CASINOVATIONS INCORPORATED
ATTEST
/s/ Rosemarie Gefeuide
- ------------------------ ---------------------------------
Rosemarie Gefeuide By:
Witness President
STEVEN J. BLAD GAMETEK
/s/ Steven J. Blad /s/ Steven J. Blad
- ------------------------ ----------------------------------
Steven J. Blad by Steven J. Blad, its president
<PAGE>72
CONSULTING AGREEMENT
Effective on this date, July 8,1996, Casinovations Incorporated
("Casinovations")a Washington Corporation, located at 2718 East 57th Ave.,
Suite 107, Spokane, WA. and Gaming Venture Corp., U.S.A. ("GVC"), a Nevada
Corporation, located at 177 Main Street, Suite 312, Fort Lee, NJ do hereby
enter into an agreement for GVC to provide consulting services to
Casinovations.
GVC, through its duty authorized representative Alan R. Woinski, agrees to
avail Casinovations of its extensive knowledge of and contacts within the
public financial markets and of the Gaming Industry in particular. Mr.
Woinski and GVC will assist Casinovations in any requested aspects of
Casinovations' fund-raising operations including but not limited to:
1. Advising on different aspects of securing private placement funding
up to $900,000.
2. Advising on start up of production.
3. Advising on start up of Public Relations program for Investors and
gaming executives including advertising.
4. Advising on Process of attempting to become a public company.
5. Introducing Casinovations and their principals to G.V.C's extensive
casino personnel network.
Once Casinovations successfully obtains the status of becoming a publicly
traded company, GVC agrees to provide their services to Casinovations as
pertaining to ways of maximizing shareholder value. This includes, but is
not limited to,:
1. Implementation of an in house investor relations staff for investors
and gaming executives;
2. Advising on, preparing, and reviewing various shareholder
communications,
3. Advising on the day-to-day activities of the company;
4. Acting as an outside investor relations representative,
5. Introducing Casinovations and their principals to GVC's extensive
investment network.
GVC agrees to use their contacts and status in the investment community and
the gaming industry in particular to assist Casinovations in achieving its
short-term and long-term goals.
Casinovations agrees to pay GVC a one time equity fee of 150,000 Shares of
Common Stock payable upon consummation of this agreement. All GVC Shares
shall be immediately returned to Casinovations if Casinovations does not
realize, within 120 days of the completion of the Private Placement Document
and all necessary Blue Sky Registrations, a minimum of $300,000 in
unrestricted funding under the Private Placement Memorandum or in the event
Casinovations elects to cancel the Private Placement Memorandum pursuant to
the terms of the Casinovations - Pratt, Wylce & Lords, Ltd. contract.
Casinovations shall then owe to GVC no other consideration of any kind.
These Shares are assignable and/or transferable only with the advance written
consent of Casinovations, and are to be distributed pursuant to Rule 504
under the Securities Act of 1933, as amended and will be
restricted under that rule. Piggyback and demand registration rights are to
be included with these shares. In the event of any registration of stock,
GVC' s shares are to be included.
The term of this contract is for 12 months from the date of this agreement.
If Casinovations becomes a publicly traded company, the contract shall extend
12 months from that date or 18 months from the date of this agreement. This
is otherwise unilaterally terminable by Casinovations within 4 months of the
completion of Private Placement Documents and all necessary Blue Sky
registrations, if at least $300,000 in private placement funding is not
secured by that date or in the event Casinovations elects to cancel the
Private Placement Memorandum pursuant to the terms of the Casinovations -
Pratt, Wylce & Lords, Ltd. contract.
GVC and Mr. Woinski agree to abide by the laws and regulations of the various
regulatory agencies affecting Casinovations and GVC, including but not
limited to, the Securities and Exchange Commission (SEC) and the laws of the
United States of America. Casinovations agrees to disclose to GVC the
activities of Casinovations and other pertinent information so that Mr.
Woinski is well -informed. Further, GVC and Mr. Woinski mutually agree to
abide by a separate Confidentiality Agreement which will be initiated by both
parties.
Representations by GVC
GVC represents, warrants, and covenants the following:
GVC is a corporation daily organized and existing under the laws of Nevada
and is in good standing with the jurisdiction of its incorporation. GVC will
remain in good standing with all appropriate regulatory authorities. GVC
will disclose to Casinovations, in writing, all material facts and
circumstances which may affect its ability to perform its undertaking herein.
GVC will cooperate in a prompt and professional manner with Casinovations,
its attorneys, accountants, and agents in the performance of this agreement.
<PAGE>72
Representations by Casinovations
Casinovations represents, warrants, and covenants the following:
Casinovations will cooperate fully with GVC in executing the responsibilities
required under this contract so that GVC may fulfill its responsibilities in
a timely manner. Casinovations will not circumvent this agreement either
directly or indirectly nor will it interfere with, impair, delay or cause GVC
to perform work not described in this agreement, except that Casinovations
shall not be restricted in any manner from pursuing its own similar
activities, provided that Casinovations shall not issue any announcements or
press releases without first consulting with GVC.
Casinovations and each of its subsidiaries is a corporations duly organized
and existing under the laws of its state of incorporation and is in good
standing with the jurisdiction of its incorporation in each state where it is
required to be qualified to do business. Casinovations will remain in good
standing with all appropriate regulatory authorities. Casinovations articles
of incorporation and bylaws delivered pursuant to this agreement are true and
complete copies of same and have been duly adopted. Casinovations will
cooperate in a prompt and professional manner with GVC, its attorneys,
accountants and agents during the performance of the obligations due under
this agreement. Casinovations represents that no officer, director or
stockholder of the company is a member of the NASD, or an employee or
associated person or member of the NASD. Casinovations represents that it
has separately disclosed to GVC all potential conflicts of interest involving
officers, director, principal stockholders and/or employees.
GVC agrees that all information received from Casinovations shall be treated
as confidential information and GVC shall not share such information with any
other person or entity, except the SEC, attorneys and accountants, without
the express written consent of Casinovations unless such disclosures will
not cause damages to Casinovations.
Casinovations agrees not to divulge each and any named sources (lending
institutions. investors, individuals, brokers, industry personnel, etc.)
which have been introduced by GVC for a period of one year from the execution
of this agreement. Furthermore, Casinovations agrees not to circumvent,
either directly or indirectly, the relationship that GVC has with said
sources.
Any notices from either party to the other shall be deemed received on the
date such notice is personally delivered. Any notice sent by fax
transmission shall be deemed received by the other party on the day it has
been transmitted. Any notice sent by mail by either party to the other shall
be deemed received on the third business day after it has been deposited at
the U.S. Post Office. For purposes of delivering or sending notice to the
parties of this agreement such notices shall be delivered or sent as follows:
Gaming Venture Corp., U.S.A.
177 Main Street, Suite 312
Fort Lee, NJ 07024
Tel: (201) 947-4642
Fax: (201) 585-5217
Casinovations Incorporated
2718 East 57th Ave,, Suite 107
Spokane, WA 99223
Tel: (509)
Fax: (509)
Neither party has made any representations to the other which are not
specifically set forth in this agreement. There are no oral or other
agreements between the parties which have been entered into prior or
contemporaneously with the formation of this agreement. All oral promises,
agreements, representations, statements and warranties hereinafter asserted
by one party against the other shall be deemed to have been waived by such
party asserting that they were made and this agreement shall supersede all
prior negotiations, statements, representations, warranties and agreements
made or entered into between the parties to this agreement.
This agreement shall be governed by and construed in accordance with the laws
of the State of Nevada. It shall be construed as if the parties participated
equally in its negotiation and drafting. The agreement shall not be construed
against one party over another party.
CONFLICT RESOLUTION, ARBITRATION AND RELATED MATTERS
If there is a dispute, controversy or claim arising out of or relating to
this Agreement, the parties agree to negotiate in good faith for a resolution
thereof, except under such circumstances as justify injunctive relief which
shall be applied for in a court of equity.
In the event that informal conflict resolution is not successful within
thirty days of commencement, that matter shall be referred to a binding
arbitration.
<PAGE>74
Arbitration shall be before the American Arbitration Association, in
accordance with the rules of commercial arbitration of the AAA effect on the
date of this contract, except that the following rules and agreements shall
apply:
1) The number of arbitrators shall not exceed three persons, at least
one of whom shall be a retired judge of the Clark County Superior Court.
Only one arbitrator shall be required, unless Licensor and Licensee agree to
increase the number. Any arbitrator shall have at least 5 years of legal or
business experience in the field of securities and gaming.
2) The place of arbitration shall be Las Vegas, Clark County, Nevada.
3) Nevada law, and applicable federal securities law, shall govern.
The arbitrator(s) shall issue a written statement of facts and legal
conclusions and shall be bound to apply prevailing Statutes, regulations and
case law, rather than general principles of equity. (Briefing expenses shall
be absorbed by the party initiating the briefs.) The panel shall have the
power to award punitive or exemplary damages, if such relief is available
under applicable law.
4) Judgment upon the arbitration award rendered in the arbitration may
be entered in any Nevada court having jurisdiction thereof.
5) The decision of the arbitrator or panel of arbitrators shall be
final.
6) The arbitration shall be commenced within 21 days after invoking
this provision, or within such reasonable time thereafter as is practicably
feasible in accordance with the notice provisions of the rules of the AAA.
The arbitrator or panel may award reasonable attorneys' fees and
costs at its discretion. Otherwise, each party shall bear their own costs of
arbitration, including travel, legal experts, and attorneys' fees. The cost
of the arbitrator(s), including travel, shall be paid in advance to the AAA
by the party initiating the arbitration proceedings.
The waiver of any provision of this agreement by either party shall not be
deemed to be a continuing waiver or a waiver of any other provision of this
agreement by either party. If any provision of this agreement or any
subsequent modifications hereof are found to be unenforceable by a court of
competent jurisdiction, the remaining provisions shall continue to remain in
full force and effect.
The individuals signing this agreement below represent to each other that
they have the authority to bind their respective corporations to the terms
and conditions of this agreement. The individuals shall not, however have
personal liability by executing this agreement and sign this agreement only
in their representative capacities as authorized officers of Casinovations
Network and GVC respectively.
Gaming Venture Corp., U.S.A.
By: Alan R. Woinski, Pres.
Date:
Casinovations Incorporated
By: Randy Sines, Pres.
Date: 7/15/96
ADDENDUM TO CONSULTING AGREEMENT
The following changes are made to the consulting agreement dated July 8, 1996
by and between Gaming Venture Corp., U.S.A., (a Nevada Corporation) and
Casinovations Incorporated (a Washington Corporation):
(1) The maximum amount of the Private Placement Memorandum shall be
$1,200,000 and the minimum shall be $450,000.
(2) Expiration date of the Private Placement Memorandum shall be
12/15/96 with three two week extensions available at the sole discretion of
Casinovations Incorporated ("Casinovations").
(3) Equity compensation to Gaming Venture Corp., U.S.A. shall be revised
to 100,000 shares of common stock in Casinovations and two year options to
purchase 50,000 shares of common stock in Casinovations at $1.50 per, share.
Stock underlying said options shall be registered in any subsequent
registration as contemplated by the consulting agreement.
(4) Casinovations shall retain the right to cancel the above referenced
agreement dated 7/8/1996 at any time up to 12/15/96 and prior to breaking
escrow of the Private Placement Funding. In the event Casinovations cancels
the agreement, Gaming Venture Corp. agrees to return all shares of common
stock and options to purchase common stock in Casinovations.
(5) All other terms and conditions of the agreement dated July 8, 1996
shall remain in full force and effect.
Alan Woinski, President Tom Pickell, President
Gaming Venture Corp., U.S.A. Casinovations incorporated
Date: 1/7/97 Date: 12/1/96
<PAGE>75
Consulting Agreement Extension
Effective on this date, February 1, 1997, Casinovations Incorporated
("Casinovations") and Gaming Venture Corp., U.S.A. ("GVC") do hereby enter
into an agreement to extend the previously signed consulting agreement dated
July 8th, 1996 and amended 12/l/96.
The previous contract, signed July 8th 1996, expires on July 7th, 1997. The
signing of' this agreement hereby extends the contract by 12 months to expire
to July 7th , 1998. All aspects of the contract are the same in terms of
payment with one addition.
Equity compensation to GVC shall be 100,000 shares of common stock and two
year options to purchase 50,000 shares of common stock in Casinovations at $1
.50 per share. As with the previous agreement, all common stock and common
stock underlying said options shall be registered in any subsequent
registration. The options are assignable with consent of Casinovations.
A one time cash fee of $45,000 is due upon signing of this agreement. This
cash fee is for additional marketing services that will be performed in the
February, 1997 to April, 1997 periods in preparation of Casinovations filing
a registration statement with the Securities and Exchange Commission and
Casinovations beginning the transformation from a development stage company
to an operating company.
All services that GVC agreed to perform in the previous agreement remain in
effect except for the first service as the private placement was successfully
completed on 1/29/97.
Once Casinovations successfully obtains the status of becoming a publicly
traded company, GVC agrees to expand the services it will provide to
Casinovations per previous agreement.
GVC agrees to take a more active role in the set up and preparation of
shareholder communications, investor relations, marketing of the company and
their product and agrees to advise on the start up and maintenance of a
market for the securities. CIVC agrees to use their experience in their past
registration and start up and maintenance of the market to assist
Casinovations in the transformation from a private to a public company.
All other terms and conditions of the agreement dated July 8th, 1996 except
the amendments dated December 1st, 1996 shall remain in full force and
effect.
Alan Woinski, President Tom Pickell, President
Gaming Venture Corp., U.S.A. Casinovations Incorporated
Date: 2/5/97 Date: 2/20/97
<PAGE>76
EXCLUSIVE DISTRIBUTORSHIP AGREEMENT
This Agreement is entered into effective April 23, 1997, (the "EFFECTIVE
DATE") between Casinovations, a U.S. Corporation having its registered
address at 3909 South Maryland Parkway, Suite 311, Las Vegas, Nevada
89119 USA ("MANUFACTURER") and Sodak Gaming, Inc., ("SODAK") a U.S.
Corporation having its registered address at 5301 S. Highway 16, Rapid
City, South Dakota ("DISTRIBUTOR").
WITNESSETH
WHEREAS, MANUFACTURER develops, manufactures, and sells various
types of casino equipment for lawful markets worldwide; and
WHEREAS, DISTRIBUTOR desires to obtain the exclusive
distributorship (as defined hereinafter) of all the Casino Equipment (as
defined hereafter) from MANUFACTURER for sale in certain territory (as
defined hereinafter),
NOW THEREFORE, it is agreed between the parties as follows:
1. DISTRIBUTOR APPOINTMENT AND TERRITORY
a. MANUFACTURER hereby appoints DISTRIBUTOR, upon the
terms and conditions of this Agreement as an exclusive distributor of
its Casino Card Shuffler Equipment Product line. Prices will be set for
equipment so provided will be at a DISTRIBUTOR price discount as
specified in Section 5.b. herein. The exclusive TERRITORY granted to
the DISTRIBUTOR is specified in Schedule 'A'.
b. DISTRIBUTOR agrees not to buy, sell or otherwise deal
in within the TERRITORY, any products which may be competitive with the
PRODUCTS unless otherwise authorized by MANUFACTURER in writing.
2. DEVELOPMENT OF TERRITORY, SALES AND SERVICE
a. DISTRIBUTOR hereby accepts such appointment and agrees
at its own expense to devote its best efforts to promote the
distribution and sales of the PRODUCTS in the TERRITORY.
b. From time to time special promotion measures may be
taken by either party such as magazine advertisement, exhibitions, etc.
Expenses of such joint sales promotion shall be borne on a fifty-fifty
(50-50) basis, to a maximum amount of U.S. $5,000.00 each per annum, but
will require prior written approval by both parties.
C. MANUFACTURER agrees to provide technical training to DISTRIBUTOR's staff
and/or customers at DISTRIBUTOR's facility in Rapid City, South Dakota without
compensation. DISTRIBUTOR or DISTRIBUTOR's customers shall bear round trip
airfare costs to Rapid City, South Dakota. MANUFACTURER will provide reasonable
accommodation and meals for DISTRIBUTOR's technician(s) to be dispatched in this
regard.
d. All service of warranted products shall be performed by
MANUFACTURER pursuant to Section 3.c.
3. WARRANTY
a. The commencement date of warranty of MANUFACTURER's
PRODUCTS shall be the date of installation at facility of end user.
b. MANUFACTURER warrants the PRODUCTS have no
defects in their design material and workmanship. Immediately after the
discovery of any defects in the PRODUCTS, DISTRIBUTOR shall give
MANUFACTURER a written notice to such effect together with clear
evidence thereof if in MANUFACTURER'S opinion the defects are not due
to its fault or not attributable to MANUFACTURER by any reason, then it
shall promptly notify DISTRIBUTOR of its denial of responsibility
thereof. In such cases, both parties shall use their best efforts to
solve the problem amicably in good faith.
c. The obligation of the MANUFACTURER under this warranty
shall be limited to the supply, repair and/or replacement of parts for
the defective PRODUCTS in accordance with the provisions set forth
hereafter. The warranty period after installation of products is twelve
(12) months.
<PAGE>77
4. SPARE PARTS
a. Together with the first shipment of the PRODUCTS after
the execution of this Agreement, MANUFACTURER will provide DISTRIBUTOR
with an appropriate number of spare parts at no cost, so that
DISTRIBUTOR may supply the same to its customers in the TERRITORIES.
Terms and conditions of the supply of said spare parts such as quantity,
prices, payment term shall be negotiated within a reasonable period of
time after the effective date of this Agreement. MANUFACTURER agrees
price of spare parts shall allow for reasonable mark-up by DISTRIBUTOR
consistent with other discounts on MANUFACTURER's PRODUCTS.
b. DISTRIBUTOR may keep all faulty parts replaced and
maintain updated proper stock records and provide them to MANUFACTURER,
if it so desires, so
as to keep adequate stock level of spare parts.
5. PAYMENT, PRICE, AND DELIVERY
a. The DISTRIBUTOR shall pay MANUFACTURER in United
States Dollars (USD), for all PRODUCTS ordered and shipped at the prices
set as per Section 5.b. herein. DISTRIBUTOR shall make payment to
MANUFACTURER within thirty (30) days after delivery to customer.
b. The MANUFACTURER agrees to offer to the DISTRIBUTOR a
minimum discount of twenty-five percent (25%) less than the promoted
retail price in Nevada. The MANUFACTURER agrees to negotiate in good
faith purchase prices for quantity and accelerated payments. In the
event of increase in the Nevada retail price MANUFACTURER agrees to
honor all orders received thirty (30)days before and after notice to
DISTRIBUTOR of such price increase.
c. All PRODUCTS shall be delivered FOB Las Vegas, Nevada.
6. ORDER AND SHIPMENT
a. All purchase orders for the PRODUCTS placed by
DISTRIBUTOR with MANUFACTURER shall be subject to the provisions of this
Agreement. Any provision of any "special" order that is inconsistent
with this Agreement or that may seek to impose any additional
obligations upon MANUFACTURER shall be null and void unless approved in
writing by both parties.
b. All sales made under this Agreement shall be in
accordance with and interpreted under U.S. law.
C. MANUFACTURER shall not be responsible or liable for
any loss, damage, detention or delay caused by fire, strike, civil or
military authority, governmental restrictions or controls, insurrection
or riot, railroad, marine or air embargoes, lockout, tempest, accident,
breakdown of machinery, yield problems, delay in delivery of materials
by other parties, or any cause which is unavoidable or beyond its
reasonable control; nor in any event for consequential damages.
7. RELATIONSHIP OF THE PARTIES AND WARRANTIES
DISTRIBUTOR is an independent contractor an in no way an agent
of MANUFACTURER, it being expressly agreed that the only relationship
created by this Agreement is that of Manufacturer and Distributor.
DISTRIBUTOR agrees not to make any representation, promise, guarantee or
warranty on MANUFACTURER'S behalf.
DISTRIBUTOR further agrees that it has no authority to assume
or create any obligation on MANUFACTURER's behalf, express or implied,
regarding or otherwise. MANUFACTURER only warrants the PRODUCTS sold by
it to DISTRIBUTOR indicated herein.
8. RECORDS AND REPORTS
The DISTRIBUTOR shall maintain a complete record of all
PRODUCTS sold by the DISTRIBUTOR and furnish such data to MANUFACTURER
upon its request.
9. CUSTOM PRODUCTS
Custom products, for purpose of agreement, are defined as
products which have specific function unique to a customer. All orders
for custom products must be approved in writing by MANUFACTURER prior to
acceptance by DISTRIBUTOR. Thereafter, DISTRIBUTOR will promptly notify
MANUFACTURER of any circumstances which may affect that order and
MANUFACTURER will keep DISTRIBUTOR informed of its progress in
fulfilling such order.
10. TERM AND TERMINATION
a. This Agreement shall remain in full force and effect
for a period of five (5) years from the EFFECTIVE DATE hereof, or until
such earlier date as of which it may be terminated as hereinafter
provided. If for any reason whatsoever the relations between the
parties shall continue beyond the said term hereof without written
formal agreement as to the terms and conditions thereof, such
continuance of relations shall not be deemed a renewal or extension of
<PAGE>78
said term beyond said expiration date and the same shall be subject to
immediate termination upon notice by either party to the other, but
shall in all respects be deemed to be subject to terms and conditions
identical with those contained herein.
b. If either party hereto shall fail to perform any
obligation imposed upon it hereunder, the other party shall have the
right as its option, to terminate this Agreement by giving thirty (30)
days written notice. The party alleging breach of this Agreement shall
specifically state the nature of said breach. The notified party shall
have thirty (30) days from the date of receipt of notice to cure such
breach. Failure to cure shall cause this Agreement to terminate within
thirty (30) days of receipt of notice. In the event of a termination
due to DISTRIBUTOR breach, MANUFACTURER reserves the right to purchase
from the DISTRIBUTOR and the DISTRIBUTOR shall sell to MANUFACTURER any
PRODUCTS not sold which the DISTRIBUTOR may have on hand, at the time of
such termination. If MANUFACTURER breaches, it shall fully refund all
payments for products and spare parts.
c. Independently of any violation of the provisions of this agreement,
either party hereto may terminate this Agreement at any time and without
cause, by giving the other party at least thirty (30) days notice of its
election to do so. In the event of such termination by MANUFACTURER without
cause, MANUFACTURER shall re-purchase DISTRIBUTOR's inventory of the
PRODUCTS for the same price paid by DISTRIBUTOR and shall not sell, solicit or
market in any way in the TERRITORY for a period of six (6) months after
termination.
d. Upon termination or expiration of this Agreement for any
cause whatsoever, MANUFACTURER will, subject to all the terms hereof,
complete its obligations hereunder as to any orders received from the
DISTRIBUTOR and accepted by MANUFACTURER prior to the termination or
expiration of this Agreement. One year thereafter, MANUFACTURER or a
new DISTRIBUTOR may complete any transaction inaugurated by DISTRIBUTOR
but not therefore resulting in an accepted order. Upon such termination
or expiration the DISTRIBUTOR shall immediately discontinue all
promotion and advertising with respect to CASINOVATION PRODUCTS.
e. Neither the expiration nor the termination of this
Agreement shall release either party from the obligation to pay any sum
then that may be owing or from the obligation to perform any other duty
or to discharge any other liability that has been incurred prior
thereto. Subject to the provisions of the immediately preceding
sentence, however, neither party shall by reason of the expiration or
termination of this Agreement be liable to the other for compensation or
damage on account of the loss of prospective profits on anticipated
sales, or expenditures, investments or commitments made in connection
therewith or in connection with the establishment, development or
maintenance of DISTRIBUTOR's or MANUFACTURER's business or goodwill.
f. Either party shall be entitled to immediately
terminate this Agreement by notice in writing to the other, for any of
the following events:
1. Filing a petition of bankruptcy or insolvency;
2. Any adjudication of any bankruptcy or insolvency;
3. The filing of any petition seeking reorganization or
readjustment or arrangement of the business under any law relating to
bankruptcy or insolvency;
4. The appointment of a receiver for all or substantially
all of the property of either party;
5. The making of any assignment or attempted assignment
for the benefit of creditors;
6. The institution of any proceeding for the
liquidation or winding up of business or for the termination of its
corporate charter.
11. EXTRA-TERRITORIAL SALES
Without prior written consent of MANUFACTURER in each instance,
DISTRIBUTOR shall not, directly or indirectly, offer for resale, sell or
ship PRODUCTS and/or replacement parts outside of the TERRITORY.
Inquiries from customers or potential customers outside the TERRITORY
shall be promptly referred to MANUFACTURER, who will reply in writing if
the DISTRIBUTOR may pursue. Likewise, MANUFACTURER agrees that
inquiries received from customers or potential customers in the
TERRITORY shall be referred to DISTRIBUTOR.
12. PRODUCT CHANGES
MANUFACTURER reserves the right, from time to time, without
incurring any obligation to DISTRIBUTOR to discontinue any PRODUCTS or
type thereof, to alter the design or construction thereof, and/or add
new and additional types thereof to its line and in the event of any
such action on MANUFACTURER's part, it shall give DISTRIBUTOR no less
than thirty (30) days notice there of any product change shall not
affect any pending orders placed by DISTRIBUTOR.
<PAGE>79
13. MARKET REPRESENTATIONS
DISTRIBUTOR acknowledges and agrees that MANUFACTURER has made
no statements or representations as to the size of the market for the
PRODUCTS or as to the amount of profits to be received by DISTRIBUTOR.
DISTRIBUTOR acknowledges that in entering into this Agreement it is
relying entirely on its own estimate as to the market for the PRODUCTS,
but warrants no level of sales upon which MANUFACTURER may rely.
14. CONFIDENTIALITY
DISTRIBUTOR agrees to hold all marketing, sales, business and
technical information regarding MANUFACTURER or its customers in the
strictest confidence and disclose no such information to any third party
during the term of this Agreement and for one (1) year after its
termination or cancellation, The obligations of this section in no way
hinder or prevent Sodak from competing with MANUFACTURER upon
termination of this Agreement.
15. NON ASSIGNMENT AND NOTICE OF CERTAIN CHANGES
Without MANUFACTURER'S prior written consent, neither this
Agreement nor any interest therein shall be transferable or assignable
by DISTRIBUTOR, by operation of law or otherwise. DISTRIBUTOR shall
immediately notify MANUFACTURER in writing of any substantial change in
the ownership, financial interests or active management of DISTRIBUTOR.
MANUFACTURER may assign this agreement to a subsidiary or successor in
interests.
16. GOVERNMENTAL PERMITS AND LICENSES
DISTRIBUTOR shall obtain at its own expense all necessary
governmental permits/licenses for but not limited to the importation,
sale, installment, operation, repair, maintenance and bear the cost such
as, but not limited to import duty and any other related taxes imposed
into the TERRITORY of the PRODUCTS purchased by DISTRIBUTOR.
MANUFACTURER shall pay for any permits, licenses or taxes specifically
applicable to MANUFACTURER.
17. RELEASE FROM CLAIMS
In consideration of the execution of this Agreement by
MANUFACTURER, DISTRIBUTOR hereby releases MANUFACTURER from all
claims,
demands or other liabilities, pending as of the date of entering this
Agreement by DISTRIBUTOR, except indebtedness due under a written
contract with MANUFACTURER or a written warranty issued by MANUFACTURER.
18. USE OF NAME AND TRADE-MARKS
DISTRIBUTOR shall not use in its corporate firm or business
name or allow to be used by others, insofar as it may have any power to
prevent such use the name "CASINOVATIONS" or any other trade name or
trade-mark adopted by MANUFACTURER or any words or names or combination
or words or names closely resembling any of them provided, however, that
during the term hereof DISTRIBUTOR shall have the right to and shall
indicate to the public and to the trade by names of advertising,
pamphlets, letterheads or other media for the purpose of selling the
PRODUCTS in and for the TERRITORY that the DISTRIBUTOR is the authorized
distributor of the PRODUCTS. Upon the expiration or termination of this
Agreement, DISTRIBUTOR, forthwith shall discontinue the use of the name
"CASINOVATIONS" and of any other name or names or any combination of
words or design or trade-mark or trade names that would indicate or tend
to indicate that DISTRIBUTOR was or is a distributor of the PRODUCTS.
19. NO LICENSES IMPLIED OR GRANTED
No licenses are granted or implied by this Agreement under any
intellectual property owned or controlled by MANUFACTURER or under which
DISTRIBUTOR has any rights except the right to buy, sell and deal in the
PRODUCTS furnished by MANUFACTURER. No rights to manufacture are
granted by this Agreement. DISTRIBUTOR agrees that is will not remove
or alter MANUFACTURER'S patent number or other marks affixed to the
PRODUCTS or permits the same to be done.
20. WAIVER
The failure of either party at any time to require performance
by the other party of any provisions hereof shall in no way affect the
full to require such performance at any time thereafter. Nor shall the
waiver by either party of a breach of any provisions hereof be a waiver
of any succeeding breach of the same or any other such provisions or be
a waiver of the provision itself.
21. BINDING VERSION
The official and binding version of this Agreement shall be
English irrevocable of the language into which it may be translated.
<PAGE>80
22. NOTICES
Any notice herein required or permitted to be given shall be in
writing and may be personally served or sent by facsimile or mail and
shall be deemed to have received if personally served when served, if
mailed on the fifth business day after deposit in the U.S. mail, as the
case may be, with airmail postage prepaid and properly addressed. For
purposes hereof the address of the parties hereto (until a change
thereof is given as provided in this section) will be as follows:
MANUFACTURER: DISTRIBUTOR:
CASINOVATIONS INCORPORATED SODAK GAMING, INC.
3909 S. Maryland Pkwy., Ste. 311
Las Vegas, Nevada 89119 USA 5301 S. Hwy. 16
Attn: Mr. Steven J. Blad Rapid City, S.D. 57701
Phone: 1-702-733-7195 Attn: Mr. Kent R. Hagg
Fax: 1-702-733-7197 Phone: 1-605-341-5400
Fax: 1-605-355-4938
23. GOVERNING LAW
This Agreement shall be governed and construed in accordance
with the laws of the state of South Dakota excluding any law or
principle which would apply the law of any other jurisdiction. The
rights and obligations of the parties shall not be governed by the
provisions of the U.N. Convention on Contracts for the International
Sale of Goods.
24. ARBITRATION
Both parties herein agree to the following method of the
arbitration:
a. Any dispute, issue, or difference of opinion arising
from parties hereto out of or relating to this Agreement, or the breach
thereof, shall be finally settled by arbitration in the United States in
accordance with the Commercial Arbitration Rules of the American
Arbitration Association, unless otherwise agreed between the parties.
The award rendered by arbitrator(s) shall be final and binding upon both
parties.
b. If applicable, the parties shall have the right to
conduct discovery, provided that the arbitrator(s) may order that any
particular discovery initiated by a party be taken if the arbitrator(s)
determine that such discovery is reasonably necessary for the
presentation of the requesting party's case.
c. The language of the arbitration shall be English.
d. In the event of arbitration concerning this Agreement,
the prevailing party in such proceeding shall be entitled to
reimbursement from the other party for all reasonable attorney's fees
and costs incurred with respect to such proceeding. e. This provision 24
shall survive the expiration or termination of this Agreement for a
period of three (3) years.
25. EXECUTION
This Agreement shall not be effective nor binding upon either
party until signed on its behalf by an authorized officer, nor shall any
modification, renewal, termination or waiver of any of the provisions
herein contained, or any future representation, promise, condition or
waiver in connection with the subject matter hereof be binding upon
either party unless made in writing and executed by such party in the
same manner.
26. INTEGRATION
This Agreement sets forth the entire agreement and
understanding between the parties as to the subject matter hereof and
merges all prior writings and discussions between them and neither party
shall be bound by any terms, conditions, definitions, warranties or
representations other than as expressly provided herein or as duly forth
on or subsequent to the date hereof in writing and signed by the party
bound thereby.
27. INFRINGEMENT OF THIRD PARTIES/COMPLIANCE WITH ALL LAWS
MANUFACTURER represents and warrants that the products do not
infringe upon any Patents, Trademarks, or Copyrights in the U.S. or
elsewhere, of third parties ("third party rights") MANUFACTURER shall
defend, indemnify and hold harmless SODAK from claims, demands,
liabilities, actions and expenses associated with MANUFACTURER'S defense
thereof, (or SODAK's defense thereof in the event MANUFACTURER does not
assume such defense) that may be brought against SODAK, but only to the
extent that the same may be brought against SODAK, but only to the
extent that the same allege the products infringe third party rights and
further provided MANUFACTURER is given prompt notice of such claim by
SODAK upon SODAK's learning of the claim and is permitted to control the
defense settlement of the legal action.
<PAGE>81
28. INDEMNIFICATION
MANUFACTURER shall defend hold harmless and indemnify
DISTRIBUTOR, its directors, officers, employees or agents from any and
all third party claims arising from or related to product defect or the
negligent conduct of MANUFACTURER's directors, officers, employees,
agents or assigns.
MANUFACTURER warrants and represents that it is in compliance with all
local, state, and federal laws of the United States and shall comply
with all laws and regulations of any applicable jurisdictions. In the
event there is any reason to know or suspect that MANUFACTURER is in
violation or alleged violation of any law or regulation, MANUFACTURER
shall notify SODAK of said violation or allegation as soon as is
reasonable.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their authorized representatives.
MANUFACTURER: DISTRIBUTOR:
CASINOVATIONS INC. SODAK GAMING, INC.
By: By:
---------------- ---------------------
Steven J. Blad Rollie Hill
President Vice Pres.
4/23/97 5/8/97
EXHIBIT "A" TERRITORY
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.
<PAGE>82
EXCLUSIVE DISTRIBUTORSHIP AGREEMENT
This agreement is entered into effective 19th February, 1997 (the "EFFECTIVE
DATE") between, Casinovations, a U.S. Corporation having its registered
address at 3909 South Maryland Parkway, Suite 311, Las Vegas, Nevada 89119
USA ("MANUFACTURER") and RGB SDN BHD., a Malaysia Corporation having its
registered address at 8 Green Hall, 10200 Pulau Pinang, Malaysia
(DISTRIBUTOR").
WITNESSETH
WHEREAS, MANUFACTURER develops, manufactures, and sells various types of
casino equipment for lawful markets worldwide; and
WHEREAS, DISTRIBUTOR desires to obtain the exclusive distributorship (as
defined hereinafter) of all the Casino Equipment (as defined hereafter) from
MANUFACTURER for sale in certain territory (as defined hereinafter),
NOW THEREFORE, it is agreed between the parties as follows:
1. DISTRIBUTOR APPOINTMENT AND TERRITORY
a. MANUFACTURER hereby appoints DISTRIBUTOR, upon the terms and
conditions of this Agreement as an exclusive distributors of it's Casino Card
Shuffler Equipment Product line. Prices will be set for equipment so
provided will be at a DISTRIBUTOR price discount as specified in clause 5b ,
herein, The exclusive TERRITORY granted to the DISTRIBUTOR is specified in
Schedule "A".
b. DISTRIBUTOR agrees not to buy, sell, or otherwise deal in within the
TERRITORY, any products which may be competitive with the PRODUCTS unless
otherwise authorized by MANUFACTURER in writing.
2. DEVELOPMENT OF TERRITORY, SALES AND SERVICE
a. DISTRIBUTOR hereby accepts such appointment and agrees at its own
expense to devote its best efforts to promote the distribution and sale of
the PRODUCTS in the TERRITORY to its maximum potential.
b. From time to time special promotion measures may be taken by either
party such as magazine advertisement, exhibitions, etc. Expenses of such
joint sales promotion shall be borne between on a fifty-fifty (50/50) basis,
to a maximum amount of US$5,000.00 each per annum, but will require prior
written approval by both parties.
c. MANUFACTURER agrees to provide technical training to DISTRIBUTOR's
staff and/or customers at DISTRIBUTOR's facility without compensation.
DISTRIBUTOR or DISTRIBUTOR's customers shall bear round trip airfare costs
while MANUFACTURER will provide reasonable accommodation and meals for
DISTRIBUTOR'S technician(s) to be dispatched in this regard,
3. WARRANTY
a) The date of warranty of MANUFACTURER'S PRODUCTS shall be the date of
the arrival of the products at any port or airport of the destination.
b) MANUFACTURER warrants the PRODUCTS have no defects in their design
material and workmanship. Immediately after the discovery of any defects in
the PRODUCTS, DISTRIBUTOR shall give MANUFACTURER a written notice to such
effect together with clear evidence thereof. If, in MANUFACTURER's opinion,
the defects are not due to its fault not attributable to MANUFACTURER by any
reason, then it shall promptly notify DISTRIBUTOR of its denial of
responsibility thereof. In such cases, both parties shall use their best
efforts to solve the problem amicably in good faith.
c) The obligation of MANUFACTURER under this warranty shall be limited
to the supply of repair and/or replacement parts for the defective PRODUCTS
in accordance with the provisions set forth hereafter. The warranty period
after delivery of products will be decided by the manufacturer.
4. PARTS
a. Together with the first shipment of the PRODUCTS after the execution
of this Agreement, MANUFACTURER provides DISTRIBUTOR with appropriate
number
of free-of-charge spare parts as Distributor's stock for their supply of the
same to its customers in the TERRITORIES. Terms and conditions of the supply
of said spare parts such as quantity, prices, payment term shall be
negotiated within a reasonable period of time after the effective date of
this Agreement.
b. DISTRIBUTOR shall keep all faulty parts replaced and maintain
updated proper stock records and provide them with MANUFACTURER, if it so
desires, so as to keep adequate stock level of spare parts constantly.
5. PRICE
a. The DISTRIBUTOR shall pay MANUFACTURER in United States Dollars
(USD), for all PRODUCTS ordered and shipped at the prices set as per clause
5b herein.
b. The MANUFACTURER agrees to offer to the DISTRIBUTOR a minimum
discount of 25% less than the promoted retail price in Nevada. The
MANUFACTURER agrees to negotiate in good faith purchase prices for quantity
and accelerated payments.
<PAGE>83
6. ORDER AND SHIPMENT
a. All purchase orders for the PRODUCTS placed by DISTRIBUTOR with
MANUFACTURER shall be subject to the provisions of this Agreement. Any
provision of any such order that is inconsistent with this Agreement or that
may seek to impose any additional obligations upon MANUFACTURER shall be null
and void unless approved in writing by both parties. MANUFACTURER will
endeavor, so far as it may be practicable for it to do so, to fill such
orders, but shall be under no liability to DISTRIBUTOR for any omission to do
so, irrespective of the reason, nor shall any partial shipment or shipments
against any order impose any liability upon MANUFACTURER with respect to the
undelivered balance of any such order.
b. All sales made under this Agreement shall be in accordance with and
interpreted MANUFACTURER's under Malaysia law.
c. MANUFACTURER shall not be responsible or liable for any loss, damage
detention, or delay caused by fire, strike, civil or military authority,
governmental restrictions or controls, insurrection or riot, railroad, marine
or air embargoes, lockout, tempest, accident, breakdown of machinery, yield
problems, delay in delivery of materials by other parties, or any cause which
is unavoidable or beyond its reasonable control; nor in any event for
consequential damages.
7. RELATIONSHIP OF THE PARTIES AND WARRANTIES
DISTRIBUTOR is an independent contractor and in no wary an agent of
MANUFACTURER, its being expressly agreed that the only relationship created
by this Agreement is that of Manufacturer and Distributor. DISTRIBUTOR
agrees not to make any representation, promise, guarantee or warranty on
MANUFACTURER's behalf. DISTRIBUTOR further agrees that it has no authority
to assume or create any obligation on MANUFACTURER'S behalf, expressed or
implied, regarding MANUFACTURER's PRODUCTS or otherwise. MANUFACTURER
only warrants the PRODUCTS sold by it to DISTRIBUTOR indicated herein. In no
event shall MANUFACTURER be liable for damages by reason or failure of any
products to function properly or for consequential or special damages.
8. RECORDS AND REPORTS
The DISTRIBUTOR shall maintain a complete record of all PRODUCTS sold by the
DISTRIBUTOR and furnish such data to MANUFACTURER upon its request.
9. CUSTOM PRODUCTS
Custom products, for purpose of agreement, are defined as products which have
specific function unique to a customer. All orders for custom products must
be approved in writing by MANUFACTURER prior to acceptance by DISTRIBUTOR.
Thereafter, DISTRIBUTOR will promptly notify MANUFACTURER of any
circumstances which may affect that order and MANUFACTURER will keep
DISTRIBUTOR informed of its progress in fulfilling such order.
10. TERM AND TERMINATION
a. This Agreement shall be remain in full force and effect for a period
of five (5) years from the EFFECTIVE DATE hereof, or until such earlier date
as of which it may be terminated as hereinafter provided. If for any reason
whatsoever the relations between the parties hereto shall continue beyond the
said term hereof without formal written agreement as to the terms and
conditions thereof, such continue of relations shall not be deemed a renewal
or extension of said term beyond the said expiration date and the same shall
be subject to immediate termination upon notice by either party to the other,
but shall in all other respects be deemed to be subject to terms and
conditions identical with those contained herein.
b. If either party hereto shall fail to perform any of the obligations
imposed upon it hereunder, the other party shall have the right as its
option, to terminate this Agreement immediately by giving notice. In the
event of a termination for cause hereunder, MANUFACTURER reserves the
right to purchase from the DISTRIBUTOR and the DISTRIBUTOR shall sell to
MANUFACTURER any PRODUCTS not sold which the DISTRIBUTOR may have on
hand, at
the time of such termination.
c. Independently of any violation of the provisions of this agreement,
either party hereto may terminate this Agreement at any time and without
cause, by giving the other party at least thirty (30) days notice of its
election to do so. In the event of such termination by MANUFACTURER without
cause, MANUFACTURER at its option may re-purchase DISTRIBUTOR's inventory
of the PRODUCTS at fair market value to be determined at MANUFACTURER's sole
discretion.
d. Upon termination or expiration of this Agreement for any cause
whatsoever, MANUFACTURER will, subject to all the terms hereof, complete its
obligations hereunder as to any orders received from the DISTRIBUTOR and
accepted by MANUFACTURER prior to the termination or expiration of
this Agreement. Thereafter, MANUFACTURER or a new Distributor may complete
any transaction inaugurated by DISTRIBUTOR but not therefore resulting in an
accepted order. Upon such termination or expiration the DISTRIBUTOR shall
immediately discontinue all promotion and advertising with respect to the
PRODUCTS.
e. Neither the expiration nor termination of this Agreement shall
release DISTRIBUTOR from the obligation to pay any sum then may be owing
MANUFACTURER or from the obligation to perform any other duty or to discharge
any other liability that has been incurred prior thereto. Subject to the
provisions of the immediately preceding sentence, however, neither party
<PAGE>84
shall by reason of the expiration or termination of this Agreement be liable
to the other for compensation or damage on account of the loss of present or
prospective profits on sales or anticipated sales, or expenditures,
investments or commitments made in connection therewith or in connection with
the establishment, development or maintenance of DISTRIBUTOR's or
MANUFACTURER'S business or goodwill.
f. MANUFACTURER shall be entitled to immediately terminate this
Agreement by notice in writing to DISTRIBUTOR upon:
1. The filing by DISTRIBUTOR of petition in bankruptcy or insolvency,
2. Any adjudication that DISTRIBUTOR of any bankrupt or insolvent;
3. The filing by DISTRIBUTOR of any petition seeking reorganization or
readjustment or arrangement of the business of DISTRIBUTOR under any law
relating to bankruptcy or insolvency;
4. The appointment of a receiver for all or substantially all of the
property of DISTRIBUTOR;
5. The making by DISTRIBUTOR of any assignment or attempted assignment
for the benefit of creditors;
6. The institution of any proceeding for the liquidation or
winding up of DISTRIBUTOR'S business or for the termination of its corporate
charter.
11. EXTRA-TERRITORIAL SALES
Without the prior written consent of MANUFACTURER in each instance,
DISTRIBUTOR shall not, directly or indirectly, offer for resale, sell or ship
PRODUCTS and/or replacement parts outside of the TERRITORY. Inquiries from
customers or potential customers outside the TERRITORY shall be promptly
referred to MANUFACTURER, who will reply in writing if the DISTRIBUTOR may
pursue. Likewise, MANUFACTURER agrees that inquiries received from customers
or potential customers in the TERRITORY shall be referred to DISTRIBUTOR.
12. PRODUCT CHANGES
MANUFACTURER reserves the right, from time to time, without incurring any
obligation to DISTRIBUTOR to discontinue any PRODUCTS or type thereof, to
alter the design or construction thereof, and/or add new and additional types
thereof to its line and in the event of any such action on MANUFACTURER's
part, it shall give DISTRIBUTOR notice thereof as soon as it may be
practicable to do so.
13. MARKET REPRESENTATIONS
DISTRIBUTOR acknowledges and agrees that MANUFACTURER has made no
statements
or representations as to the size of the market for the PRODUCTS or as to the
amount of profits to be received by DISTRIBUTOR acknowledges that in entering
into this Agreement it is relying entirely on its own estimate as to the
market for the PRODUCTS.
14. CONFIDENTIALITY
DISTRIBUTOR agrees to hold all marketing, sales, business and technical
information regarding MANUFACTURER or its customers in strict test confidence
and disclose no such information to any third party during the term of this
Agreement and for three (3) years after its termination or cancellation.
15. NON ASSIGNMENT AND NOTICE OR CERTAIN CHANGES
Without MANUFACTURER's prior written consent, neither this Agreement for any
interest therein shall be transferable or assignable by DISTRIBUTOR, by
operation of law or otherwise. DISTRIBUTOR shall immediately notify
MANUFACTURER in writing of any substantial change in the ownership, financial
interests or active management of DISTRIBUTOR. MANUFACTURER may assign this
agreement to a subsidiary or success or in interests.
16. GOVERNMENTAL PERMITS AND LICENSES
DISTRIBUTOR shall obtain at its own expenses all necessary governmental
permits/licenses for but not limited to the importation, sale, installment,
operation, repair, maintenance and bear the cost such as, but not limited to
import duty and any other related taxes imposed into the TERRITORY of the
PRODUCTS purchased by DISTRIBUTOR.
17. RELEASE FROM CLAIMS
In consideration of the execution of this Agreement by MANUFACTURER
DISTRIBUTOR, DISTRIBUTOR hereby releases MANUFACTURER from all claims,
demands or other liabilities, if any there be as of to the date execution of
this Agreement by DISTRIBUTOR, except indebtedness due under a written
contract with MANUFACTURER or a written warranty issued by MANUFACTURER.
18. USE OF NAME AND TRADE-MARKS
DISTRIBUTOR shall not use in its corporate firm or business name or allow to
be used by others, insofar as it may have any power to prevent such use the
name "CASINOVATIONS" or any other trade name or trade-mark adopted by
MANUFACTURER or any words or names or combination of words or names closely
<PAGE>85
resembling any of them provided, however, that during the term hereof
DISTRIBUTOR shall have the right to and shall indicate to the public and to
the trade by names of advertising, pamphlets, letterheads or other media for
the purpose of selling the PRODUCTS in and for the TERRITORY that the
DISTRIBUTOR is the authorized distributor of the PRODUCTS. Upon the
expiration or termination of this Agreement, DISTRIBUTOR, forthwith shall
discontinue the use of the name "CASINOVATIONS" and of any other name or
names or any combination of words or design or trade-mark or trade names that
would indicate or tend to indicate that DISTRIBUTOR was or is a distributor
of the PRODUCTS.
19. NO LICENSES IMPLIED OR GRANTED
No licenses are granted or implied by this Agreement under any intellectual
property owned or controlled by MANUFACTURER or under which MANUFACTURER
has
any rights except the right to buy, sell and deal in the PRODUCTS furnished
by MANUFACTURER. No rights to manufacture are granted by this Agreement.
DISTRIBUTOR agrees that it will not remove or alter MANUFACTURER's patent
number or other marks affixed to the PRODUCTS or permits the same to be done.
20. WAIVER
The failure of either party at any time to require performance by the other
party of any provisions hereof shall in no way affect the full to require
such performance at any time thereafter. Nor shall the waiver by either
party of a breach of any provisions hereof be a waiver of any succeeding
breach of the same or any other such provisions or be a waiver of the
provision itself.
21. BINDING
The official and binding version of this Agreement shall be English
irrevocable of the language into which it may be translated.
22. NOTICES
Any notice herein required or permitted to be given shall be in writing and
may be personally served or sent by facsimile or mail and shall be deemed to
have received if personally served when served, if mailed on the fifth
business day after deposit in Malaysian mail or US mail, as the case may be,
with airmail postage I prepaid and properly addressed. For purposes hereof
the address I of the parties hereto (until a notice of change thereof is
given as provided in this Section) will be as follows:
MANUFACTURER:
CASINOVATIONS INCORPORATED
3909 South Maryland Parkway
Suite 31 1 Las Vegas
Nevada 89119 U.S.A
Attn.: Mr. Steven J Blad
Phone: 1-702-733-7195
Fax: 1 702 733 7197
DISTRIBUTOR:
RGB SDN BHD
8 Green Hall
10850 Penang
Malaysia
Attn.: Mr. Chuah Kim Seah
Phone: 60-4-263 1111
Fax: 604 2631188
23. GOVERNING LAW
This Agreement shall be governed and construed in accordance with the laws of
Malaysia/United States excluding any law or principle which would apply the
law of any other jurisdiction. The rights and obligations of the parties
shall not be governed by the provisions of the U.N. Convention on Contracts
for the International Sale of Goods.
24. ARBITRATION
Both parties herein agree to the following method of the arbitration:
a. Any dispute issue difference of opinion arising parties hereto out
of or relating to this Agreement, or the breach thereof, shall be finally
settled by arbitration in Kuala Lumpur in accordance with the Commercial
Arbitration Rules of The Arbitration Association, unless otherwise agreed
between the parties. The award rendered by arbitrator(s) shall be final and
binding upon both parties.
b. If applicable, the parties shall have the right to conduct
discovery, provided that the arbitrator(s) may order that any particular
discovery initiated by a party be taken if the arbitrator(s) determine that
such discovery is reasonably necessary for the presentation of the requesting
party's case.
c. The language of the arbitration shall be English.
<PAGE>86
d. In the event of arbitration concerning this Agreement, the
prevailing party in such proceeding shall be entitled to reimbursement from
the other party for all reasonable attorney's fees and costs incurred with
respect to such proceeding.
e. This provision 25 shall survive the expiration or termination of
this Agreement for a period of three(3) years.
25. EXECUTION
This Agreement shall not be effective nor binding upon MANUFACTURER until
signed on its behalf by an authorized officer, nor shall any modification,
renewal, termination or waiver of any of the provisions herein contained. or
any future representation, promise condition or waiver in connection with the
subject matter hereof be binding upon MANUFACTURER unless made in writing and
executed by MANUFACTURER in the same manner.
26. INTEGRATION
This Agreement sets forth the entire agreement and understanding between the
parties as to the subject matter hereof and merges all prior writings and
discussions between them and neither party shall be bound by any terms,
conditions, definitions, warranties or representations other than as
expressly provided herein or as duly forth on or subsequent to the date
hereof in writing signed by the party to be bound thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their authorized representatives.
MANUFACTURER: DISTRIBUTOR:
CASINOVATIONS INC. RGB SDN BHD.
By: Mr. Steven Blad Mr. Chuah Kim Seah
Title: Executive Vice President Title: Director
Date: 2/20/97 Date: 2/20/97
EXHIBIT "A" TERRITORY
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, Islands in the Asian areas.
The Territory specifically excludes Japan, Australia, and New Zealand which
will be treated as common distributor areas.
<PAGE>87
CASINOVATIONS INCORPORATED
EXCLUSIVE DISTRIBUTORSHIP AGREEMENT
This agreement is entered into effective June 1, 1997 (the "EFFECTIVE DATE")
between Casinovations, a U. S. Corporation having its registered address at
3909 South Maryland Parkway, Suite 311, Las Vegas, Nevada 89119 USA
("MANUFACTURER") and II. Joel Rahn (Company name to be designated) having
its registered address at 3900 Island Blvd., Suite 406B, North Miami Beach,
FL 33160 ("DISTRIBUTOR").
WITNESSETH
WHEREAS, MANUFACTURER develops, manufactures, and sells various types of
casino equipment for lawful markets worldwide; and
WHEREAS, DISTRIBUTOR desires to obtain the exclusive distributorship (as
defined hereinafter) of all the Casino Equipment (as defined hereafter) from
MANUFACTURER for sale in certain territory (as defined hereinafter),
NOW THEREFORE,, it is agreed between the parties as follows:
I DISTRIBUTOR APPOINTMENT AND TERRITORY
a. MANUFACTURER hereby appoints DISTRIBUTOR, upon the terms and
conditions of this Agreement as an exclusive distributor of its Casino Card
Shuffler Equipment Product line. Prices will be set for equipment so
provided will be at a DISTRIBUTOR price discount as specified in Section 5.b.
herein. The exclusive TERRITORY granted to the DISTRIBUTOR is specified in
Schedule 'A'.
b. DISTRIBUTOR agrees not to buy, sell or otherwise deal in within the
TERRITORY, any products which may be competitive with the PRODUCTS unless
otherwise authorized by MANUFACTURER in writing,
2. DEVELOPMENT OF TERRITORY, SALES AND SERVICE
a. DISTRIBUTOR hereby accepts such appointment and agrees at its own
expense to devote its best efforts to promote the distribution and sale of
the PRODUCTS in the TERRITORY to its maximum potential.
b. From time to time special promotion measures may be taken by either
party such as magazine advertisement, exhibitions, etc. Such joint sales
promotion can be entered into upon approval of both parties, but will require
prior written approval by both parties.
c. MANUFACTURER agrees to provide technical training to DISTRIBUTOR's
staff and/or customers at DISTRIBUTOR's facility without compensation.
DISTRIBUTOR or DISTRIBUTOR's customers shall bear round trip airfare costs to
DISTRIBUTOR's facility. MANUFACTURER will provide reasonable accommodation
and meals for DISTRIBUTOR's technician(s) to be dispatched in this regard.
3 . WARRANTY
a. The commencement date of the warranty of MANUFACTURER'S PRODUCT'S
shall be the date of installation at facility of end user.
b. MANUFACTURER warrants the PRODUCTS have no defects in their design
material and workmanship. Immediately after the discovery of any defects in
the PRODUCTS, DISTRIBUTOR shall give MANUFACTURER a written notice to such
effect together with clear evidence thereof. If in MANUFACTURER's opinion
the defects are not due to its fault or not attributable to MANUFACTURER by
any reason, then it shall promptly notify DISTRIBUTOR of its denial of
responsibility thereof. In such cases, both parties shall use their best
efforts to solve the problem amicably in good faith.
c. The obligation of the MANUFACTURER under this warranty shall be
limited to the supply, repair and/or replacement parts for the defective
PRODUCTS in accordance with the provisions set forth hereafter. The warranty
period after installation of PRODUCTS is twelve (12) months.
4. SPARE PARTS
a. Together with the first shipment of the PRODUCTS after the execution
of this Agreement, MANUFACTURER will provide DISTRIBUTOR with an appropriate
number of spare parts at no cost, so that DISTRIBUTOR may supply the same to
its customers in the TERRITORIES. Terms and conditions of the supply of said
spare parts such as quantity, prices, payment term shall be negotiated within
a reasonable period of time after the effective date of this Agreement.
MANUFACTURER agrees price of spare parts shall allow
for reasonable mark-up by DISTRIBUTOR consistent with other discounts on
MANUFACTURER'S PRODUCTS.
b. DISTRIBUTOR may keep all faulty parts replaced and maintain updated
proper stock records and provide them to MANUFACTURER, if it so desires, so
as to keep adequate stock level of spare parts.
<PAGE>88
5. PAYMENT, PRICE, AND DELIVERY
a. The DISTRIBUTOR shall pay MANUFACTURER in United States Dollars
(USD), for all PRODUCTS ordered and shipped at the prices as set per Section
5.b. herein. Terms of payment shall be fifty percent (50%) upon order, the
balance on delivery.
b. The MANUFACTURER agrees to offer to the DISTRIBUTOR a minimum
discount of twenty-five percent (25%) less than the promoted retail price in
Nevada. The MANUFACTURER agrees to negotiate in good faith purchase prices
for quantity and accelerated payments. In the event of increase in the
Nevada retail price MANUFACTURER agrees to honor all orders received thirty
(30) days before and after notice to DISTRIBUTOR of such price increase.
c. All PRODUCT'S shall be delivered FOB Las Vegas, Nevada.
6. ORDER AND SHIPMENT
2. All purchase orders for the PRODUCTS placed by DISTRIBUTOR with
MANUFACTURER shall be subject to the provisions of this Agreement. Any
provision of any "special" order that is inconsistent with this Agreement or
that may seek to impose any additional obligations upon MANUFACTURER shall be
null and void unless approved in writing by both parties. MANUFACTURER will
endeavor, so far as it may be practicable for it to do so, to fill such
order, but shall be under no liability to DISTRIBUTOR for any omission to do
so, irrespective of the reason, nor shall any partial shipment or shipments
against any order impose any liability upon MANUFACTURER with respect to the
undelivered balance of any order.
b. All sales made under this Agreement shall be in accordance with and
interpreted under U.S. law.
c. MANUFACTURER shall not be responsible or liable for any loss, damage
detention, or delay caused by fire, strike, civil or military authority,
governmental restrictions or controls, insurrection or riot railroad, marine
or air embargoes, lockout, tempest, accident, breakdown of machinery, yield
problems, delay in delivery of materials by other parties, or any cause which
is unavoidable or beyond its reasonable control, nor in any event for
consequential damages.
7. RELATIONSHIP OF THE PARTIES AND WARRANTIES
DISTRIBUTOR is an independent contractor and in no way an agent of
MANUFACTURER, its being expressly agreed that the only relationship created
by this Agreement is that of Manufacturer and Distributor. DISTRIBUTOR
agrees not to make any representation, promise, guarantee or warranty on
MANUFACTURER's behalf. DISTRIBUTOR further agrees that it has no authority
to assume or create any obligation on MANUFACTURER's behalf, express or
implied, regarding MANUFACTURER's PRODUCTS or otherwise. MANUFACTURER
only warrants the PRODUCTS sold by it to DISTRIBUTOR indicated herein. In no
event shall MANUFACTURER be liable for damages by reason of failure of any
products to function properly or for consequential or special damages.
8. RECORDS AND REPORTS
The DISTRIBUTOR shall maintain a complete record of all PRODUCTS sold by the
DISTRIBUTOR and furnish such data to MANUFACTURER upon its request.
9. CUSTOM PRODUCTS
Custom products, for purpose of agreement, are defined as products which have
specific function unique to a customer. All orders for custom products must
be approved in writing by MANUFACTURER prior to acceptance by DISTRIBUTOR.
Thereafter, DISTRIBUTOR will promptly notify MANUFACTURER of any
circumstances which may affect that order and MANUFACTURER will keep
DISTRIBUTOR notified of its progress in fulfilling such order.
TERM AND TERMINATION
a. This Agreement shall remain in full force and effect for a period of
five (5) years from the EFFECTIVE DATE hereof, or until such earlier date as
of which it may be terminated as hereinafter provided. If for any reason
whatsoever the relations between the parties shall continue beyond the said
term hereof without written formal agreement as to the terms and conditions
thereof, such continuance of relations shall not be deemed a renewal or
extension of said term beyond the said expiration date and the same shall be
subject to immediate termination upon notice by either party to the other,
but shall in all respects be deemed to be subject to terms and conditions
identical with those contained herein.
b. If either party hereto shall fail to perform any of the obligations
imposed upon it hereunder, the other party shall have the right as its
option, to terminate this Agreement by giving thirty (30) days' written
notice. The party alleging breach of' this Agreement shall have thirty (30)
days from the date of receipt of notice to cure such breach. Failure to cure
shall cause this Agreement to terminate within thirty (30) days of receipt of
notice. In the event of a termination due to DISTRIBUTOR breach,
MANUFACTURER
<PAGE>89
reserves the right to purchase from the DISTRIBUTOR and the DISTRIBUTOR shall
sell to MANUFACTURER any PRODUCTS not sold which the DISTRIBUTOR may
have on hand, at the time of such termination.
c. Independently of any violation of the provisions of this agreement,
either party hereto may terminate this Agreement at any time and without
cause, by giving the other party at least thirty (30) days notice of its
election to do so. In the event of such termination by MANUFACTURER
without cause, MANUFACTURER may at its option repurchase DISTRIBUTOR's
inventory of the PRODUCTS at Fair market value to be determined at
MANUFACTURER'S sole discretion.
d. Upon termination or expiration of this Agreement for any cause
whatsoever, MANUFACTURER will, subject to all the terms hereof, complete its
obligations hereunder as to any orders received from the DISTRIBUTOR and
accepted by MANUFACTURER prior to the termination or expiration of this
Agreement. One year thereafter, MANUFACTURER or a new Distributor may
complete any transaction inaugurated by DISTRIBUTOR but not therefore
resulting in an accepted order. Upon such termination or expiration the
DISTRIBUTOR shall immediately discontinue all promotion and advertising with
respect to CASINOVATIONS PRODUCTS.
e. Neither the expiration nor the termination of this Agreement shall
release either party from the obligation to pay any sum then may be owing or
from the obligation to perform any other duty or to discharge any other
liability that has been incurred prior thereto. Subject to the provisions of
the immediately preceding sentence, however, neither party shall by reason of
the expiration or termination of this Agreement shall be liable to the other
for compensation or damage on account of the loss of present or prospective
profits on sales or anticipated sales, or expenditures, investments, or
commitments made in connection therewith or in connection with the
establishment, development or maintenance of DlSTRIBUTOR's or MANUFACTURER's
business or goodwill.
f. Either party shall be entitled to immediately terminate this Agreement by
notice in writing to the other for any of the following events:
1. A filing of petition of bankruptcy or insolvency,
2. Any adjudication of any bankruptcy or insolvency;
3. The filing of any petition seeking reorganization or readjustment or
arrangement of the business under any law relating to bankruptcy or
insolvency;
4. The appointment of a receiver for all or substantially all of the
property of either party;
5 . The making of any assignment or attempted assignment for the benefit of
creditors;
6. The institution of any proceeding for the liquidation or winding up of
business or for the termination of its corporate charter.
11. EXTRA-TERRITORIAL, SALES
Without prior written consent of MANUFACTURER in each instance, DISTRIBUTOR
shall not, directly or indirectly, offer for resale, sell or ship PRODUCTS
and/or replacement parts outside of the TERRITORY. Inquiries from customers
or potential customers outside the TERRITORY shall be promptly referred to
MANUFACTURER, who will reply in writing if the DISTRIBUTOR may pursue.
Likewise, MANUFACTURER agrees that inquiries received from customers or
potential customers in the TERRITORY shall be referred to DISTRIBUTOR.
12. PRODUCT CHANGES
MANUFACTURER reserves the right, from time to time, without incurring any
obligation to DISTRIBUTOR to discontinue any PRODUCTS or type thereof, to
alter the design or construction thereof, and/or add new and additional types
thereof to its line and in the event of any such action on MANUFACTURER's
part, it shall give DISTRIBUTOR no less than thirty (30) days notice thereof.
Any product change shall not affect any pending orders placed by DISTRIBUTOR.
13. MARKET REPRESENTATIONS
DISTRIBUTOR acknowledges and agrees that MANUFACTURER has made no
statements
or representations as to the size of the market for the PRODUCTS or as to the
amount of profits to be received by DISTRIBUTOR. DISTRIBUTOR acknowledges
that in entering into this Agreement it is relying entirely on its own
estimate as to the market for the PRODUCTS, but warrants no level of sales
upon which MANUFACTURER may rely.
14. CONFIDENTIALITY
DISTRIBUTOR agrees to hold all marketing, sales, business and technical
information regarding MANUFACTURER or its customers in the strictest
confidence and disclose no such information to any third party during the
term of this Agreement and for three (3) years after its termination or
cancellation.
<PAGE>90
15. NON ASSIGNMENT AND NOTICE OR CERTAIN CHANGES
Without MANUFACTURER's prior written consent, neither this Agreement nor any
interest therein shall be transferable or assignable by DISTRIBUTOR, by
operation of law or otherwise. DISTRIBUTOR shall immediately notify
MANUFACTURER in writing of any substantial change in the ownership,
financial interests or active management of DISTRIBUTOR. MANUFACTURER may
assign this agreement to a subsidiary or successor in interests.
16. GOVERNMENTAL, PERMITS AND LICENSES
DISTRIBUTOR shall obtain at its own expenses all necessary governmental
permits/licenses for but not limited to the importation, sale , installment,
operation, repair, maintenance and bear the cost such as, but not limited to
import duty and any other related taxes imposed into the TERRITORY of
the PRODUCTS purchased by DISTRIBUTOR. MANUFACTURER shall pay for any
permits, licenses or taxes specifically applicable to MANUFACTURER.
17. RELEASE FROM CLAIMS
In consideration of the execution of this Agreement by MANUFACTURER,
DISTRIBUTOR hereby releases MANUFACTURER from all claims, demands or other
liabilities, pending as of the date of entering this Agreement by
DISTRIBUTOR, except indebtedness due under a written contract with
MANUFACTURER or a written warranty issued by MANUFACTURER.
18. USE OF NAME AND TRADE-MARKS
DISTRIBUTOR shall not use in its corporate firm or business name or allow to
be used by others, insofar as it may have any power to prevent such use the
name "CASINOVATIONS" or any other trade name or trade-mark adopted by
MANUFACTURER or any words or names or combination of words or names closely
resembling any of them provided, however, that during the term hereof
DISTRIBUTOR shall have the right to and shall indicate to the public and to
the trade by names of advertising, pamphlets, letterheads or other media for
the purpose of selling the PRODUCTS in and for the TERRITORY that the
DISTRIBUTOR is the authorized distributor of the PRODUCTS. Upon the
expiration or termination of this Agreement, DISTRIBUTOR, forthwith shall
discontinue the use of the name "CASINOVATIONS" and of any other name or
names or any combination of words or design or trade-mark or trade names that
would indicate or tend to indicate that DISTRIBUTOR was or is a distributor
of the PRODUCTS.
19. NO LICENSES IMPLIED OR GRANTED
No licenses are granted or implied by this Agreement under any intellectual
property owned or controlled by MANUFACTURER or under which DISTRIBUTOR has
any rights except the right to buy, sell and deal in the PRODUCTS furnished
by MANUFACTURER. No rights to manufacture are granted by this Agreement.
DISTRIBUTOR agrees that it will not remove or alter MANUFACTURER's patent
number or other marks affixed to the PRODUCTS or permits the same to be done.
20. WAIVER
The failure of either party at any time to require performance by the other
party of any provisions hereof shall in no way affect the full to require
such performance at any time thereafter. Nor shall the waiver by either
party or a breach of any provisions hereof be a waiver of any succeeding
breach of the same or any other such provisions or be a waiver of the
provision itself.
21. BINDING VERSION
The official and binding version of this Agreement shall be English
irrevocable of the language into which it may be translated.
22. NOTICES
Any notice herein required or permitted to be given shall be in writing and
may be personally served or sent by facsimile or mail and shall be deemed to
have been received if personally served when served, if mailed on the fifth
business day after deposit in the U.S. mail, as the case may be, with airmail
postage prepaid and properly addressed. For purposes hereof the address of
the parties hereto (until a change thereof is given as provided in this
Section) will be as follows:
MANUFACTURER: DISTRIBUTOR:
CASINOVATIONS INCORPORATED
3909 South Maryland Parkway, Suite 311 3900 Highland Blvd., Suite 4O6B
Las Vegas, Nevada 89119 USA North Miami Beach, FL 33160
Attn: Mr. Steven J. Blad Attn: H. Joel Rahn
Phone: 1-702-733-7195 Phone: 1-954-359-0001
Fax: 1-702-733-7197 Fax: 1-954-359-2797
23. GOVERNING LAW
This Agreement shall be governed and construed in accordance with the laws of
the State of Florida excluding any law or principle which would apply the law
of any other jurisdiction. The rights and obligations of the parties shall
not be governed by the provisions of the U.N. Convention on Contracts for the
International Sale of Goods.
<PAGE>91
24. ARBITRATION
Both parties herein agree to the following method of the arbitration:
a. Any dispute, issue, or difference of opinion arising from parties
hereto out of or relating to this Agreement, or the breach thereof, shall be
finally settled by arbitration in the United States in accordance with the
Commercial Arbitration Rules of The American Arbitration Association, unless
otherwise agreed between the parties. The award rendered by arbitrator(s)
shall be final and binding upon both parties.
b. If applicable, the parties shall have the right to conduct
discovery, provided that the arbitrator(s) may order that any particular
discovery initiated by a party be taken if the arbitrator(s) determine that
such discovery is reasonably necessary for the presentation of the requesting
party's case.
c. The language of the arbitration shall be English.
d. In the event of arbitration concerning this Agreement, the prevailing
party in such Proceeding shall be entitled to reimbursement from the other
party for all reasonable attorneys fees arid costs incurred with respect to
such Proceeding.
e. This provision 24 shall survive the expiration or termination of this
agreement for a period of three (3) years.
25. EXECUTION
This Agreement shall not be binding upon either its behalf by an authorized
officer, nor shall any modification, renewal, termination or waiver of any of
the provisions herein contained, or any future representation, promise
condition or waiver in any connection with the subject matter hereof be
binding upon either party unless made in writing and executed by such party
in the same manner.
26. INTEGRATION
This Agreement sets forth the entire agreement and understanding between the
parties as to the subject matter hereof and merges all prior writings and
discussions between them and neither party shall be bound by any terms,
renditions, definitions, warranties or representations other than as
expressly provided herein or as duly set forth on or subsequent to the date
hereof in writing signed by the party to be bound thereby.
27. INFRINGEMENT OF THIRD PARTIES/COMPLIANCE WITH ALL LAWS.
MANUFACTURER represents and warrants that the products do not infringe upon
any Patents, Trademarks, or Copyrights in the US. or elsewhere, or third
parties ("third party right"). MANUFACTURER shall defend, indemnify, and
hold harmless DISTRIBUTOR from claims, demands, liabilities, actions and
expenses associated with MANUFACTURER'S defense thereof, (or DISTRIBUTOR'S
defense thereof in the event MANUFACTURER does not assume such defense) that
may be brought against DISTRIBUTOR, but only to the extent that the same
allege the products infringe third party rights and further provided
MANUFACTURER is given prompt notice of such claim by DISTRIBUTOR upon
DISTRIBUTOR'S learning of the claim and is permitted to control the
defense settlement of the legal action.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their authorized representatives.
MANUFACTURER: DISTRIBUTOR:
CASINOVATIONS, INC.
- ------------------- -------------------
(Signature) (Signature)
By: Mr. Steven J. Blad By: Owner
Title: Pres. and COO Title:
Date: 6/2/97 Date: 6/2/97
The Territory shall consist 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,
<PAGE>92
EXCLUSIVE LICENSE AGREEMENT
THIS Agreement is entered into as of the 5th day of May, 1994, by and between
GEORGE C. MATTESON CO, INC, a Missouri corporation, whose address is 900 S.
Vista Avenue, P.O. Box 499, Independence, Missouri 64051 (herein called
'GEMACO') and SHARPS INTERNATIONAL, a Nevada Limited partnership, whose
address is 815 S. Third Street, Las Vegas, Nevada 89101 (herein called
'Sharps').
WHEREAS, GEMACO is engaged in the business of manufacturing, producing and
selling playing cards and has developed a sales force to market its products;
WHEREAS, Sharps has exclusive rights in an improved playing card design
layout for playing the game referred to as 'Blackjack' or 'Twenty-One' and
has claims to patent rights (as described in U.S. Patent Application Serial
No. 08/165,302 Filed December 9, 1993 entitled 'Cards and Methods for Playing
Casino 21 or Blackjack'), copyrights, trademarks and other proprietary
information related thereto and described in Appendix A, attached hereto and
incorporated herein by reference (the "Proprietary Information");
WHEREAS, Sharps desires to utilize the sales force developed by GEMACO to
market products manufactured pursuant to a license of the Proprietary
Information, and the parties have agreed that GEMACO will serve as an
exclusive manufacturer and distributor of playing cards which utilize the
Proprietary Information, subject to the terms, conditions and limitations set
forth herein;
NOW, THEREFORE, the parties agree as follows:
1. License, Exclusive Manufacturer.
(a) Sharps hereby grants to GEMACO an exclusive right and license during
the term of this Agreement to manufacture and sell to the customers and in
the sales territory set forth in this Agreement decks of playing cards (as
described in Appendices A, B and C, attached hereto, and referred to herein
as the 'Playing Cards') which utilize the Proprietary Information. GEMACO
agrees to use the Proprietary Information only for the purposes set forth
herein, and will not disclose the Proprietary Information to any third party
or use it in any other manner without the prior written consent of Sharps.
(b) Notwithstanding Paragraph l(a) hereof GEMACO acknowledges that the
Proprietary Information may also be licensed to the United States Playing
Card Company, whose address is Beech & Park, Cincinnati Ohio 45212, and that
the granting of such license by Sharps does not constitute a breach of the
terms of this Agreement.
2. Patent and Trademark Notices. Sharps will provide GEMACO with all
appropriate patent and trademark notices. GEMACO shall incorporate Sharps'
trademarks into the Ace of Spades in each deck of Playing Cards, as shown in
Appendix C, attached hereto. GEMACO further agrees to incorporate all such
patent and trademark notices into sales and promotional materials produced by
GEMACO relating to the Playing Cards.
3. Ownership. Sharps represents and warrants that it rightfully has
exclusive rights in the Proprietary Information and all portions thereof, and
that it has the right to grant to GEMACO a license for the use of the
Proprietary Information. All applicable rights to patents, copyrights,
trademarks and trade secrets in the Proprietary Information, and any
improvements, enhancements and additional inventions relating thereto, are
and shall remain in Sharps.
4. Infringement
(a) In the event a claim of infringement of a patent, copyright, license
or other proprietary right relating to the Proprietary Information is brought
against GEMACO, GEMACO shall have the option to terminate this Agreement upon
delivery of written notice to Sharps. The parties agree that the intent of
this Paragraph 4(a) is to allow GEMACO and its counsel to evaluate the merits
of such a claim and, if GEMACO determines that it is risking significant
liability in continuing to manufacture and sell the Playing Cards, then
GEMACO may terminate this Agreement to avoid such liability.
(b) If, as a result of any claim of infringement of a patent, copyright,
license or other proprietary right relating to the Proprietary Information,
GEMACO is temporarily restrained or enjoined from using the Proprietary
Information, Sharps shall not be entitled to the payment of any royalties
while such temporary restraining order or injunction is in effect unless
GEMACO continues to manufacture and sell the Playing Cards and the
Proprietary Information, in which case royalties shall continue. In the
event a permanent nonappealable injunction is granted enjoining GEMACO from
manufacturing and selling the Playing Cards, then this Agreement shall
terminate upon the issuance of such permanent injunction. The provisions of
this Section shall apply only to the infringement which is caused by use of
<PAGE>93
the Proprietary Information. GEMACO agrees to take any reasonable actions
required to be taken if by taking such action infringement that can be
avoided. If Sharps chooses not to defend GEMACO in such action, it shall so
notify GEMACO in writing. GEMACO may then defend the action at its expense
to protect its exclusive license granted hereunder, and GEMACO shall be
entitled to any award or relief granted by the court pursuant to such action.
(c) If any party other than GEMACO or the United States Playing Card
Company uses the Proprietary Information to manufacture and sell playing
cards during the term of this Agreement, then GEMACO shall be entitled to
continue to use the Proprietary Information to manufacture and sell the
Playing Cards during the period of such infringing use. GEMACO shall notify
Sharps prior to any suspension of royalties. Sharps shall not be entitled to
the payment of any royalties until it restores to GEMACO the exclusive
license granted hereunder, or until Sharps files suit in an effort to stop
the infringing use. If suit is filed by Sharps, royalties shall be paid
while the action is pending. If Sharps chooses not to bring an action
against the infringing party, it shall so notify GEMACO in writing. GEMACO
may then bring an action at its expense against the infringing party to
protect its exclusive license granted hereunder, and GEMACO shall be entitled
to any award or relief granted by the court pursuant to such action. If
GEMACO and Sharps agree to jointly pursue an infringement action, then any
recovery from such suit shall be divided pro rata between GEMACO and Sharps
based upon expenses incurred by each party.
5. GEMACO Licensure. Sharps agrees to disclose to GEMACO the identity
of all partners of Sharps and all other information which GEMACO is required
to disclose to any state regulatory agency or other body which regulates the
gaming industry and its suppliers. The parties agree that if such disclosure
reveals information which, in GEMACO judgment, would subject to GEMACO to the
loss of a state license or disqualification from doing business in any state,
then Sharps agrees to either (a) reorganize to eliminate the partner whose
background threatens GEMACO's state licensure/qualification; or (b) assign
ownership of the Proprietary Information to GEMACO or another assignee which
will not result in such loss of license or disqualification. Following any
such assignment, payment of royalties hereunder by GEMACO will be made to the
assignee or licensee.
6. GEMACO Design. GEMACO shall provide Sharps with the appropriate
copy and art ('C-Prints') for use in designing the faces of the Playing
Cards, but Sharps acknowledges that such C-Prints constitute confidential,
proprietary, and copyrighted information and will not be used by Sharps for
any other purpose without the prior written consent of GEMACO. Upon
completion of the work to design the faces of the Playing Cards, Sharps will
immediately return all C-Prints and any copies to GEMACO. Further, upon
termination of this Agreement for any reason, Sharps will immediately remove
all GEMACO designs from all computer memory and certify to GEMACO in writing
that it has done so.
7. Customers Sales Territory, The parties agree that there shall be no
restrictions on GEMACO with respect to the types of customers to which GEMACO
can sell the Playing Cards or the sales territory in which GEMACO can offer
the Playing Cards.
8. Term. This Agreement shall commence upon the date it is executed by
both parties and remain in effect until terminated pursuant to the terms of
Paragraph 4 or 14 hereof This Agreement and the rights of GEMACO hereunder
shall not be modified, affected or terminated by reason of the insolvency,
bankruptcy, receivership, or assignment for the benefit of creditors of
Sharps or by any action or proceeding pertaining to the financial condition
of Sharps.
<PAGE>94
9. Royalties.
(a) GEMACO shall pay Sharps a royalty on the sale of the Playing Cards
by GEMACO in the amount of Four Cents (4) for each deck of Playing Cards sold
by GEMACO. Sharps shall not be entitled to a royalty for any deck of Playing
Cards which is returned to GEMACO by the customer, and to the extent that
royalties have been paid to Sharps for returned decks, GEMACO shall be
entitled to offset the amount of all such royalties paid on returned decks
against the next royalty payment due Sharps.
(b) In the event Sharps' U.S. Patent Application Serial No. 08/165,302
and all other patent applications to the Proprietary Information are denied,
the royalty as set forth in Paragraph 9(a) shall be reduced from Four Cents
(,4) per deck to Two Cents (2) per deck from the date of such denial.
(c) Sharps acknowledges that GEMACO has, prior to the execution of this
Agreement, manufactured decks of playing cards to be used for 'peeking'
purposes, and that the sale of any such decks of playing cards by GEMACO
during the term of this Agreement is not part of this Agreement and shall not
result in any obligation on the part of GEMACO to pay royalties to Sharps for
the sale of such playing cards, unless such playing cards are modified to use
the Proprietary Information.
(d) The royalties specified in this Paragraph 9 shall be adjusted
annually for any increases in the Consumer Price Index as kept by the United
States Department of Commerce. The royalties shall be adjusted upwardly in
an amount equal to the percentage increase in the Consumer Price Index
between the start of calendar year 1994 and the start of the calendar year
during which royalties accrue. Any increase shall apply to all royalties.
10. Most Favored Royalty. Licensor agrees that the royalty rate
specified in Paragraph 9 shall be revised to match a more favorable rate
granted to U.S. Playing Card Company or any other licensee of the Proprietary
Information while this Agreement remains in effect.
11. Sales and Promotion' GEMACO agrees that during the term of this
Agreement it will use Two Cents (2) from the sale of each deck of Playing
Cards for the purpose of sales and promotion of the Playing Cards.
12. Payment of Royalties. GEMACO shall pay Sharps the royalties due
under this Agreement within thirty (30) days after the end of each calendar
quarter (March 31, June 30, September 30, December 31) while this Agreement
is in effect. Each payment of royalties shall be accompanied by a written
itemized statement prepared by GEMACO showing the number of decks of Playing
Cards sold and the amount of the royalties by account. Each listing shall
show the customer's name, the number of decks sold during the preceding
quarter, and the calculation of the royalty due.
13. Audit
(a) Sharps shall have the right to hire an independent accounting firm
to perform an audit of GEMACO's books and records not more than two (2) times
per calendar year while this Agreement is in effect to verify the accuracy of
sales statements provided and royalties paid to Sharps by GEMACO; provided,
however, that such independent accounting firm shall not be allowed to
disclose any of GEMACO's pricing information to Sharps which is revealed
during such audit, and GEMACO may refuse to allow such audit to be performed
until the independent accounting firm retained by Sharps to perform such
audit enters into a nondisclosure agreement with GEMACO agreeing to be bound
by the restriction set forth in this Paragraph.
(b) In the event that the audit reveals an underpayment by Sharps, then
GEMACO shall, within ten (10) days of Sharps providing notice of such
underpayment, pay to Sharps the amount of such underpayment. The fees and
costs incurred by Sharps in performing the audit shall be the responsibility
of Sharps, unless the audit reveals an underpayment by GEMACO in any calendar
quarter of $1,000 or more, in which case the fees and costs of the audit
shall be paid by GEMACO.
14. Termination. This Agreement may be terminated by either party
immediately upon written notice to the other party for cause. For purposes
of this Agreement, the parties agree that "cause" shall be defined as:
(a) material breach of any term or condition of this Agreement which is
not cured within ninety (90) days after receipt of written notice from the
non-breaching party, except with respect to payment of royalties, in which
case GEMACO shall have ten (10) days to cure such default after delivery of
written notice by Sharps; or
(b) beginning with the calendar quarter ending June 30, 1995, failure of
GEMACO to sell 125,000 or more decks of Playing Cards in any calendar
quarter.
15. Inspection of Samples. GEMACO agrees that upon request of Sharps,
GEMACO will either (i) ship to Sharps a sample card Poker) with a hole
drilled through the center; or (ii) make available for Sharps' inspection at
GEMACO's facility in Independence, Missouri a sample deck with a hole drilled
<PAGE>95
through the center, for each different model of the Playing Cards which is
manufactured by GEMACO. The parties agree that the intent of this provision
is to allow Sharps to maintain control over the quality of the Playing Cards
in compliance with the law of trademark licensing.
16. Notices. All notices required to be sent under this Agreement shall
be sent by overnight delivery service or by certified or registered mail to
the addresses listed in the first paragraph of this Agreement, unless a party
notifies the other party in writing of any change of address. Notice shall
be effective upon receipt if delivered, and three (3) days after mailing if
mailed.
17. Governing Law. This Agreement shall be construed under and in
accordance with the laws of the State of Missouri.
18. Entire Agreement. This Agreement constitutes the entire agreement
of Sharps and GEMACO with respect to the subject matter of this Agreement.
This Agreement may only be modified in writing, signed by both parties.
19. Successors and Assigns. @ Agreement may not be assigned by either
party without the prior written consent of the other; provided, however, that
GEMACO or Sharps may assign its rights hereunder in the event of a sale of a
majority of its issued and outstanding voting stock or the sale of
substantially all of its assets. Subject to the foregoing, this Agreement
shall be binding upon Sharps and GEMACO, and their respective successors and
assigns.
20. No Waiver. No waiver by either party of a breach or default
hereunder shall be deemed a waiver by such party of a subsequent breach or
default of a like or similar nature.
21. Severability. In the event 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 effect any
other term or provision of this Agreement and shall be interpreted and
construed as if such term or provision, to the extent it shall have been held
to be invalid, illegal or unenforceable, had never been contained herein.
22. Arbitration. Any claim, dispute or controversy arising out of or in
connection with or relating to the interpretation or enforcement of this
Agreement shall be settled, insofar as possible, by mutual consultation and
consent of the parties. If the parties are unable to resolve such claim,
dispute or controversy, then such claim, dispute or controversy shall be
submitted by the parties to arbitration by the American Arbitration
Association in Kansas City, Missouri under the Commercial Arbitration Rules
then in effect for that Association. The arbitration award may be entered in
any court having competent jurisdiction with respect to this Agreement. The
cost of such arbitration shall be paid by the non-prevailing party unless
otherwise determined by the arbitrator or arbitrators.
THIS EXCLUSIVE LICENSE AGREEMENT CONTAINS A BINDING
ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, GEMACO and Sharps have executed this Exclusive License
Agreement as of the day and year first above written.
SHARPS INTERNATIONAL GEORGE C. MATTESON, CO., INC.
"Sharps" "GEMACO"
By: /s/ Randy D. Sines By: /s/ C. L. Fitzhugh
------------------- --------------------
Randy D. Sines, C. L. Fitzhugh, President
Managing General Partner
<PAGE>96
APPENDIX A
Description of Proprietary Information
1. The playing cards and methods described in the materials of Appendix
B or subsequently filed patents or patent applications on substantially the
same technology.
2. The trademarks of Appendix C and other trademarks agreed to between
the parties for use with the Playing Cards.
3. All designs protected under copyright prepared in whole or in part
by Sharps and used in the Playing Cards manufactured by GEMACO.
<PAGE>97
APPENDIX B
Description of Playing Cards
See attached copy of U.S. patent application.
See attached copy of descriptive publication prepared by Sharps.
<PAGE>98
LICENSE AGREEMENT
THIS AGREEMENT is entered into as of the 16th day of March, 1995, by and
between THE UNITED STATES PLAYING CARD COMPANY, an Ohio corporation,
whose address is 4590 Beech Street, Cincinnati, Ohio 45212 (herein called
"USPCC") and SHARPS INTERNATIONAL, a Nevada limited partnership, whose address
is 815 S. Third Street, Las Vegas, Nevada 89101 (herein called "Sharps")
WITNESSETH:
WHEREAS, USPCC is engaged in the business of manufacturing,
producing and selling playing cards and has developed a sales force to market
its products;
WHEREAS, Sharps has exclusive rights in an improved playing
card design layout for playing the game referred to as "Blackjack" or
"Twenty-One" and has claims to patent rights (as described in U.S. Patent
Application Serial No. 08/165,302 filed December 9, 1993, entitled "Cards and
Methods for Playing Casino 21 or Blackjack"), copyrights, trademarks and
other proprietary information related thereto and described in Appendix A,
attached hereto and incorporated herein by reference (the "Proprietary
Information");
WHEREAS, Sharps desires to utilize the sales force
developed by USPCC to market products manufactured pursuant to a license of
the Proprietary Information, and USPCC desires to serve as a manufacturer and
distributor of playing cards which utilize the Proprietary Information;
NOW, THEREFORE, the parties agree as follows:
1. License and Manufacture.
(a) Sharps hereby grants to USPCC the right and license during
the term of this Agreement to manufacture and sell to the customers in the
sales territory set forth in this Agreement, decks of playing cards (as
described in Appendices A and B, attached hereto, and referred to herein as
the "Playing Cards") which utilize the Proprietary Information. USPCC agrees
to use the Proprietary Information only for the purposes set forth herein,
and will not disclose the Proprietary Information to any third party or use
it in any other manner without the prior written consent of Sharps.
(b) Notwithstanding Paragraph 1(a) hereof, USPCC acknowledges that the
Proprietary Information has been licensed to Gemaco, whose address is 900 S.
Vista Avenue, P.O. Box 499, Independence, Missouri 64051, and that the
granting of such license by Sharps does not constitute a breach of the terms
of this Agreement and that the exclusivity is subject to the rights granted
to Gemaco.
2 Patent and Trademark Notices. Sharps will provide USPCC
with all appropriate patent and trademark notices. USPCC shall incorporate
such notices and Sharps' trademarks, as shown in Appendix C attached hereto,
into insert cards in each deck of Playing Cards. USPCC further agrees to
incorporate all patent and trademark notices into sales and promotional
materials produced by USPCC relating to the Playing Cards.
<PAGE>99
3. Ownership. Sharps represents and warrants that the Proprietary
Information is not in the public domain, that is, members of the public may
not copy and exploit the Proprietary Information without authorization from
Sharps, that it is rightfully owned by Sharps, and that Sharps has the sole
and exclusive right to grant to USPCC this license. Sharps further
represents and warrants that incorporation of the Proprietary Information
into the manufacture, sale, advertising and distribution of the Playing Cards
will not by itself conflict with any agreement or commitment of Sharps nor
cause conflict with the rights of any third party. All applicable rights to
patents, copyrights, trademarks and trade secrets in the Proprietary
Information, and any improvements, enhancements and additional inventions
relating thereto, are and shall remain in Sharps.
4. Infringement.
(a) in the event a claim of infringement of a patent, copyright,
trademark, license or other proprietary right, which directly results from
incorporation of the Proprietary Information into the Playing Cards, is
brought against USPCC, USPCC agrees to inform Sharps by written notice as
soon as is practical and in any event within thirty (30) days. Sharps agrees
to defend at its own expense any such suits against USPCC, its officers,
employees and agents, and Sharps further agrees to indemnify and hold
harmless USPCC, its officers, employees and agents from any and all damages,
liability or expenses arising out of such claims of infringement of a patent,
copyright, trademark, license or other proprietary right which is directly
caused by use of the Proprietary Information in the Playing Cards.
(b) In the event of a claim of infringement against USPCC arising from
USPCC's use of the Proprietary Information, USPCC shall have the option to
terminate this Agreement upon delivery of written notice to Sharps.
(c) If, as a result of any claim of infringement of a patent,
copyright, trademark, license or other proprietary right which directly
results from incorporation of the Proprietary Information into the Playing
Cards, USPCC is temporarily restrained or enjoined from using the Proprietary
Information, USPCC can not be terminated pursuant to the terms of paragraph
14(b) hereof and no further royalties shall accrue while such temporary
restraining order or injunction is in effect, unless USPCC continues to sell
the Playing Cards utilizing the Proprietary Information, in which case
royalties shall continue. In the event a permanent, nonappealable,
injunction is granted enjoining USPCC from manufacturing and selling the
Playing Cards, this Agreement shall terminate upon the issuance of such
permanent injunction. The provisions of this Section shall apply only if the
infringement is caused directly by use of the Proprietary Information. USPCC
agrees to take any reasonable actions required to be taken if by taking such
action infringement can be avoided.
(d) USPCC agrees to inform Sharps by written notice as soon as
is practical, and in any event within thirty (30) days, of any party which
USPCC believes is using the Proprietary Information to manufacture and sell
playing cards without authorization from Sharps. Sharps shall have two (2)
months from receipt of the written notice to investigate the claim and either
stop the unauthorized use or take legal action to stop the unauthorized use.
If Sharps chooses not to bring an action against the unauthorized use, it
shall so notify USPCC in writing within thirty (30) days. If in USPCC's
reasonable judgment, such use by a third party materially impairs the
benefits accruing to USPCC hereunder, USPCC shall have the right to terminate
this Agreement after written notice to Sharps. If legal action is taken by
Sharps, and at the conclusion of the legal proceedings Sharps is unable to
stop said unauthorized use, USPCC shall have the right to terminate this
Agreement after written notice to Sharps.
<PAGE>100
5. USPCC Licensure. Sharps agrees to disclose to USPCC the identity of
all partners of Sharps and all other information which USPCC is required to
disclose to any state regulatory agency, gaming jurisdiction or other body
which regulates the gaming industry and its suppliers. The parties agree
that if such disclosure reveals information which, in USPCC's judgment, would
subject USPCC to the loss of a state license or disqualification from doing
business in any state or gaming jurisdiction, then Sharps agrees to either
(a) reorganize to eliminate the partner whose background threatens USPCC's
state licensure/qualification; or (b) assign ownership of the Proprietary
Information to USPCC or another assignee which will not result in such loss
of license or disqualification. Following any such assignment, payment of
royalties hereunder by USPCC will be made to the assignee or other designee.
6. USPCC Design. USPCC shall provide Sharps with the appropriate copy
and art ("C-Prints") for use in designing the faces of the Playing Cards, but
Sharps acknowledges that such C-Prints constitute confidential, proprietary,
and copyrighted information and will not be used by Sharps for any other
purpose without the prior written consent of USPCC. Upon completion of the
work to design the faces of the Playing Cards, Sharps will immediately return
all C-Prints and any copies to USPCC. Further, upon termination of this
Agreement for any reason, Sharps will immediately remove all USPCC designs
from all computer memory and certify to USPCC in writing that it has done so.
7. Sales Territory. The territory for the license granted hereunder
shall be worldwide. The parties agree that there shall be no restrictions on
USPCC with respect to the types of customers to which USPCC may sell the
Playing Cards or the sales territory in which USPCC may offer the Playing
Cards.
8. Term. This Agreement shall commence upon the date it is executed by
both parties and shall remain in effect until terminated pursuant to the
terms of Paragraph 4, 9 or 14 hereof or until the term of any valid patent
for the Proprietary Information shall have expired or shall become invalid as
a result of a final, nonappealable judgment by a court of competent
jurisdiction. This Agreement and the rights of USPCC hereunder shall not be
modified, affected or terminated by reason of the insolvency, bankruptcy,
receivership, or assignment for the benefit of creditors of Sharps or by any
action or proceeding pertaining to the financial condition of Sharps.
9. Royalties.
(a) USPCC shall pay Sharps a royalty on the invoice for shipment of the
Playing Cards by USPCC in the amount of Four (4) Cents for each deck of
Playing Cards sold by USPCC. Sharps shall not be entitled to a royalty f or
any deck of Playing Cards which is returned to USPCC by the customer, and to
the extent that royalties have been paid to Sharps for returned decks, USPCC
shall be entitled to offset the amount of all such royalties paid on returned
decks against the next royalty payment due Sharps.
(b) In the event Sharps, U.S. Patent Application Serial No. 08/165,302
or any other patent application to the Proprietary Information is denied,
expires or is judicially determined to be invalid, and, in USPCC's reasonable
judgment, such denial, expiration, or invalidity materially impairs the
commercial benefits accruing to USPCC hereunder, USPCC shall have the right
to terminate this Agreement after written notice to Sharps. Any such
termination shall be without prejudice to Sharps' right to object to USPCC's
use of the Proprietary Information which is not the subject of the denial,
expiration or judicial declaration of invalidity referred to above.
(c) Sharps acknowledges that USPCC has, prior to the execution of this
Agreement, manufactured decks of playing cards to be used for "peeking"
purposes, and that the sale of any such decks of playing cards by USPCC
during the term of this Agreement is not part of this Agreement and shall not
result in any obligation on the part of USPCC to pay royalties to Sharps for
the sale of such playing cards, unless such playing cards are modified to use
the Proprietary Information.
10. Most Favored Royalty. Sharps agrees that the royalty rate specified
in Paragraph 9 shall be revised to match a more favorable rate granted to
Gemaco or any other licensee of the Proprietary Information while this
Agreement remains in effect.
11. Sales and Promotion. USPCC agrees that during the term of this
Agreement it will have its sales personnel make calls on customers to sell
and promote the Playing Cards and will use its best efforts to market the
Playing Cards.
<PAGE>101
12. Payment of Royalties. USPCC shall pay Sharps the royalties due under
this Agreement within thirty (30) days after the end of each calendar quarter
(March 31, June 30, September 30, December 31) while this Agreement is in
effect. Each payment of royalties shall be accompanied by a written itemized
statement prepared by USPCC showing the number of decks of Playing Cards
invoiced and the amount of the royalties by account. Each listing shall show
the customer's name, the number of decks invoiced during the preceding
quarter, and the calculation of the royalty due. Sharps agrees to treat this
information as confidential, proprietary information of USPCC and further
agrees not to disclose this information to any other person, organization or
firm.
13. Audit.
(a) Sharps shall have the right, during regular business hours and with
reasonable notice, to hire an independent accounting firm to perform an audit
of USPCC's books and records not more than two (2) times per calendar year
while this Agreement is in effect to verify the accuracy of sales statements
provided and royalties paid to Sharps by USPCC; provided, however, that such
independent accounting firm shall not be allowed to disclose any of USPCC's
pricing information to Sharps which is revealed during such audit, and USPCC
may refuse to allow such audit to be performed until the independent
accounting firm retained by Sharps to perform such audit enters into a
nondisclosure agreement with USPCC agreeing to be bound by the restriction
set forth in this Paragraph.
(b) In the event that the audit reveals an underpayment by USPCC, then
USPCC shall, within ten (10) business days of Sharps providing notice of such
underpayment, pay to Sharps the amount of such underpayment. The fees and
costs incurred by Sharps in performing the audit shall be the
responsibility of Sharps, unless the audit reveals an underpayment by USPCC
in any calendar quarter of $1,000 or more, in which case the fees and costs
of the audit shall be paid by USPCC.
14. Termination. This Agreement may be terminated by either party
immediately upon written notice to the other party for cause. For purposes
of this Agreement, the parties agree that "cause" shall be defined as:
(a) material breach of any term or condition of this Agreement which is
not cured within ninety (90) calendar days after receipt of written notice
from the non-breaching party, except with respect to payment of royalties, in
which case USPCC shall have ten (10) business days to cure such default after
delivery of written notice by Sharps; or
(b) beginning July 1, 1995, failure of USPCC to sell 100,000 or more
decks of Playing cards in any calendar year.
15. Quality of Playing Cards. It is agreed by the parties that the
quality of the Playing Cards upon which the Proprietary Information will be
used will be the same as USPCC's BEE brand or ARISTOCRAT brand playing cards.
16. Inspection of Sales. USPCC agrees that, upon request of Sharps,
USPCC will either (i) ship to Sharps a sample card (joker) with a hole
drilled through the center, or (ii) make available for Sharps' inspection at
USPCC's facility in Cincinnati, Ohio, a sample deck with a hole drilled
through the center, for each different model of the Playing Cards which is
manufactured by USPCC.
17. Notices. All notices required to be sent under this Agreement shall
be sent by overnight delivery service or by certified or registered mail to
the addresses listed in the first paragraph of this Agreement, unless a party
notifies the other party in writing of any change of address. Notice shall
be effective upon receipt if delivered, and three (3) business days after
mailing if mailed.
18. Governing Law. This Agreement shall be construed under and in
accordance with the laws of the State of Nevada.
19. Entire Agreement. This Agreement constitutes the entire agreement of
Sharps and USPCC with respect to the subject matter of this Agreement. This
Agreement may only be modified in writing, signed by both parties.
20. Successors and Assigns. The license granted hereunder is and shall
be personal to USPCC and shall not be assignable by either party without the
prior written consent of the nonassigning party.
21. No Waiver. No waiver by either party of a breach or default
hereunder shall be deemed a waiver by such party of a subsequent breach or
default of a like or similar nature.
22. Severability. In the event 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 effect any
other term or provision of this Agreement and shall be interpreted and
construed as if such term or provision, to the extent it shall have been held
to be invalid, illegal or unenforceable, had never been contained herein.
<PAGE>102
23. Arbitration. Any claim, dispute or controversy arising out of or in
connection with or relating to the interpretation or enforcement of this
Agreement shall be settled, insofar as possible, by mutual consultation and
consent of the parties. If the parties are unable to resolve such claim,
dispute or controversy, then such claim, dispute or controversy shall be
submitted by the parties to arbitration by the American Arbitration
Association under the Commercial Arbitration Rules then in effect for that
Association. The arbitration award may be entered in any court having
competent jurisdiction with respect to this Agreement. The cost of such
arbitration shall be paid by the non-prevailing party unless otherwise
determined by the arbitrator or arbitrators.
THIS LICENSE AGREEMENT CONTAINS A BINDING
ARBITRATION PROVISION WHICH MAY BE ENFORCED BY THE PARTIES.
IN WITNESS WHEREOF, USPCC and Sharps have executed duplicate originals of
this License Agreement as of the day and year first above written.
SHARPS INTERNATIONAL "Sharps"
By:
Partner
THE UNITED STATES PLAYING CARD COMPANY
By:
Name:
Title:
<PAGE>103
APPENDIX A
Description of Proprietary Information
1. The playing cards and methods described in the materials of Appendix
B or subsequently filed patents or patent applications on
substantially the same technology.
2. The trademarks of Appendix C and other trademarks agreed to between
the parties for use with the Playing Cards.
3. All designs protected under copyright prepared in whole or in part
by Sharps and used in the Playing Cards manufactured by United
States Playing Card Company.
<PAGE>104
APPENDICES B1-B4
Description of Playing Cards
See attached copies of U.S. patent applications Bl-B3:
Bl U.S. Patent Application Serial No. 08/165,302 filed
December 9, 1993;
B2 U.S. Patent Application Serial No. 29/028,882 filed
September 23, 1994;
B3- U.S. Patent Application Serial No. 08/353,526 filed
December 8, 1994.
See attached copy of descriptive publication prepared by Sharps as
Appendix B4.
<PAGE>105
APPENDIX C
Sharps' Trademarks
1. "Safety Peek"
2. "Sharps"
3. "Sharps International"
<PAGE>106
APPENDICES B1-B4
Description of Playing cards
See attached copies of U.S. patent applications Bl-B3:
BI U.S. Patent Application Serial No. 08/165,302 filed
December 9, 1993;
B2 U.S. Patent Application Serial No. 29/028,882 filed
September 23, 1994;
B3 U.S. Patent Application Serial No. 08/353,526 filed
December 8, 1994.
See attached copy of descriptive publication prepared by Sharps as Appendix
B4.
<PAGE>107
ROYALTY AGREEMENT
SINES-FORTE PARTNERSHIP
AND
CASINOVATIONS INCORPORATED
1. Parties
1.1 This Agreement is made by and between:
(a) Sines-Forte Partnership, a Nevada general partnership, having
partners Randy D. Sines and Steven L. Forte, whose business address is 315
Francisco Street Henderson, NV 89014, hereinafter referred to as "Assignor";
and
(b) Casinovations Incorporated, a Washington Corporation whose
address is 2718 E 57th Ave, Suite 107, Spokane, WA 99223, hereinafter
referred to as "Assignee".
2. Background
2.1 Assignor has developed improved technology directed to gaming
methods and apparatus and devoted substantial time, effort and money to that
development.
2.2 Assignee is engaged in the development and distribution of equipment
in the gaming industry.
2.3 Pursuant to a Funding Agreement dated January 15, 1996, Assignor has
transferred, conveyed and assigned to Sharps International Limited
partnership all of the right, title and interest to all of Assignor's various
intellectual properties associated with the gaming in industry, Said
intellectual properties have previously been licensed to Sharps International
Limited Partnership, Assignee's predecessor, by an Exclusive License
Agreement dated June 6, 1994.
2.4 Additionally, pursuant to aforementioned Funding Agreement, a
reorganization of Sharps International Limited Partnership has taken place
and Casinovations Incorporated, Assignee, has succeeded to and assumed all of
the assets and liabilities of Sharps.
2.5 Additionally, pursuant to aforementioned Funding Agreement, an
agreement exists for Sharps International Limited Partnership, now assumed by
Assignee, to pay Assignor royalties generated from revenues received by
Assignee on certain Intellectual properties
2.6 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 conditions provided in this Agreement.
3. Definitions
3.1 Assignee is the owner of all right, title, and inventions described
in:
(a) U.S. Patent No. 5,403,015 issued on April 4, 1995, entitled
"Cards and Methods for Playing Casino 21 or Black-jack".
(b) U.S. Patent Application Serial No. 08/353,526; filed
December 8, 1994, entitled "Cards and Methods for Playing Blackjack".
(c) U.S. Design Patent No. Des 366,503 issued on January 23,
1996. entitled "Blackjack Card Deck".
(d) U.S. Patent Application Serial No. 08/228,609; filed April
18, 1944, entitled "Playing Card Shuffling Machines and Methods".
(e) U.S. Patent Application Serial No. 08/423,408, filed April
18, 1995. entitled "Playing Card Shuffling Machines and Methods",
(f) PCT Patent Application Serial No. PCT/US95/04713; filed
April 18, 1995, entitled "Playing Card Shuffling Machines and Methods".
(g) U.S. Patent Application Serial No. 08/242,229-3 filed May
13, 1994, entitled "Blackjack Game System and Methods"
(h) U.S. Patent Application Serial No. 08/439,687, filed May
12, 1995. entitled "Black-jack Game System and Methods" .
(i) PCT Patent Application Serial No, PCT/US95/06064, filed May
12, 1995, entitled "Blackjack Game System and Methods".
(j) PCT Patent Application Serial No. PCT/US95/12908; filed
October 13, 1995, entitled "Blackjack Game System and Methods".
3.2 The inventions, Initial Products, so described will be referred to
herein, as the "Product(s)". Products also include any inventions included
in any application filed on technology derived from above described
inventions, however, said Products are hear defined for the purposes of this
Agreement as follows, the "Safety Peek Cards", the "Random Ejection Shuffler"
(including future improvements thereto and variations thereto and the table
game version of "Fantasy 21 (but not any computer, home version or other
variation thereof Product Trademarks at the time of execution include:
Sharps, Sharps International Random Ejection Shuffler, Fantasy 21.
<PAGE>108
4. Funding Agreement
Incorporated herein by reference as Exhibit 'A' is a Funding
Agreement dated January 15, 1996 by and among Richard S. Huson, an
individual, Sharps International Limited Partnership, a Nevada limited
partnership, Randy D. Sines, an individual, Cheryl L. Forte, an individual,
Sines-Forte, a Nevada general partnership, and Steven L. Forte, an
individual, which sets forth some of the terms and conditions of this Royalty
Agreement.
5. Exclusive License Agreement
Incorporated herein by reference as Exhibit "B" is an Exclusive
License Agreement dated June 6, 1994 by and between Sines-Forte Partnership,
a Nevada general partnership, and Sharps International Limited Partnership, a
Nevada Limited Partnership, now assumed by Assignee, which sets forth the
terms and conditions of this Royalty Agreement not otherwise stated herein.
6. Royalties for Products
Assignor shall receive from Assignee (a) a quarterly royalty fee of
3% of the "Net Revenues" (as defined below) earned by Assignee with respect
to the Products, and (b) an option to purchase from Assignee 40,000 shares of
Assignee's Common Stock at a price of $1.00 per share. Royalties owed
in a give period shall not be a credit toward any royalties owed for a past
for future royalty period. The term "Net Revenues" means gross cash revenues
received by Assignee for the relevant quarter attributable to the Products,
minus Assignees' 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.
6.1 Royalties on Leased Products. If Assignee leases Product instead
of selling or having others sell on their behalf or if lease of Product
otherwise occurs under this Agreement, the, Assignee shall be obligated to
pay royalties as described hereinabove on the same terms as if the lease
payments are considered to be Net Revenues on sold Products as specified
herein. Such treatment of leasing for determination of royalties shall not
apply where a third party pays Assignee and Acts as a financial leasing
agent, or where Assignee 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 Assignee and not those received by
any financing and leasing organization.
6.2 Assignee shall be entitled to a deduction for the amount of
royalties otherwise payable or paid for:
(a) Product sold rendered by Assignee under the Agreement but for which
full credit is granted to a customer due to defect in the Product and
(b) Products that are lost or damaged in transit and for which Assignor
is not reimbursed by insurance payments or otherwise.
6.3 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
period, including October, November and December (last quarter). Payment
will be made 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)
6.4 All monetary amounts specified in this Agreement are in United
States Dollars.
6.5 Assignee 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.
6.6 All payments by Assignee hereunder shall be made to Assignor at
Assignor's address indicated herein, or at such place as shall be designated
by Assignor from time to time.
6.7 Any royalties, payments or other compensation not paid by the due
date shall bear interest at the rate of one and one-half (1 1/2%) per month
or any part of any month overdue, unless a smaller rate applies by law in
which case the legal rate nearest thereto shall apply.
6.8 The royal obligation under part 6 above shall apply to Net Revenues
earned by Assignee in the U.S. and
all foreign countries.
6.9 Assignee is only obligated to pay royalties as provided for in parts
6-6.8 so long as any Patent on Product remains unexpired or so long as any
Trademark or Copyright on Products is still in use. If no Patent on Products
issues, then royalties shall be paid for seventeen (17) years from the filing
date of the last filed Patent on Products for so long as any Trademark or
Copyrights on Products is still in use.
<PAGE>109
7. Licensing
7.1 Assignee shall notify Assignor of any license granted hereunder.
7.2 If Assignee grants any license hereunder from which Assignee
receives monetary or other remuneration or value, the Assignee shall report
such grant of licensed rights and 3% of all value shall be paid to
Assignor, so long as any such revenues are being received by Assignee.
8. Improvements and Developments in Products
8.1 Improvements by Assignee - Improvements, enhancements and additional
inventions relating to the Products by employees of Assignee (hereinafter
"Assignee Improvements"), shall be disclosed to Assignor within one (1) month
of discovery.
8.2 Improvements by Licensees or Sublicensees - Improvements,
enhancements and additional inventions relating to the Products by employees
of any licenses or sublicensees (hereinafter "Licensee Improvements"), shall
be governed by the license under which the licensee or sublicensee is
licensed. Licensees must agree to disclose all such Licensee Improvements to
Assignee within one (1) month of discovery. Assignee agrees to disclose any
such Licensee Improvements to Assignor within one (1) month of disclosure by
a Licensee to Assignee.
9. Employee Invention Agreements
Assignee agrees that all employees, agents and consultants given
access to the Products shall sign a confidentiality agreement and invention
assignment agreement whereby any improvements, enhancements and new
inventions relating to the Products are required to be disclosed and assigned
to the Assignee.
10. Reports and Accounting
10.1 Reports - Assignee shall provide to Assignor quarter-yearly reports
indicating the total quantity of Product sold, rented, or leased by Assignee,
any licensees, sublicensees, or others who have been authorized by Assignee
or Assignee's licensees. Such reports shall indicate the total number of
such Product categorized by each organization and the total value of the Net
Revenue associated with the total number of such Product. The reports shall
further indicate the royalties and any other payments owed by Assignee. The
reports shall be made to Assignor 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.
10.2 Accounting - Assignor shall have the right to inspect the records
of Assignee and all licensees and sublicensees which are relevant to indicate
the amount of royalties or other compensation owed to paid in connection with
this Agreement. Assignor shall also have the right to inspect the records
of Assignee and all licensees and sublicensees which are relevant to the
quantity of Product produced by or for Assignee and all licenses. 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 to
Assignor which should have been previously paid under the provisions of the
Agreement, then the cost of the audit shall be fully paid by Assignee, the
licensee or the sublicensee who owes such amount Assignee agrees that
aforementioned rights for inspection and audit by Assignor or Assignee will
be included in any licensing agreement Assignee may enter into regarding
Product.
11. Assignment of Rights and Obligations
11.1 Because of the nature of rights and obligations granted hereunder,
neither Assignor nor Assignee can assign any rights or obligations under this
Agreement unless the proposing assignor has received written authorization
from the other party.
11.2 In the event Assignee finds a bonafide and unrelated third party
purchaser willing to purchase the Product rights at fair market value, then
Assignee is empowered to terminate all rights of Assignor hereunder and to
sell the Product rights to such third party purchaser. In such an event
Assignee shall receive 97% of the proceeds from such sale, and Assignor will
receive 3% of proceeds from such sale.
12. Liability Risk
12.1 Assignee agrees to assume all risk of legal liability which may
arise from Assignee's activities, including without limitation, providing
services, leasing, licensing, designing, manufacturing, transporting,
distributing and selling Products licensed under this Agreement. Assignee
further warrants and agrees to hold harmless, defend and indemnify Assignor
against claims arising from Assignee's activities.
13. Best Efforts and Diligence
13.1 Assignee shall use its best efforts to diligently market Products.
A determination of best efforts and diligence under this part may consider
various relevant factors.
14. Warranties of Assignor
14.1 Assignor makes only the warranties expressly made below
(a) Assignor has no information indicating that the subject matter of
the Product patents infringes any U.S. or foreign patents
(b) Licensor makes no other warranties.
<PAGE>110
15. Disclaimer of Warranties by Assignor
15.1 Assignor 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
Products by Assignee or its licensees or 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 Products.
(c) No warranty is made to indemnify Assignee for any claims arising
from Assignee's activities under this Agreement.
16. Enforcement of Patent Rights
Assignee shall be primarily responsible for enforcing any U.S. patents
against infringers thereof. Assignee shall not be obligated to institute
legal proceedings for infringement. If Assignee refuses to institute legal
action, than Assignor 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 Assignor 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. Assignor agrees to allow Assignee to
take legal action solely in Assignee's name and to additionally include or
join Assignor as a party, if necessary.
17. Notification of Infringement
Assignor and Assignee both agree to notify the other within ten (10)
days of any infringement of Product by third parties.
18. Interchange of Technical and Market Information
Assignor and Assignee agree to interchange all technical and market
information which relates to the Product in the marketing, manufacture, sale,
distribution, design, production and other aspects of development,
manufacture and marketing of the Product.
19. Termination by Assignee
19.1 Assignee shall have the right to terminate this Agreement only as
provided for in part 11.2 of this Agreement.
20. Effect of Termination by Assignee
Assignee'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.
21. 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.
22. 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.
23. 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.
This Agreement shall be construed and governed in accordance with the laws of
the State of Washington.
24. Applicable Law
This Agreement shall be construed and governed in accordance with the laws of
the State of Washington.
25. 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.
26. Notices
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 can 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.
<PAGE>111
27. Relationship of the Parties
This Agreement does not create a partnership or joint venture between the
parties and the Assignee shall have no power to obligate or bind the Assignor
in any manner whatsoever, except as may be specifically expressed in this
Agreement.
28 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.
29. 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 than 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.
30. Counterpart Original Agreements
This Agreement shall be executed in multiple original counterparts
with each party retaining one copy thereof.
31. Effective Date of Agreement and Term of Agreement
31.1 The effective date of this Agreement is April 1, 1996.
31.2 This Agreement shall terminate when terminated by Assignee as
provided in this Agreement. If Assignee does not terminate this
Agreement as provided herein, then appropriate provisions of this Agreement
shall be applied until complete cessation of all use of the Product
Trademarks, Product Copyrights, and Product by Assignee, any licensee or
sublicensee, or until no further payments are due hereunder, whichever is
longer.
32. Arbitration
32.1 Any controversy or claim arising out of or relating to this
Agreement or the 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 Assignor and Assignee, 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 tendered by a majority of the Arbitrators shall be
final and binding and judgment may be entered upon it in any court having
jurisdiction thereof .
32.2 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 a date, 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.
IN WITNESS OF. the parties hereto have caused this Agreement to be duty
executed as of the day and year first above written.
CASINOVATIONS INCORPORATED
By: Randy D. Sines, President 6/15/96
Sines-Forte Partnership, a Nevada general partnership
By: Randy D. Sines, Partner 6/15/96
By: Steven L. Forte, Partner 9/12/96
<PAGE>112
PROMISSORY NOTE
$45,000 July 8, 1997
Las Vegas, Nevada
FOR VALUE RECEIVED, Casinovations Incorporated (hereafter referred to as
"Maker") promises to pay to the order of Richard S. Huson (hereafter referred
to as "Holder"), the sum of Forty-five Thousand Dollars ($45,000) principal,
together with all interest and other sums imposed by the terms of this note
follows:
1. Interest and Payment of Principal and Interest. The unpaid
principal shall accrue interest at the rate of nine and one-half percent
(9.5%) per annum, calculated based on a 365 year or 366 year, as applicable.
Payment of the unpaid principal and accrued interest shall be due and payable
in full within thirty (30) days from written demand by the Holder.
2. Prepayment. Advance payments or other additional payments may be
made on this note at any time without penalty.
3. Place of Payment. Principal and interest on this note shall be
payable at 121 S.W. Morrison, Suite 1400, Portland, Oregon 97204, or at such
other place as the Holder of this note may designate in writing.
4. Waiver of Demand, Presentment, Protest and Notice. The Maker,
sureties, guarantors and endorsers hereof severally waive presentment for
payment, demand and notice of dishonor and nonpayment of this note, and
consent to any and all extensions of time, renewals, waivers or modifications
that may be granted by the Holder hereof with respect to the payment or other
provisions of this note, and to the release of any security, or any part
thereof, with or without substitution.
5. Senior Note. The Holder and Borrower have entered into a previous
credit agreement titled, Third Round Funding, for the Borrower to borrow up
to $500,000, dated September 30, 1997 ("credit line"). This note is issued
apart separate and in addition to the $500,000 credit line referred to above.
The current amount outstanding on the $500,000 credit line is $250,000 effect
as of July 8, 1997. Irrespective of whether the holder has made demand
herein, the Maker agrees to pay this note prior to payment of the amounts
owing on the $500,000 credit line, and to any other notes herein outstanding
by the Maker, including the Replacement Promissory Note with a principal
balance of $300,000, payable to Randy D. Sines and Cheryl L. Forte.
6. Default. If all amounts owed under this note are not paid by the
due date, the Holder may, at his option, declare a default. Interest shall
accrue after a default at the rate of one and one percent (12%) per annum
until paid in full.
7. Enforcement Costs. The defaulting party shall pay all costs
incurred by the nondefaulting party to enforce the terms of this note,
regardless of whether an action is commenced at law or in equity, which costs
shall include, but are not limited to court costs and reasonable attorney's
fees.
8. Security. This Promissory Note is unsecured.
9. Governing Law. This note shall be governed as to validity,
interpretation, construction, effect and in all other respects by the laws
and decisions of the State of Nevada. Maker, Holder and any sureties,
endorsers and guarantors submit to the personal jurisdiction of all courts in
Nevada, whether Federal or state, and agree that any action pertaining to
this note shall be brought in a Nevada Court.
10. Notices Whenever notice of any kind is required by the terms of
this agreement, the same shall be in writing and may be mailed by registered
or certified mail to the indicated parties at their last known address, or in
lieu thereof, by regular first class mail or delivery in person. If mailed
by registered or certified mail, the date of mailing to the party entitled to
notice shall be the date of giving notice; otherwise, the date of notice
shall be the date of actual receipt by the party entitled to notice under
this agreement. The parties shall promptly give notice of any change of
address. The initial addresses of the parties are:
HOLDER:
121 S.W. Morrison, Suite 1400
Portland, Oregon 97204
<PAGE>113
MAKER:
3909 South Maryland Parkway, Suite 311
Las Vegas, Nevada 89119
CASINOVATIONS INCORPORATED,
a Washington Corporation
/s/ Steven Blad
----------------------------------
by its: President
<PAGE>114
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 Incorporated dated July
14, 1997.
/s/ Winter, Scheifley & Associates, P.C.
Certified Public Accountant
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 374,170
<SECURITIES> 0
<RECEIVABLES> 34,372
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 588,064
<PP&E> 16,714
<DEPRECIATION> 2,498
<TOTAL-ASSETS> 760,078
<CURRENT-LIABILITIES> 769,867
<BONDS> 0
<COMMON> 5,381
0
0
<OTHER-SE> (1,519)
<TOTAL-LIABILITY-AND-EQUITY> 760,078
<SALES> 632
<TOTAL-REVENUES> 6,807
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 389,623
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (382,816)
<INCOME-TAX> 0
<INCOME-CONTINUING> (382,816)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (382,816)
<EPS-PRIMARY> (.07)
<EPS-DILUTED> (.07)
</TABLE>
<PAGE>116
EMPLOYMENT AGREEMENT
OF
JAY L. KING
THIS EMPLOYMENT AGREEMENT (hereafter the "Agreement"), is entered into this
1st day of January, 1997, effective January 1, 1997, by and between
CASINOVATIONS INCORPORATED, a Washington corporation authorized to do
business in Nevada (hereafter the "Company"), and JAY L. KING (hereafter the
"Employee").
The parties recite that:
(a) The Company desires the knowledge, skills, and ability of the
Employee for the befit of the Company.
(b) The Employee wishes to be employed by the Company in accordance
with the terms of this agreement.
(c) The Employee recognizes the legitimate need of the Company for
protection of its confidential information.
(d) The Company recognizes and acknowledges the value of the
Employee's services and deems it necessary and desirable to retain the
Employee's services for the period herein described.
NOW, THEREFORE, in consideration of the mutual promises set forth
herein, the Company and the Employee agree as follows:
1. EMPLOYMENT
The Company hereby employs the Employee upon the terms and conditions
hereinafter set forth, and the Employee hereby accepts employment upon said
terms and conditions.
2. TERM AND RENEWAL
Except as otherwise provided, this agreement shall be for a term of two (2)
years, commencing on January 1, 1997, subject to the early termination
provisions of Article 8. At the expiration date of this agreement,
it shall be considered renewed for regular successive periods of one (1) year
terms unless either party submits a notice of termination thirty (30) days
prior to the end of the preceding period.
3. DUTIES
The Company hereby employs the Employees as Vice-President Finance and Chief
Financial Officer, and the Employee hereby promises to perform the duties
related thereto and to perform such other duties as the Company may from time
to time assign. As directed by the appropriate representative(s) of the
Company, the Employee shall also render services for and perform duties for
entities related to the Company and for persons or entities having a
contractual relationship with the Company requiring the Company to provide
such services. The Employee will be under the supervision of the President
and Chief Executive Officer and shall perform such tasks and duties as
assigned by him. The Employee shall perform all of his duties at
such place or places and at such times as the Company shall in good faith
require and as the interest, needs, business or opportunity of the Company
shall require. The Company, through its designated representatives, retains
the right to supervise the Employee in the performance of his duties.
4. TIME AND EFFORTS OF EMPLOYEE
So long as this agreement continues in effect, the Employee promises to
devote his exclusive time and energies ot the business affairs of the Company
necessary to achieve the business objectives of the Company; use his best
efforts, skills, and ability to promote the Company's interest; perform the
duties described in Article 3 of this agreement; and to perform such other
duties as may be assigned to him by the Company.
5. COMPENSATION AND BENEFITS
%.1 Compensation. Form all services rendered by the Employee under
this agreement and the Employee's obligation under Articles 6 and 7 herein,
Employee will be compensated as follows:
(a) Base Salary. The Employee shall receive a "Base Salary" for each
calendar month under the term of this agreement of Seven Thousand Five
Hundred Dollars ($7,500.00). The Base Salary shall be payable in equal semi-
monthly installments on the first and fifteen of each month.
(b) Quarterly Bonus. The Employee shall be entitled to receive a
bonus, payable on a quarterly basis and in amount not to exceed Two Thousand
Five Hundred Dollars per month ($2,500) upon the Company achieving its goals
as set by the Board of Directors, upon the fulfillment of the Employees
duties and the Company achieving its goals. The determination of whether
<PAGE>117
the Employee has fulfilled his duties and the Company has met its goals is in
the discretion of the President of the Company. However, the Employee
shall be afforded, on a quarterly basis, a meeting with the President to
discuss the Employee's performance under this agreement and his right to
receive the bonus.
(e) Stock Bonus. In addition to the Base Salary Quarterly Bonus
stated above, the Employee shall receive "Stock Options" to purchase up to
one hundred and fifty thousand (150,000) shares of the Company's common stock
("Shares") under the following terms and conditions:
(I) Upon the successful S-1 registration of the Company's shares
with the Securities and Exchange Commission, the Employee shall have the
right to acquire up to fifty thousand (50,000) Shares at One Dollar and Fifty
Cents ($1.50) per Share.
(ii) Upon the Employee fulfilling his obligations and the Company
reaching its goals for 1997, as provided on Schedule 1, the Employee shall
have the right to acquire up to an additional fifty thousand (50,000) Shares
at One Dollar and Fifty Cents ($1,50) per Share. The determination of
whether the Employee 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 Employee
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 under this subparagraph shall be vested in the
Employee no later than January 31, 1998.
(iii) Upon the Employee fulfilling his obligations and the Company
reaching its goals for 1998, as provided on Schedule 1, the Employee shall
have the right to acquire up to an additional fifty thousand (50,000) Shares
at One Dollar and Fifty Cents ($1,50) per Share. The determination of
whether the Employee 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 Employee
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 under this subparagraph shall be vested in the
Employee no later than January 31, 1999.
(iv) The Stock Options must be exercised within Five (5) years from
the date the Employee's rights are vested. The Shares will be issued within
Thirty (30) days from when the Employee 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 Employee 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
Employee may be entitled to for the year and the number of months the
Employee was retained under this Agreement during this same year. For
example, if the Company was to be sold on April 1, 1998, the Employee would
have an additional twelve thousand five hundred Stock Options vest on March
1, 1998. [(50,000 stock options for 1988) x (3 months of employment/12
months)].
The Company shall notify the Employee in writing of (1) the impending sale,
(2) the right of the Employee 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 Employee's discretion to exercise the Stock Options prior
to the proposed sale. Any Stock Options vested in this subparagraph shall
remain vested in the Employee, whether or not they are exercised before the
sale, under the terms of subparagraph (vi).
5.2 Other Benefits. The Employee shall be entitled to participate on
a reasonable basis in any deferred compensation, medical reimbursement,
pension, profit sharing, thrift, savings, vacation, group insurance, or other
plan or program, and to receive any other benefits for which he is eligible
and which the Company may provide for him or for its Employees generally.
The Employee is entitled to a car allowance of Four Hundred and Fifty Dollars
($450.00) per month.
<PAGE>118
6. CONFIDENTIAL INFORMATION
6.1 Disclosure of Confidential Information.
(a) Definition. "Confidential information" shall mean and include
all records of the accounts of customers, route books, customer lists, and
any other records and books relating in any manner to the customers and/or
suppliers of the Company (whether such records, books or lists are prepared
by the Employee or otherwise come into the possession or use of the
Employee). "Confidential information" shall also mean and include any
product information, technical data, know-how, specifications, processes,
drawings, sketches, formulas, computations and any other information of any
kind whatsoever, whether written or not, concerning any process, manufacture,
composition of matter, plant, design, idea, method, system or plan in
which the Company has a possessory interest and which becomes known to
Employee. The Employee acknowledges that the Company's primary assets
consist of its gaming products or accessories. Any unauthorized disclosure
of the design or marketing of such products by the Employee shall violate
this Article.
"Confidential information" shall also mean and include any accounting,
sales, advertising, marketing or management information, methods or
techniques, any business plans, any computer programs and routines of the
Company and any other information of any kind whatsoever, whether written or
not, concerning, directly or indirectly, the Company, its plans, programs or
operations, which information is not generally known in the businesses or
industries in which the Company is or may become engaged during Employee's
term of this agreement.
(b) Restriction on Use. Any confidential information received or
developed by Employee shall be used only in the conduct by the Employee of
the business of the Company. Such confidential information shall not be
used by Employee for any other purpose unless otherwise directed or
authorized in writing by the Company.
(c) Protection of Confidential Information. The Company and the
Employee expressly recognize and acknowledge that any confidential
information disclosed to or developed by Employee will not, at any time
either during or after the term of this agreement, in any manner, either
directly or indirectly be divulged, disclosed, or communicated to any person,
firm or corporation, or any other business entity by the Employee, nor shall
the Employee use for his own benefit or for any other purpose than the
exclusive benefit of the Company, its subsidiaries, successors, or assigns,
confidential information or any information whatsoever concerning matters
affecting or relating to the business of the Company which the Employee knows
or has reason to know would be valuable to competitors or potential
competitors of the Company, including but not limited to, confidential
information or information relating to the Company's relationships with
actual or potential customers or suppliers and to the needs and requirements
of any such actual or potential customers. Furthermore, but not by was of
limitation of the foregoing, the Employee shall not (I) make known to any
firm, person or corporation the names or addresses of any of the customers of
the Company or any other information pertaining to them or (ii) call on,
solicit, or take away or attempt to call on, any of the customers of the
Company on whom the Employee called or with whom he became acquainted during
his consulting with the Company, either for himself or for any other person,
firm or corporation.
6.2 Books and Records. The Employee promises further that he shall
not, without the prior written approval of the Company, make copies of any
books, drawings, documents, records or other written or printed,
photographic, encoded, taped, electrostatically or electromagnetically
encoded data or information of whatever nature (hereinafter the "documents"
of the Company; that he shall not, without the prior written approval of the
Company, remove any of the foregoing from the premises of the Company; and
that he shall not, without the prior written approval of the Company, make
available to third parties access to said documents of the Company. The
Employee agrees that all records and books relating in any manner whosoever
to the customers (whether actual or potential) of the Company, whether
prepared by the Employee or otherwise coming into his possession shall be the
exclusive property of the Company regardless of who actually purchased the
original book or record. All such books and records shall be immediately
returned to the Company by the Employee upon any termination of this
agreement. If the Employee purchases any original book or record, he shall
immediately inform the Company, which shall immediately reimburse the
Employee.
6.3 Limitation. Nothing contained int his Article or in any other
part of this agreement shall restrict the ability of the Consultant to make,
with the written consent of the Company and in the ordinary course of his
consulting, such disclosures as may be necessary or appropriate to the
effective and efficient discharge of his duties to the Company.
6.4 Term. Notwithstanding any other provision of this agreement, the
provisions of this Article 6 shall continue in full force and effect for a
period of two (2) years following the expiration or other termination of this
agreement.
<PAGE>119
6.5 Liquidated Damages. In addition to an injunction preventing the
dissemination or unauthorized use of Confidential Information as permitted by
law, the parties agree that the reasonable amount of damages the Company will
suffer for a breach of the provisions of Article 6 or Article 7 shall be
$100,000; provided, however, that a breach of both Articles 6 and 7 shall
total $200,000 in damages.
7. EMPLOYEE'S COVENANT NOT TO COMPETE
7.1 Covenant Not to Compete.
(a) General. The Company and the Employee expressly recognize and
acknowledge that the Company is engaged in a business which is highly
competitive; that any knowledge of the Company's confidential information or
business affairs would give a competitor or potential competitor unfair
competitive advantage over the Company' that consulting or employment,
directly or indirectly, of the Employee anywhere in the area in which the
Company conducts its business would give to such competitor an unfair
competitive advantage; and that the Employee possesses valuable skills and
knowledge. In recognition of the above, the Employee and the Company hereby
expressly agree that the restrictions on competition by the Employee
contained in this Article 7 are reasonable, will not overburden the Employee,
and are in the best interest of both the Employee and the Company.
(b) Time Period and Area Covered. The Consultant promises that,
during the term of this agreement, as set forth in Article 2 hereof, and for
a period of two (2) years after the expiration or other termination of this
agreement, he shall not either directly or indirectly engage in competition
with the Company, or with any subsidiary, successor or appointee of the
Company, as constituted during the term of this agreement as of his
resignation, departure, discharge or termination with the Company in, Nevada,
and within a fifty (50) mile radius of any other place of business operated
by the Company as of such date. The Employee acknowledges that the
Company's business is international and that the solicitation of the
Company's international clients in competition of the Company is a violation
of this agreement.
(c) Affiliations Covered. The Employee further promises that, during
the term of this agreement, as set forth in Article 2 hereof, and for a
period of two (2) years after the expiration or other termination of said
agreement, he shall not engage directly or indirectly as a proprietor,
partner, shareholder, director, officer, Employee, agent, consultant, or in
any other capacity or manner whatsoever, in any business activity competitive
with the business of the Company or of any subsidiary, successor or appointee
of the Company, as constituted during his consulting.
(d) Board of Directors Approval. Either or both of the provisions
contained in Subsections (b) and (c) above may be waived at any time in
writing by the board of directors of the Company. Such waiver shall
not be unreasonable withheld but no such waiver shall be considered as a
waiver of any other term, covenant or provision of this agreement, nor shall
it be considered a waiver of any subsequent action by the Employee.
7.2 Limitation. Nothing contained in this Article 7 shall prevent
the Employee from purchasing or causing or permitting to be purchased for his
direct or indirect benefit securities of any corporation whose securities are
regularly traded on any national or regional securities exchange; provided,
however, that such purchase must not result in the direct or indirect
beneficial ownership of more than one percent of any outstanding class of
equity securities of any corporation engaged directly or indirectly in any
trade or business activities competitive with that carried on by the Company
without the written approval of the Company.
7.3 Liquidated Damages. In addition to an injunction prevent the
Employee from competing with the Company as allowed by law, the parties agree
that the reasonable amount of damages the Company will suffer for a breach of
the provisions of Article 6 or Article 7 shall be $50,000; provided, however,
that a breach of both Articles 6 and 7 shall total $100,000 in damages.
8. TERMINATION
8.1 Grounds for Termination. This agreement shall terminate as it
relates to the Employee upon the first to occur of the following events:
(a) The death of the Employee;
(b) Immediately upon five (5) days written notice form the Company to
the Employee "for cause". For cause is defined as:
(I) a breach of the terms and conditions of this agreement by the
Employee (other than a breach described in subparagraph 8.1(b)(ii) herein
below), including the performance of the Employee's obligations and duties
herein, which remains uncured for a period of twenty (2) days after written
notice by the Company to the Employee of any such breach;
<PAGE>120
(ii) a breach of the terms and conditions of this agreement by the
Employee which breach consists of dishonest or criminal conduct, or such
breach constitutes gross negligence by the Employee in failing to perform his
duties and obligations under this agreement.
(c) Upon the passing of fifteen (15) days after notice from the
Company to the Employee of a bona fide decision by the Company to terminate
its business.
8.2 Severance Pay. If the agreement is terminated for any reason,
other than for a reason under Section 8.1(b)(ii), the Company shall pay the
Employee, upon termination, severance pay in a one time lump sum equal to
nine (9) months of the Employee's Base Salary in effect at the time of
severance.
Under no circumstances shall the employee be entitled to any Commissions,
Quarterly Bonus, Licensing Bonus, or Stock Bonus, which has not vested or
accrued prior to the Employee's termination.
8.3 Effect of Termination on Articles 6 and 7. Notwithstanding the
provisions of this Article, the provisions of Articles 6 and 7 will not
terminate upon the occurrence of an event described above, but will
continue in full force and effect for the term described in those Articles.
The severance pay shall constitute additional consideration for the
enforcement of such provisions.
9. MISCELLANEOUS
9.1 Assignment of Agreement. The knowledge and skills of the
Employee are unique and his services bargained for by this agreement may not
be delegated by the Consultant to any other person. This agreement
shall inure to the benefit of and be binding upon the Employee and his
testate or intestate distributes, and the Company, its successors and assigns
including, without limitation, any person, partnership, trust, corporation or
other legal entity which may acquire all or substantially all of the
Company's assets or which may acquire a controlling interest, either direct
or beneficial, in the Company or with or into which the Company may be
consolidated or merged. As used in this agreement, the term "Company" shall
include any such successor or assignee.
9.2 Remedies. It is agreed that any breach of Article 6 or 7 of this
agreement by the Employee will result in irreparable injury to the Company
and will authorize recourse by the Company to equitable remedies, including,
but not limited to , affirmative or negative injunctive relief. It is
further agreed that in the event of such breach, violation, or evasion of any
of the Articles hereinbefore mentioned, or of any other Article herein, the
Company may forthwith terminate this agreement and thereafter be released
from all claims of the Employee hereunder; provided, however, that such a
termination shall not release the Employee from any warrant, covenant, term,
or condition under Articles 6 or 7 of this agreement. Nothing contained
herein shall be deemed to obligate the Company to undertake such termination
and nothing contained herein shall be deemed to preclude the Company from
pursuing any remedy, whether legal or equitable, which is available to it in
the event of any breach, violation or evasion of any Article of this
agreement.
9.3 Enforcement Costs. The prevailing party shall be entitled to all
costs of enforcing this agreement, regardless of whether an action at law or
in equity is commenced or maintained, including but not limited to, court
costs and reasonable attorney's fees.
9.4 Waiver of Breach. The waiver of the breach of any term of
condition of this agreement shall not be deemed to constitute the waiver of
any other or subsequent breach of the same or any other terms of condition.
9.5 Severability. All terms and conditions contained herein are
severable, and in the event that any of them shall be held or considered to
be unenforceable by any Court of competent jurisdiction, this agreement shall
be interpreted as if such unenforceable term or condition was not contained
herein.
9.6 Law to Apply. This agreement shall be governed by and
interpreted according to the laws of the State of Nevada. Each party
submits to the personal jurisdiction of all courts, whether Federal or State,
within Nevada, and agrees that any action pertaining to this agreement shall
be brought in a court in Nevada.
9.7 Notice. Any notice required or permitted to e given under this
agreement shall be sufficient if in writing, and if sent by registered mail
to his last residence as recorded on the records of the Company in the case
of the Employee, or to the principal offices of the Company in the case of
the Company.
9.8 Modification of Agreement. No waiver or modification of this
agreement or of any term or condition herein contained shall be valid unless
in writing and duly executed, nor shall any waiver or modification of this
agreement not duly executed as provided herein be deemed to be a part of this
agreement under any circumstances.
<PAGE>121
9.9 Gender, Number, Etc. Where applicable, the singular includes the
plural, the masculine includes the feminine, and vice versa.,
IN WITNESS WHEREOF, the parties have executed this agreement, delivery
of which is hereby acknowledged, as of the date first above written.
CASINOVATIONS INCORPORATED
ATTEST
/s/ Rosemarie Gefeuide
- ------------------------ ---------------------------------
Rosemarie Gefeuide By:
Witness President
EMPLOYEE
/s/ Jay L. King
- ------------------------
Jay L. King
<PAGE>122
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>123
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
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:
<PAGE>124
(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,
<PAGE>125
(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
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.
<PAGE>126
(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
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.
<PAGE>127
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.
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>128
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
<PAGE>129
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 STEVEN L.
FORTE, a resident of Nevada, (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>130
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
on termination date.
<PAGE>131
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
<PAGE>132
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 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. Employee may continue to engage in his gaming industry
consulting business as presently conducted (which does not include product
development or improvement), and Employee may continue to maintain ownership
of intellectual property developed in such consulting business except for any
ideas or inventions for products, other patentable matters, developments, and
information, all of which shall be the property of the Corporation pursuant
to paragraphs 16, 17, and 19.
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 he
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
<PAGE>133
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
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.
<PAGE>134
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.
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"
Steven L. Forte
<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 STEVEN L. FORTE ("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: Steven L. Forte
