As filed with the Securities and Exchange
Commission on June 5, 1988. Registration No. 333-31373
=================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------------
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM SB-2/A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
----------------------
CASINOVATIONS INCORPORATED
Washington 91-1696010
- - --------------------- --------------------- -------------------
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
5240 S. Eastern Avenue, Las Vegas, Nevada 89119
Telephone: (702) 733-7195, Facsimile: (702) 733-7197
- - -----------------------------------------------------------------
(Address and telephone number of principal executive offices and
principal place of business)
Jay L. King
5240 S. Eastern Avenue
Las Vegas, Nevada 89119
Telephone: (702) 733-7195, Facsimile: (702) 733-7197
- - -----------------------------------------------------------------
(Name, address and telephone number of agent for service)
WITH COPIES TO:
Michael J. Bonner, Esq.
Sherwood N. Cook, Esq.
Robert C. Kim, Esq.
Kummer Kaempfer Bonner & Renshaw
3800 Howard Hughes Parkway, 7th Floor
Las Vegas, Nevada 89109
Telephone: (702) 792-7000, Facsimile: (702) 796-7181
- - -----------------------------------------------------------------
APPROXIMATE DATE OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
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]
If this Form is filed to register additional securities for
an offering pursuant to Rule 462(b) under the Securities Act,
please check the following box and list the Securities Act
registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
[ ]
If this Form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following box and
list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
[ ]
If delivery of the prospectus is expected to be made
pursuant to Rule 434, please check the following box. [ ]
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>
PROSPECTUS [LOGO]
Dated June ___, 1998
SUBJECT TO COMPLETION, June 5, 1998
Up to a Maximum of 1,500,000 Common Shares
2,119,041 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
CASINOVATIONS INCORPORATED
Common Stock
($.001 Par Value)
The Company is offering up to a maximum of 1,500,000 Common
Shares at the purchase price of $2.50 per Common Share. There is
no minimum investment amount. The Company is registering
2,119,041 common shares on behalf of its selling security
holders. The Company is registering the stock underlying its A,
B and C Warrants on behalf of its selling security holders. The
A Warrants are exercisable into one common share at the purchase
price of $3.75. 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 $4.00. 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 $6.00. 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 2,119,041 common shares being registered on behalf of selling
security holders consist of 319,825 Common Shares on behalf of
the Company's officers, directors and affiliates, 1,311,516
Common Shares on behalf of shareholders who purchased in a
previous private placement and 487,700 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.
The Company intends to register its securities under Section
12(g) of the Exchange Act of 1934.
THE COMPANY IS CONSIDERED TO BE IN UNSOUND FINANCIAL CONDITION.
PERSONS SHOULD NOT INVEST UNLESS THEY CAN AFFORD TO
LOSE THEIR ENTIRE INVESTMENT.
THERE ARE MATERIAL RISKS IN CONNECTION WITH THE PURCHASE OF THE
SECURITIES. SEE RISK FACTORS, PAGE 9.
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. DUE TO THE
- - -----------------------------------------------------------------
[THE FOLLOWING TEXT APPEARS PRINTED ALONG THE LEFT MARGIN OF THIS
PAGE: 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
sale of these securities in the State in which such offer,
solicitation or sale would be unlawful prior to registration or
qualification under the securities laws of any such state.]
- - -----------------------------------------------------------------
1
<PAGE>
CONTEMPORANEOUS PRIMARY OFFERING BY THE COMPANY AND SECONDARY
OFFERING BY SELLING SHAREHOLDERS, CONFLICTS OF INTERESTS BETWEEN
THE COMPANY AND SELLING SHAREHOLDERS MAY ARISE. SEE TERMS OF THE
OFFERING AND RISK FACTORS.
THE NEVADA STATE GAMING CONTROL BOARD, THE NEVADA GAMING
COMMISSION, OR ANY OTHER GAMING AUTHORITY HAVE NOT PASSED UPON
THE ADEQUACY OR ACCURACY OF THIS PROSPECTUS OR THE INVESTMENT
MERITS OF THE COMMON STOCK OFFERED HEREBY. ANY REPRESENTATION TO
THE CONTRARY IS UNLAWFUL.
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 $2.50 $.25 $2.25
Maximum Offering<F1><F2> $3,750,000 $375,000 $3,375,000
- - -----------------------------------------------------------------------------
<FN>
<F1> Travis Morgan Securities, Inc. (the "Placement Agent") has
been retained to act, on a best efforts basis, as exclusive
agent for the Company in connection with the arrangement of
this transaction. The Company has agreed (i) to provide the
Placement Agent an expense allowance up to $15,000 for
certain expenses; (ii) to provide the Placement Agent a 10%
discount on Common Shares sold by the Placement Agent; and
(iii) to indemnify the Placement Agent against certain
liabilities, including liabilities under the Securities Act
of 1933, as amended (the "Securities Act"). 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."
This Offering will terminate on or before September 30,
1998. 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 December 31, 1998.
There is no minimum offering amount. Proceeds of this
Offering are to be deposited directly into an escrow
account with Bank West of Nevada to which the Company will
have immediate access. See "TERMS OF THE OFFERING - Plan
of Distribution."
<F2> The amount as shown in the preceding table does not reflect
the deductions of (1) general expenses payable by the
Company; and (2) fees payable in connection with legal and
accounting expenses incurred in this Offering. These
expenses are estimated to be $41,919.53 if the total
offering amount is obtained. The selling shareholders will
not pay any of the expenses associated with this offering.
</FN>
</TABLE>
2
<PAGE>
REPORTS TO SECURITY HOLDERS
The Company is not yet subject to the informational requirements
of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Once the Company's securities are registered under the
Exchange Act, it 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
except for the Quarterly Report on Form 10-QSB for the three
months ended March 31, 1998. 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 intends to register its securities under Section
12(g) of the Exchange Act of 1934.
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.
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 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 ______________, 1998 (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.
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
3
<PAGE>
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.
4
<PAGE>
TABLE OF CONTENTS
PROSPECTUS SUMMARY......................................... 6
RISK FACTORS................................................9
SELLING SECURITY HOLDERS...................................15
SOURCE AND USE OF PROCEEDS.................................22
DILUTION...................................................23
THE COMPANY................................................24
MANAGEMENT.................................................38
CERTAIN TRANSACTIONS.......................................43
SHARES ELIGIBLE FOR FUTURE SALE............................55
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED..........56
STOCKHOLDER MATTERS........................................56
TERMS OF OFFERING..........................................58
DESCRIPTION OF SECURITIES..................................61
LEGAL MATTERS..............................................63
LEGAL PROCEEDINGS..........................................63
EXPERTS....................................................63
INTERESTS OF NAMED EXPERTS AND COUNSEL.....................63
5
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information, financial statements and notes to the
financial statements including the notes thereto appearing
elsewhere in this Prospectus.
The Company. The Company was incorporated in the state of
Washington on September 20, 1995. The Company's operations are
the development and marketing of certain gaming products and
concepts invented and developed by the Sines-Forte General
Partnership ("Sines-Forte") of which Steve Forte, a former
Director of the Company and Randy Sines, former Vice President of
the Company are general partners. The Company is authorized to
issue a total of 20,000,000 shares of its capital stock (Common
Shares), par value per share of $.001.
The Company has four products that are completed. The first
product is the Random Ejection Shuffler, which can shuffle
automatically up to six decks of playing cards in random order.
There have been five prototypes built and tested. The first
production run of 30 units is complete and parts have been
ordered for an additional 220 units. Second, the Company has
five production units of the Fantasy 21 Table Game which were
assembled on October 13, 1997 and are being used for sales
demonstrations and field testing. Parts for the production run
of 60 Fantasy 21 Table Games have been ordered. Third, the Safety
Peek Card, a new type of casino playing card, is already in use
and is under distribution agreements with selected playing card
distributors. Fourth is the SecureDrop Coin Box system. This
product was developed by the Company pursuant to an exclusive
license from an outside developer in an agreement dated October
10, 1997. The SecureDrop has been completed with five units for
field trials and testing. The Company is now producing
components for 250 units.
The Company intends to sell or lease its products to the
worldwide 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 5240 S. Eastern
Avenue, Las Vegas, Nevada 89119. Its telephone number at such
address is (702) 733-7195.
6
<PAGE>
THE OFFERING The Company hereby offers up to
1,500,000 Common Shares at
$2.50 per Common Share.(1)
COMMON SHARES OUTSTANDING
PRIOR TO PUBLIC OFFERING 6,179,944
COMMON SHARES TO BE OUTSTANDING
AFTER OFFERING 7,679,944(2)(3)
PERCENT OF COMMON SHARES OWNED
BY CURRENT SHAREHOLDERS AFTER
MAXIMUM OFFERING 80.47%
GROSS PROCEEDS AFTER
MAXIMUM OFFERING $3,750,000
USE OF PROCEEDS The Company intends to utilize
the sale of its Common Shares
for debt reduction, to increase
inventory levels of current
products, to expand current
product line and 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
or C Warrants shall be used as
working operations. See
"Source and Use of Proceeds."
(1) Prior to the date of the prospectus, the Company has sold
116,000 Common Shares of the 1,500,000 Common Shares to be sold
hereunder.
(2) Upon completion of the "Forte Transaction" as described under
"CERTAIN TRANSACTIONS - Related Party Transactions", there will
be 6,831,262 Common Shares outstanding after the Offering.
(3) This number excludes the exercise of the A, B and C Warrants.
7
<PAGE>
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 FOR
REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER MATTERS."
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. Current
officers and directors do not
plan on selling their Common
Shares until the Company's
offer is fully subscribed. The
Company is not selling any
Common Shares on behalf of
Selling Shareholders and has no
control or affect on these
Selling Shareholders. See
"SELLING SECURITY HOLDERS."
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 has retained
Continental Stock Transfer and
Trust Company as transfer agent
for the Company's securities.
8
<PAGE>
RISK FACTORS
In analyzing this offering, prospective investors should read
this entire Prospectus and carefully consider, among other
things, the following Risk Factors:
Possible Adverse effects due to contemporaneous primary offering
by the Company and secondary offering by Selling Shareholders.
The Company, through Travis Morgan Securities, Inc., will
undertake a best efforts offering at the same time as the selling
shareholders will be selling their registered shares. Officers
and directors of the Company are participating as selling
shareholders. All current officers and directors and certain
former officers and directors have entered into written
agreements not to sell their Common Shares until the Company's
offer is fully subscribed. The Company is not selling any
Common Shares on behalf of Selling Shareholders and has no
control or affect on the 1,605,530 Common Shares of these Selling
Shareholders which are not subject to any lock-up agreement. The
offering of securities by these Selling Shareholders will occur
regardless of the outcome of the primary offering by the Company.
Other than the written agreements with the current officers and
directors, the Company has not taken any measures to delay the
offering by Selling Shareholders until after the completion of
the primary offering by the Company. The demand for the
Company's Common Stock may be decreased due to the large number
of Common Shares being sold in the secondary offering by the
Selling Shareholders. Due to the fact that the secondary
offering will be conducted contemporaneously with a primary
offering by the Company, the market price of the Company's common
stock (upon commencement of trading) may be less than the
offering price of $2.50. Conflicts of interests may arise due to
the fact that the primary offering of the Company and the
secondary offering of the Selling Shareholders will be conducted
contemporaneously. In the event the stock price falls below
$2.50, the primary offering will be terminated. There is a
strong risk that the primary offering will never be fully
concluded.
Gaming Venture Corp. U.S.A. is the beneficial owner of 200,000
Common Shares, all of which are being registered and are not
being locked up. Additionally, Sines-Forte Partnership is the
beneficial owner of 1,261,900, 126,190 of which are being
registered and are not being locked up and 630,950 of which will
be purchased by the Company pursuant to the Forte Transaction.
See "CERTAIN TRANSACTIONS - Related Party Transactions." These
Common Shares can be sold and push the stock price below $2.50.
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
9
<PAGE>
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.
Sines-Forte and Sharps are or were owned or controlled by persons
who are former directors, executive officers and who are
principal shareholders of the Company. See "CERTAIN TRANSACTIONS
- - - Related Party Transactions." Sharps has been dissolved. The
Company is still in the development stage. Higher than normal
operating expenses will in all likelihood be incurred during
initial operations.
Additional Financing May be Required. Even if all of the
1,500,000 Common Shares offered hereby are sold, the funds
available to the Company may not be adequate for its business
activities. Accordingly, the ultimate success of the Company may
depend upon its ability to raise additional capital or to have
other parties bear a portion of the required costs to further
develop or exploit its business activities. Currently, the
Company is seeking additional debt or equity financing, however,
there can be no assurance that any additional financing can be
obtained. See "USE OF PROCEEDS" AND "BUSINESS ACTIVITIES."
Risks Attributable to a Best Efforts Offering. The 1,500,000
Common Shares are being offered for sale by the Company on a best
efforts basis. Travis Morgan Securities, Inc. (the "Placement
Agent") has been retained to act as the exclusive agent for the
Company in connection with the arrangement of such offers and
sales on a best efforts basis. Since the Placement Agent is not
obligated to and does not intend to itself take (or purchase) any
of the Common Shares, there is no guarantee that the Company will
be able to sell all of the 1,500,000 Common Shares offered
hereby.
Potential Adverse Impact of Sale of Shares by Selling
Shareholders. Sales by selling shareholders may have an adverse
impact on the Company's primary offering of securities at $2.50
per share. All current officers and directors and certain former
officers and directors have entered into a written agreement with
the Company regarding their intent to not sell their registered
Common Shares until the Company's offer is fully subscribed.
However, the Company is not selling any Common Shares on behalf
of the other Selling Shareholders and has no control over or
affect on these Selling Shareholders.
Influence on Election of Directors and All Other Matters by
Current Officers and Directors. After the offering, the
officers and directors of the Company will own approximately
36.6% of the outstanding common shares (approximately 41.1% of
the outstanding common shares after the Forte Transaction). As a
result, the officers and directors of the Company, through their
aggregate ownership in the securities of the Company may be able
to influence the election of directors and all other matters
submitted to a vote of the Company's shareholders.
Uncertainty of Market for Company's Products. The Company's
products are still in the development status and, as such, the
market for these products is uncertain.
10
<PAGE>
Future Sales of and Market for the Common Shares. Upon
completion of the offering there shall be 7,679,644 Common Shares
outstanding (6,831,262 Common Shares upon completion of the Forte
Transaction). This does not include any Common Shares which
shall be issued upon conversion of the A, B or C Warrants, 75,000
Common Shares reserved for issuance pursuant to loan conversion
options, 565,000 shares reserved pursuant to outstanding options
for issuance to key employees and others (not including 100,000
shares reserved under an option pursuant to the "Blad Employment
Agreement"). See "MANAGEMENT - Employment and Personal Service
Agreements." If the maximum number of Common Shares are sold,
3,721,599 of the Common Shares to be outstanding (3,223,289 Common
Shares upon completion of the Forte Transaction) will be
considered "restricted securities" as that term is defined in
Rule 144 adopted under the United States Securities Act of 1933,
as amended and in the future may be sold only in compliance with
the resale provisions set forth therein. Rule 144 provides, in
essence, that persons holding restricted securities for a period
of one years may sell in brokerage transactions an amount equal
to one percent of the Company's securities or outstanding Common
Shares every three months. Additionally, if persons hold
restricted securities for one year, there are virtually no resale
limitations. Hence, the possibility of sale under Rule 144 may
in the future have a depressive effect on the price of the
Company's Common Shares in any market which may develop.
Conflicts of Interest. Officers and directors of the Company
are participating as selling shareholders in this offering while
the Company undertakes its primary offering by its officers and
directors. Additionally, some of the directors of the Company
are currently principals of other businesses. As a result,
conflicts of interest may arise. The directors shall immediately
notify the other directors of any possible conflict which may
arise due to their involvement with other businesses. The
interested directors in any conflict shall refrain from voting on
any matter in which a conflict of interest has arisen. The
Company has adopted a policy that any transactions with
directors, officers or entities of which they are also officers
or directors or in which they have a financial interest, will
only be on terms which are fair and reasonable to the Company and
approved by a majority of the disinterested directors of the
Company's Board of Directors. For further discussion see
"MANAGEMENT - Conflicts of Interest Policy." There can be no
assurance that such other activities will not interfere with the
officers' and directors' ability to discharge their obligation
herein.
Possible Effect on Company's Ability to Obtain Approval for the
Licensing of the Company Due to Actions of Director of the
Company. Steven L. Forte, a consultant to and 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. Mr. Forte was sentenced to
120 days and served 61 days. Mr. Forte also paid restitution of
$11,200. All restitution and probation were cleared in 1991.
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. In an effort to mitigate
the adverse consequences to pending regulatory approvals, the
Company has entered into the Forte Transaction. See "CERTAIN
TRANSACTIONS - Related Party Transactions."
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."
11
<PAGE>
No Diversification. The Company intends to manufacture and
market certain gaming products and concepts. Therefore, the
Company's financial viability will depend almost exclusively on
its ability to generate revenues from its operations and the
Company will not have the benefit of reducing its financial risks
by relying on revenues derived from other operations.
Dilution. Purchase of the Common Shares offered hereby will
incur immediate dilution of $2.27 or 90.95% 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 Warrants.
The Company has 75,000 Common Shares reserved for issuance
pursuant to loan conversion options or 565,000 shares reserved
for issuance pursuant to outstanding options and commitments to
key employees and others. The Company may issue additional
shares in private business transactions and may pursue a public
offering in the future to complete its business plan. Any sales
under Rule 144 after the applicable holding period may have a
depressive effect upon the market price of the Company's Common
Shares and investors in this offering upon conversion. As a
result, the investors in this Offering may experience substantial
dilution. See "DILUTION" and "CAPITALIZATION."
Investors May Bear Risk of Loss. The capital required by the
Company to acquire assets needed for its proposed operations is
being sought from the proceeds of this Offering. Therefore,
investors of this Offering may bear most of the risk of the
Company's expansion of operations. Conversely, management stands
to realize benefits from the payment of salaries, expenses and
receipt of stock options regardless of the profitability of the
Company.
Financial Condition. Although the officers of the Company
anticipate that the Company will have adequate funds to pay all
of its operating expenses assuming the expansion and promotion of
the Company's operations, there can be no assurance that this
will in fact occur or that the Company can be operated in a
profitable manner. Profitability depends upon many factors,
including the success of this Offering and the success of the
Company's operations.
Competition. There is significant competition in the gaming
industry. The Company competes with established companies and
other entities (many of which possess substantially greater
resources than the Company). Almost all of the companies with
which the Company competes are substantially larger, have more
substantial histories, backgrounds, experience and records of
successful operations, greater financial, technical, marketing
and other resources, more employees and more extensive facilities
than the Company now has, or will have in the foreseeable future.
It is also likely that other competitors will emerge in the near
future. There is no assurance that the Company will continue to
compete successfully with other established gaming product
manufacturers. The Company shall compete on the basis of quality
and price. Inability to compete successfully might result in
increased costs, reduced yields and additional risks to the
investors herein. See "THE COMPANY - Competition."
Forward-Looking Statements and Associated Risk. This
Prospectus, including the information incorporated herein by
reference, contains forward-looking statements including
statements regarding, among other items, the Company's growth
strategies, and anticipated trends in the Company's business and
demographics. These forward-looking statements are based largely
on the Company's expectations and are subject to a number of
risks and uncertainties, certain of which are beyond the
Company's control. Actual results could differ materially from
these forward-looking statements as a result of the factors
described in this section "Risk Factors," including among others,
12
<PAGE>
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 $2.50
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 $3,750,000, the actual price of $2.50 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 Jay King and Steven Blad. There can be
no assurance that the Company will be successful in retaining its
two remaining key employees or that it can attract or retain
additional skill personnel required.
Vulnerability to Fluctuations in the Economy. Demand for the
Company's products is dependent on, among other things, general
economic conditions and international currency fluctuations which
are cyclical in nature. Prolonged recessionary periods may be
damaging to the Company.
Repurchase of Common Shares by the Company. The Company and
Steven L. Forte, an independent consultant to and former director
of the Company, have entered into a letter agreement dated May
28, 1998 (the "Forte Transaction") through which the Company has
agreed to purchase, subject to the approval of the Nevada State
Gaming Control Board and the dissolution of Sines-Forte, from Mr.
Forte: (a) certain royalties from the sales of the Shuffler and
Fantasy 21; (b) 20,000 options exercisable by Mr. Forte at $1.50
per underlying share; and (c) 848,682 Common Shares at $2.50 per
share. Although the Company has deferred the payments to be made
under the Forte Transaction and projects that it will be able to
make the necessary payments under the Forte Transaction, there
can be no assurance that this will in fact occur. See "CERTAIN
TRANSACTIONS - Related Party Transactions."
"Penny" Stock Regulation of Broker-Dealer Sales of Company
Securities. The Company intends to list its Common Shares, at
least initially, on the OTC Bulletin Board and on NASDAQ Small
Cap Market 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 Small Cap Market listing. The
OTC Bulletin Board has no quantitative written standards and is
not connected with the NASD. Until the Company obtains a listing
on the NASDAQ Small Cap Market, 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
13
<PAGE>
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."
14
<PAGE>
SELLING SECURITY HOLDERS
The Company shall register pursuant to this prospectus 2,119,041
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. None of the
information in this section reflects the Forte Transaction. See
"CERTAIN TRANSACTIONS - Related Party Transactions."
<TABLE>
<CAPTION>
Total
Name and Amount Number % Owned Number of % Owned
Being Owned Prior to Shares Owned After
Registered Currently Offering After Offering Offering
<S> <C> <C> <C> <C>
Stacy Haskins - 15,478 15,478 .25% 0 0%
Martin Petri - 15,478 15,478 .25% 0 0%
Michael Szeremeta - 15,477 15,477 .25% 0 0%
The Arcus Group<F1> - 700 7,000 .11% 6,300 .10%
Sines-Forte Partnership<F2><F17> - 126,190 1,261,190 20.42% 1,135,710 14.79%
Cheryl Forte <F3><F17> 25,461 254, 610 4.52% 229,149 2.98%
Cheryl & Steve Forte <F4><F17> - 4,512 45,122 .83% 40,610 .53%
Richard S. Huson <F5> - 312,229 2,561,589 41.45% 2,249,360 29.29%
Leonard A. Hale - 15,478 15,478 .25% 0 0%
David A. Krise - 91,910 91,910 1.44% 0 0%
Norman G. Kelln<F6> - 11,362 113,628 1.78% 102,266 1.33%
John F. Curran - 10,193 10,193 .16% 0 0%
Randy D. Sines<F7> - 25,461 254,610 3.99% 229,149 2.98%
David E. Sampson<F8> - 4,096 40,955 .64% 36,859 .48%
Jay Willoughby - 50,000 50,000 .81% 0 0%
David Goldsmith - 50,000 50,000 .81% 0 0%
C. Culver Smith - 30,000 30,000 .49% 0 0%
Don Ludwick - 20,000 20,000 .32% 0 0%
William Martin - 10,000 10,000 .15% 0 0%
Adam Chase - 10,000 10,000 .15% 0 0%
Adam W. Jaslow - 30,000 30,000 .49% 0 0%
Jennifer L. Jaslow - 50,000 50,000 .81% 0 0%
Jennifer L. Jaslow Trust - 50,000 50,000 .81% 0 0%
John Horstmann - 6,000 6,000 .11% 0 0%
15
<PAGE>
Richard S. Jaslow, IRA - 100,000 100,000 1.62% 0 0%
Lori K. Jaslow Trust - 20,000 20,000 .32% 0 0%
Adam Jaslow Trust - 70,000 70,000 1.24% 0 0%
John Plati - 20,000 20,000 .32% 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 1.29% 0 0%
Kevo Plumbing & Heating - 10,000 10,000 .15% 0 0%
Tami L. Dirienzo - 6,000 6,000 .11% 0 0%
Peter Jankowski - 10,000 10,000 .15% 0 0%
Renaldo 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%
Baglieri Associates <F9> - 3,000 3,000 .05% 0 0%
William S. Dean - 6,000 6,000 .11% 0 0%
Pratt, Wylce & Lords, Ltd. <F10> - 29,100 29,100 .47% 0 0%
Clinton Clark - 60,900 60,900 .99% 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 Andolina -3,010 3,010 .05% 0 0%
Richard P. Keshishian - 3,000 3,000 .05% 0 0%
Robert Jouas - 4,000 4,000 .06% 0 0%
David E. & Margaret Winkelman - 3,000 3,000 .05% 0 0%
Carl & Birte Mainardi - 3,400 3,400 .06% 0 0%
Mark Megnin & Helen Connor - 3,400 3,400 .06% 0 0%
Paul S. & Renee Spiegler - 6,500 6,500 .11% 0 0%
Diana Forcellati - 3,000 3,000 .05% 0 0%
Richard Napolitano - 3,000 3,000 .05% 0 0%
Gaming Venture Corp. U.S.A. <F11> - 200,000 200,000 3.24% 0 0%
Jeremy B. & W. Stern - 10,000 10,000 .15% 0 0%
16
<PAGE>
Aldo R. Beretta 1993 Family Trust - 10,000 10,000 .15% 0 0%
Dr. David Adelberg - 10,000 10,000 .15% 0 0%
Michael Schaeffer - 10,000 10,000 .15% 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 .81% 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 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 .11% 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 .11% 0 0%
Laura Giostra - 6,700 6,700 .11% 0 0%
Philip & Concetta Vincenti - 6,800 6,800 .11% 0 0%
Andrew Lesnak - 3,400 3,400 .06% 0 0%
Susan Miller - 6,700 6,700 .11% 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<F12> - 1,000 10,000 .15% 9,000 .12%
Micro Cap World, L.L.C.<F13> - 10,000 10,000 .15% 0 0%
Jay L. King<F14> - 2,500 25,000 .40% 22,500 .29%
Jayport Holdings, Inc. (BUI)<F15> - 20,339 20,339 .33% 0 0%
Glenn Fine - 30,000 30,000 .49% 0 0%
Casino Journal of Nevada, Inc.<F16> - 20,000 20,000 .32% 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%
17
<PAGE>
Michele Gilbert - 10,000 10,000 .15% 0 0%
Thomas DiSalvatore - 90,000 90,000 1.46% 0 0%
<FN>
<F1> The Arcus Group is controlled by Glen (Tom) Pickell. Mr.
Pickell is a former officer and director of the Company.
<F2> Randy Sines, a former officer and director of the Company
and Steven Forte, a former director of the Company are
general partners of Sines-Forte Partnership.
<F3> Cheryl Forte is married to Steven Forte, a former director
of the Company.
<F4> Steve Forte is a former director of the Company.
<F5> Richard Huson, Chairman of the Board of Directors of the
Company, has agreed to lock up his 312,229 Common Shares
being registered in this offering until completion of the
primary offering of the Company. See "CERTAIN TRANSACTIONS"
and "PRINCIPAL SHAREHOLDERS."
<F6> Norman G. Kelln is a former director of the Company.
<F7> Randy Sines was an officer and director of the Company.
<F8> David Sampson is a director of the Company.
<F9> Baglieri Associates is not affiliated with the Company or
its officers and directors and the Company does not know the
principals of Baglieri Associates.
<F10> Timothy Miles and Alan Schafler are the principals of Pratt,
Wylce & Lords, Ltd.
<F11> Alan Woinski and Kim Santangelo-Woinski are the principals of
Gaming Venture Corp., U.S.A.
<F12> Steven Blad is an officer and director of the Company.
<F13> Clinton Clark is the principal of Micro Cap World, L.L.C.
<F14> Jay L. King is an officer and former director of the Company.
<F15> Jayport Holdings, Inc. is not affiliated with the Company or
its officers and directors and the Company does not know the
principals of Jayport Holdings, Inc.
<F16> Glenn Fine is the principal of Casino Journal of Nevada, Inc.
<F17> Pursuant to the Forte Transaction, the Company and Mr. and
Mrs. Forte have agreed to certain preliminary terms and
conditions through which the Company will purchase, inter
alia, the Common Shares held by Mr. and Mrs. Forte. See
"CERTAIN TRANSACTIONS - Related Party Transactions."
</FN>
</TABLE>
18
<PAGE>
The Company shall register pursuant to this prospectus the
200,000 Common Shares underlying the Class A Warrants currently
outstanding for the account of the following individuals or
entities. Although the Class A Warrants were originally issued
to shareholders at the time of grant, certain holders of the
Class A Warrants assigned a portion of their Class A Warrants to
certain individuals who have provided additional financing to the
Company. See "DESCRIPTION OF SECURITIES - Warrants." The
percentage owned prior to and after the offering reflects all of
the then outstanding Class A Warrants. The amount and percentage
owned after the offering assumes the exercise of all of the Class
A Warrants and sale of underlying Common Shares being registered
on behalf of the selling shareholders.
<TABLE>
<CAPTION>
Total Total % Number of %
Number Number Owned Warrants Owned
Originally Owned Prior to Owned After
Name Issued Currently Offering After Offering Offering
<S> <C> <C> <C> <C> <C>
Norman G. Kelln 5,717 5,717 2.86% 0 0%
Sines-Forte Partnership<F1> 63,492 2,933 1.47% 0 0%
Cheryl Forte<F2> 30,421 1,407 0.70% 0 0%
David Sampson 1,557 1,557 0.78% 0 0%
Randy Sines 30,421 1,408 0.70% 0 0%
Richard Huson 51,586 52,721 25.79% 0 0%
Stacey Haskins 779 779 0.39% 0 0%
Martin Petri 779 779 0.39% 0 0%
Michael Szeremeta 779 779 0.39% 0 0%
Leonard Hale 779 779 0.39% 0 0%
David Krise 4,624 4,624 2.31% 0 0%
John F. Curran 513 513 0.26% 0 0%
Jay Willoughby 2,516 19,295 9.67% 0 0%
David M. Goldsmith 2,516 19,295 9.67% 0 0%
Buckingham Research Group
C. Culver Smith 1,509 1,509 0.75% 0 0%
Don Ludwick 1,006 1,006 0.50% 0 0%
William Martin 503 503 0.25% 0 0%
Adam Chase 503 503 0.25% 0 0%
Richard S. Jaslow 0 50,336 25.17% 0 0%
VIP's Industries, Inc.<F3> 0 33,557 16.78% 0 0%
<FN>
<F1> Randy Sines and Steve Forte are General Partners of Sines-
Forte partnership and would be deemed to be beneficial
owners of the 2,933 Class A Warrants shown above.
<F2> Steve Forte is married to Cheryl Forte and would be deemed
to be a beneficial owner of the 1,407 Class A Warrants shown
above.
<F3> VIP's Industries, Inc. is an entity controlled by Bob Smith,
a director of the Company.
</FN>
</TABLE>
19
<PAGE>
The Company shall register pursuant to this prospectus the
200,000 Common Shares underlying the Class B Warrants 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 Class B Warrants. The
amount and percentage owned after the offering assumes the
exercise of all of the Class B Warrants and sale of underlying
Common Shares being registered on behalf of the selling
shareholders.
<TABLE>
<CAPTION>
Total Number % Owned Number of % Owned
Owned Prior to Warrants Owned After
Name Currently Offering After Offering Offering
<S> <C> <C> <C> <C>
Norman G. Kelln 5,717 2.86% 0 0%
Sines/Forte Partnership<F1> 63,492 31.75% 0 0%
Cheryl Forte <F2> 30,421 15.21% 0 0%
David Sampson 1,557 .78% 0 0%
Randy Sines 30,421 15.21% 0 0%
Richard Huson 51,586 25.79% 0 0%
Stacey Haskins 779 .39% 0 0%
Martin Petri 779 .39% 0 0%
Michael Szeremeta 779 .39% 0 0%
Leonard Hale 779 .39% 0 0%
David Krise 4,624 2.31% 0 0%
John F. Curran 513 .26% 0 0%
Jay Willoughby 2,516 1.26% 0 0%
David M. Goldsmith 2,516 1.26% 0 0%
Buckingham Research Group
C. Culver Smith 1,509 .75% 0 0%
Don Ludwick 1,006 .50% 0 0%
William Martin 503 .25 0 0%
Adam Chase 503 .25% 0 0%
<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 owner of the 30,421 Class B Warrants
shown above.
</FN>
</TABLE>
20
<PAGE>
The Company shall register pursuant to this prospectus the
250,000 Common Shares underlying the Class C Warrants 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 Class C Warrants. The
amount and percentage owned after the offering assumes the
exercise of all of the Class C Warrants and sale of underlying
Common Shares being registered on behalf of the selling
shareholders.
<TABLE>
<CAPTION>
Total Number % Owned Number of % Owned
Owned Prior to Warrants Owned After
Name Currently Offering After Offering Offering
<S> <C> <C> <C> <C>
Norman G. Kelln 7,146 2.86% 0 0%
Sines/Forte Partnership<F1> 79,365 31.75% 0 0%
Cheryl Forte<F2> 38,026 15.21% 0 0%
David Sampson 1,947 .78% 0 0%
Randy Sines 38,026 15.21% 0 0%
Richard Huson 64,483 25.79% 0 0%
Stacey Haskins 973 .39% 0 0%
Martin Petri 973 .39% 0 0%
Michael Szeremeta 973 .39% 0 0%
Leonard Hale 973 .39% 0 0%
David Krise 5,781 2.31% 0 0%
John F. Curran 641 .26% 0 0%
Jay Willoughby 3,145 1.26% 0 0%
David M. Goldsmith 3,145 1.26% 0 0%
Buckingham Research Group
C. Culver Smith 1,887 .75% 0 0%
Don Ludwick 1,258 .50% 0 0%
William Martin 629 .25% 0 0%
Adam Chase 629 .25% 0 0%
<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 owner of the 38,026 Class C Warrants
shown above.
</FN>
</TABLE>
21
<PAGE>
- - -----------------------------------------------------------------
SOURCE AND USE OF PROCEEDS
- - -----------------------------------------------------------------
If the maximum amount of securities is sold in the offering, the
Company shall have net proceeds of $3,318,080 after the payment
of commissions of $375,000, an expense allowance of $15,000 for
Travis Morgan Securities, Inc., and offering expenses of $41,920.
The Company shall utilize the net proceeds from the sale of its
Common Shares for working capital, including (approximately):
<TABLE>
<CAPTION>
<S> <C>
Total Proceeds $3,750,000
Less Commissions 375,000
Less Expense Allowance 15,000
Less Offering Expenses 41,920
------------
Net Offering Proceeds $3,318,080
</TABLE>
<TABLE>
<CAPTION>
<S> <C>
Building of product inventory 325,000
Research and development
to expand the current product line 450,000
International Marketing 200,000
Debt Reduction(1) 750,000
Tooling and Equipment 130,000
Working Capital 1,460,080
------------
$3,318,080
</TABLE>
If substantially less than the maximum proceeds is raised, the
priority for the use of proceeds is i) to expand sales of current
products; ii) to increase inventory levels of current products,
iii) tooling and equipment and iv) debt reduction. The proceeds
are anticipated to be utilized over a twelve 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.
Any proceeds received from the subsequent exercise of the A, B or
C 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 $4,000,000. If all of the A, B or C
Warrants are exercised, the proceeds shall be utilized over a two
year period.
_________________
(1) Anticipated to be used to fund a portion of the Forte
Transaction. See "CERTAIN TRANSACTIONS - Related Party
Transactions."
22
<PAGE>
- - -----------------------------------------------------------------
DILUTION
- - -----------------------------------------------------------------
Dilution. Assuming completion of maximum offering amount, there
will be a total of 7,679,944 Common Shares outstanding (does not
take into account the effect of the Forte Transaction). The
following table illustrates the per Share dilution as of
March 31, 1998, which may be experienced by investors upon
reaching the maximum offering.
<TABLE>
<CAPTION>
<S> <C>
Offering price $2.50
Net tangible book value per
share before offering (.2558)
Increase per Share
attributable to investors .4820
------
Pro forma net tangible
book value per Common
Share after offering .2262
------
Dilution to investors $2.274
Dilution as a percent of
offering price 90.95%
</TABLE>
Comparative Per Common Share Data.
<TABLE>
<CAPTION>
Total Price
Number of Paid Per Consider-
Shares % Share ation Paid %
<S> <C> <C> <C> <C> <C>
Existing Shareholders 6,179,638 80.47% $ .61 $3,782,807 52.22%
New Investors of 1,500,000 19.53% $2.50 $3,750,000 49.78%
Common Shares
</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."
23
<PAGE>
- - -----------------------------------------------------------------
THE COMPANY
- - -----------------------------------------------------------------
The Company. The Company was incorporated in the State of
Washington on September 20, 1995. The Company's principal offices
are located at 5240 S. Eastern Avenue, Las Vegas, Nevada 89119.
Its telephone number at such address is (702) 733-7195. These
offices consist of 4,000 square feet on a three-year with a lease
payment of approximately $5,000 per month.
The Company's operations are the development, manufacturing and
marketing of certain gaming products and concepts invented and
developed by Sines-Forte, and others, which are indirectly
affiliated with the Company.
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.
Products. The Company currently has four 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. There have
been five prototypes built and tested. The first production run
of 30 units is complete and parts have been ordered for an
additional 220 units.
(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 $450 per month. The Company has five
production units of the Fantasy 21 Table Game which were
assembled on October 13, 1997 and are being used for sales
demonstrations and field testing. Parts for the production run
of 60 Fantasy 21 Table Games have been ordered.
(iii) Safety Peek Card - a new type of Casino 21 playing card.
This product features a new playing card design which eliminates
the hole card problem in the game of Casino 21 when used with a
modified form of the classic peeking action. In the game of
Casino 21, if the dealer is showing an ace of face card, they
will generally peek at the hole or down card. With this peeking
action, there is the chance of players seeing the hole card and
adjusting their bets accordingly. With the patented card design
of the Safety Peek Card, the dealer, by peeking at the opposite
corner (which is considered a modified form of peeking action)
can determine if the hole card is an ace without
24
<PAGE>
showing any card value. The Safety Peek Card, a new type of
casino playing card, is already in use and is under distribution
agreements with selected playing card distributors.
(iv) SecureDrop coin box system - An electronic method to
accurately track the number of coins in a slot machine when the
funds are transferred from the machine, counted and later
deposited with a banking institution. This product was developed
by the Company pursuant to an exclusive license from an outside
developer in an agreement dated October 10, 1997. The
SecureDrop has been completed with five units for field trials
and testing. The Company is now producing components for 250
units.
Proprietary Technology. The Company's products are protected
under various pending patents, patents, copyrights and
trademarks.
All patent applications filed before June 8, 1995 will have a
term which is either 17 years from the date of issue or 20 years
from the filing date (or priority date). U.S. patent
applications filed on or after June 8, 1995 have a term of 20
years from the filing date of the application or filing date of
any parent patent application upon which priority is claimed.
Design patents have a term of 14 years from the issue date.
Utility patents require maintenance fees be paid to have the full
term. The term of patents may vary depending upon other
consideration in special cases.
The Safety Peek Playing cards patent claims are directed at both
the novel playing cards and methods for playing blackjack using
the novel playing cards.
Title: Cards and Methods for Playing Casino 21 or
Blackjack
Status: Issued U.S. Patent
Serial No: 08/165,302
Filing Date: December 9, 1993
Patent No: 5,403,015
Issue Date: April 4, 1995
Title: Cards and Methods for Playing Blackjack
Status: Issued U.S. Patent
Serial No: 08/353,526
Filing Date: December 8, 1994
Patent No.: 5,518,249
Issue Date: May 21, 1996
Title: Blackjack Card Deck
Status: Issued U.S. Design Patent
Serial No: 29/028,882
Filing Date: September 23, 1994
Patent No. Des. 366,503
Issue Date: January 23, 1996
25
<PAGE>
Patents for the Playing Card Shuffling Machine have been applied
for and their status is as follows:
Title: Playing Card Shuffler
Status: Issued U.S. Patent
Serial No: 08/228,609
Filing Date: April 18, 1994
Patent No: 5,676,372
Issued Date: October 14, 1997
Title: Playing Card Shuffling Machines and Methods
Status: Issued U.S. Patent
Serial No: 08/423/408
Filing Date: April 18, 1995
Patent No: 5,584,483
Issue Date: December 17, 1996
Title: Playing Card Shuffling Machines and Methods
Status: Pending Canadian Patent Application
Serial No: 2,188,137
Filing Date: April 18, 1995 (International Filing Date)
Patent No: Not issued
Issue Date: Not issued
Title: Playing Card Shuffling Machines and Methods
Status: Pending European Patent Application
Serial No: 95916434.4
Filing Date: April 18, 1995 (International Filing Date)
Patent No: Pending European Patent Application
Issue Date: Not issued
Title: Playing Card Shuffling Machines and Methods
Status: Issued Australian Patent
Serial No: 22936/95
Filing Date: April 18, 1995 (International Filing Date)
Patent No: 684937
Issue Date: April 23, 1998
The Blackjack Game System and Methods patent claims are as
follows:
Title: Blackjack Game System and Methods
Status: Pending application
Serial No: 08/242,229
Filing Date: May 13, 1994
Patent No: Not issued
Issue Date: Not issued
26
<PAGE>
Title: Blackjack Game System and Methods
Status: Issued Patent
Serial No: 08/439,687
Filing Date: May 12, 1995
Patent No: 5,586,766
Issue Date: December 24, 1996
Title: Blackjack Game System and Methods
Status: Pending Canadian patent application
Serial No: 2190266
Registration #1483441 and #1483442
:
Filing Date: November 13, 1996
Patent No: Not issued
Issue Date: Not issued
Title: Blackjack Game System and Methods
Status: Pending European patent application
Serial No: 95920444.7
Filing Date: May 12, 1995
Patent No: Not issued
Issue Date: Not issued
Title: Blackjack Game System and Methods
Status: Pending Australian patent application
Serial No: 25892/95
Filing Date: November 12, 1996
Patent No: Not issued
Issue Date: Not issued
Title: Blackjack Game System and Methods
Status: Pending Patent Cooperation Treaty patent application
Designates about 80 foreign countries for possible patents
Serial No: PCT/US95/12908
Filing Date: October 13, 1995
Patent No: Not issued
Issue Date: Not issued
The Company has applied for the following additional patents:
Title: Slot Machine and Methods of Operation
Status: Pending U.S. Patent Application
Serial No: 08/603417
Filing Date: 2/2/96
Patent No: Not issued
Issue Date: Not issued
27
<PAGE>
Title: Drop Slot Game Machine
Status: Pending U.S. Patent Application
Serial No: 08/649821
Filing Date: 5/17/96
Patent No: Not issued
Issue Date: Not issued
Title: Blackjack Game System and Methods
Status: unknown
Serial No: 08/798642
Filing Date: 2/11/97
Patent No: Not issued
Issue Date: Not issued
Title: Slot Machine and Methods of Operation
Status: Pending Patent Cooperation Treaty patent application
Designates about 80 foreign countries for possible patents
Serial No: PCT/US96/02157
Filing Date: 2/20/96
U.S. trademark registrations issued or renewed prior to November
16, 1989 remain in force for 20 years from their date of issue or
renewal. Those U.S. trademark registrations issued or renewed
on or after November 16, 1989 have a term of 10 years unless
canceled or surrendered. The Company has made and received the
following trademarks.
Mark: SAFETY PEEK
Status: Registered U.S. trademark
Serial No: 74/640,372
Filing Date: February 21, 1995
Reg. No: 1,944,346
Reg. Date: December 26, 1995
Mark: FANTASY 21
Status: Pending U.S. Trademark Application
Serial No: 74/456,337
Filing Date: November 3, 1993
Reg. No: Not yet registered
Reg. Date: Not yet registered
Mark: CASINOVATIONS
Status: Pending U.S. Trademark Application
Serial No: 74/640,371
Filing Date: February 21, 1995
Reg. No: Not yet registered
Reg. Date: Not yet registered
Proprietary information is available to investors upon signature
of a Non-Disclosure Agreement.
28
<PAGE>
Research and Development. Prior to the incorporation of the
Company and to date, most of the time and effort of the Company
has been spent on research and product development. The Company
or its predecessors incurred research and development costs
aggregating $102,333, $464,304, $244,117 and $436,871 for the
three months ended March 31, 1998 and for the years ended
December 31, 1997, 1996 and 1995, respectively. These funds were
expended on engineering, tooling, parts and other related
expenditures. The Company intends to have a continued emphasis
on research and development as funding and cash flow allow.
Manufacturing and Production. The Company shall manufacture the
Random Ejection Shuffler and Fantasy 21 internally through a
network of sub-contractors due to difficulties with Western
Electronics, Inc., an independent third party supplier. See
"LEGAL PROCEEDINGS." The Safety Peek Card is currently being
manufactured by the George C. Mattheson Company ("GEMACO"), and
distributed to the U.S. Playing Card Company.
Packaging and Transportation. The Company shall utilize custom
boxes on which its name, logo and a silk screen of the product
itself will be printed.
It is expected that transportation will be by UPS ground or a
similar carrier in the continental United States, and by other
arrangements as appropriate. Initial installations will be made
by the Company's sales and/or service personnel, or, if
distributors are used, by their sales and service personnel.
Service and Maintenance Policy. The Company intends to
establish appropriate service capabilities for each product in
each market it services, either through its distributors or with
in-house personnel.
Marketing. The Company shall market and distribute its products
in one of three ways, depending upon the regulatory market and
the specific product.
(i) Directly by the Company's sales force;
(ii) Through OEM's who incorporate a Company's product into a
product they manufacture; or
(iii) Through distributors with a significant market presence in
one or more regulatory markets.
OEM's, original equipment manufacturers, are manufacturers who
build product to the product owner's specifications and place the
owner's name on the product.
Exclusive Distributorship Agreements. The Company currently has
an exclusive distributorship agreement with Sodak Gaming, Inc.
The term of the agreement is five (5) years. The Company agrees
to offer to Sodak a minimum discount of twenty-five percent (25%)
less than the promoted retail price in Nevada. The territory
includes all Indian lands of the United States and First
Nation/Aboriginal Lands in Canada, Deadwood, South Dakota and
Miss Marquette Riverboat and Casino, Marquette, Iowa. The
Company also has an exclusive distributorship agreement with RGB
SDN BHD. , a Malaysia corporation. The term of the agreement is
five (5) years. The Company agrees to offer to RGB SDN BHD a
minimum discount of twenty-five percent (25%) less than the
promoted retail price in Nevada. The territory includes 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 H. Joel
Rahn (company
29
<PAGE>
name to be designated). The term of the agreement is Five (5)
years. The Company agrees to offer to H Joel Rahn a minimum
discount of twenty-five percent (25%) less than the promoted
retail price in Nevada. The territory consists of South America,
Central America, the Caribbean Islands, the State of Florida and
Cruise Ships worldwide, excluding Cruise Ships based in Malaysia,
Singapore and Hong Kong. The territory consisting of the
Bahamas shall be non-exclusive.
In addition, the Company has entered into an exclusive five-year
distributorship agreement with Gaming 2000 L.L.C. ("Gaming 2000")
with respect to the certain territories, including the United
States, territories of the United States, Canada, certain cruise
ships, and the Caribbean islands. The Company has also entered
into an exclusive five-year distributorship agreement with
Belgium Gaming Technology, a Belgian corporation, with respect to
all countries in the European Commonwealth, Eastern Europe and
Africa with the exclusion of South Africa and ferry ships.
Exclusive Licensing Agreements. 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.
Technology Development Center, LLC, has grant an exclusive
license to the Company relating to its technology known as a
"Coin Operating Machine Having An Electronically Identified Coin
Collection Box". The geographical scope of the license is the
United States of America and all foreign countries. As
consideration for the exclusive license, the Company executed a
promissory note secured by assets of the Company payable to
Technology Development Center, LLC, for $50,000 payable in five
monthly installments beginning on November 14, 1997 and a
promissory note secured by the assets of the Company, payable to
Technology Development Center, LLC for $50,000 payable in twelve
monthly installments beginning on April 15, 1998. The Company
shall pay a royalty of $7.50 per each licensed product sold,
rented, leased, or otherwise used for profit, provided that the
Company receives a net compensation in excess of $7.50 for each
Product Development and Ownership History. The Company has paid
$25,000 on the first promissory note and is currently in arrears
on the balance. The Company has paid none of the payments on the
second promissory note. The Company is presently negotiating a
modification of these obligations.
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.
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 were directors and executive officers and are 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
30
<PAGE>
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. A portion of the shares of the
Sines-Forte Partnership beneficially owned by Mr. Forte will be
purchased in the Forte Transaction. See "CERTAIN TRANSACTIONS -
Related Party Transactions."
As a consequence of the reorganization transaction, Sharps was
liquidated, and all of its assets and liabilities were assumed by
the Company. Such assets included 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.
Through the Forte Transaction, the Company has agreed to purchase
the royalties to be paid to Mr. Forte. See "CERTAIN TRANSACTIONS
- - - Related Party Transactions."
Employees. As of the date of this Prospectus, the Company has
seven 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
31
<PAGE>
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.
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.
32
<PAGE>
- - -----------------------------------------------------------------
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 has completed its
research and development for four of its products. The Company
has four products that are completed. The first product is the
Random Ejection Shuffler, which can shuffle automatically up to
six decks of playing cards in random order. There have been five
prototypes built and tested. The first production run of 30
units is complete and parts have been ordered for an additional
220 units. Second, the Company has five production units of the
Fantasy 21 Table Game(TM) which were assembled on October 13, 1997
and are being used for sales demonstrations and field testing.
Parts for the production run of 60 Fantasy 21 Table Games have
been ordered. Third, the Safety Peek Card, a new type of casino
playing card, is already in use and is under distribution
agreements with selected playing card distributors. Fourth is
the SecureDrop Coin Box system. This product was developed by
the Company pursuant to an exclusive license from an outside
developer in an agreement dated October 10, 1997. The SecureDrop
has been completed with five units for field trials and testing.
The Company is now producing components for 250 units. Demand
for the Company's products will be dependent on general economic
conditions, economic conditions in the gaming industry and
acceptance of new products in the market place.
The Company is developing business plans, operations and sales
that will permit the Company to be self-supportive within the
first 3 to 4 months from the beginning of sales. Should the
Company be able to complete this offering, the Random Ejection
Shuffler, Fantasy 21 and SecureDrop will be brought to market.
The ability of the Company to obtain any necessary gaming
licenses, authorizations and approvals in certain key
jurisdictions, such as Nevada and New Jersey, will materially
impact the Company's ability to market its products. Additional
new products are in conceptual design stages and, with adequate
funding, are expected to be brought to market within the next 12
months.
The Company expects that the net proceeds from the Offering and
the cash flow from operations will be sufficient to allow the
Company to meet the expected growth in demand for its products.
For the three months ended March 31, 1998, the Company did not
make any significant acquisitions of plant and equipment.
Inventory for parts to assemble product increased $46,956. Net
cash used in investing activities for the three months ended
March 31, 1998 was $11,744. There are no expectations for the
purchase of significant equipment or plant. Management of the
manufacturing process for the Shuffler has been brought in-house.
The Company's Manager of Engineering is directly supervising the
assembling of the first thirty units and will determine the best
combination of subcontract and in-house production.
33
<PAGE>
For the three months ended March 31, 1998, the Company received
proceeds aggregating $400,000 from convertible debentures. On
May 27, 1998, the Company's Board of Directors set the conversion
rate for such debentures at $2.125 per share based upon the price
per share of this Offering. Of the gross proceeds received from
the convertible debentures, proceeds of $150,000 were received
from the Company's principal stockholder and have been included
in shareholders loans. Loans from shareholder have increased a
total of $290,000.
The Company currently has no material commitments for capital
expenditures. The Company has planned expenditures of $900,000
for the cost of sales and $130,000 for additional tooling costs
of manufacturing. These costs will be less if the sales
projections are not met. The Company intends to use a majority
of the proceeds of this offering to make a portion of the
proposed expenditures. If this offering is not successful, the
Company's cash flow will be negatively effected if the
expenditures are made.
The Company has commitments under its employment agreements to
make aggregate monthly payments of $28,500 to certain executives
and employees.
During December 1997 the Company entered into financing type
lease transactions with a leasing company whereby the Company
sold and leased back from the lessor all of its furniture and
equipment, tooling and a total of twenty six of its shuffler
machines.
Scheduled maturities of the obligations as of December 31, 1997
are as follows:
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1998 $209,425
1999 $170,097
2000 $170,097
Minimum future lease payments $549,619
Less interest component ($102,519)
Present value of future net
minimum lease payments $447,100
Less current portion ($153,851)
Due after one year $293,249
</TABLE>
Property recorded under capital leases includes the following as
of December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Office furniture and equipment $31,110
Tooling $271,500
$302,610
Less accumulated amortization ($22,749)
Net capitalization leased equipment $279,861
Shuffler machines, at cost $52,598
Total assets subject to capital leases $332,459
</TABLE>
Although the sale had an immediate positive effect on the cash
flow of the Company, the lease payments will have a future
negative effect on the liquidity of the Company.
34
<PAGE>
The Company shall attempt to develop business plans, operations
and sales that will permit the Company to be self-supportive 120
days after normal sales begin. The funding requirement to
complete this time period is estimated to be $550,000 and may
come in the form of this offering proceeds, deposits on future
sales or debt financing. Based on the completion of a successful
offering subscription and final product development and
refinement, the Company anticipates that the monthly cash flow
will be at a break-even point within four months. No additional
capital needs are anticipated. This planning, if effective,
would permit funds raised in this offering, if any, to be used to
develop new products in the next six months.
If the Company has to add a significant amount of capital
equipment to develop an expanded 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 for at
least the next twelve months. 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 such as loans. The Company has received $640,000 of
additional debt financing in the first five months of 1998.
Implementation of either of the foregoing options could delay or
diminish the Company's planned growth and adversely affect its
profitability.
For the year ended December 31, 1997, the Company acquired plant
and equipment valued at $296,156. The Company had an increase
in patents and trademarks of $29,110. As a result, the Company
had net cash used in investing activities of $325,266 for the
year ended December 31, 1997.
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 year ended December 31, 1997, the Company sold common
stock for cash in the amount of $1,015,510. The Company received
proceeds from long-term debt of $547,100. The Company had an
increase in stockholder loans of $120,000 and the Company repaid
$38,886 of shareholder loans. As a result, the Company had net
cash provided by financing activities of $1,841,244 for the year
ended December 31, 1997.
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 upon completion of the primary
offering its current working capital and anticipated funds from
operations are sufficient to meet its cash requirements for
moderate growth in the year ahead.
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
35
<PAGE>
assurance that the Company will be able to obtain additional
equity or debt financing in the future, if at all.
Results of Operations
Three Months Ended March 31, 1998 and 1997
The Company's net loss was $520,180, or $.08 per share for the
three months ended March 31, 1998, compared to $382,818 or $.07
per share for the three months ended March 31, 1998. Revenues
for the three months ended March 31, 1998 was $348, consisting
primarily of card royalties, compared to $6,806 for the three
months ended March 31, 1997, consisting of card royalties and
interest income, reflecting the Company's development stage of
operations.
General and administrative expenses were $355,787 for the three
months ended March 31, 1998, consisting of salaries, payroll
taxes and benefits of $107,273, travel and entertainment of
$61,664, fees to consultants of $87,502, legal expenses of
$14,585, gaming show expenses of $9,363, office rent of $9,630,
office expenses of $22,863, depreciation and amortization of
$19,965 and other expenses of $25,942. The Company had general
and administrative expenses of $321,027 for the three months
ended March 31, 1997, consisting of salaries and payroll taxes
and benefits of $70,200, travel and entertainment of $27,177,
fees to consultants of $130,681, legal expenses of $19,618,
gaming shows of $35,587, office rent of $962, office expenses of
$16,681, depreciation and amortization of $3,117 and other
expenses of $17,024.
Research and development for the three months ended March 31,
1998 was $102,333, compared to $46,606 for the three months ended
March 31, 1997, reflecting continued development of the Random
Ejection Shuffler and SecureDrop.
Interest expense for the three months ended March 31, 1998 was
$62,408, including $24,880 to related parties, compared to
$21,991 for the three months ended March 31, 1997, including
$19,179 to related parties. The increase reflects the higher
level of borrowing utilized to provide liquidity to the Company
in late 1997 and early 1998.
Years Ended December 31, 1997 and 1996
For the year ended December 31, 1997, the Company had a net loss
of $2,606,071. The Company had revenues from card royalties of
$2,226, interest income of $8,290 and the sale of patent rights
of $3,000 for the year ended December 31, 1997. The Company had
depreciation and amortization of $40,262 and amortized deferred
interest of $186,000 for the year ended December 31, 1997. The
Company had an increase in accounts receivable of $15,327, an
increase in prepaid expenses of $39,276, an increase in accounts
payable of $335,459 and a decrease in accrued expenses of
$57,809. The Company issued stock for interest valued at
$117,332. The Company issued stock and options for services of
136,000. The compensation value of cash stock sales was $177,000
for the year ended December 31, 1997. For the year ended
December 31, 1997, the Company had net cash used in operating
activities of $1,949,467.
The Company had general and administrative expenses of
$1,826,250. These expenses consisted of salaries of $363,497,
payroll taxes & benefits of $49,604, travel and entertainment of
$313,425, fees to consultants of $627,913, legal expenses of
$72,785, gaming shows of $151,425, office rent of $26,646,
printing, video and other of $22,489, and miscellaneous expenses
of $198,416.
36
<PAGE>
For the year ended December 31, 1996, the Company has a net loss
of $1,638,227. The Company had revenues in card royalties of
$2,450 and interest income of $1,803 for the year ended December
31, 1996. The Company issued stock for services valued at
$700,500. Interest added to loan balances was $23,245. The
Company exchanged equipment valued at $2,903 for services. The
Company had depreciation and amortization of $2,553 for the year
ended December 31, 1996. Due to the commencement of operations,
the Company had an increase in accounts receivable of $2,833, an
increase in prepaid expenses of $300, an increase in other assets
of $6,119, and increase in accounts payable of $73,330 and an
increase in accrued expenses of $104,351 for the year ended
December 31, 1996. For the year ended December 31, 1996, the
Company had net cash used in operative activities of $887,257.
For the year ended December 31, 1996, the Company had general and
administrative expenses of $1,318,327. These expenses consisted
of consulting services valued at $826,824, salaries and wages of
$254,200, legal and accounting of $108,510, development costs of
68,520, reimbursement of services of $33,497, patent and
trademark costs of $27,312, telephone of $12,880, travel of
$24,943, and other miscellaneous expenses of $38,359.
The Company also paid general and administrative expenses of
$52,313 to a related party. Research and development costs to a
related party for the year ended December 31, 1996 was $244,117.
The Company shall seek to maintain low operating and
administrative expenses while expanding operations and increasing
the number of distributors and operating revenues. However,
increased marketing expenses will probably occur in future
periods as the Company attempts to further increase its marketing
and sales efforts.
37
<PAGE>
- - -----------------------------------------------------------------
MANAGEMENT
- - -----------------------------------------------------------------
Officers and Directors. Pursuant to the Articles of
Incorporation, each Director shall serve until the annual meeting
of the stockholders, or until his successor is elected and
qualified. The Company's basic philosophy mandates the inclusion
of directors who will be representative of management, employees
and the minority shareholders of the Company. Directors may only
be removed for "cause". The term of office of each officer of
the Company is at the pleasure of the Company's Board.
The principal executive officers and directors of the Company
will be as follows:
<TABLE>
<CAPTION>
NAME POSITION TERM(S) OF OFFICE
<S> <C> <C>
Jay L. King, age 51 Chief Financial From May 27, 1998
Officer, Treasurer to present
and Secretary
Steven Blad, age 46 President, Chief From May 27, 1998
Executive Officer to present
and Director
Richard S. Huson, age 58 Chairman of From May 27, 1998
the Board of Directors to present
Jamie McKee, age 39 Director From May 27, 1998
to present
Bob Smith, age 60 Director From May 27, 1998
to present
David Sampson, age 57 Director From March 12,
1996
to present
</TABLE>
Resumes:
Jay L. King. Mr. King has extensive experience in all phases
of financial management for a variety of companies and
circumstances. He was Controller for Sigma Game, Inc., a
manufacturer and developer of electronic based and software
driven gaming machines from December 1994 to October 1995. Mr.
King was consultant to the corporation from November 1995 through
February 1996 and served as Vice President of Finance and
Controller and Director from March 1996 to Mary 27, 1998. Since
May 27, 1998, Mr. King has served as Chief Financial Officer,
Treasurer and Secretary. 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.
38
<PAGE>
Steven Blad. Mr. Blad was President and Chief Executive Officer
of Flagship Games International from 1987 to July 1991. From
July 1991 to September 1994, Mr. Blad was a consultant for
Marketing and Gaming in Atlanta, Georgia. From October 1994 to
September 1996, Mr. Blad was a consultant for Spintek Gaming
Technologies. Mr. Blad joined the Company in October 1996 as
Vice President of Sales and Marketing until April 30, 1997 when
he was named President of the Company. Mr. Blad served in that
position until May 27, 1998 when he became Chief Executive
Officer, President and Director of the Company.
Mr. Blad received a Bachelor of Arts degree in 1973 from Carson
Newman. He obtained a Masters of Arts degree in 1975 from
Southern Baptist Graduate School. From 1975 to 1976, Mr. Blad
attended additional graduate studies at the University of
Alabama.
David Sampson. From August, 1985 to 1991, Mr. Sampson was the
owner and manager of University Bistro in Seattle, Washington.
From March 1994 to April 1996, Mr. Sampson has served as
President and Chairman of MITT USA Corporation, a sporting goods
manufacturer. Mr. Sampson joined Rendova Boats, LLC as General
Manager and Director in October 1996 and still holds that
position. Rendova Boats is 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.
Richard Huson. Mr. Huson has been Chairman of the Board of
Directors since May 1998. Mr. Huson is a Principal of the Crabbe
Huson Group, Inc., an investment advisory firm, which he co-
founded in 1980. Previously, Mr. Huson worked for three years as
a registered representative at Foster & Marshall, Inc. From 1974-
1977, Mr. Huson was Senior Vice President, and Investment
Director for the Boston Company Institutional Investors, Inc.
Mr. Huson previously managed mutual funds with Wellington
Management Company in Boston, Massachussetts and Financial
Programs, Inc. in Denver, Colorado. He began his career in
investments in 1966 as a securities analyst after earning a BS
degree with emphasis on finance and economics from Portland State
University.
Jamie McKee. Ms. McKee has been a member of the Board of
Directors since May 1998. Ms. McKee has been the editor of
CASINO JOURNAL, a national trade publication for the gaming
industry, since February 1996. From April 1995 to February 1996,
Ms. McKee was a Public Relations Account Executive with DRGM
Advertising and Public Relations in Las Vegas, Nevada. From 1988
to April 1995, Ms. McKee was editor of the LAS VEGAS BUSINESS
PRESS, a weekly business publication in Las Vegas, Nevada. Ms.
McKee earned a Bachelor of Arts in English from the University of
Nevada, Las Vegas in 1983.
Bob Smith. Mr. Smith has been a member of the Board of Directors
since May 1998. Mr. Smith also serves as Chairman of the Board
of Directors and Chief Executive Officer of VIP's Industries, a
company co-founded by Mr. Smith in 1968 that oversees restaurant,
hotel and real estate development in five Western states. In
1966, he started the Bob L. Smith Real Estate Company,
concentrating on real estate and development in Oregon,
Washington and Northern California. From 1962 through 1965, Mr.
Smith was Real Estate Analyst and Marketing Supervisor with the
American Oil Company. Mr. Smith currently serves on the Board of
Directors of Centennial Bank, Regency of Oregon (formerly Blue
Cross and Blue Shield of Oregon), The Crabbe-Huson Funds, Inc.,
an investment management company, and Flying J. Inc, an
integrated oil company. Mr. Smith received a Bachelor of
Science in Business Administration from the University of Oregon
in 1962.
39
<PAGE>
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.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long Term Compensation
Annual Compensation Awards Payouts
Other ALL
Annual Restricted LTIP Other
Name and Compen- Stock Options/ Pay- Compen-
Principal Salary Bonus sation Awards SARs Outs sation
Position<F1> Year ($) ($) ($) ($) ($) ($) ($)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Randy Sines 1995 - - - - - - -
President 1996 40,000 <F2> <F2> <F2> - - -
(until August 1997) 1997 80,000 - - - - - 15,641
David E. Sampson 1995 - - - - - - -
Director 1996 15,000 - - - - - -
1997 0 - 1,500 - - - -
Jay King 1995 - - - - - - -
Chief Financial 1996 73,750 12,500 10,200 - - - -
Officer, Treasurer 1997 90,000 3,600 - - - - -
And Secretary
Steven Blad 1995 - - - - - - -
President, Chief 1996 - - - - - - 27,750<F1>
Executive Officer 1997 19,500 - - 15,000 - - 152,780<F1>
And Director
Glen Pickell 1995 - - - - - - -
President 1996 - - - - - - 20,479<F1>
(until May 1998) 1997 - - - - - - 71,210<F1>
<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 provided
management consulting services to the Company and received
$20,479 in 1996 and $71,210 in 1997, Gametek controlled by Steven
J. Blad provided sales, marketing and management consulting
services to the Company received $152,780 in 1997 and $27,750 in
1996 and Designed Devices, Co. controlled by Norman Kelln
provides engineering and management consulting services to the
Company received $302,551 in 1996 and $64,663 in 1997.
<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 former director and president of the
Company and a partner of Sines-Forte; Mr. Forte is a former
employee and a director of the Company, and a partner of Sines-
Forte; and Cheryl L. Forte is the spouse of Steven L. Forte.
</FN>
</TABLE>
40
<PAGE>
Employment and Personal Services Agreements. Mr. Forte entered
into a Personal Service Agreement 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).
Pursuant to the Forte Transaction, the Company and Mr. Forte have
agreed to terminate the Personal Service Agreement of Mr. Forte.
See "CERTAIN TRANSACTIONS - Related Party Transactions."
The Company entered into an employment agreement with Jay L.
King, effective January 1, 1997 for a term of two years. At the
expiration date of this agreement, it shall be considered renewed
for regular successive periods of one year terms unless either
party submits a notice of termination thirty days prior to the
end of the preceding period. Mr. King receives a monthly base
salary of $7,500 and shall be entitled to a quarterly bonus in an
amount not to exceed $2,500 per month 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.
Additionally, Mr. King shall receive stock options to purchase up
to 150,000 Common Shares of the Company at $1.50 per Common Share
i) 50,000 Common Shares upon successful completion of the SB-2,
ii) 50,000 Common Shares upon Mr. King fulfilling his obligations
and the Company reaching its goals for 1997 and iii) 50,000
Common Share upon Mr. King fulfilling his obligations and the
Company reaching its goals for 1998. No options or stock were
granted in 1997.
Effective June 1, 1998, Steven Blad entered into an employment
agreement (the "Blad Agreement") with the Company for a term
expiring December 31, 1999. Mr. Blad will receive base pay of
$12,500 per month through December 31, 1998 and $18,500 per month
for the remainder of the term. Mr. Blad was granted options to
purchase 100,000 shares at $1.50 per share effective immediately
and is eligible to receive an additional stock option for 100,000
shares at $1.50 per share upon attaining the Company's goals for
1998 as determined by the Board of Directors. An affiliated
entity of Mr. Blad also agreed to the termination of a consulting
agreement in exchange for $42,000, payable over 7 months, and
10,000 shares of the Company's Common Stock.
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
41
<PAGE>
claims entity coverage. The coverage has a $1,000,000 aggregate
limit of liability in each policy year (inclusive of defense
costs) and there is a retention of $25,000 for each claim.
Conflicts of Interest Policy. The Company has adopted a policy
that any transactions with directors, officers or entities of
which they are also officers or directors or in which they have a
financial interest, will only be on terms consistent with
industry standards and approved by a majority of the
disinterested directors of the Company's Board of Directors. The
Bylaws of the Company provide that no such transactions by the
Company shall be either void or voidable solely because of such
relationship or interest of directors or officers or solely
because such directors are present at the meeting of the Board of
Directors of the Company or a committee thereof which approves
such transactions, or solely because their votes are counted for
such purpose if: (i) the fact of such common directorship or
financial interest is disclosed or known by the Board of
Directors or committee and noted in the minutes, and the Board or
committee authorizes, approves or ratifies the contract or
transaction in good faith by a vote for that purpose without
counting the vote or votes of such interested directors; or (ii)
the fact of such common directorship or financial interest is
disclosed to or known by the shareholders entitled to vote and
they approve or ratify the contract or transaction in good faith
by a majority vote or written consent of shareholders holding a
majority of the Common Shares entitled to vote (the votes of the
common or interested directors or officers shall be counted in
any such vote of shareholders), or (iii) the contract or
transaction is fair 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. If there are no disinterested
directors, the Company shall obtain a majority vote of the
shareholders approving the transaction.
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.
42
<PAGE>
- - ------------------------------------------------------------------
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 $3.75 per Common Share, 200,000 B Warrants each
exercisable into one Common Share of the Company at the exercise
price of $4.00 per Common Share and 250,000 C Warrants each
exercisable into one Common Share of the Company at the exercise
price of $6.00 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 made to the owners of record of Common
Shares on the books of the Company as of July 22, 1996.
Lockup Agreement. Pursuant to a written agreement in March
1998, the certain shareholders (Tom Pickell, Jay L. King, Steven
Blad, David Sampson, Norman G. Kelln, Steve and Cheryl Forte and
Richard Huson) who received Warrants agreed as follows:
These shareholders agreed not to sell the Warrants during the
offering period. The offering period consists of both the
primary offering by the Company and the secondary offering by the
Selling Security Holders. After the offering period, in the
event the shareholder exercises any warrants, the stock issued to
the shareholder pursuant to the exercise shall be locked in and
restricted from trading for a period of one year. A notice is to
be placed on the face of each stock certificate covered by the
terms of the Agreement stating that the transfer of the stock
evidenced by the certificate is restricted until twelve (12)
months from the date of issuance. The shareholder also agrees
not to sell or otherwise transfer their interest in the warrants
except to an underwriter or other market makers in the stock once
a market is established. The shareholder further agrees that the
total value in cash, or other consideration, paid by the buyer to
the seller shall not exceed $.01 per warrant. The terms of the
agreement are not waivable in whole or in part by any of the
parties.
The Company hereby undertakes to file a post effective amendment
to identify any such underwriter or other market maker at the
time the selling shareholder agrees to transfer their interest
and such underwriter or market maker shall deliver a market
making prospectus.
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 to
Pratt after amendment and termination of the consulting agreement
was $35,000 cash and 25,000 Common Shares. Due to the date of
the consulting agreement, the Company distributed A, B and C
Warrants to Pratt, however, Pratt disclaimed the A, B and C
Warrants and these Warrants were then redistributed on a pro rata
basis to the remaining shareholders.
Additionally, the Company entered into a consulting agreement
with Gaming Venture Corp., U.S.A. (GVC) to assist the Company
with the promotion of its product and its Common Shares. The
original agreement with GVC was dated July 8, 1996 and was
amended on December 1, 1996 and again on February 1, 1997. The
contract began on July 8, 1996, and by amendment, will run
through July 7, 1998. GVC received 200,000 shares of the
Company, $45,000 in cash and Options to acquire an additional
100,000 Common Shares. By action of the Company's Board of
Directors, on April 30, 1997, the options were exchanged for D
Warrants which were subsequently exercised.
43
<PAGE>
Loan Collateralized by Related Party. On July 11, 1997, GVC
placed $200,000 in a 200 day Certificate of Deposit with Bank
West located at 3500 West Sahara Avenue in Las Vegas, Nevada.
Bank West loaned the Company up to the full amount of GVC's CD
and charges the Company an interest rate which is the rate of the
CD plus 2%.
The Company agreed to pay GVC a payment equal to 8.5% of the
total amount when the Company pays off the principal of the loan
to Bank West. The payment will be 8.5% of the principal of
$200,000 or a total of $17,000. If the Company is unable to pay
off the loan balance after the 200 day period, half of the
$17,000 payment must be paid to GVC. GVC will then have the
option of renewing the CD and allowing the Company to continue
with the loan or convert the principal balance of the loan into
the Company's common stock with registration rights. GVC has
elected to renew the CD on similar terms from the first 200 day
period such that the remaining $8,500 will be due on August 4,
1998. The $8,500 which is due after the first 200 day period
will not be deducted from the 8.5% due when the loan is repaid if
the CD is rolled over for another 200 day period.
Consulting Agreement with Related Party. On February 1, 1997,
the Company entered into a consulting agreement with Gametek, and
Steven Blad, an officer of the Company. This Agreement was
terminated effective as of June 1, 1998 upon effectiveness of the
Blad Agreement. See "MANAGEMENT - Employment and Personal
Services Agreements."
Related Party Transactions. On May 28, 1998, the Company and
Steven L. Forte, a former director of the Company, entered into a
letter agreement (the "Forte Transaction") through which the
Company has agreed to purchase, subject to the approval of the
Nevada State Gaming Control Board and to the dissolution of the
Sines-Forte Partnership from Mr. Forte: (a) certain royalties
from the sales of the Shuffler and Fantasy 21; (b) 20,000 options
exercisable by Mr. Forte at $1.50 per underlying share; and (c)
848,682 Common Shares at $2.50 per share. Upon the approval of
the Forte Transaction by the Nevada State Gaming Control Board,
the parties will, within 45 days of such approval, prepare the
necessary documents to consummate the transactions described in
the Forte Transaction. As consideration for the royalties,
options and Common Shares, the Company will execute a promissory
note in the amount of $2,351,705.00 (the "Forte Note"). The
Forte Note shall bear an interest rate of 6.5% for the first year
and 8% thereafter. The Forte Note shall be amortized over a 10
year period with payments of interest only during the first year,
payable on the six month and one year anniversary of the Forte
Note, and payments of principal and interest thereafter, payable
on a monthly basis. On the five year anniversary of the Forte
Note, a balloon payment of the remaining unpaid principal and
interest will be due and payable. Although the Forte Note will
be secured by the 848,682 Common Shares and by a first security
interest in the patents for the Shuffler and Fantasy 21, Mr.
Forte has agreed to release his security interest in said patents
for a principal reduction of 50% of the outstanding principal of
the Forte Note and for a due-on-sale amendment to the Forte Note
whereby the outstanding principal of the Forte Note will be due
and owing upon a change of control of the Company. In addition,
the Company has agreed to reduce the outstanding principal of the
Forte Note by $750,000.00 if the Company completes its primary
offering of 1,500,000 Common Shares. In the event the Company
fails to sell all 1,500,000 Common Shares yet sells at least
500,000 Common Shares for cash, the Company has agreed to reduce
the outstanding principal of the Forte Note by an amount
calculated by multiplying $750,000.00 by the ratio of the number
of Common Shares sold for cash by 1,500,000 Common Shares.
Further, in the event the Company issues and sells Common Shares
in a subsequent registered public offering, the Company and Mr.
Forte has agreed to a schedule whereby the Company will reduce
specified amounts of outstanding principal of the Forte Note
according to specified proceeds received by the Company through
such a public offering.
44
<PAGE>
Sines-Forte Partnership retains a 3% royalty interest in the
gross margin earned from the sale of products covered by
intellectual property rights which were exchanged by the
partnership for Common Shares of the Company. Royalty amounts
due pursuant to the royalty interest amounted to $150 at December
31, 1997. Mr. Forte's portion of the royalties will be acquired
by the Company under the Forte Transaction.
During the year ended December 31, 1996, Steven Forte, a former
director, Randy Sines, a former director and Richard Huson, a
principal shareholder and director of the Company made advances
to the Company for working capital purposes. The balances
payable by the Company aggregated $441,017 at December 31, 1997,
including accrued interest. No cash repayments have been made
against the advances, which are due on demand. Mr. Huson made an
additional advance in the amount of $300,000 on January 15, 1996.
The advance was due on July 15, 1996. The advance was
collateralized by partnership shares of Sharps equivalent to
700,000 Common Shares of the Company controlled by Steven and
Cheryl Forte and Randy Sines. On October 1, 1996, Mr. Huson
exercised his rights against the collateral and as a result, the
collection rights to the advance plus accrued interest, which
aggregated $320,168 at October 1, 1996, transferred to the other
officer/shareholders. The advances accrue interest at between
9.5% and 14.5% per annum. One of the advances in the amount of
$250,000 from Mr. Huson provides for repayment of the loan by
December 31, 1997 or, upon default, at the option of the
shareholder, by the issuance of the Company's common shares at a
conversion rate of $.82 per share. On December 31, 1997, Mr.
Huson elected to convert the principal and interest due
($279,229.29) to 339,304 Common Shares (at $.82 per Common
Shares).
During the year ended December 31, 1997, Mr. Huson made
additional advances to the Company aggregating $120,000 which are
due on demand and bear interest at 9.5% per annum. The Company
made cash payments of principal ($18,866) and interest ($37,563)
against advances from two other shareholders during the year
ended December 31, 1997.
In the first three months of 1998, Mr. Huson advanced an
additional $150,000 for 6% convertible unsecured notes and
$240,000 in 9% demand notes.
During September 1996, the Company entered into personal service
agreements with two of its officers which provide for aggregate
monthly compensation of up to $20,000 per month on a pro rata
basis for time spent on Company related business. The agreements
had a term of two years.
Amendment to Employment Agreement (Personal Service Agreement)
and Covenant Not to Compete and Funding Agreements with Randy
Sines. The Company and Randy Sines had previously entered into
an Employment Agreement (Personal Service Agreement) and Covenant
Not to Compete dated March 31, 1996. In connection with the
Employment Agreement, the parties entered into a Funding
Agreement dated January 15, 1996 and Third Round Funding
Agreement dated September 30, 1996. The Third Round Funding
Agreement subordinated the $300,000 promissory note assigned to
Cheryl Forte/Steve Forte and the Employee to the $500,000
promissory note, dated September 30, 1996, payable to Richard S.
Huson. This subordination requires payments of $10,000 each to
Employee and Cheryl Forte. The $300,000 promissory note was
further subordinated by the agreement, dated July 8, 1997, to the
$45,000 promissory note, dated July 8, 1997, payable to Richard
S. Huson. (These agreements and their amendments are referred to
as the "Funding Agreements").
45
<PAGE>
Mr. Sines resigned as an officer, director and employee of the
Company effective August 27, 1997. As a result of Mr. Sine's
resignation, the parties confirmed and modified each other's
obligations under the Employment Agreement and Funding
Agreements.
1. Assignment of Drop Slot and Anticipation Slot Concepts.
Pursuant to a letter dated June 26, 1997, the Company attempted
to transfer to Mr. Sines all of the Company's right, title and
interest in the Drop Slot and Anticipation Slot
inventions/concepts for the sum of $15,000. Pursuant to the
above referenced letter, the payment was reflected in a reduction
of the debt owed to the Mr. Sines from the Company. The parties
have raised questions surrounding the purported transfer and have
agreed to restate and settle on the terms and conditions of the
assignment as follows:
a. The Company assigned all of its right, title and interest to
the Drop Slot and Anticipation Slot concepts to Mr. Sines.
b. The obligations owed by the Company to Mr. Sines contained
in the Funding Agreements will be decreased by the sum of $5,000,
not the $15,000 as previously agreed, in return for the
assignment of the Royalty to the Company provided herein below.
c. Mr. Sines agreed to reduce the monetary obligations owed by
the Company to him under the Funding Agreements to an interest
rate at nine and one-half percent (9 1/2%) per annum, effective
October 1, 1997 and to extend the due date of such obligations
for a twelve (12) month period from this same date. If the
obligations are not paid on or before September 30, 1998, the
interest rate shall increase at such date to fourteen and one-
half percent (14 1/2%) per annum. All other terms of the Funding
Agreements, including the subordination provisions, remain
unchanged.
d. Mr. Sines agreed to pay to the Company a five percent (5%)
Royalty on the Net Revenue received by Mr. Sines, his heirs or
assigns from the sale, development, or manufacture of the Drop
Sot and Anticipation Slot concepts, including any derivatives or
accessories pertaining thereto. The term "Net Revenue" is
defined as gross cash (or equivalents) revenues received by Mr.
Sines, his heirs or assigns from the sale, development, or
manufacture of the Drop Slot and Anticipation Slot concepts minus
the cost of goods sold for such products. In determining the
cost of goods sold, Generally Accepted Accounting Principles
shall be used. Mr. Sines shall remit the Royalty payments to the
Company on a calendar quarter basis. The Royalty payments due
for each calendar quarter shall be paid within thirty (30) days
after the expiration of each quarter. Interest shall accrue at
the rate of nine and one-half percent (9 1/2%) per annum on any
Royalty payments that are not paid when due.
Mr. Sines will use prudent efforts to protect the intellectual
and proprietary rights associated with the Drop Slot and
Anticipation Slot concepts, including but not limited to, the
procurement and the filing of patents, trade names or copyrights
as may be applicable. Upon thirty (30) days written notice, Mr.
Sines agreed to provide access to the Company or its auditors to
review and audit Mr. Sine's books and records containing
information pertinent to calculating the Royalty due the Company
under this agreement.
The Company allowed Mr. Sine's termination to be effective August
27, 1997. Mr. Sines remains obligated under the terms and
conditions of the Employment Agreement, as amended for those
clauses which by their terms survive termination and consist only
of the Non-Competition, Confidential Information, and Personal
Property clauses. It is agreed and understood that the
46
<PAGE>
execution of the agreement is additional consideration from the
parties for the amendment to the Non-Competition clause of the
Employment Agreement as contained herein.
3. Amendment. The parties agreed to amend Paragraph 14, Non-
Competition, ("Non-Competition Clause") of the Employment
Agreement to increase the term to three (3) years and to limit
its scope as follows:
a. The Non-Competition Clause was amended to exclude from its
restrictions the Drop Slot and Anticipation Slot
inventions/concepts and any accessories or derivatives pertaining
thereto. Mr. Sines is permitted to market, develop and sell the
Drop Slot and Anticipation Slot concepts so long as such business
actions are limited solely to such products and do not involve
any other gaming product not otherwise excluded herein below.
b. It is understood and agreed by the parties that Mr. Sines
will not be in violation of the Non-Competition Clause as amended
herein for those activities that are limited to the invention and
development of gaming products (not manufacturing or marketing),
provided that such invention and development does not pertain to
the Company's Current Products and Future Products defined herein
below in sub-paragraph (d)
c. Mr. Sines shall only be required to abide by the terms of
the Non-Competition Clause as it is currently written and as
amended herein by Paragraph 3(a) and (3)(b) for a period of six
(6) months, beginning as of August 27, 1997, with the exception
of Paragraphs 3(d) and 3(e).
d. After the expiration of the six (6) month period stated
above, Mr. Sines agreed to remain obligated under the terms of
the Non-Competition Clause for an additional eighteen (18)
months, but this restriction shall be limited solely to products
that are substantially similar to the Company's current products
(the "Current Products") and to the Company's future products
referred to or described in the letter dated August 28, 1997,
executed by Steve Forte.
e. After the expiration of the two (2) year period stated above
in sub-paragraph (b) and (c), Mr. Sines agreed not to compete
with the Company as defined in the Employment Agreement for an
additional one (1) year period only as to such products that are
substantially similar to the Future Products defined previously
herein.
A state court may determine not enforce (or only partially
enforce) non-compete clauses in the employment.
47
<PAGE>
- - -----------------------------------------------------------------
PRINCIPAL SHAREHOLDERS
- - -----------------------------------------------------------------
As of May 11, 1998, there were 6,255,944 Common Shares
outstanding. Assuming exercise of the 200,000 A Warrants,
200,000 B Warrants, 250,000 C Warrants and 565,000 options
currently outstanding (not including an additional 100,000
options issuable under the Blad Agreement), there would be
8,894,944 Common Shares outstanding on a fully diluted basis. In
addition, in the event that the terms and conditions of the Forte
Transaction are approved by the Nevada State Gaming Control
Board, the number of Common Shares outstanding as of May 11, 1998
would be 5,331,262 and the number of Common Shares on a fully
diluted basis would be 8,026,262. The following tabulates
holdings of shares of the Company by each person who, subject to
the above, as of May 11, 1998, 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.
<TABLE>
<CAPTION>
Percentage Percentage
of of
Number of Outstanding Outstanding
Shares Shares Shares After
Number Percentage Outstanding To Reflect Approval of
of of Shares After Conclusion the Forte
Name and Address Shares<F1> Outstanding Offering Of Offering Transaction
- - ------------------------------- ------------ ------------- ------------- ------------- --------------
<S> <C> <C> <C> <C> <C>
Richard S. Huson<F2> 2,729,379 43.63% 2,417,150 31.47% 35.38%
121 S.W. Morrison, Suite 1400
Portland, Oregon 97204
David E. Sampson<F3> 141,016 2.25% 136,925 1.78% 2.00%
4009 - 205th Avenue N.E.
Woodinville, Washington 98072
Steven Blad<F4> 100,000 1.60% 100,000 1.30% 1.46%
286 Doe Run Circle
Henderson, Nevada 89012
Jay L. King<F5> 100,000 1.60% 97,500 1.27% 1.43%
4600 North Donna Street
North Las Vegas, Nevada 89031
Robert L. Smith<F6> 58,557 0.94% 58,557 0.76% 0.86%
3136 River Road South
Salem, Oregon 97302
Jamie McKee 0 0% 0 0% 0%
2811 Sesame Drive
Las Vegas, Nevada 89122
Steve and Cheryl Forte<F7>,<F8> 1,815,276 29.02% 1,722,208 22.42% 0.01%<F9>
315 San Francisco Street
Henderson, Nevada 89014
Randy D. Sines<F8>,<F9> 1,722,155 28.33% 1,620,504 21.10% 23.72%
4056 South Madelia
Spokane, Washington 99203
Sines-Forte Partnership 1,447,690 23.14% 1,321,500 17.21% 10.60%<F11>
315 Francisco Street
Henderson, Nevada 89014
All Officers and Directors 3,128,952 50.02% 2,810,132 36.59% 41.14%
as a Group (6 persons)
48
<PAGE>
<FN>
<F1> Pursuant to Rule 13d-3 under the Securities Exchange Act of
1934, as amended, beneficial ownership of a security consists of
sole or shared voting power (including the power to vote or
direct the voting) and/or sole or shared investment power
(including the power to dispose or direct the disposition) with
respect to a security whether through a contract, arrangement,
understanding, relationship or otherwise. Unless otherwise
indicated, each person indicated above has sole power to vote, or
dispose or direct the disposition of all shares beneficially
owned, subject to applicable community property laws.
<F2> Includes 168,790 Common Shares which may be issued upon
exercise of A, B and C Warrants.
<F3> Includes 5,061 Common Shares which may be issued upon
exercise of the warrants and 95,000 Common Shares which may be
issued upon exercise of 95,000 options.
<F4> Includes 100,000 Common Shares which may be issued upon
exercise of 100,000 options.
<F5> Includes 75,000 Common Shares which may be issued upon
exercise of 75,000 options.
<F6> Includes 33,557 Common Shares which may be issued upon
exercise of the A Warrants by VIP's Industries, Inc., an entity
controlled by Mr. Smith, 20,000 Common Shares issued to VIP's
Industries, Inc., and 5,000 Common Shares issued to Mr. Smith.
<F7> Includes 145,790 Common Shares which may be issued to Sines-
Forte Partnership upon exercise of the A, B and C Warrants 69,854
Common Shares which may be issued to Cheryl Forte upon exercise
of the A, B and C Warrants, and 40,000 Common Shares which may be
issued to Sines/Forte Partnership. Additionally, Steven Forte is
a General Partners of Sines-Forte Partnership and would be deemed
to be beneficial owners of the 1,447,690 Common Shares shown
above.
<F8> Former partners of Sharps International Limited Partnership.
<F9> Includes 69,854 Common Shares which may be issued to Cheryl
Forte upon exercise of the A, B and C Warrants.
<F10> Includes 145,790 Common Shares which may be issued to Sines-
Forte Partnership upon exercise of the A, B and C Warrants and
40,000 Common Shares which may be issued to Sines/Forte
partnership. Additionally, Randy Sines is a General Partner of
Sines-Forte Partnership and would be deemed to be beneficial
owner of the 1,447,690 Common Shares shown above.
<F11> Reflects the direct ownership of 723,845 Common Shares of
Mr. Sines.
</FN>
</TABLE>
This does not include 75,000 Common Shares reserved for issuance
pursuant to loan conversion options. Additionally, on September
24, 1996, Mr. Huson agreed to loan up to $500,000 to the Company
for a period not to exceed December 31, 1997. The note shall be
secured by agreement of Randy Sines and Cheryl Forte to provide
Mr. Huson a minimum of 51% of the voting rights by pledging
sufficient voting rights of their Common Shares in the Company
until the note is paid in full and a total of $2.4 million is
raised through all sources. See "CERTAIN TRANSACTIONS" for
further discussion.
49
<PAGE>
There are currently 200,000 A Warrants outstanding. The
following tabulates holdings of A Warrants of the Company by each
person who, subject to the above, at the date of this Prospectus,
holds of record or is known by Management to own beneficially
more than 5.0% of the A Warrants and, in addition, by all
directors and officers of the Company individually and as a
group.
<TABLE>
<CAPTION>
Total Number of % Owned Amount % Owned
A Warrants Prior to Owned After
Name Owned Offering After Offering Offering
<S> <C> <C> <C> <C>
Bob Smith <F1> 33,557 16.78% 33,557 16.78%
Jamie McKee 0 0% 0 0%
Steven Blad 0 0% 0 0%
Norman G. Kelln 5,717 2.86% 5,717 2.86%
Sines/Forte Partnership<F2> 2,933 1.47% 2,933 1.47%
Cheryl Forte<F3> 1,407 0.70% 1,407 0.70%
David Sampson 1,557 .78% 1,557 0.70%
Randy Sines 1,408 0.70% 1,408 15.21%
Richard Huson 52,721 26.36% 52,721 26.36%
Richard Jaslow 50,336 25.17% 50,336 25.17%
Jay Willoughby 19,295 9.67% 19,295 9.67%
David Goldsmith 19,295 9.67% 19,295 9.67%
All Officers and Directors
As a Group (6) 87,835 43.92% 87,835 43.92%
<FN>
<F1> The A Warrants are held by VIP's Industries, Inc., an entity
controlled by Mr. Smith.
<F2> Randy Sines and Steve Forte are General Partners of Sines-
Forte partnership and would be deemed to be beneficial owners
of the 2,933 Class A Warrants shown above.
<F3> Steve Forte is married to Cheryl Forte and would be deemed
to be a beneficial owner of the 1,407 Class A Warrants shown
above.
</FN>
</TABLE>
50
<PAGE>
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>
Total Number of % Owned Amount % Owned
B Warrants Prior to Owned After
Name Owned Offering After Offering Offering
<S> <C> <C> <C> <C>
Bob Smith 0 0% 0 0%
Jamie McKee 0 0% 0 0%
Steven Blad 0 0% 0 0%
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 53,143 26.57% 53,143 26.57%
As a Group (6)
<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 owner of the 30,421 Class B Warrants shown
above.
</FN>
</TABLE>
51
<PAGE>
There are currently 250,000 C Warrants outstanding. The
following tabulates holdings of C Warrants of the Company by each
person who, subject to the above, at the date of this Prospectus,
holds of record or is known by Management to own beneficially
more than 5.0% of the C Warrants and, in addition, by all
directors and officers of the Company individually and as a
group.
<TABLE>
<CAPTION>
Total Number of % Owned Amount % Owned
C Warrants Prior to Owned After
Name Owned Offering After Offering Offering
<S> <C> <C> <C> <C>
Bob Smith 0 0% 0 0%
Jamie McKee 0 0% 0 0%
Steven Blad 0 0% 0 0%
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 66,430 26.57% 66,430 26.57%
As a Group(6)
<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 owner of the 38,026 Class C Warrants shown
above.
</FN>
</TABLE>
52
<PAGE>
Lockup Agreement. Pursuant to a written agreement in March
1998, the principal shareholders and officers and directors (Tom
Pickell, Jay L. King, Steven Blad, David Sampson, Norman G.
Kelln, Steve and Cheryl Forte and Richard Huson) who received
Warrants agreed as follows:
The principal shareholders, officers and directors agreed not to
sell the Warrants during the offering period. The offering
period consists of both the primary offering by the Company and
the secondary offering by the Selling Security Holders. After
the offering period, in the event the shareholder exercises any
warrants, the stock issued to the shareholder pursuant to the
exercise shall be locked in and restricted from trading for a
period of one year. A notice is to be placed on the face of
each stock certificate covered by the terms of the Agreement
stating that the transfer of the stock evidenced by the
certificate is restricted until twelve (12) months from the date
of issuance. The shareholder also agrees not to sell or
otherwise transfer their interest in the warrants except to an
underwriter or other market makers in the stock once a market is
established. The shareholder further agrees that the total value
in cash, or other consideration, paid by the buyer to the seller
shall not exceed $.01 per warrant. The terms of the agreement
are not waivable in whole or in part by any of the parties.
The Company hereby undertakes to file a post effective amendment
to identify any such underwriter or other market maker at the
time the selling shareholder agrees to transfer their interest
and such underwriter or market maker shall deliver a market
making prospectus.
53
<PAGE>
There are currently outstanding options to purchase 565,000
Common Shares of the Company (not including an additional 100,000
shares issuable under the Blad Agreement). 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 the options and, in addition, by all directors and
officers of the Company individually and as a group.
<TABLE>
<CAPTION>
Total Number of % Owned Amount % Owned
Options Owned Prior to Owned After
Name Prior to Offering Offering After Offering Offering
<S> <C> <C> <C> <C>
Bob Smith 0 0% 0 0%
Jay L. King 75,000 12.65% 75,000 12.65%
Steven Blad <F2> 100,000 16.86% 100,000 16.86%
Sine/Forte Partnership<F1> 40,000 6.75% 40,000 6.75%
Jamie McKee 0 0% 0 0%
Richard Huson 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%
All Officers and Directors As
a Group (6) 270,000 47.49% 270,000 47.49%
<FN>
<F1> 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.
<F2> Does not include an additional 100,000 options issuable to
Mr. Blad under the Blad Agreement.
</FN>
</TABLE>
54
<PAGE>
- - ------------------------------------------------------------------
SHARES ELIGIBLE FOR FUTURE SALE
- - ------------------------------------------------------------------
As of May 11, 1998, the Company had 6,255,944 shares of Common
Stock outstanding. Other securities that 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 one year 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. Non-affiliates 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.
55
<PAGE>
- - -----------------------------------------------------------------
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 11, 1998 was
approximately 110.
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. The Company intends
to list its Common Shares, at least initially, on the OTC
Bulletin Board and on NASDAQ Small Cap Market 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 Small Cap Market listing. As of February 23, 1998, the
requirements for a NASDAQ listing are net tangible assets of
$4,00,000 or market capitalization of $50,000,000 or net income
(in latest fiscal year or 2 of last 3 fiscal years) of $750,000,
a public float of 1,000,000 Common Shares, a market value of the
public float of $55,000,000, a minimum bid price of $4.00 per
share, three market makers, 300 round lot shareholders, an
operating history of one year or a market capitalization of
$50,000,000 and compliance with corporate governance. The OTC
Bulletin Board has no quantitative written standards and is not
connected with the NASD. Until the Company obtains a listing on
the NASDAQ Small Cap Market, 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
56
<PAGE>
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."
57
<PAGE>
- - -----------------------------------------------------------------
TERMS OF OFFERING
- - -----------------------------------------------------------------
Plan of Distribution. The 1,500,000 Common Shares are being
offered for sale by the Company on a best efforts basis. Travis
Morgan Securities, Inc. (the "Placement Agent") has been retained
to act as the exclusive agent for the Company in connection with
the arrangement of such offers and sales on a best efforts basis.
The Placement Agent is not obligated to and does not intend to
itself take (or purchase) any of the Common Shares. It is
anticipated that the Placement Agent will obtain indications of
interest from potential investors for the amount of this Offering
and that the Placement Agent will sell Common Shares accordingly.
The Company has agreed to (i) to provide the Placement Agent an
expense allowance for certain expenses up to $15,000; (ii) to
provide the Placement Agent a 10% discount on Common Shares
placed by the Placement Agent; and (iii) to indemnify the
Placement Agent against certain liabilities, including
liabilities under the Securities Act. No investor funds will be
accepted prior to the effectiveness of this registration
statement. All investor funds will be placed promptly, and
following receipt, in an escrow account with Bank West of Nevada.
The offering will not continue after the closing date.
The Company reserves the right to withdraw, cancel or reject an
offer in whole or in part. There are no plans, proposals,
arrangements or understandings with any potential sales agent
with respect to participating in the distribution of the
Company's securities.
The Company, through its Placement Agent, will undertake a best
efforts offering at the same time as the selling shareholders
will be selling their registered shares. Officers and directors
of the Company are participating as selling shareholders.
Current and certain former officers and directors have entered
into written agreements not to sell their Common Shares until the
Company's offer is fully subscribed. The Company is not selling
any Common Shares on behalf of Selling Shareholders and has no
control or affect on the 1,605,530 Common Shares of these Selling
Shareholders which are not subject to any lock-up agreement. The
offering of securities by these Selling Shareholders will occur
regardless of the outcome of the primary offering by the Company.
Other than the written agreements with the current officers and
directors, the Company has not taken any measures to delay the
offering by Selling Shareholders until after the completion of
the primary offering by the Company. The demand for the
Company's Common Stock may be decreased due to the large number
of Common Shares being sold in the secondary offering by the
Selling Shareholders. Due to the fact that the secondary
offering will be conducted contemporaneously with a primary
offering by the Company, the market price of the Company's common
stock (upon commencement of trading) may be less than the
offering price of $2.50. Conflicts of interests may arise due to
the fact that the primary offering of the Company and the
secondary offering of the Selling Shareholders will be conducted
contemporaneously. The Company shall concentrate its sales
efforts in the period immediately after the effective date of the
offering until the Company's Common Stock is listed on the OTC
Bulletin Board. Additionally, the Company may pursue alternate
financing to avoid said conflict of interests once trading of its
Common Stock commences.
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,
58
<PAGE>
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.
Lockup Agreement. Pursuant to a written agreement in March
1998, the certain shareholders (Tom Pickell, Jay L. King, Steven
Blad, David Sampson, Norman G. Kelln, Steve and Cheryl Forte and
Richard Huson) who received Warrants agreed as follows:
These shareholders agreed not to sell the Warrants during the
offering period. The offering period consists of both the
primary offering by the Company and the secondary offering by the
Selling Security Holders. After the offering period, in the
event the shareholder exercises any warrants, the stock issued to
the shareholder pursuant to the exercise shall be locked in and
restricted from trading for a period of one year. A notice is to
be placed on the face of each stock certificate covered by the
terms of the Agreement stating that the transfer of the stock
evidenced by the certificate is restricted until twelve (12)
months from the date of issuance. The shareholder also agrees
not to sell or otherwise transfer their interest in the warrants
except to an underwriter or other market makers in the stock once
a market is established. The shareholder further agrees that the
total value in cash, or other consideration, paid by the buyer to
the seller shall not exceed $.01 per warrant. The terms of the
agreement are not waivable in whole or in part by any of the
parties.
The Company hereby undertakes to file a post effective amendment
to identify any such underwriter or other market maker at the
time the selling shareholder agrees to transfer their interest
and such underwriter or market maker shall deliver a market
making prospectus.
There are not any current or future plans, proposals,
arrangements or understandings by any Selling Shareholders to
distribute their registered shares of Common Stock of the Company
to their respective outstanding shareholders or partners.
The Company does not have any agreements with any underwriters.
The Company met with several potential underwriters to determine
any level of interest in the Company's offering. Based on these
discussions and questions by the underwriters, the Company
contacted the Selling Shareholders and ascertained the following:
i. there are not any current or future plans, proposals,
arrangements or understandings by any Selling
shareholders to distribute their registered shares of
Common Stock of the Company to their respective
outstanding shareholders or partners.
ii. there are not any plans, arrangements or understandings
by any Selling Shareholders to sell their registered
shares of Common Stock to any particular individual(s)
or to use such registered shares to satisfy contractual
obligations.
iii. there are not any plans, arrangements or understandings
by any Selling Shareholders to sell their registered
shares of Common Stock to any party affiliated with the
offering.
59
<PAGE>
iv. there are not any plans, arrangements or understandings
by any Selling Shareholders to sell their registered
shares of Common Stock to any person or entity related
to the expenses of the offering.
To the extent there is any change in the intentions of the
Selling Shareholders regarding any of the above, the Company
hereby undertakes to file a post effective amendment regarding
such change in the plan of distribution of the Selling
Shareholders.
There are not any current or future plans, proposals,
arrangements or understandings by any Selling Shareholders to
distribute their registered shares of Common Stock of the Company
to their respective outstanding shareholders or partners.
There are not any plans, arrangements or understandings by any
Selling Shareholders to sell their registered shares of Common
Stock to any particular individual(s) or to use such registered
shares to satisfy contractual obligations.
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
September 30, 1998. 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 December 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.
60
<PAGE>
- - -----------------------------------------------------------------
DESCRIPTION OF SECURITIES
- - -----------------------------------------------------------------
Qualification. The following statements constitute brief
summaries of the Company's Certificate of Incorporation and
Bylaws, as amended. Such summaries do not purport to be complete
and are qualified in their entirety by reference to the full text
of the Certificate of Incorporation and Bylaws.
The Company's articles of incorporation authorize it to issue up
to 20,000,000 Common Shares. Shares of common stock purchased in
this offering will be fully paid and non-assessable. There are
no provisions in the Company's articles of incorporation or by-
laws that would delay, defer or prevent a change-in-control of
the Company.
Pursuant to Section 23B.19.040 of the Revised Code of Washington,
a target corporation shall not engage in any significant business
transaction for a period of five years following the acquiring
person's share acquisition time unless the significant business
transaction or the purchase of shares made by the acquiring
person is approved prior to the acquiring person's share
acquisition time by a majority of the members of the board of
directors of the target corporation. Additionally, Section
23B.11.030 of the Revised Code of Washington requires that
shareholder approval be obtained to approve any plan of merger or
share exchange. These provisions could delay, defer or prevent a
change-in-control of the Company.
Common Stock. As of May 11, 1998, there were 6,255,944 Common
Shares outstanding. As a result, up to 7,679,944 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, 565,000 shares (not including an
additional 100,000 shares to be reserved pursuant to the Blad
Agreement) 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 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 $3.75 per
Common Share, 200,000 B Warrants each exercisable into one Common
Share of the Company at the exercise price of $4.00 per Common
Share and 250,000 C Warrants each exercisable into one Common
Share of the Company at the exercise price of $6.00 per Common
Share. The A, B and C Warrants are
61
<PAGE>
exercisable for a period of four years from July, 1996 and are
callable with 30 days notice at a price of $.001 per warrant.
The Warrants have the same expiration period, which the Board of
Directors arbitrarily determined was sufficient in length to
allow for the growth of the Company such that the Warrants could
be deemed attractive to current Warrant holders for exercise.
These distributions were be made to the owners of record of
Common Shares on the books of the Company as of July 22, 1996.
In June 1997, the Company authorized the issuance of 200,000
Class D Warrants. The D Warrants are exercisable into one common
share at the purchase price of $1.50. The D Warrants shall be
exercisable for a period of two years from January 31, 1997 and
shall be redeemable by the Company at $.001 per D Warrant upon
thirty days notice. To date, all of the Class D Warrants have
been exercised.
In April 1998, certain holders of the A Warrants transferred and
assigned a portion of their A Warrants to Richard S. Huson, VIP's
Industries, Inc. (an entity controlled by Bob Smith, a director
of the Company), David Goldsmith, Jay Willoughby, and Richard
Jaslow as a means of securing convertible debt financing for the
Company. The convertible debt financing matures in January 1999
and may be converted at a rate of $2.125 per Common Share.
The Company is registering the stock underlying its A, B and C
Warrants on behalf of its selling security holders.
Transfer Agent. The Company has retained Continental Stock
Transfer and Trust Company as transfer agent for the Company's
securities.
62
<PAGE>
- - -----------------------------------------------------------------
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
- - -----------------------------------------------------------------
On April 24, 1998, a complaint was filed in District Court, Clark
County, Nevada on behalf of the Company against Western
Electronics, Inc. ("Western") and its Chief Executive Officer,
John Wasden (the "Nevada District Court Action"). The Complaint
alleges causes of action for breach of contract, declaratory
relief, unjust enrichment, interference with contractual
relations, conversion and fraud--intentional misrepresentation,
all stemming from purchase orders between the Company and Western
for the Shuffler. Through this litigation, the Company seeks to
recover component parts purchased for the assembly of the
Shuffler or in the alternative to recover the monies expended for
their purchase as well as other money damages. Defendants have
filed their answer and have made a motion to remove the Nevada
District Court Action to federal court. An action against
Western for claim and delivery of component parts for Fantasy 21
is also pending before the court in Boise, Idaho. Through the
posting of a bond, the Company has recovered certain materials
located in Boise, Idaho.
Steven L. Forte, a former 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.
As a means of addressing the potential effect of such convictions,
the Company and Mr. Forte have agreed to enter into the Forte
Transaction subject to the approval of the Nevada State Gaming
Control Board. See "CERTAIN TRANSACTIONS - Related Party
Transactions."
- - -----------------------------------------------------------------
EXPERTS
- - -----------------------------------------------------------------
The audited financial statements included in this Prospectus have
been so included in reliance on the report of James E. Scheifley &
Associates, 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.
63
<PAGE>
- - -----------------------------------------------------------------
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, 1997, 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, 1997. These financial
statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. An
audit includes examining on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above,
present fairly, in all material respects, the financial position
of Casinovations Incorporated as of December 31, 1997, 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, 1997, in conformity with
generally accepted accounting principles.
The accompanying financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed
in Note 11 to the financial statements, the Company has suffered
recurring losses from operations, maintains a stockholders'
deficit and has made significant commitments, which raise
substantial doubts about its ability to continue as a going
concern. Management's plans in regard to these matters are also
described in Note 11. The financial statements do not include any
adjustments that might result from the outcome of this
uncertainty.
James E. Scheifley & Associates, P.C.
Certified Public Accountants
Englewood, Colorado
February 5, 1998
64
<PAGE>
<TABLE>
<CAPTION>
Casinovations Incorporated
(A Development Stage Company)
Balance Sheet
March 31, 1998 December 31, 1997
(Unaudited)
---------------- -------------------
ASSETS
<S> <C> <C>
Current assets:
Cash $ 1,703 $ 119,389
Accounts receivable, trade 75 75
Accounts receivable - employees 43,485 18,085
Inventories 229,249 129,695
Inventories subject to capital leases 52,598
Prepaid expenses 36,625 40,000
-------------- -------------
Total current assets 311,137 359,842
Property and equipment subject to capital lease
at cost, net of accumulated depreciation of $22,749 280,830 279,861
Leasehold improvements, at cost net of
accumulated amortization of $2,383 - 4,966
Intangible assets, at cost, net of
accumulated amortization of $18,095 156,943 158,167
Deposits 48,431 47,719
-------------- -------------
$ 797,341 $ 850,555
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Note payable - bank $ 197,500 $ 197,500
Notes payable - other 425,000 75,000
Current portion of leases payable 149,616 153,851
Accounts payable 396,068 406,944
Accounts payable - related party 35,367
Accrued wages 23,313 37,563
Accrued interest 44,418 26,315
Customer deposits 17,309 17,309
Shareholder loans 703,772 441,017
-------------- -------------
Total current liabilities 1,956,996 1,390,866
Convertible debentures - 100,000
Leases payable - non-current 261,084 293,249
Stockholders' equity:
Common stock, $.001 par value,
20,000,000 shares authorized,
6,179,638 shares issued and outstanding 6,180 6,180
Additional paid-in capital 3,970,070 3,970,070
Unpaid subscriptions to common stock (33,500) (66,500)
Accumulated deficit (5,363,489) (4,843,310)
-------------- -------------
(1,420,739) (933,560)
-------------- -------------
$ 797,341 $ 850,555
============== =============
See accompanying notes to financial statements.
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
Casinovations Incorporated
(A Development Stage Company)
Statements of Operations
Three Months Ended March 31, 1998 and 1997
Years Ended December 31, 1997 and 1996
and Period From Inception (April 29, 1994) to March 31, 1998
Period from
Inception
(April 29,
Three Months Ended 1994)
-------------------------- To
March 31, March 31, December 31, December 31, March 31,
1998 1997 1997 1996 1998
----------- ----------- ------------ ------------ ------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Sales $ 345 $ 632 $ 2,226 $ 2,450 $ 5,306
Interest Income 3 6,174 8,290 - 10,086
Other Income - - 3,000 1,803 3,010
----------- ----------- ------------ ------------ ------------
348 6,806 13,516 4,253 18,402
Other Costs & Expenses
General and administrative 355,787 321,027 1,826,250 977,827 3,397,867
General and administrative -
related parties - - - 52,313 76,768
Research and Development 102,333 46,606 464,304 244,117 1,273,593
----------- ----------- ------------ ------------ ------------
458,120 367,633 2,290,554 1,274,257 4,748,228
(Loss) from operations (457,772) (360,827) (2,277,038) (1,270,004) (4,729,866)
Interest expense 37,528 2,812 34,515 14,780 86,823
Interest expense - related parties 24,880 19,179 294,518 399,943 699,227
----------- ----------- ------------ ------------ ------------
62,408 21,991 329,033 414,723 786,050
(Loss) before income taxes (520,180) (382,818) (2,606,071) (1,684,727) (5,515,876)
Provision for income taxes - - - - -
----------- ----------- ------------ ------------ ------------
Net (loss) $ (520,180) $ (382,818) $(2,606,071) $(1,684,727) $(5,515,876)
=========== =========== ============ ============ ============
Basic (loss) per share $ (0.08) $ (0.07) $ (.47) $ (0.41) $ (1.27)
=========== =========== ============ ============ ============
Weighted average shares
outstanding 6,179,638 5,305,218 5,603,588 4,133,909 4,328,973
=========== =========== ============ ============ ============
See accompanying notes to financial statements.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Casinovations Incorporated
(A Development Stage Company)
Statement of Changes in Stockholders' Equity
For the Period From Inception (April 29, 1994) to December 31, 1997
and to March 31, 1998
Deficit
Accumulated
Additional Unpaid During
Common Stock Paid-in Stock Develop-
ACTIVITY Shares Amount Capital Subscriptions ment Stage Total
<S> <C> <C> <C> <C> <C> <C>
Capital contributed by partners - - $ 101,845 $ - $ - $ 101,845
Net (loss) for the period - - - - (96,141) (96,141)
-----------------------------------------------------------------------------------
Balance, December 31, 1994 - - $ 101,845 (96,141) 5,704
Issue shares to founders (September 1995) 3,775,000 3,775 297,330 301,105
Issuance of stock in private sales:
October 1995 at $1.00 130,000 130 129,870 130,000
(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) (179,154)
Issuance of stock for cash 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 86,000 86 128,914 129,000
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 35,000 35 52,465 52,500
December 1996 at $1.50 175,000 175 262,325 262,000
Issuance of stock to related party
for debt conversion 327,000 327 490,173 490,500
Option granted to related party for
debt conversion 232,500 232,500
Net (loss) for the year - - - - (1,684,727) (1,684,727)
-----------------------------------------------------------------------------------
Balance, December 31, 1996 4,963,510 4,964 2,188,659 - (2,237,239) (43,616)
Issuance of stock for cash in private sales:
January 1997 at $1.50 236,667 237 354,764 355,001
May 1997 at $1.50 120,339 120 180,388 180,509
June 1997 at $1.50 43,000 43 64,457 64,500
July 1997 at $1.50 77,000 77 115,423 115,500
(plus compensation effect of shares
issued at a discount) 77,000 77,000
Exercise of common stock warrants
for cash:
September 1997 at $1.50 100,000 100 149,900 150,000
October 1997 at $1.50 100,000 100 149,900 150,000
(plus compensation effect of shares
issued at a discount) 100,000 100,000
Issuance of stock for future services:
February 1997 at $1.50 135,000 135 202,365 (187,500) 15,000
June 1997 at $1.50 20,000 20 29,980 (30,000) -
Amortization of unpaid stock
Subscriptions 136,000 136,000
Issuance of stock to related party for
Debt conversion:
March 1997 at $1.50 45,122 45 67,638 67,683
December 31, 1997 at $.82 339,000 339 277,891 278,230
(plus additional interest effect of
Shares issued at a discount) 11,705 11,705
Common stock subscribed for services
In May 1997 at $1.50 15,000 15,000
Net (loss) for the year - - - - (2,606,071) (2,606,071)
-----------------------------------------------------------------------------------
Balance, December 31, 1997 6,179,638 $6,180 $3,970,070 $ (66,500) $(4,843,310) $ (933,560)
Net (loss) for three months
ended March 31, 1998 - - - - (520,180) (520,180)
Balance, March 31, 1998 6,179,638 $6,180 $3,970,070 $ (66,500) $(5,363,489) $(1,420,739)
========== ======= =========== ============ ============ ============
</TABLE>
See accompanying notes to financial statements.
68
<PAGE>
<TABLE>
<CAPTION>
Casinovations Incorporated
(A Development Stage Company)
Statements of Cash Flows
Three Months Ended March 31, 1998 and 1997
Years Ended December 31, 1997 and 1996
Period From Inception (April 29, 1994) to March 31, 1998
Period from
Inception
(April 29,
Three Months Ended 1994)
---------------------------- To
March 31, March 31, December 31, December 31, March 31,
1998 1997 1997 1996 1998
----------- ----------- ------------ ------------ ------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
Net (loss) $ (520,180) $ (382,818) $ (2,606,071) $(1,684,727) $ (5,515,876)
Adjustments to reconcile net (loss)
to net cash used in operating activities:
Depreciation and amortization 16,965 4,396 40,262 2,553 61,454
Stock and options used for services 33,000 82,122 136,000 700,500 944,500
Compensation value of cash stock sales - - 177,000 - 177,000
Stock and options issued for
additional interest - - 117,332 - 117,332
Equipment exchanged for services - - - 2,903 2,903
Amortization of deferred interest - - 186,000 46,500 232,500
Changes in assets and liabilities:
(Increase) decrease in accounts receivable (25,400) (31,539) (15,327) (2,833) (43,560)
(Increase) decrease in inventory (46,956) - (181,437) - (229,249)
(Increase) decrease in prepaid expenses 3,375 (12,441) (39,276) (300) (36,625)
(Increase) decrease in other assets (712) 5,338 (41,600) (6,119) (48,431)
Increase (decrease) in accounts payable (46,243) (81,963) 335,459 (73,330) 396,068
Increase (decrease) in accrued expenses 3,854 (38,443) (57,809) 127,596 88,041
-------------- ------------ ------------- ------------ -------------
Total adjustments (62,117) (72,530) 656,604 797,470 1,661,933
-------------- ------------ ------------- ------------ -------------
Net cash (used in) operating activities $ (582,297) $ (455,348) $ (1,949,467) $ (887,257) $ (3,853,943)
-------------- ------------ ------------- ------------ -------------
Cash flows from investing activities:
Acquisitions of plant and equipment (8,376) (5,409) (296,156) (12,969) (323,779)
Increase in patents and trademarks (3,368) (12,230) (29,110) (65,781) (178,351)
-------------- ------------ ------------- ------------ -------------
Net cash (used in) investing activities (11,744) (17,639) (325,266) (78,750) (502,130)
-------------- ------------ ------------- ------------ -------------
Cash flows from financing activities
Common stock sold for cash - 355,001 1,015,510 887,265 1,950,569
Capital contributions by partners - - - - 402,950
Proceeds from long-term debt 250,000 - 547,100 - 869,100
Proceeds of shareholder loans 290,000 - 120,000 630,168 1,060,168
Repayment of shareholder loans (27,245) (60,722) (38,866) - (86,111)
Repayment of leases payable (36,400) - - (36,400)
Proceeds from notes payable - - 197,500 - 197,500
-------------- ------------ ------------- ------------ -------------
Net cash provided by financing activities 476,355 294,279 1,841,244 1,517,433 4,357,776
-------------- ------------ ------------- ------------ -------------
Increase (decrease) in cash (117,686) (178,708) (433,489) 551,426 1,703
Cash and cash equivalents,
Beginning of period $ 119,389 $ 552,878 $ 552,878 $ 1,452 -
-------------- ------------ ------------- ------------ -------------
Cash and cash equivalents,
End of period $ 1,703 $ 374,170 $ 119,389 $ 552,878 $ 1,703
============== ============ ============= ============ =============
See accompanying notes to financial statements.
</TABLE>
69
<PAGE>
Casinovations Incorporated
Notes to Financial Statements
December 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 also has secured a license agreement to develop and
market an electronically identified coin collection box for use
with coin operated gaming devices. 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. Pursuant to
a funding agreement dated January 15, 1996, the partners of
Sharps received shares of the Company's common stock on a pro
rata basis in exchange for their partnership interests. The
assets and liabilities of Sharps have been carried forward at
their historical basis. Additional shares were issued to
partners of the Sines-Forte general partnership (Sines) in
exchange for the assets of Sines. Such assets consisted of
certain intellectual property rights for products which the
Company plans to exploit. The transaction was accounted for as a
reorganization of partnerships into corporate form since the
controlling interests of the partnerships are also controlling
shareholders of the Corporation. The foregoing financial
statements present the operations of the Company and the
partnerships from their inception. Values assigned to the
acquired intellectual property rights are limited to professional
fees paid for patents and trademarks. Sines retains a royalty
interest in certain intellectual property transferred as
described in Note 9.
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.
Inventory
Inventory is stated at the lower of cost or market using the
first in, first out method. Finished goods include raw
materials, direct labor and overhead. Raw materials include
purchase and delivery costs. Inventory consists of the following
at December 31, 1997
Raw materials $3,725
Work in progress $147,368
Finished goods $31,200
---------
$182,293
Substantially all of the Company's inventory is produced by an
independent manufacturer of electronic devices. Work in progress
at is located at facilities owned by the manufacturer.
A portion of the Company's inventory is pledged as collateral for
leases as described in Note 5.
70
<PAGE>
Property and equipment
Property and equipment are carried at cost. Depreciation is
computed using the straight-line method over the estimated useful
lives of the assets. When assets are retired or otherwise
disposed of, the cost and the related accumulated depreciation
are removed from the accounts, and any resulting gain or loss is
recognized in operations for the period. The cost of repairs and
maintenance is charged to operations as incurred and significant
renewals or betterments are capitalized.
Useful lives for property and equipment are as follows:
Office equipment 5 years
Computer software 3 years
Tooling 7 years
Leasehold improvements 2 years
Intangible assets
The Company has applied for patents for certain of its products.
Patent and trademark costs aggregating $169,868 are amortized
using the straight line method over a period of ten years
beginning in 1997. Amortization for the year ended December 31,
1997 amounted to $15,537.
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 $2,558 at December 31, 1997
and amortization expense in each of the two years then ended
amounted to $1,279.
The Company makes reviews for the impairment of long-lived assets
and certain identifiable intangibles whenever events or changes
in circumstances indicate that the carrying amount of an asset
may not be recoverable. Under SFAS No. 121, an impairment loss
would be recognized when estimated future cash flows expected to
result from the use of the asset and its eventual disposition is
less than its carrying amount. No such impairment losses have
been identified by the Company for the 1997 and 1996 fiscal
years.
Loss per share:
In February 1997, the Financial Accounting Standards Board
("FASB") issued SFAS No. 128, "Earnings Per Share." SFAS No. 128
supersedes and simplifies the existing computational guidelines
under Accounting Principles Board ("APB") Opinion No. 15,
"Earnings Per Share."
The statement is effective for financial statements issued for
periods ending after December 15, 1997. Among other changes,
SFAS No. 128 eliminates the presentation of primary earnings per
share and replaces it with basic earnings per share for which
common stock equivalents are not considered in the computation.
It also revises the computation of diluted earnings per share.
The Company has adopted SFAS No. 128 and there is no material
impact to the Company's earnings per share, financial condition,
or results of operations. The Company's earnings per share have
been restated for all periods presented to be consistent with
SFAS No. 128.
The basic 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. Loss per share is unchanged on a
diluted basis since the assumed exercise of common stock
equivalents would have an anti-dilutive effect.
71
<PAGE>
Revenue recognition:
The Company recognizes revenue from the sale of its products upon
shipment to the customer. Sales returns and allowances are
recorded after returned goods are received and inspected. The
Company expects to begin sales of its products in 1998 and plans
to provide currently for estimated product returns arising
therefrom.
Statement of cash flow information
Cash and cash equivalents consist of cash and other highly liquid
debt instruments with a maturity of less than three months. Cash
paid for interest expense amounted to $64,260 for the year ended
December 31, 1997.
Fair value of financial instruments
The Company's short-term financial instruments consist of cash
and cash equivalents, accounts and loans receivable, and accounts
payable 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.
Advertising
Advertising expenses are charged to expense upon first showing.
Amounts charged to expense were $17,393 and $733 for the years
ended December 31, 1997 and 1996, respectively.
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 7 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.
New Accounting Pronouncements
SFAS No. 130, "Reporting Comprehensive Income", establishes
guidelines for all items that are to be recognized under
accounting standards as components of comprehensive income to be
reported in the financial statements. The statement is effective
for all periods beginning after December 15, 1997 and
reclassification of financial statements of financial statements
for earlier periods will be required for comparative purposes.
To date, the Company has not engaged in transactions which would
result in any significant difference between its reported net
loss and comprehensive net loss as defined in the statement.
72
<PAGE>
Note 2. PROPERTY AND EQUIPMENT.
Property and equipment consist of the following at December 31,
1997:
<TABLE>
<CAPTION>
<S> <C>
Furniture and fixtures $31,110
Tooling $271,500
Leasehold improvements $7,349
---------
$309,959
Accumulated depreciation and
amortization $25,132
---------
$284,827
=========
</TABLE>
Depreciation expense charged to operations
amounted to $23,446 and $2,553 for the years ended
December 31, 1997 and 1996, respectively
The Company owns tooling used in the manufacture of certain
plastic components of its shuffler product. The tooling
maintained by an independent manufacturer of such plastic
components.
Substantially all of the Company's fixed assets secure debt
described in Note 5.
Note 3. NOTES PAYABLE
Note payable - bank consists of a $197,450 short term loan from a
bank secured during July 1997. The loan bears interest at 7.2%
per annum and is due on May 4, 1998. The loan is secured by a
certificate of deposit in the amount of $200,000 pledged as
collateral by a company to which the Company has issued its
common stock in exchange for consulting services. The collateral
agreement provides for additional interest costs associated with
the loan calculated at 8.5% of the certificate amount accrued
ratably over its 200 day term. The agreement also contains a
provision for one 200 day extension period and conversion
provisions whereby the consultant may elect to receive non-
restricted shares of the Company's common stock in lieu of cash
repayment of the loan and accrued interest.
The number of conversion shares to be issued in the event of
conversion is to be determined at the conversion date, May 4,
1998 unless further extended, based on a quoted market price of
the common stock during a five day period prior to the conversion
date.
Notes payable - others consist of two notes payable to
individuals having face amounts of $50,000 and $25,000. The
notes, which were secured during 1995 and are not collateralized,
are due on demand and accrue interest at 15% per annum.
Note 4. CONVERTIBLE DEBENTURES
During December 1997 and January 1998, the Company received
proceeds from unsecured convertible debentures aggregating
$100,000 during December 1997 and $400,000 during January 1998.
The debentures bear interest at 6% per annum and are due on or
before January 31, 1999. The principal amount of the debentures
is convertible at the holder's option into shares of the
Company's common stock at a conversion price of $2.98 per share.
73
<PAGE>
Note 5. LEASES PAYABLE
During December 1997 the Company entered into financing type
lease transactions with a leasing company whereby the Company
sold and leased back from the lessor all of its furniture and
equipment, tooling and a total of twenty six of its shuffler
machines.
Scheduled maturities of the obligations as of December 31, 1997
are as follows:
<TABLE>
<CAPTION>
Year Amount
<S> <C>
1998 $209,425
1999 $170,097
2000 $170,097
-----------
Minimum future lease payments $549,619
Less interest component ($102,519)
Present value of future net
minimum lease payments $447,100
-----------
Less current portion ($153,851)
-----------
Due after one year $293,249
</TABLE>
Property recorded under capital leases includes the following as
of December 31, 1997:
<TABLE>
<CAPTION>
<S> <C>
Office furniture and equipment $31,110
Tooling $271,500
----------
$302,610
Less accumulated amortization ($22,749)
----------
Net capitalization leased equipment $279,861
Shuffler machines, at cost $52,598
----------
Total assets subject to capital leases $332,459
</TABLE>
Note 6. SHAREHOLDER LOANS
During the year ended December 31, 1997 and 1996, certain
officers and shareholders made advances to the Company for
working capital purposes. The balances payable by the Company
aggregated $441,017 December 31, 1997, including accrued
interest. No cash repayments were made against the advances,
which are due on demand (except as described below). An advance
in the amount of $300,000 was made by a principal shareholder of
the Company on January 15, 1996. The advance was due on July 15,
1996. The advance was collateralized by partnership shares of
Sharps equivalent to 700,000 shares of the Company's common stock
controlled by two other officer/shareholders. On October 1, 1996,
the principal shareholder exercised his rights against the
collateral and as a result, the collection rights to the advance
plus accrued interest, which aggregated $320,168 at October 1,
1996, transferred to the other officer/shareholders. 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 shareholder provides for repayment of the loan by December
31, 1997 or, upon default, at the option of the stockholder, by
the issuance of the Company's common stock at a conversion rate
of $.82 per share. The difference between this amount and the
fair value of the stock at the date of the loan ($1.50) was
recorded as deferred interest during 1996 with a corresponding
credit to paid-in capital. The deferred interest ($186,000) was
amortized as interest expense through December 31, 1997. At
December 31, 1997 the shareholder exercised his conversion rights
and the
74
<PAGE>
Company has recorded the issuance of 339,000 shares of its
restricted common stock for the conversion of the loan plus
accrued interest. The conversion of the accrued interest of
$28,230 at $.82 per share has resulted in a provision of
additional interest of $11,705 to increase the value of the stock
issued to fair market value of $2.50 per share.
Another shareholder made a loan of $60,000 at 9 1/2% interest to
the Company in May 1996. The Note terms included conversion
rights at $1.00 per share. The shareholder elected to convert a
portion of the loan to 45,122 shares of stock in March 1997.
The conversion was recorded by the Company at $1.50 per share,
the market value at the date of conversion. The remaining
portion of the loan was paid off during March, 1997.
Note 7. 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.
Upon formation of the corporation, (September 29, 1995) the
Company issued 2,513,000 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 and 1,262,000 shares
to the partners of Sines for intellectual property rights as
described in Note 1.
During October 1995 the Company sold 130,000 shares of its common
stock to a limited group of investors for cash at $1.00 per
share.
During July 1996 the Company entered into a one year consulting
agreement with an entity whereby the entity would provide 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. During February 1997, the
Company issued an additional 100,000 shares and granted options
to purchase an additional 50,000 shares of common stock at $1.50
to the consultant for a one year extension of the contract. The
shares were valued at $150,000. The 100,000 options to purchase
common stock were converted to common stock purchase warrants
during June, 1997. The Company has not recorded compensation
expense with respect to the replacement warrants as the terms and
conditions of the warrants, including the expiration date, are
identical to those of the original options. The replacement
warrants were exercised during October 1997. Additionally, in
1996, the Company issued 75,000 shares of its $.001 par value
common stock valued at $112,500 to other unrelated individuals
for consulting services provided to the Company. These amounts
have been included in general and administrative expenses in 1996
in the accompanying Statement of Operations.
75
<PAGE>
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 491,510 shares of common
stock to private investors for net cash proceeds aggregating
$737,265.
Additionally during 1996 the Company issued an aggregate of
290,000 shares (including the consulting shares described above)
to consultants and others. The shares were valued at fair value
of $1.50 per share.
During September, 1996 the Company agreed to issue 327,000 shares
of its common stock to its principal shareholder in exchange for
conversion of $150,000 of cash advanced to the Company during
1996. The excess of the fair value of the stock at $1.50 per
share over the loan amount was charged to interest expense -
related parties.
During the period ended December 31, 1997 the Company issued
677,006 shares of its common stock for cash aggregating
$1,015,510 ($1,50 per share) in connection with the continuation
of its private sale of common stock and the exercise of common
stock warrants. One hundred seventy seven thousand of the shares
issued in July and October 1997 and were valued at $2.50 per
share as the timing of their issuance was considered to be
contemporaneous with the Company's decision to offer its common
stock to the public at that price. The Company recorded
compensation expense of $1.00 per share for these shares.
Additionally, the Company issued 155,000 shares of common stock
to consultants and others for services valued at $232,500 ($1.50
per share) and issued 45,122 shares for the conversion of debt of
$45,122 to related parties pursuant to conversion provisions
included in the debt instruments. The difference between the
conversion price for the debt ($1.00 per share) and the fair
value of the shares issued at the conversion date in April 1997
($1.50 per share) has been charged to interest expense. The
shares issued for services were for consulting and advertising
services to be provided to the Company during 1997 and 1998. The
unamortized amount of the services amounted to $81,500 at
December 31, 1997 and is included in the caption "Unpaid stock
subscriptions". This amount is offset by the value of common
stock subscribed for in exchange for services during April 1997
($15,000) for engineering services fully provided to the Company
at December 31, 1997.
The Company has an aggregate of 360,000 options to purchase
common stock at $1.00 per share (fair market value on the grant
date) and 258,000 options to purchase common stock at $1.50 per
share (fair market value on the grant date) outstanding at
December 31, 1997.
The weighted average fair value at the date of grant for options
granted during 1997 and 1996 as described above was $.35 per
option in 1997 and $.26 per option in 1996. The fair value of
the options at the date of grant was estimated using the Black-
Scholes model with assumptions as follows:
76
<PAGE>
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C> <C>
Market value $1.50 $1.50 -$1.00
Expected life in years 2- 5 2 5
Interest rate 6.56% - 6.25% 5.15% 5.15%
Volatility 10% 10% 10%
Dividend yield 0.00% 0.00% 0.00%
</TABLE>
Stock based compensation costs would have increased pretax losses
by $89,184 ($.02 per share) and $105,209 ($.03 per share)in 1997
and 1996, respectively if the fair value of the options granted
during those years had been recognized as compensation expense.
Note 8. 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 carry forward described below
has been fully reserved.
The Company currently has net operating loss carry forwards
aggregating approximately $3,425,000 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 and 1997 for services and
interest and options to purchase common stock at less than fair
market value in exchange for debt conversion rights and other
services.
Note 9. RELATED PARTY TRANSACTIONS
Certain officers of the Company who were partners of Sines retain
a 3% royalty interest in the gross margin earned from the sale of
products covered by the intellectual property described in Note
1. Royalty amounts due pursuant to the royalty interest amounted
to $150 at December 31, 1997.
Additionally, the Company paid an aggregate of $71,210 in 1997
and $2,479 in 1996 to a company controlled by one of its officers
for administrative services provided to the Company. At December
31, 1997, the Company had a balance due to this officer and the
company of $35,367. The Company incurred research and
development costs aggregating $244,117 during the year ended
December 31, 1996 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.
During January 1997 the Company entered into a personal service
agreement with an officer which provides for aggregate monthly
compensation $7,500 per month. The agreement has a term of two
years and includes cash and stock option bonus provisions based
upon the Company's attainment of certain corporate goals. The
Company has accrued $11,250 of compensation due the officer
pursuant to the cash bonus provisions, however no grant of stock
options has been approved. An option to purchase up to 150,000
shares of common stock at $1.50 per share is provided for in the
contract upon approval.
77
<PAGE>
During February 1997, the Company entered into a consulting
agreement with an officer which provides for monthly base salary
of $12,500 and a commission of 3.73% of the gross margin on sales
attributable to the officer.
The agreement has a term of two years and provides for options to
purchase up to 300,000 shares of the Company's common stock at
$1.50 per share depending upon the achievement of certain
corporate goals as approved by the board of directors. No bonus
options were approved for the 1997 year however a cash bonus of
$6,000 has been accrued at December 31, 1997.
Note 10. COMMITMENTS AND CONTINGENCIES
During 1997, the Company contracted for the production of tooling
for certain plastic parts utilized in the manufacture of its
shuffler by an independent design and manufacturing company. The
Company has made payments of $271,500 for the tooling and has
prepaid $40,000 as an advance against an open purchase order with
the manufacturer. The purchase order requires the Company to
purchase an aggregate of $486,000 of the plastic parts through
May 1999.
During October 1997, the Company entered into a license agreement
whereby the Company will develop and market an electronically
identified coin collection box for use with coin operated gaming
devices. The agreement provides for payments to the licensor for
use of certain intellectual property associated with the project
as follows:
1998 Fixed payment $80,000
Minimum royalties $50,000
1999 Minimum royalties $126,000
Thereafter $150,000
Royalties are to be based on a rate of $7.50 per unit sold that
incorporate the licensed technology. The Company made $20,000 of
fixed payments to the licensor in 1997 which amount has been
charged to research and development expense. The Company has the
right to terminate the agreement upon sixty days written notice
to the licensor should it determine that the technology may be
unpatentable or it is determined by the Company that the licensed
products are uneconomical. The Company plans to charge
additional fixed payments to research and development expense as
they are made.
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 $32,328 and $8,939 for the
years ended December 31, 1997 and 1996, respectively.
Future minimum rentals under the lease are as follows:
1998: $32,328 1999: $8,082
The Company has granted joint exclusive licenses to two entities
for marketing rights to one of its products which provide for
royalty payments to the Company of $.04 and $.075 per unit sold.
Amounts paid pursuant to the licenses have not been material.
78
<PAGE>
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 through December
31, 1996 had been paid to an engineering and design company whose
principal shareholder is a member of the Company's board of
directors. A prototype shuffling machine was delivered to the
Company during 1996. The Company believes that it has fulfilled
its 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.
Manufacture of the device began during September of 1997 with the
placement of orders for parts necessary to complete one hundred
units and at December 31, 1997 fifteen units had been completed.
The Company's ability to complete its development stage and begin
product sales is dependent upon the successful manufacture of
commercial quantities of its products.
Note 11. BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a
"going concern" basis which contemplates the realization of
assets and the liquidation of liabilities in the ordinary course
of business.
The Company has incurred operating losses during the years ended
December 31, 1997 and 1996 aggregating $2,606,071 and $1,684,727,
respectively. Additionally, the Company has a stockholders'
deficit of $933,560 and negative working capital of $1,031,024
($590,007 exclusive of shareholder loans) at December 31, 1997.
Profitable operations are dependent upon, among other factors,
the Company's ability to obtain equity or debt financing and the
Company's ability to finance, produce and sell its shuffler
product. Management plans to continue its efforts to complete a
public offering of its common stock at $2.50 per share and the
Company's principal shareholder has continued to fund the
Company's operating cash requirements on an interim basis.
79
<PAGE>
Casinovations Incorporated
Notes to Financial Statements
Three months ended March 31, 1998
NOTE 1 - BASIS OF PRESENTATION.
The consolidated balance sheet as of March 31, 1998 and the
related consolidated statements of income for the three month
periods ended March 31, 1998 and 1997 and consolidated statements
of cash flows for the three month periods ended March 31, 1998
and 1997 have been prepared in accordance with generally accepted
accounting principles for interim financial information and with
the instructions incorporated in Regulation 10-QSB of the
Securities and Exchange Commission (the "Commission").
Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles
for complete financial statements. In the opinion of management,
all adjustments (consisting of normal recurring adjustments and
accruals) considered necessary for a fair presentation have been
included.
The results of operations for an interim period are not
necessarily indicative of the results for the full year. The
consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto for
the year ended December 31, 1997 contained in the Company's
Registration Statement on Form SB-2/A as last filed with the
Commission on April 13, 1998 (Commission File No. 333-31373).
Certain of the shares issued to a consultant during 1997 were for
future services to be provided to the Company. The amounts
attributable to unearned services have been accounted for as
unpaid subscriptions to common stock in the accompanying balance
sheet. The Company has amortized $33,000 of the unearned
services to general and administrative expenses during the three
months ended March 31, 1998.
During January 1998, the Company received proceeds from
convertible debentures aggregating $400,000. The debentures bear
interest at 6% per annum and are due on or before January 31,
1999. The principal amount of the debentures is convertible at
the holder's option into shares of the Company's common stock at
a conversion price of $2.98 per share. Of the gross proceeds
received from the convertible debentures, $150,000 was received
from the Company's principal stockholder and has been included in
shareholder loans in the accompanying balance sheet.
Additionally, the principal stockholder made working capital
advances to the Company during the quarter ended March 31, 1998
aggregating $140,000. The advances bear interest at 9.5% per
annum.
NOTE 2 - STATEMENT REGARDING COMPUTATION OF LOSS PER SHARE.
Fully diluted loss per share excludes any dilutive effects of
options, warrants and convertible securities. Basic loss per
share is not presented because the effect would be anti-dilutive.
80
<PAGE>
PART II
INFORMATION NOT REQUIRED BY PROSPECTUS
Item 24. Indemnification of Officers and Directors.
Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers or persons
controlling the Company pursuant to the foregoing provisions, the
Company has been informed that in the opinion of the SEC such
indemnification is against public policy as expressed in the
Securities 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.
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. In addition, the Company's Articles of
Incorporation also provide that the Board of Directors may cause
the Company to purchase and maintain insurance on behalf of any
present or past director or officer insuring against any
liability asserted against such person incurred in the capacity
of director or officer or arising out of such status, whether or
not the corporation would have the power to indemnify such
person.
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:
81
<PAGE>
<TABLE>
<CAPTION>
Amount
Payable
Item By Company
<S> <C>
S.E.C. Registration Fees 3,919.53
State Securities Laws (Blue Sky) Fees and Expenses 3,500.00
Printing and Engraving Fees 7,500.00
Legal Fees 15,000.00
Accounting Fees and Expenses 8,000.00
Transfer Agent's Fees 1,500.00
Miscellaneous 2,500.00
-----------
Total 41,919.53
</TABLE>
Item 26. Recent Sales of Unregistered Securities.
In September, 1995, the Company issued common shares to the
partners of Sharps on a pro rata basis in exchange for their
respective partnership interests. These issuances were made in
reliance on Section 4(2) by Registrant's management to
sophisticated investors who had access to information on the
Company necessary to make an informed investment decision.
<TABLE>
<CAPTION>
Total Number
Name 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 Common Shares
for cash consideration of $130,000. These issuances were made in
reliance on Section 4(2) by Registrant's management to
sophisticated investors who had access to information on the
Company necessary to make an informed investment decision.
<TABLE>
<CAPTION>
Total Number Cash
Name 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>
82
<PAGE>
From March 15, 1995 to January 28, 1997, the Company pursued a
private placement at $1.50 per common shares and issued a total
of 828,177 Common Shares 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 by Registrant's management, consultants and selected
broker/dealers. No commissions or other remuneration was paid
to anyone. No general solicitation was utilized. All of the
investors were accredited 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>
<CAPTION>
Total Number Cash
Name of Shares Date Issued Consideration
<S> <C> <C> <C>
Don Ludwick 20,000 3/26/96 $30,000
William Martin 10,000 4/12/96 $15,000
Adam Chase 10,000 7/11/96 $15,000
Adam W. Jaslow 30,000 10/25/96 $45,000
Jennifer L. Jaslow 100,000 10/25/96 $150,000
John Horstmann 6,000 10/25/96 $9,000
Richard S. Jaslow, IRA 100,000 11/1/97 $150,000
Lori K. Jaslow Trust 20,000 11/1/96 $30,000
Adam Jaslow Trust 70,000 11/1/96 $105,000
John Plati 20,000 11/12/96 $30,000
Doris Ljubicich 3,400 11/12/96 $5,100
Joseph Hroncich 3,000 11/12/96 $4,500
John S. Cole 3,000 11/12/96 $4,500
Vito Bavaro 3,000 11/12/96 $4,500
Lori K. Jaslow, Trust 80,000 11/14/96 $120,000
Kevo Plumbing & Heating 10,000 11/16/96 $20,000
Tami L. Dirienzo 6,000 11/16/96 $9,000
Peter Jankowski 10,000 11/16/96 $15,000
Renaldo 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
83
<PAGE>
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 B. 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
Philip & Concetta Vincenti 6,800 1/28/97 $10,200
Andrew Lesnak 3,400 1/28/97 $5,100
Susan Miller 6,700 1/28/97 $10,050
Uphill c/o Paul Scott 9,400 1/28/97 $14,100
Martin Feldman 3,400 1/28/97 $5,100
Mark DeLorenoz 3,000 1/28/97 $4,500
</TABLE>
On June 29, 1996, the Company issued 30,000 Common Shares to
David Krise in exchange for patents valued at $45,000. This
issuance was made in reliance on Section 4(2) by Registrant's
management to a sophisticated investor who had access to
information on the Company necessary to make an informed
investment decision.
84
<PAGE>
In July, 1996, the Board of Directors authorized the distribution
of 200,000 A Warrants each exercisable into one Common Share at
the exercise price of $3.75 per Common Share, 200,000 B Warrants
each exercisable into one Common Share at the exercise price of
$4.00 per Common Share and 250,000 C Warrants each exercisable
into one Common Share at the exercise price of $6.00 per Common
Share. The A, B and C Warrants are exercisable for a period of
48 months from the date of issue and are callable with 30 days
notice at a price of $.001 per warrant. These distributions
were be made to the owners of record of Common Shares on the
books of the Company as of July 22, 1996. These issuances were
made in reliance on Section 4(2) by Registrant's management to
sophisticated investors who had access to information on the
Company necessary to make an informed investment decision.
During October, 1996, the Company issued 327,000 Common Shares to
Richard Huson for the conversion of a loan and accrued interest
amounting to $340,500. This issuance was made in reliance on
Section 4(2) by Registrant's management to an accredited
investor.
In the fourth quarter of 1996 and the first quarter of 1997, the
Company issued an aggregate of 345,000 common shares to
consultants who had access to information on the Company
necessary to make an informed investment decision for services
valued at $545,000 in the aggregate and officers and directors of
the Company (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>
Total Number Date Services
Name of Shares Issued Valued At
<S> <C> <C> <C>
Gaming Venture Corp. 100,000 12/28/96 $150,000
50,000 2/20/97 $75,000
50,000 2/28/97 $75,000
Pratt, Wylce & Lords 25,000 12/2/96 $37,500
4,100 2/20/97 $6,150
Clinton Clark 50,000 12/2/96 $75,000
10,900 2/20/97 $16,350
Steven Blad 10,000 2/20/97 $15,000
Micro Cap World, L.L.C. 10,000 2/20/97 $15,000
Jay L. King 25,000 10/2/96 $37,500
David Sampson 10,000 10/2/96 $15,000
</TABLE>
Gaming Venture Corp. provides management and capital acquisition
consulting. Pratt, Wylce & Lords, provided management and
capital acquisition consulting services. Clinton Clark provided
management and capital acquisition consulting services. Micro
Cap World, L.L.C. provided management consulting services.
On March 31, 1997, the Corporation issued 45,122 Common Shares to
Cheryl and Steve Forte for the conversion of a loan whose
principal and interest amount was $45,122. This issuance was made
in reliance on Section 4(2) by Registrant's management to
sophisticated investors who had access to information on the
Company necessary to make an informed investment decision.
During May and June, 1997, the Corporation issued the following
Common Shares to sophisticated investors who had access to
information on the Company necessary to make an informed
investment
85
<PAGE>
decision for cash consideration or services pursuant to an
exemption from registration under Section 4(2) of the Securities
Act of 1933.
<TABLE>
<CAPTION>
Cash
Consideration
Total Number or Services
Name of Shares Date Issued Valued At
<S> <C> <C> <C>
Jayport Holdings, Inc. (BUI) 20,339 5/2/97 $30,509<F1>
Glenn Fine 30,000 6/5/97 $45,000<F1>
Casino Journal of Nevada, Inc. 20,000 6/5/97 $30,000<F2>
Robert Smith 6,000 6/12/97 $9,000<F1>
John Wasden 5,000 6/12/97 $7,500<F1>
Althea Duggins 1,000 6/12/97 $1,500<F1>
James Beard 1,000 6/12/97 $1,500<F1>
<FN>
<F1> These individuals or entities paid cash consideration.
Jayport Holdings, Inc. is a nonaffiliate.
<F2> Casino Journal of Nevada, Inc. provided advertising
services. The principal of Casino Journal of Nevada, Inc. is
Glenn Fine.
</FN>
</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. Mr. Huson subsequently
exercised all of his Class D Warrants in October, 1997. In the
fourth quarter of 1997, the 100,000 D Warrants remaining were
exercised and 90,000 Common Shares were issued to Thomas
DiSalvatore and 10,000 Common Shares were issued to Michele
Gilbert. Mr. DiSalvatore and Ms. Gilbert are sophisticated
purchasers.
During December 1997 and January 1998, the Company received
proceeds from unsecured convertible debentures aggregating
$100,000 (VIP Industries, Inc., a unrelated party) during
December 1997 and $400,000 (Richard Huson $150,000, Richard
Jaslow $150,000, Jay Willoughby $50,000 and David Goldsmith
$50,000) during January 1998. The debentures bear interest at 6%
per annum and are due on or before January 31, 1999. The
principal amount of the debentures is convertible after one year,
at the holder's option into Common Shares at a conversion price
of $2.98 per share
These issuances were made in reliance on Section 4(2) by
Registrant's management to Mr. Huson, an accredited investor and
Gaming Venture Corp., U.S.A. a sophisticated investor who had
access to information on the Company necessary to make an
informed investment decision.
Item 27. Exhibit Index.
(1) Form of Placement Agreement with Travis Morgan
Securities, Inc.
(2) Not applicable
(3) Certificate of Incorporation incorporated by reference
to Form SB-2 filed on July 16, 1997, S.E.C. File Number
333-31373.
86
<PAGE>
(3.1) Amendment to Articles of Incorporation dated October
14, 1996 incorporated by reference to Form SB-2 filed
on July 16, 1997, S.E.C. File Number 333-31373.
(3.2) Amendment to Articles of Incorporation dated February
18, 1997 incorporated by reference to Form SB-2 filed
on July 16, 1997, S.E.C. File Number 333-31373.
(3.3) Bylaws incorporated by reference to From SB-2 filed on
July 16, 1997, S.E.C. File Number 333-31373.
(3.4) Amended and Restated Bylaws.
(4) Specimen certificate for Common Stock incorporated by
reference to Form SB-2 filed on July 16, 1997, S.E.C.
File Number 333-31373.
(4.1) Specimen Warrant certificate incorporated by reference
to Form SB-2 filed on July 16, 1997, S.E.C. File
Number 333-31373.
(5) Consent and Opinion of Jody M. Walker regarding
legality of securities registered under this
Registration Statement incorporated by reference to
Amendment 8 to Form SB-2 filed on April 13, 1998,
S.E.C. File Number 333-31373.
(6) Not Applicable
(7) Not Applicable
(8) Not Applicable
(9) Not Applicable
(10.1) Consulting Agreement of GameTek and Steven J. Blad
dated February 1, 1997 incorporated by reference to
Form SB-2 filed on July 16, 1997, S.E.C. File Number
333-31373.
(10.2) Consulting Agreement with Gaming Venture Corp., U.S.A.
dated July 8, 1996 incorporated by reference to Form
SB-2 filed on July 16, 1997, S.E.C. File Number 333-
31373.
(10.3) Exclusive Distributorship Agreement with Sodak Gaming,
Inc. dated April 23, 1997 incorporated by reference to
Form SB-2 filed on July 16, 1997, S.E.C. File Number
333-31373.
(10.4) Exclusive Distributorship Agreement with RGB SDN BHD
dated February 19, 1997 incorporated by reference to
Form SB-2 filed on July 16, 1997, S.E.C. File Number
333-31373.
(10.5) Exclusive Distributorship Agreement with B. Joel Rahn
dated June 1, 1997 incorporated by reference to Form
SB-2 filed on July 16, 1997, S.E.C. File Number 333-
31373.
(10.6) Exclusive License Agreement with George C. Matteson
Co., Inc. incorporated by reference to Form SB-2 filed
on July 16, 1997, S.E.C. File Number 333-31373.
(10.7) License Agreement with United States Playing Card
Company incorporated by reference to Form SB-2 filed
on July 16, 1997, S.E.C. File Number 333-31373..
(10.8) Royalty Agreement with the Sines-Forte Partnership
dated June 15, 1996 incorporated by reference to Form
SB-2 filed on July 16, 1997, S.E.C. File Number 333-
31373.
87
<PAGE>
(10.9) Promissory Note with Richard Huson dated July 8, 1997
incorporated by reference to Form SB-2 filed on July
16, 1997, S.E.C. File Number 333-31373.
(10.10) Collateral Loan Agreement with Gaming Venture Corp.,
U.S.A. incorporated by reference to Amendment 1 to
Form SB-2 filed on September 17, 1997, S.E.C. File
Number 333-31373.
(10.11) Exclusive License Agreement with Technology
Development Center, LLC. Incorporated by reference to
Amendment 2 to Form SB-2 filed on November 12, 1997,
S.E.C. File Number 333-31373.
(10.12) Funding Agreement dated January 15, 1997 incorporated
by reference to Amendment 4 of Form SB-2 filed on
February 18, 1998, S.E.C. File Number 333-31373.
(10.13) Partnership Pledge and Security Agreement dated
January 15, 1996 incorporated by reference to
Amendment 4 to Form SB-2 filed on February 18, 1998,
S.E.C. File Number 333-31373.
(10.14) Promissory Note executed by Richard Huson in favor of
Randy Sines and Cheryl Forte dated January 15, 1996,
incorporated by reference to Amendment 4 to Form SB-2
filed on February 18, 1998, S.E.C. File Number 333-
31373.
(10.15) Consents of Spouse of Irene Sines and Steven Forte
dated January 15, 1996, incorporated by reference to
Amendment 4 to Form SB-2 filed on February 18, 1998,
S.E.C. File Number 333-31373.
(10.16) Third Round Funding Agreement dated September 30,
1996, incorporated by reference to Amendment 4 to Form
SB-2 filed on February 18, 1998, S.E.C. File Number
333-31373.
(10.17) Form of Convertible Unsecured Note.
(10.18) Forte Letter Agreement dated May 28, 1998.
(10.19) Exclusive Distributorship Agreement with Gaming 2000
L.L.C. dated May 28, 1998.
(10.20) Exclusive Distributorship Agreement with Belgium
Gaming Technology dated December 18, 1997.
(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
88
<PAGE>
(22) Not Applicable
(23) Consent of Winter, Scheifley & Associates, P.C.
(24) Power of Attorney at page 91.
(25) Not Applicable
(26) Not Applicable
(27) Financial Data Schedule
(28) Not Applicable
(99) Employment Agreement of Jay L. King dated January 1,
1997 incorporated by reference to Form SB-2 filed on
July 16, 1997, S.E.C. File Number 333-31373.
(99.1) Employment Agreement with Randy D. Sines dated March
31, 1996 incorporated by reference to Form SB-2 filed
on July 16, 1997, S.E.C. File Number 333-31373.
(99.2) Employment Agreement with Steven L. Forte dated March
31, 1996 incorporated by reference to Form SB-2 filed
on July 16, 1997, S.E.C. File Number 333-31373.
(99.3) Amendment to Employment Agreement (Personal Service
Agreement) and Covenant Not to Compete and Funding
Agreements dated September 8, 1997 incorporated by
reference to Amendment 2 to Form SB-2, S.E.C. File
Number 333-31373.
(99.4) Form of Lockup Agreement regarding Common Stock with
Officers, Directors and Richard Huson incorporated by
reference to Amendment 3 to Form SB-2 filed on January
12, 1998, S.E.C. File Number 333-31373.
(99.5) Lock Up Agreement regarding Warrants between Officers,
Directors and Principal Shareholder incorporated by
reference to Amendment 6 to Form SB-2 filed on April
2, 1998, S.E.C. File Number 333-31373.
(99.6) Revised Form of Lock Up Agreement regarding Warrants
between Officers, Directors and Principal Shareholder
incorporated by reference to Amendment 7 to Form SB-2
filed on April 9, 1998, S.E.C. File Number 333-31373.
(99.7) Revised Lock Up Agreement regarding Common Stock
between Officers, Directors and Richard Huson
incorporated by reference to Amendment 7 to Form SB-2,
S.E.C. File Number 333-31373.
(99.8) Form of Employment Agreement with Steven Blad dated
June 1, 1998.
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.
89
<PAGE>
(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.
90
<PAGE>
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 4th the day of June 1998.
Casinovations Incorporated
By: /s/ Steven Blad
Steven Blad
President and Chief
Executive Officer
The undersigned Directors and Officers of Casinovations
Incorporated hereby appoint Steven J. Blad or Jay L. King as
attorney-in-fact for the undersigned, with full power of
substitution, for and in the name, place and stead of the
undersigned, to sign and file with the Securities and Exchange
Commission under the Securities Act of 1933 any and all
amendments (including post-effective amendments) and exhibits to
this Registration Statement and any and all applications and
other documents to be filed with the Securities and Exchange
Commission pertaining to the registration of the securities
covered hereby, with full power and authority to do and perform
any and all acts and things whatsoever requisite and necessary or
desirable, hereby ratifying and confirming all that said attorney-
in-fact, or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
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>
<CAPTION>
Signature Capacity Date
<S> <C> <C>
/s/ Steven J. Blad President, Chief Executive Officer June 4, 1998
Steven J. Blad and Director
/s/ Jay L. King Treasurer, Secretary June 4, 1998
Jay L. King and Chief Financial Officer
/s/ Richard S. Huson Director June 4, 1998
Richard S. Huson
/s/ Jamie McKee Director June 4, 1998
Jamie McKee
/s/ David E. Sampson Director June 4, 1998
David E. Sampson
/s/ Bob Smith Director June 4, 1998
Bob Smith
</TABLE>
91
<PAGE>
EXHIBIT INDEX
EXHIBIT
NO. DESCRIPTION PAGE
(1) Form of Placement Agreement with Travis Morgan 96
Securities, Inc.
(2) Not applicable
(3) Certificate of Incorporation incorporated by
reference to Form SB-2 filed on July 16, 1997,
S.E.C. File Number 333-31373.
(3.1) Amendment to Articles of Incorporation dated October
14, 1996 incorporated by reference to Form SB-2
filed on July 16, 1997, S.E.C. File Number 333-
31373.
(3.2) Amendment to Articles of Incorporation dated
February 18, 1997 incorporated by reference to Form
SB-2 filed on July 16, 1997, S.E.C. File Number 333-
31373.
(3.3) Bylaws incorporated by reference to From SB-2 filed
on July 16, 1997, S.E.C. File Number 333-31373.
(3.4) Amended and Restated Bylaws. 101
(4) Specimen certificate for Common Stock incorporated
by reference to Form SB-2 filed on July 16, 1997,
S.E.C. File Number 333-31373.
(4.1) Specimen Warrant certificate incorporated by
reference to Form SB-2 filed on July 16, 1997,
S.E.C. File Number 333-31373.
(5) Consent and Opinion of Jody M. Walker regarding
legality of securities registered under this
Registration Statement incorporated by reference to
Amendment 8 to Form SB-2 filed on April 13, 1998,
S.E.C. File Number 333-31373.
(6) Not Applicable
(7) Not Applicable
(8) Not Applicable
(9) Not Applicable
(10.1) Consulting Agreement of GameTek and Steven J. Blad
dated February 1, 1997 incorporated by reference to
Form SB-2 filed on July 16, 1997, S.E.C. File Number
333-31373.
(10.2) Consulting Agreement with Gaming Venture Corp.,
U.S.A. dated July 8, 1996 incorporated by reference
to Form SB-2 filed on July 16, 1997, S.E.C. File
Number 333-31373.
(10.3) Exclusive Distributorship Agreement with Sodak
Gaming, Inc. dated April 23, 1997 incorporated by
reference to Form SB-2 filed on July 16, 1997,
S.E.C. File Number 333-31373.
(10.4) Exclusive Distributorship Agreement with RGB SDN BHD
dated February 19, 1997 incorporated by reference to
Form SB-2 filed on July 16, 1997, S.E.C. File Number
333-31373.
92
<PAGE>
(10.5) Exclusive Distributorship Agreement with B. Joel
Rahn dated June 1, 1997 incorporated by reference to
Form SB-2 filed on July 16, 1997, S.E.C. File Number
333-31373.
(10.6) Exclusive License Agreement with George C. Matteson
Co., Inc. incorporated by reference to Form SB-2
filed on July 16, 1997, S.E.C. File Number 333-
31373.
(10.7) License Agreement with United States Playing Card
Company incorporated by reference to Form SB-2 filed
on July 16, 1997, S.E.C. File Number 333-31373..
(10.8) Royalty Agreement with the Sines-Forte Partnership
dated June 15, 1996 incorporated by reference to
Form SB-2 filed on July 16, 1997, S.E.C. File Number
333-31373.
(10.9) Promissory Note with Richard Huson dated July 8,
1997 incorporated by reference to Form SB-2 filed on
July 16, 1997, S.E.C. File Number 333-31373.
(10.10) Collateral Loan Agreement with Gaming Venture Corp.,
U.S.A. incorporated by reference to Amendment 1 to
Form SB-2 filed on September 17, 1997, S.E.C. File
Number 333-31373.
(10.11) Exclusive License Agreement with Technology
Development Center, LLC. Incorporated by reference
to Amendment 2 to Form SB-2 filed on November 12,
1997, S.E.C. File Number 333-31373.
(10.12) Funding Agreement dated January 15, 1997
incorporated by reference to Amendment 4 of Form SB-
2 filed on February 18, 1998, S.E.C. File Number 333-
31373.
(10.13) Partnership Pledge and Security Agreement dated
January 15, 1996 incorporated by reference to
Amendment 4 to Form SB-2 filed on February 18, 1998,
S.E.C. File Number 333-31373.
(10.14) Promissory Note executed by Richard Huson in favor
of Randy Sines and Cheryl Forte dated January 15,
1996, incorporated by reference to Amendment 4 to
Form SB-2 filed on February 18, 1998, S.E.C. File
Number 333-31373.
(10.15) Consents of Spouse of Irene Sines and Steven Forte
dated January 15, 1996, incorporated by reference to
Amendment 4 to Form SB-2 filed on February 18, 1998,
S.E.C. File Number 333-31373.
(10.16) Third Round Funding Agreement dated September 30,
1996, incorporated by reference to Amendment 4 to
Form SB-2 filed on February 18, 1998, S.E.C. File
Number 333-31373.
(10.17) Form of Convertible Unsecured Note. 119
(10.18) Forte Letter Agreement dated May 28, 1998. 142
(10.19) Exclusive Distributorship Agreement with Gaming 2000 147
L.L.C. dated May 28, 1998.
(10.20) Exclusive Distributorship Agreement with Belgium 165
Gaming Technology dated December 18, 1997.
(11) Not Applicable
(12) Not Applicable
93
<PAGE>
(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) Consent of Winter, Scheifley & Associates, P.C. 182
(24) Power of Attorney at page 91.
(25) Not Applicable
(26) Not Applicable
(27) Financial Data Schedule 183
(28) Not Applicable
(99) Employment Agreement of Jay L. King dated January 1,
1997 incorporated by reference to Form SB-2 filed on
July 16, 1997, S.E.C. File Number 333-31373.
(99.1) Employment Agreement with Randy D. Sines dated March
31, 1996 incorporated by reference to Form SB-2
filed on July 16, 1997, S.E.C. File Number 333-
31373.
(99.2) Employment Agreement with Steven L. Forte dated
March 31, 1996 incorporated by reference to Form SB-
2 filed on July 16, 1997, S.E.C. File Number 333-
31373.
(99.3) Amendment to Employment Agreement (Personal Service
Agreement) and Covenant Not to Compete and Funding
Agreements dated September 8, 1997 incorporated by
reference to Amendment 2 to Form SB-2, S.E.C. File
Number 333-31373.
(99.4) Form of Lockup Agreement regarding Common Stock with
Officers, Directors and Richard Huson incorporated
by reference to Amendment 3 to Form SB-2 filed on
January 12, 1998, S.E.C. File Number 333-31373.
(99.5) Lock Up Agreement regarding Warrants between
Officers, Directors and Principal Shareholder
incorporated by reference to Amendment 6 to Form SB-
2 filed on April 2, 1998, S.E.C. File Number 333-
31373.
(99.6) Revised Form of Lock Up Agreement regarding Warrants
between Officers, Directors and Principal
Shareholder incorporated by reference to Amendment 7
to Form SB-2 filed on April 9, 1998, S.E.C. File
Number 333-31373.
94
<PAGE>
(99.7) Revised Lock Up Agreement regarding Common Stock
between Officers, Directors and Richard Huson
incorporated by reference to Amendment 7 to Form SB-
2, S.E.C. File Number 333-31373.
(99.8) Form of Employment Agreement with Steven Blad dated 184
June 1, 1998.
95
<PAGE>
EXHIBIT 1
PLACEMENT AGREEMENT
MAY ___, 1998
CASINOVATIONS, INCORPORATED
5240 South Eastern Avenue
Las Vegas, Nevada 89119
Dear Sirs:
Discussions have been held between you and Travis Morgan
Securities, Inc. (the "Placement Agent") concerning a proposed
offering by Casinovations Incorporated (the "Company"). The
Placement Agent hereby confirms its interest in underwriting a
maximum of 1,500,000 Common Shares at the purchase price of $2.50
per Common Share on a 'best efforts' basis, (the "Offering"),
pursuant to a prospectus on Securities Exchange Commission Form
SB-2/A (SEC File No. 333-31373) the ("Registration Statement").
1. Timetable. The parties hereto shall forthwith
agree upon a timetable for blue-sky filings, and all
other steps necessary to effectuate the offering.
2. Placement Agent's Counsel. The Broker Dealer
Selling Agreement shall be prepared by the Placement
Agent, and the Company shall make all required filings
with respect to the SEC. All corporate proceedings
undertaken by the Company and other legal matters,
which relate to the Offering and other related
transactions shall be satisfactory in all material
respects to counsel for the Placement Agent.
3. The Company proposes to offer through the
Placement Agent and/or a selling group selected by the
Placement Agent up to 1,500,000 Common Shares at the
purchase price of $2.50 per Common Share. The
Placement Agent contemplates to place the offering on a
'best efforts basis', with a no minimum Escrow
requirement. The Offering shall be closed only upon
receipt of a letter from the Company.
4. Warrants and Options. Warrants and options issued
and to be issued by the Company within sixty (60) days
from the date hereof shall be acceptable to the
Placement Agent, the consent to which shall not be
unreasonably withheld
5. Future Sales. It is understood that during the
period of the proposed Offering and for one hundred
eighty (180) days from the date of this agreement, the
Company will not sell any equity or long-term debt
1
<PAGE>
securities without the Placement Agent's prior
written consent, which may not be unreasonably
withheld.
6. Reciprocal Indemnification. It is understood that
there is reciprocal indemnification between the Company
and the Placement Agent as to certain liabilities,
including liabilities under the Securities Act of 1933,
as amended.
7. Information Available. It is understood and
agreed between the Company and the Placement Agent that
all documents and other information relating to the
Company's affairs will be made available upon request
to the Placement Agent and its attorneys at the
Placement Agent's office or at the office of the
Placement Agent's attorney and copies of any such
document will be furnished upon request to the
Placement Agent or its attorneys. Included within the
documents which must be made available as soon as
possible are at least all Articles of Incorporation and
Amendments, By-Laws and Amendments, Minutes of all the
Company's Directors and Shareholders Meetings, all
quarterly and annual financial statements and correct
copies of any material contracts, leases, and
agreements to which the Company is a party. At the
earliest practicable date, The Company will furnish the
Placement Agent a business plan showing projected cash
flow (or deficiencies) covering a three-year period and
reconciled to the proposed Use of Proceeds section of
the prospectus. In addition, the Company will provide
the Placement Agent with unaudited quarterly financial
data.
8. Properties, Capital Structure, Dilution, Employee
Benefit Plans. The properties owned or held under
option by the Company, the capital structure of the
Company immediately preceding the Offering and
Company's business plan shall be provided to the
Placement Agent. Any employee (including officers
and/or directors) incentive plan (including royalty
plan), of whatever nature, presently contemplated,
shall be fully disclosed to the Placement Agent.
9. Blue-Sky Laws. It is understood and agreed
between the Company and the Placement Agent that it
shall be the obligation of the Company together with
the Placement Agent and its counsel to use its best
efforts to qualify the sale of the Company's common
stock in such states as may be designated by the
Placement Agent. The officers, directors and promoters
of the Company will comply with applicable Blue-Sky
escrow requirements, including those pertaining to the
escrow of shares, provided such escrow shall in no
event extend beyond a period of two years;
notwithstanding the foregoing, in the event that escrow
or other terms of any Blue-Sky qualification are not
acceptable to the Company in its sole and absolute
discretion, the Company may elect to withdraw any
application for Blue-Sky qualification from any such
state or jurisdiction.
2
<PAGE>
The parties hereto shall agree on the division of
legal work pertaining to Blue-Sky qualification.
10. Placement Agent Fee. The Shares will be placed to
the public by the Placement Agent and selling group
members with an aggregate fee of ten percent (10%) of
the Offering price for shares placed by the Placement
Agent. The Placement Agent may re-allow all or part of
such fee to any member of the selling group.
11. Warrants. (a) In the event that the Placement
Agent places all of the 1,500,00 shares of Common Stock
at the Purchase Price of $2.50 per share in accordance
with this Agreement, upon termination of the Offering,
the Company will use its best efforts to cause certain
Company stockholders to transfer to the Placement Agent
up to 200,000 Common Stock Purchase B Warrants, as
defined in the Registration Statement, for a purchase
price of $.0001 per Warrant, and up to 250,000 C
Warrants, as defined in the Registration Statement.
The B Warrants and C Warrants shall have the terms and
be subject to the conditions described in the
Registration Statement. The B Warrants and C Warrants
will not be transferable to anyone for a period of
twelve (12) months after the date of the definitive
Prospectus, except to the officers of the Placement
Agent.
b) In the event that the Placement Agent places
all of the 1,500,000 shares of Common Stock at the
purchase price of $2.50 per share in accordance with
this Agreement, the Company shall issue to the
Placement Agent in exchange for the payment of $50.00 a
warrant entitling Placement Agent to purchase up to
100,000 shares of the Company's Common stock at the
exercise price of $2.50 per share (the "New Warrant")
for a period of up to one year from the date of this
Agreement. The New Warrant shall provide that shares
issuable pursuant to the New Warrant shall be subject
to piggyback registration rights for a period of up to
one year from the expiration date of the New Warrant,
excluding, however, from any piggyback registration
obligation registration statements filed by the Company
on SEC Forms S-4 or S-8, or if, in the opinion of the
Company's counsel, the registration of shares issuable
pursuant to the New Warrant does not then require
filing of a registration statement.
12. Exercise Rights. In addition to the above, the
Company understands and agrees that if, at any time, it
should file a Registration Statement with the
Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, or file a
Notification on Form 1-A under the Act, regardless of
whether some of the holder(s) of the Warrants and
Common Stock issued upon the exercise of the Warrants
shall have theretofore availed itself (themselves) of
the right above provided, the Company at its own
expense, will offer to said holder(s) the opportunity
to register or exercise of the B Warrants or C
Warrants, as the case may be, limited in
3
<PAGE>
the case of a Regulation A Offering to the amount
of the available exemption. This paragraph is not
applicable to a Registration Statement filed by the
Company with the SEC on Form S-4 or Form S-8, or any
other appropriate form.
13. Expenses. The Company shall bear all the
Company's costs and expenses incident to the issuance,
offer, sale and delivery of the Shares, the costs and
the Company's counsel fees of qualification under state
securities laws, and fees and disbursements of counsel
and accountants for the Company, costs for preparing
and printing of the prospectus, and cost of printing as
many copies of the documents and Prospectuses as the
Placement Agent may deem necessary and related
exhibits. The Placement Agent agrees to pay all fees
and expenses of any legal counsel whom it may employ to
represent it separately in connection with or on
account of the proposed offering by the Company other
than counsel fees relating to blue-sky filings as
provided in the following sentence. To the extent blue-
sky work is undertaken by counsel to the Placement
Agent authorized in writing by the Company pursuant to
paragraph 9 hereof, it shall be separately billed to
the Company and shall be the financial obligation of
the Company. Commencing on the date of this Agreement,
and continuing until the earlier to occur of (a) two
months from the date of this Agreement or (b) the
completion of the Offering, the Company shall advance
to the Placement Agent or its designee up to $15,000
for a non-accountable expense allowance, payable in
three (3) installments as follows: (1) $5,000 on the
date of this Agreement, (2) one (1) month from the date
of this Agreement, and (3) two (2) months form the date
of this Agreement.
14. Representations of the Company. The Company
represents and warrants that no officer, director or
shareholder of the Company is a member of the NASD, an
employee or associated member of the NASD, with the
exception of Richard Huson. The Company represents and
Warrants that it has not promised or represented to any
person that any part of the Shares will be directed or
otherwise made available to them in connection with the
proposed Offering. The Company represents that it has
separately disclosed to the Placement Agent all
conflicts of interest involving officers, directors,
principal shareholders and /or employees.
15. 1934 Act Registration and Quarterly Reports to
Shareholders, Quotation on NASDAQ, Listing in Moody's,
Transfer Agent. The Company represents that it will
prepare and file a Form 8-A or a Form 10 with the SEC
under the Securities Exchange Act of 1934, as amended,
as soon as possible but no later than one year after
the successful termination of the Offering. The
Company agrees that for at least five years after its
Common Stock is registered under the Securities
Exchange Act of 1934 the Company will issue to the
Company's shareholders, within 45 days
4
<PAGE>
after the end of the Company's first three fiscal
quarters, quarterly reports containing unaudited
financial information. The Company, upon request of
the Placement Agent, will promptly upon becoming
eligible apply for quotation on the NASD Automatic
Quotation System, if the Company believes that such
filing is in the best interests of the Company.
16. The Placement Agent may suggest a nominee for the
Board of Directors upon closing of this Offering. The
Board of Directors may nominate such person for
election to the Board of Directors if the Board of
Directors believes that such nomination is in the best
interests of the Company.
If this letter correctly sets forth our understanding, please so
indicate by signing and returning to us the enclosed copy of this
letter.
Very truly yours,
TRAVIS MORGAN SECURITIES, INC.
By ___________________________
JOSEPH CERBONE, PRESIDENT
Understood and accepted
On ______________, 1998
______________________
By_______________
_________________,President
5
EXHIBIT 3.4
BYLAWS
OF
CASINOVATIONS INCORPORATED
A WASHINGTON CORPORATION
Adopted by the Board of Directors as of May ___, 1998.
<PAGE>
TABLE OF CONTENTS
PAGE NUMBER
ARTICLE I SHAREHOLDERS.........................................4
SECTION 1. ANNUAL MEETING...................................4
SECTION 2. SPECIAL MEETING..................................4
SECTION 3. PLACE OF MEETINGS................................4
SECTION 4. NOTICE...........................................4
SECTION 5. WAIVER OF NOTICE.................................4
SECTION 6. QUORUM...........................................5
SECTION 7. PROXY AND VOTING.................................5
SECTION 8. ACTION WITHOUT A MEETING.........................5
SECTION 9. CONFERENCE TELEPHONE.............................5
SECTION 10. ADJOURNMENT......................................5
ARTICLE II BOARD OF DIRECTORS..................................6
SECTION 1. NUMBER, TENURE AND QUALIFICATIONS................6
SECTION 2. ELECTION - TERM OF OFFICE........................6
SECTION 3. POWERS OF DIRECTORS..............................6
SECTION 4. REGULAR MEETINGS.................................6
SECTION 5. SPECIAL MEETINGS.................................6
SECTION 6. NOTICE...........................................6
SECTION 7. WAIVER OF NOTICE.................................7
SECTION 8. CONFERENCE TELEPHONE.............................7
SECTION 9. QUORUM OF DIRECTORS..............................7
SECTION 10. ADJOURNMENT......................................7
SECTION 11. ACTION WITHOUT A MEETING.........................7
SECTION 12. RESIGNATION AND REMOVAL..........................8
SECTION 13. VACANCIES........................................8
SECTION 14. COMPENSATION.....................................8
SECTION 15. PRESUMPTION OF ASSENT............................8
SECTION 16. COMMITTEES.......................................8
ARTICLE III OFFICERS...........................................9
SECTION 1. POSITIONS........................................9
SECTION 2. ADDITIONAL OFFICERS AND AGENTS...................9
SECTION 3. APPOINT AND TERM OF OFFICE.......................9
SECTION 4. POWERS AND DUTIES................................9
SECTION 5. SALARIES........................................10
SECTION 6. RESIGNATION OR REMOVAL..........................10
SECTION 7. VACANCIES.......................................10
2
<PAGE>
ARTICLE IV CERTIFICATES OF SHARES AND THEIR TRANSFER..........11
SECTION 1. ISSUANCE; CERTIFICATES OF SHARES................11
SECTION 2. TRANSFER OF STOCK...............................11
SECTION 3. LOSS OF CERTIFICATES............................11
SECTION 4. TRANSFER BOOKS..................................11
SECTION 5. VOTING RECORD...................................12
ARTICLE V BOOKS AND RECORDS; FINANCIAL STATEMENTS.............12
SECTION 1. BOOKS AND RECORDS...............................12
SECTION 2. FINANCIAL STATEMENTS............................13
ARTICLE VI INDEMNIFICATION OF OFFICERS DIRECTORS,
EMPLOYEES AND AGENTS..............................13
SECTION 1. DEFINITIONS.....................................13
SECTION 2. RIGHT TO INDEMNIFICATION........................14
SECTION 3. CONTRIBUTION....................................14
SECTION 4. NOTIFICATION AND DEFENSE OF CLAIM...............14
SECTION 5. CERTAIN PROCEDURES RELATING TO
INDEMNIFICATION................................15
SECTION 6. RIGHT OF INDEMNITEE TO BRING SUIT...............16
SECTION 7. INDEMNIFICATION OF EMPLOYEES AND
AGENTS OF THE CORPORATION......................16
SECTION 8. CONTRACT RIGHT..................................16
SECTION 9. SEVERABILITY....................................16
ARTICLE VII AMENDMENTS........................................17
SECTION 1. BY THE SHAREHOLDERS.............................17
SECTION 2. BY THE BOARD OF DIRECTORS.......................17
3
<PAGE>
ARTICLE I
SHAREHOLDERS
SECTION 1. ANNUAL MEETING.
The annual meeting of the shareholders of this
corporation for the election of directors and for the transaction
of such other business as properly may be submitted to such
annual meeting, shall be held each year on a date and at a time
designated by the Board of Directors. The date so designated
shall be within five months after the end of the fiscal year and
within fifteen months after the last annual meeting, at which the
stockholders elected directors. 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's 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.
4
<PAGE>
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. 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
5
<PAGE>
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.
6
<PAGE>
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.
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.
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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
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shareholders; (c) fill 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 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
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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 from office any 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 office of any officer or agent becomes
vacant by any reason, the directors may, by the affirmative
vote of a majority of the directors, choose a successor or
successors who shall hold office for the unexpired term.
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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 may be, shall be the record date 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.
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SECTION 5. VOTING RECORD.
The 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;
(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;
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(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.
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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 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
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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.
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
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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
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 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. SEVERABILITY.
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.
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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.
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CERTIFICATE OF SECRETARY
I hereby certify that I am the Secretary of
Casinovations Incorporated, a Washington corporation, and that
the foregoing Bylaws, consisting of ______ pages, constitute the
code of Bylaws of Casinovations Incorporated, as duly adopted by
the unanimous written consent of the Board of Directors as of
Casinovations Incorporated, a Washington corporation.
IN WITNESS WHEREOF, I have hereunto subscribed my name
this _____ day of May, 1998.
________________________________
JAY L. KING, SECRETARY
ATTEST:
_____________________________
By: STEVEN J. BLAD, PRESIDENT
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EXHIBIT 10.17
CONVERTIBLE UNSECURED NOTE
OF
CASINOVATIONS INCORPORATED
NO._________ $100,000.00
CASINOVATIONS INCORPORATED, a Washington corporation (the
"Corporation") for good and valuable consideration, the receipt
of which is hereby acknowledged, hereby promises to pay to VIP'S
Industries, Inc., (the "Holder") at 29757 SW Boones Ferry Road
Wilsonville, OR 97070,the sum of One Hundred Thousand Dollars
($100,000.00) with interest thereon at six percent (6%) per annum
(calculated on a three hundred and sixty (360) day year), payable
on or before January 31, 1999. Interest shall accrue from
December 19, 1997.
1. CONVERTIBLE. The Corporation agrees to exchange the
entire principal and interest of this note, or any portion
thereof, at the holder's option, for shares of the Common Stock
of the Corporation (the "Shares") based upon the following
formula:
One share of Common Stock for every Two Dollars and
Ninety-Eight Cents ($2.98) of PRINCIPAL ONLY. In the
event that prior to the conversion of this note to common
stock the Corporation shall undergo a reorganization
or recapitalization of its Common Stock, the
conversion ratio stated herein shall be adjusted up or
down in direct proportion to the increase or decrease
of the Corporation's Common Stock by reason of such
reorganization or recapitulate.
The portion of any principal converted to Shares shall bear
no interest under this note and the Corporation shall be under no
obligation to pay interest, whether accrued or not, on the
converted principal. For example, if the Holder converts all of
the principal, no interest shall have accrued under this Note.
If the Holder only converts 1/2 of the principal, then interest
shall only have accrued on the 1/2 of the principal not
converted.
The Holder cannot make the election to convert the note or
any portion thereof until after December 31, 1998. After
December 31, 1998, the Holder may elect to convert the note to
Shares, provided that such election is made prior to January 31,
1999 (the "Expiration Date") and is made in compliance with the
terms and conditions provided herein. The Holder shall elect to
exercise the conversion, if at all, by timely surrendering to the
Corporation this note, together with the written exercise (per
Exhibit "A"), on or before the expiration date stated
hereinabove.
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 1 of 6
<PAGE>
Within a reasonable time following the election to convert
the shares by the Holder, the Corporation shall cause to be
issued in the name of and delivered to the Holder a certificate
or certificates for the Shares.
No fractional Shares shall be converted under this Note.
2 INVESTMENT. The Holder agrees that at the time of
converting this note, the Holder will sign, if requested, a
written agreement with the Corporation in which the Holder
represents that the Holder is acquiring the Shares solely for the
Holder's own account, for investment and not with a view for
resale or distribution. The Shares acquired herein shall have
registration rights that require the Corporation to register with
the Securities and Exchange Commission, as part of any future
registration of its shares, the Shares convertible by this Note.
3. DIVIDENDS. The Holder shall only be permitted to vote
the Shares and participate in dividends after the note is
converted as provided in paragraph 1 herein above. Dividends
declared, but not paid prior to the conversion of this note,
shall not be paid to the Holder of this note.
4. REPRESENTATIONS OF HOLDER. The Holder warrants and
represents the following:
(a) SECURITIES. Holder acknowledges that this note and the
Shares that may be converted under this note have not been
registered under the Securities Act of 1993, nor any other
securities act. By accepting the note, the Holder agrees to be
bound by the restrictions imposed by law. The Holder warrants
that this note and the Shares 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 from the registration requirements of Federal
and State securities laws. By accepting the note or converting
the note to the shares of common stock evidenced by this
Agreement, the Holder agrees to be bound by all restrictions
imposed by law.
(b) RELIANCE. The Holder acknowledges and warrants that he
has not relied upon any representation of the Corporation, or its
agents and representatives regarding the financial status or
business condition of the Corporation. The Holder warrants that
it has investigated the business of the Corporation and has
independently reached a conclusion as to its viability.
(c) DILUTION. The Holder acknowledges that any Shares
issued upon the subsequent conversion of this Note may be
substantially diluted for many reasons including but not limited
to the lack of pre-emptive rights, a public offering and/or
additional investors.
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 2 of 6
<PAGE>
5. RIGHTS. This Note shall not entitle the Holder to any
rights afforded holders of the Shares of the Corporation,
including, but not limited to, the right to vote, the right to
exercise any preemptive right, the right to share in dividends,
or any other right pertaining to the Shares.
6. TERMINATION OF CONVERSION RIGHTS UPON THE HAPPENING OF
CERTAIN ADDITIONAL EVENTS. Notwithstanding any other provision
hereof, the conversion rights will expire and become void if:
(a) The Corporation is voluntarily or involuntarily
dissolved, liquidated, wound up, or merged into or with another
entity;
(b) The Holder does not timely exercise his note; or
(c) The Holder is voluntarily or involuntarily liquidated,
is in bankruptcy, or is declared insolvent.
7. UNSECURED. The obligations of the Corporation under
this note are unsecured.
8. MISCELLANEOUS
(a) NONTRANSFERABILITY. The Holder will not pledge,
hypothecate, assign, sell or otherwise transfer, in any manner or
form, or encumber this Note as this Note is not transferable in
any manner or form, whether direct or indirectly except to
Holder's estate, personal representative or executor.
(b) NOTICES- Any notice, offer, acceptance, demand,
request, consent, or other communication required or permitted
under this note must be in writing and will be deemed to have
been duly given or made either (1) when delivered personally to
the party to whom it is directed (or any officer or agent of such
party), or (2) three (3) days after being deposited in the United
States' mail, certified or registered, postage prepaid, return
receipt requested, and properly addressed to the party to whom it
is directed. A communication will be deemed to he properly
addressed if sent to a party at the address provided below:
If to the Corporation:
Casinovations Incorporated
Suite 311
3909 South Maryland Parkway
Las Vegas, NV 89119
Attn: Jay King
If to the Holder:
VIP'S Industries, Inc.
29757 SW Boones Ferry Road
Wilsonville, OR 97070
Attn: Steven V. Johnson
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 3 of 6
<PAGE>
(c) GOVERNING LAW. This note will be governed by and
construed and enforced in accordance with the laws of the State
of Nevada with venue and jurisdictions in Clark County, State of
Nevada.
(d) SUCCESSORS AND ASSIGNS. All of the provisions of this
note will bind the Corporation, its successors and assigns, the
Holder, and the Holder's heirs, personal representative, and
guardians.
(e) LEGAL REPRESENTATION. Each party hereto hereby
stipulates that he has been represented by counsel of his own
choosing in connection with this Note. Each party has had the
contents of this Note fully explained by his respective counsel
and each party is fully aware of the contents of this Note and
its legal effect or has waived right to independent counsel even
though they have been timely advised to obtain independent legal
counsel.
(f) SCHEDULES AND EXHIBITS. All schedules and exhibits
attached to this Agreement shall be deemed part of this Note and
incorporated herein, where applicable, as if fully set forth
herein.
(g) COUNTERPARTS. This Note may be executed simultaneously
in any number of counterparts and/or by facsimile, each of which
shall be deemed an original and all of which shall constitute one
and the same instrument.
(i) INTERPRETATION. This Note 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.
(j) LEGAL FEES. If there is any action, including
arbitration, at law or in equity to enforce any of the provision
or rights under this Note, the unsuccessful party of such
arbitration or litigation, as determined by the Tribunal in a
final judgement or decree, shall pay the successful party or
parties all costs, expenses and reasonable attorney's fees
incurred therein by such party or parties (including without
limitation such costs, expenses and fees on any appeals), and if
such successful party shall recover judgement in any such action
or proceeding, such costs, expenses and attorney's fees shall be
included as part of such judgement.
(k) NECESSARY DOCUMENT. The parties above agree to execute
any and all documents that may be necessary to effectuate this
Note.
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 4 of 6
<PAGE>
IN WITNESS OF THE PARTIES AGREEMENT, the Corporation has
caused this note to be executed in its corporate name by its duly
appointed and authorized officer, as of this ___________ day of
December, 1997.
ATTEST: CASINOVATIONS INCORPORATED
/s/ Jay L. King /s/
_________________________ ____________________________
Its Secretary Its Chairman
Accepted and agreed to by:
/s/ Steven V. Johnson
Holder - VIP'S Industries, Inc.
Steven V. Johnson, President
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 5 of 6
<PAGE>
EXHIBIT "A"
ELECTION TO CONVERT
Ladies and Gentlemen:
The undersigned hereby irrevocably convert $_____________
of its principal under the Convertible Unsecured Note for
_______________ (_____) shares of the common stock of
Casinovations Incorporated, a Washington corporation The
undersigned requests that a certificate for such shares be issued
in the name of the undersigned and delivered to the undersigned
at the address listed below.
Dated:___________________ ____________________________________
___________________________________
Address
___________________________________
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 6 of 6
<PAGE>
CONVERTIBLE UNSECURED NOTE
OF
CASINOVATIONS INCORPORATED
NO._________ $50,000.00
CASINOVATIONS INCORPORATED, a Washington corporation (the
"Corporation") for good and valuable consideration, the receipt
of which is hereby acknowledged, hereby promises to pay to David
Goldsmith, (the "Holder") at 630 Third Avenue New York, NY
10017,the sum of Fifty Thousand Dollars ($50,000.00) with
interest thereon at six percent (6%) per annum (calculated on a
three hundred and sixty (360) day year), payable on or before
January 31, 1999. Interest shall accrue from January 8, 1998.
1. CONVERTIBLE. The Corporation agrees to exchange the
entire principal and interest of this note, or any portion
thereof, at the holder's option, for shares of the Common Stock
of the Corporation (the "Shares") based upon the following
formula:
One share of Common Stock for every Two Dollars and
Ninety-Eight Cents ($2.98) of PRINCIPAL ONLY. In the
event that prior to the conversion of this note to
common stock the Corporation shall undergo a
reorganization or recapitalization of its Common Stock,
the conversion ratio stated herein shall be adjusted up
or down in direct proportion to the increase or
decrease of the Corporation's Common Stock by reason of
such reorganization or recapitulate.
The portion of any principal converted to Shares shall bear
no interest under this note and the Corporation shall be under no
obligation to pay interest, whether accrued or not, on the
converted principal. For example, if the Holder converts all of
the principal, no interest shall have accrued under this Note.
If the Holder only converts 1/2 of the principal, then interest
shall only have accrued on the 1/2 of the principal not
converted.
The Holder cannot make the election to convert the note or
any portion thereof until after December 31, 1998. After
December 31, 1998, the Holder may elect to convert the note to
Shares, provided that such election is made prior to January 31,
1999 (the "Expiration Date") and is made in compliance with the
terms and conditions provided herein. The Holder shall elect to
exercise the conversion, if at all, by timely surrendering to the
Corporation this note, together with the written exercise (per
Exhibit "A"), on or before the expiration date stated
hereinabove.
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 1 of 6
<PAGE>
Within a reasonable time following the election to convert
the shares by the Holder, the Corporation shall cause to be
issued in the name of and delivered to the Holder a certificate
or certificates for the Shares.
No fractional Shares shall be converted under this Note.
2 INVESTMENT. The Holder agrees that at the time of
converting this note, the Holder will sign, if requested, a
written agreement with the Corporation in which the Holder
represents that the Holder is acquiring the Shares solely for the
Holder's own account, for investment and not with a view for
resale or distribution. The Shares acquired herein shall have
registration rights that require the Corporation to register with
the Securities and Exchange Commission, as part of any future
registration of its shares, the Shares convertible by this Note.
3. DIVIDENDS. The Holder shall only be permitted to vote
the Shares and participate in dividends after the note is
converted as provided in paragraph 1 herein above. Dividends
declared, but not paid prior to the conversion of this note,
shall not be paid to the Holder of this note.
4. REPRESENTATIONS OF HOLDER. The Holder warrants and
represents the following:
(a) SECURITIES. Holder acknowledges that this note and the
Shares that may be converted under this note have not been
registered under the Securities Act of 1993, nor any other
securities act. By accepting the note, the Holder agrees to be
bound by the restrictions imposed by law. The Holder warrants
that this note and the Shares 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 from the registration requirements of Federal and
State securities laws. By accepting the note or converting the
note to the shares of common stock evidenced by this Agreement,
the Holder agrees to be bound by all restrictions imposed by law.
(b) RELIANCE. The Holder acknowledges and warrants that he
has not relied upon any representation of the Corporation, or its
agents and representatives regarding the financial status or
business condition of the Corporation. The Holder warrants that
it has investigated the business of the Corporation and has
independently reached a conclusion as to its viability.
(c) DILUTION. The Holder acknowledges that any Shares
issued upon the subsequent conversion of this Note may be
substantially diluted for many reasons including but not limited
to the lack of pre-emptive rights, a public offering and/or
additional investors.
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 2 of 6
<PAGE>
5. RIGHTS. This Note shall not entitle the Holder to any
rights afforded holders of the Shares of the Corporation,
including, but not limited to, the right to vote, the right to
exercise any preemptive right, the right to share in dividends,
or any other right pertaining to the Shares.
6. TERMINATION OF CONVERSION RIGHTS UPON THE HAPPENING OF
CERTAIN ADDITIONAL EVENTS. Notwithstanding any other provision
hereof, the conversion rights will expire and become void if:
(a) The Corporation is voluntarily or involuntarily
dissolved, liquidated, wound up, or merged into or with another
entity;
(b) The Holder does not timely exercise his note; or
(c) The Holder is voluntarily or involuntarily liquidated,
is in bankruptcy, or is declared insolvent.
7. UNSECURED. The obligations of the Corporation under
this note are unsecured.
8. MISCELLANEOUS
(a) NONTRANSFERABILITY. The Holder will not pledge,
hypothecate, assign, sell or otherwise transfer, in any manner or
form, or encumber this Note as this Note is not transferable in
any manner or form, whether direct or indirectly except to
Holder's estate, personal representative or executor.
(b) NOTICES- Any notice, offer, acceptance, demand,
request, consent, or other communication required or permitted
under this note must be in writing and will be deemed to have
been duly given or made either (1) when delivered personally to
the party to whom it is directed (or any officer or agent of such
party), or (2) three (3) days after being deposited in the United
States' mail, certified or registered, postage prepaid, return
receipt requested, and properly addressed to the party to whom it
is directed. A communication will be deemed to he properly
addressed if sent to a party at the address provided below:
If to the Corporation:
Casinovations Incorporated
Suite 311
3909 South Maryland Parkway
Las Vegas, NV 89119
Attn: Jay King
If to the Holder:
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 3 of 6
<PAGE>
(c) GOVERNING LAW. This note will be governed by and
construed and enforced in accordance with the laws of the State
of Nevada with venue and jurisdictions in Clark County, State of
Nevada.
(d) SUCCESSORS AND ASSIGNS. All of the provisions of this
note will bind the Corporation, its successors and assigns, the
Holder, and the Holder's heirs, personal representative, and
guardians.
(e) LEGAL REPRESENTATION. Each party hereto hereby
stipulates that he has been represented by counsel of his own
choosing in connection with this Note. Each party has had the
contents of this Note fully explained by his respective counsel
and each party is fully aware of the contents of this Note and
its legal effect or has waived right to independent counsel even
though they have been timely advised to obtain independent legal
counsel.
(f) SCHEDULES AND EXHIBITS. All schedules and exhibits
attached to this Agreement shall be deemed part of this Note and
incorporated herein, where applicable, as if fully set forth
herein.
(g) COUNTERPARTS. This Note may be executed simultaneously
in any number of counterparts and/or by facsimile, each of which
shall be deemed an original and all of which shall constitute one
and the same instrument.
(i) INTERPRETATION. This Note 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.
(j) LEGAL FEES. If there is any action, including
arbitration, at law or in equity to enforce any of the provision
or rights under this Note, the unsuccessful party of such
arbitration or litigation, as determined by the Tribunal in a
final judgement or decree, shall pay the successful party or
parties all costs, expenses and reasonable attorney's fees
incurred therein by such party or parties (including without
limitation such costs, expenses and fees on any appeals), and if
such successful party shall recover judgement in any such action
or proceeding, such costs, expenses and attorney's fees shall be
included as part of such judgement.
(k) NECESSARY DOCUMENT. The parties above agree to execute
any and all documents that may be necessary to effectuate this
Note.
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 4 of 6
<PAGE>
IN WITNESS OF THE PARTIES AGREEMENT, the Corporation has
caused this note to be executed in its corporate name by its duly
appointed and authorized officer, as of this ___________ day of
December, 1997.
ATTEST: CASINOVATIONS INCORPORATED
/s/ Jay L. King /s/
__________________________ _____________________________
Its Secretary Its Chairman
Accepted and agreed to by:
/s/ David Goldsmith
Holder
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 5 of 6
<PAGE>
EXHIBIT "A"
ELECTION TO CONVERT
Ladies and Gentlemen:
The undersigned hereby irrevocably convert $_____________ of
its principal under the Convertible Unsecured Note for
_______________ (_____) shares of the common stock of
Casinovations Incorporated, a Washington corporation The
undersigned requests that a certificate for such shares be issued
in the name of the undersigned and delivered to the undersigned
at the address listed below.
Dated:___________________ ___________________________________
___________________________________
Address
___________________________________
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 6 of 6
<PAGE>
CONVERTIBLE UNSECURED NOTE
OF
CASINOVATIONS INCORPORATED
NO._________ $50,000.00
CASINOVATIONS INCORPORATED, a Washington corporation (the
"Corporation") for good and valuable consideration, the receipt
of which is hereby acknowledged, hereby promises to pay to Jay
Willoughby, (the "Holder") at 103 St. Clair Court Princeton, NJ
08540,the sum of Fifty Thousand Dollars ($50,000.00) with
interest thereon at six percent (6%) per annum (calculated on a
three hundred and sixty (360) day year), payable on or before
January 31, 1999. Interest shall accrue from January 5, 1998.
1. CONVERTIBLE. The Corporation agrees to exchange the
entire principal and interest of this note, or any portion
thereof, at the holder's option, for shares of the Common Stock
of the Corporation (the "Shares") based upon the following
formula:
One share of Common Stock for every Two Dollars and
Ninety-Eight Cents ($2.98) of PRINCIPAL ONLY. In the
event that prior to the conversion of this note to
common stock the Corporation shall undergo a
reorganization or recapitalization of its Common Stock,
the conversion ratio stated herein shall be adjusted up
or down in direct proportion to the increase or
decrease of the Corporation's Common Stock by reason of
such reorganization or recapitulate.
The portion of any principal converted to Shares shall bear
no interest under this note and the Corporation shall be under no
obligation to pay interest, whether accrued or not, on the
converted principal. For example, if the Holder converts all of
the principal, no interest shall have accrued under this Note.
If the Holder only converts 1/2 of the principal, then interest
shall only have accrued on the 1/2 of the principal not
converted.
The Holder cannot make the election to convert the note or
any portion thereof until after December 31, 1998. After
December 31, 1998, the Holder may elect to convert the note to
Shares, provided that such election is made prior to January 31,
1999 (the "Expiration Date") and is made in compliance with the
terms and conditions provided herein. The Holder shall elect to
exercise the conversion, if at all, by timely surrendering to the
Corporation this note, together with the written exercise (per
Exhibit "A"), on or before the expiration date stated
hereinabove.
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 1 of 6
<PAGE>
Within a reasonable time following the election to convert
the shares by the Holder, the Corporation shall cause to be
issued in the name of and delivered to the Holder a certificate
or certificates for the Shares.
No fractional Shares shall be converted under this Note.
2 INVESTMENT. The Holder agrees that at the time of
converting this note, the Holder will sign, if requested, a
written agreement with the Corporation in which the Holder
represents that the Holder is acquiring the Shares solely for the
Holder's own account, for investment and not with a view for
resale or distribution. The Shares acquired herein shall have
registration rights that require the Corporation to register with
the Securities and Exchange Commission, as part of any future
registration of its shares, the Shares convertible by this Note.
3. DIVIDENDS. The Holder shall only be permitted to vote
the Shares and participate in dividends after the note is
converted as provided in paragraph 1 herein above. Dividends
declared, but not paid prior to the conversion of this note,
shall not be paid to the Holder of this note.
4. REPRESENTATIONS OF HOLDER. The Holder warrants and
represents the following:
(a) SECURITIES. Holder acknowledges that this note and the
Shares that may be converted under this note have not been
registered under the Securities Act of 1993, nor any other
securities act. By accepting the note, the Holder agrees to be
bound by the restrictions imposed by law. The Holder warrants
that this note and the Shares 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 from the registration requirements of Federal and
State securities laws. By accepting the note or converting the
note to the shares of common stock evidenced by this Agreement,
the Holder agrees to be bound by all restrictions imposed by law.
(b) RELIANCE. The Holder acknowledges and warrants that he
has not relied upon any representation of the Corporation, or its
agents and representatives regarding the financial status or
business condition of the Corporation. The Holder warrants that
it has investigated the business of the Corporation and has
independently reached a conclusion as to its viability.
(c) DILUTION. The Holder acknowledges that any Shares
issued upon the subsequent conversion of this Note may be
substantially diluted for many reasons including but not limited
to the lack of pre-emptive rights, a public offering and/or
additional investors.
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 2 of 6
<PAGE>
5. RIGHTS. This Note shall not entitle the Holder to any
rights afforded holders of the Shares of the Corporation,
including, but not limited to, the right to vote, the right to
exercise any preemptive right, the right to share in dividends,
or any other right pertaining to the Shares.
6. TERMINATION OF CONVERSION RIGHTS UPON THE HAPPENING OF
CERTAIN ADDITIONAL EVENTS. Notwithstanding any other provision
hereof, the conversion rights will expire and become void if:
(a) The Corporation is voluntarily or involuntarily
dissolved, liquidated, wound up, or merged into or with another
entity;
(b) The Holder does not timely exercise his note; or
(c) The Holder is voluntarily or involuntarily liquidated,
is in bankruptcy, or is declared insolvent.
7. UNSECURED. The obligations of the Corporation under
this note are unsecured.
8. MISCELLANEOUS
(a) NONTRANSFERABILITY. The Holder will not pledge,
hypothecate, assign, sell or otherwise transfer, in any manner or
form, or encumber this Note as this Note is not transferable in
any manner or form, whether direct or indirectly except to
Holder's estate, personal representative or executor.
(b) NOTICES- Any notice, offer, acceptance, demand,
request, consent, or other communication required or permitted
under this note must be in writing and will be deemed to have
been duly given or made either (1) when delivered personally to
the party to whom it is directed (or any officer or agent of such
party), or (2) three (3) days after being deposited in the United
States' mail, certified or registered, postage prepaid, return
receipt requested, and properly addressed to the party to whom it
is directed. A communication will be deemed to he properly
addressed if sent to a party at the address provided below:
If to the Corporation:
Casinovations Incorporated
Suite 311
3909 South Maryland Parkway
Las Vegas, NV 89119
Attn: Jay King
If to the Holder:
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 3 of 6
<PAGE>
(c) GOVERNING LAW. This note will be governed by and
construed and enforced in accordance with the laws of the State
of Nevada with venue and jurisdictions in Clark County, State of
Nevada.
(d) SUCCESSORS AND ASSIGNS. All of the provisions of this
note will bind the Corporation, its successors and assigns, the
Holder, and the Holder's heirs, personal representative, and
guardians.
(e) LEGAL REPRESENTATION. Each party hereto hereby
stipulates that he has been represented by counsel of his own
choosing in connection with this Note. Each party has had the
contents of this Note fully explained by his respective counsel
and each party is fully aware of the contents of this Note and
its legal effect or has waived right to independent counsel even
though they have been timely advised to obtain independent legal
counsel.
(f) SCHEDULES AND EXHIBITS. All schedules and exhibits
attached to this Agreement shall be deemed part of this Note and
incorporated herein, where applicable, as if fully set forth
herein.
(g) COUNTERPARTS. This Note may be executed simultaneously
in any number of counterparts and/or by facsimile, each of which
shall be deemed an original and all of which shall constitute one
and the same instrument.
(i) INTERPRETATION. This Note 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.
(j) LEGAL FEES. If there is any action, including
arbitration, at law or in equity to enforce any of the provision
or rights under this Note, the unsuccessful party of such
arbitration or litigation, as determined by the Tribunal in a
final judgement or decree, shall pay the successful party or
parties all costs, expenses and reasonable attorney's fees
incurred therein by such party or parties (including without
limitation such costs, expenses and fees on any appeals), and if
such successful party shall recover judgement in any such action
or proceeding, such costs, expenses and attorney's fees shall be
included as part of such judgement.
(k) NECESSARY DOCUMENT. The parties above agree to execute
any and all documents that may be necessary to effectuate this
Note.
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 4 of 6
<PAGE>
IN WITNESS OF THE PARTIES AGREEMENT, the Corporation has
caused this note to be executed in its corporate name by its duly
appointed and authorized officer, as of this ___________ day of
December, 1997.
ATTEST: CASINOVATIONS INCORPORATED
/s/ Jay L. King /s/
__________________________ _____________________________
Its Secretary Its Chairman
Accepted and agreed to by:
/s/ Jay Willoughby
Holder
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 5 of 6
<PAGE>
EXHIBIT "A"
ELECTION TO CONVERT
Ladies and Gentlemen:
The undersigned hereby irrevocably convert $_____________ of
its principal under the Convertible Unsecured Note for
_______________ (_____) shares of the common stock of
Casinovations Incorporated, a Washington corporation The
undersigned requests that a certificate for such shares be issued
in the name of the undersigned and delivered to the undersigned
at the address listed below.
Dated:___________________ ___________________________________
___________________________________
Address
___________________________________
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 6 of 6
<PAGE>
CONVERTIBLE UNSECURED NOTE
OF
CASINOVATIONS INCORPORATED
NO._________ $150,000.00
CASINOVATIONS INCORPORATED, a Washington corporation (the
"Corporation") for good and valuable consideration, the receipt
of which is hereby acknowledged, hereby promises to pay to
Richard Huson, (the "Holder") at 121 SW Morrison Avenue Portland,
OR 97204,the sum of One Hundred Fifty Thousand Dollars
($150,000.00) with interest thereon at six percent (6%) per annum
(calculated on a three hundred and sixty (360) day year), payable
on or before January 31, 1999. Interest shall accrue from
January 8, 1998.
1. CONVERTIBLE. The Corporation agrees to exchange the
entire principal and interest of this note, or any portion
thereof, at the holder's option, for shares of the Common Stock
of the Corporation (the "Shares") based upon the following
formula:
One share of Common Stock for every Two Dollars and
Ninety-Eight Cents ($2.98) of PRINCIPAL ONLY. In the
event that prior to the conversion of this note to
common stock the Corporation shall undergo a
reorganization or recapitalization of its Common Stock,
the conversion ratio stated herein shall be adjusted up
or down in direct proportion to the increase or
decrease of the Corporation's Common Stock by reason of
such reorganization or recapitulate.
The portion of any principal converted to Shares shall bear
no interest under this note and the Corporation shall be under no
obligation to pay interest, whether accrued or not, on the
converted principal. For example, if the Holder converts all of
the principal, no interest shall have accrued under this Note.
If the Holder only converts 1/2 of the principal, then interest
shall only have accrued on the 1/2 of the principal not
converted.
The Holder cannot make the election to convert the note or
any portion thereof until after December 31, 1998. After
December 31, 1998, the Holder may elect to convert the note to
Shares, provided that such election is made prior to January 31,
1999 (the "Expiration Date") and is made in compliance with the
terms and conditions provided herein. The Holder shall elect to
exercise the conversion, if at all, by timely surrendering to the
Corporation this note, together with the written exercise (per
Exhibit "A"), on or before the expiration date stated
hereinabove.
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 1 of 6
<PAGE>
Within a reasonable time following the election to convert
the shares by the Holder, the Corporation shall cause to be
issued in the name of and delivered to the Holder a certificate
or certificates for the Shares.
No fractional Shares shall be converted under this Note.
2 INVESTMENT. The Holder agrees that at the time of
converting this note, the Holder will sign, if requested, a
written agreement with the Corporation in which the Holder
represents that the Holder is acquiring the Shares solely for the
Holder's own account, for investment and not with a view for
resale or distribution. The Shares acquired herein shall have
registration rights that require the Corporation to register with
the Securities and Exchange Commission, as part of any future
registration of its shares, the Shares convertible by this Note.
3. DIVIDENDS. The Holder shall only be permitted to vote
the Shares and participate in dividends after the note is
converted as provided in paragraph 1 herein above. Dividends
declared, but not paid prior to the conversion of this note,
shall not be paid to the Holder of this note.
4. REPRESENTATIONS OF HOLDER. The Holder warrants and
represents the following:
(a) SECURITIES. Holder acknowledges that this note and the
Shares that may be converted under this note have not been
registered under the Securities Act of 1993, nor any other
securities act. By accepting the note, the Holder agrees to be
bound by the restrictions imposed by law. The Holder warrants
that this note and the Shares 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 from the registration requirements of Federal and
State securities laws. By accepting the note or converting the
note to the shares of common stock evidenced by this Agreement,
the Holder agrees to be bound by all restrictions imposed by law.
(b) RELIANCE. The Holder acknowledges and warrants that he
has not relied upon any representation of the Corporation, or its
agents and representatives regarding the financial status or
business condition of the Corporation. The Holder warrants that
it has investigated the business of the Corporation and has
independently reached a conclusion as to its viability.
(c) DILUTION. The Holder acknowledges that any Shares
issued upon the subsequent conversion of this Note may be
substantially diluted for many reasons including but not limited
to the lack of pre-emptive rights, a public offering and/or
additional investors.
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 2 of 6
<PAGE>
5. RIGHTS. This Note shall not entitle the Holder to any
rights afforded holders of the Shares of the Corporation,
including, but not limited to, the right to vote, the right to
exercise any preemptive right, the right to share in dividends,
or any other right pertaining to the Shares.
6. TERMINATION OF CONVERSION RIGHTS UPON THE HAPPENING OF
CERTAIN ADDITIONAL EVENTS. Notwithstanding any other provision
hereof, the conversion rights will expire and become void if:
(a) The Corporation is voluntarily or involuntarily
dissolved, liquidated, wound up, or merged into or with another
entity;
(b) The Holder does not timely exercise his note; or
(c) The Holder is voluntarily or involuntarily liquidated,
is in bankruptcy, or is declared insolvent.
7. UNSECURED. The obligations of the Corporation under
this note are unsecured.
8. MISCELLANEOUS
(a) NONTRANSFERABILITY. The Holder will not pledge,
hypothecate, assign, sell or otherwise transfer, in any manner or
form, or encumber this Note as this Note is not transferable in
any manner or form, whether direct or indirectly except to
Holder's estate, personal representative or executor.
(b) NOTICES- Any notice, offer, acceptance, demand,
request, consent, or other communication required or permitted
under this note must be in writing and will be deemed to have
been duly given or made either (1) when delivered personally to
the party to whom it is directed (or any officer or agent of such
party), or (2) three (3) days after being deposited in the United
States' mail, certified or registered, postage prepaid, return
receipt requested, and properly addressed to the party to whom it
is directed. A communication will be deemed to he properly
addressed if sent to a party at the address provided below:
If to the Corporation:
Casinovations Incorporated
Suite 311
3909 South Maryland Parkway
Las Vegas, NV 89119
Attn: Jay King
If to the Holder:
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 3 of 6
<PAGE>
(c) GOVERNING LAW. This note will be governed by and
construed and enforced in accordance with the laws of the State
of Nevada with venue and jurisdictions in Clark County, State of
Nevada.
(d) SUCCESSORS AND ASSIGNS. All of the provisions of this
note will bind the Corporation, its successors and assigns, the
Holder, and the Holder's heirs, personal representative, and
guardians.
(e) LEGAL REPRESENTATION. Each party hereto hereby
stipulates that he has been represented by counsel of his own
choosing in connection with this Note. Each party has had the
contents of this Note fully explained by his respective counsel
and each party is fully aware of the contents of this Note and
its legal effect or has waived right to independent counsel even
though they have been timely advised to obtain independent legal
counsel.
(f) SCHEDULES AND EXHIBITS. All schedules and exhibits
attached to this Agreement shall be deemed part of this Note and
incorporated herein, where applicable, as if fully set forth
herein.
(g) COUNTERPARTS. This Note may be executed simultaneously
in any number of counterparts and/or by facsimile, each of which
shall be deemed an original and all of which shall constitute one
and the same instrument.
(i) INTERPRETATION. This Note 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.
(j) LEGAL FEES. If there is any action, including
arbitration, at law or in equity to enforce any of the provision
or rights under this Note, the unsuccessful party of such
arbitration or litigation, as determined by the Tribunal in a
final judgement or decree, shall pay the successful party or
parties all costs, expenses and reasonable attorney's fees
incurred therein by such party or parties (including without
limitation such costs, expenses and fees on any appeals), and if
such successful party shall recover judgement in any such action
or proceeding, such costs, expenses and attorney's fees shall be
included as part of such judgement.
(k) NECESSARY DOCUMENT. The parties above agree to execute
any and all documents that may be necessary to effectuate this
Note.
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 4 of 6
<PAGE>
IN WITNESS OF THE PARTIES AGREEMENT, the Corporation has
caused this note to be executed in its corporate name by its duly
appointed and authorized officer, as of this ___________ day of
December, 1997.
ATTEST: CASINOVATIONS INCORPORATED
/s/ Jay L. King /s/
_________________________ _____________________________
Its Secretary Its Chairman
Accepted and agreed to by:
/s/ Richard S. Huson
Holder
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 5 of 6
<PAGE>
EXHIBIT "A"
ELECTION TO CONVERT
Ladies and Gentlemen:
The undersigned hereby irrevocably convert $_____________ of
its principal under the Convertible Unsecured Note for
_______________ (_____) shares of the common stock of
Casinovations Incorporated, a Washington corporation The
undersigned requests that a certificate for such shares be issued
in the name of the undersigned and delivered to the undersigned
at the address listed below.
Dated:___________________ ___________________________________
___________________________________
Address
___________________________________
CONVERTIBLE UNSECURED NOTE
CASINOVATIONS INCORPORATED
Page 6 of 6
<PAGE>
EXHIBIT 10.18
May 28, 1998
Steven L. Forte
Cheryl Forte
315 Francisco Street
Henderson, Nevada 89014
RE: BINDING LETTER AGREEMENT
Dear Mr. Forte:
This correspondence constitutes a binding letter agreement
(the "Letter Agreement") by and between Casinovations,
Incorporated, a Washington corporation, on the one hand (the
"Company"), and Steven L. and Cheryl Forte, individuals, on the
other hand ("Sellers" and, collectively with the Company, the
"Parties"), in connection with a transaction involving, INTER
ALIA, the severance of the business relationship between the
Company and Sellers and the purchase by the Company of all of the
shares of common stock of the Company ("Common Stock") held by
Sellers. The various elements of the aforementioned transaction
are collectively referred to herein as the "Transaction."
This Letter Agreement is based upon the following terms and
provisions:
1. BINDING INTENT; LIMITATION. Subject to the approval of
the Transaction by the Nevada State Gaming Control Board (the
"Board"), the Parties hereby intend and agree that upon the
execution of this Letter Agreement, all of the terms and
provisions set forth herein shall be binding upon the Parties
hereto.
2. TERMINATION OF LETTER AGREEMENT DATED APRIL 9, 1998.
Whereas the Parties entered into a letter agreement dated April
9, 1998 for, INTER ALIA, the partial repurchase of Sellers equity
interest in the Company, the Parties hereby acknowledge and
understand that said letter agreement is null and void due to the
failure of the Board to provide its approval of the terms and
conditions provided therein.
3. FINAL AGREEMENT. Within forty-five (45) calendar days
after the date of the approval of the Transaction by the Board,
counsel for the Company shall have prepared and the Parties shall
have executed the documents necessary to consummate the
Transaction (the "Documents"). The Documents shall incorporate
all of the terms and provisions of this Letter Agreement
pertaining to the Transaction; provided, however, that the
Company and Sellers hereby understand and agree that
<PAGE>
Steven L. Forte
May 28, 1998
Page 2 of 5
the Documents may more particularly and/or specifically delineate
and/or describe the various terms and provisions thereto than as
such terms and provisions are set out in this Letter Agreement.
4. TERMINATION OF EMPLOYMENT AND NON-COMPETE AGREEMENT.
The employment and non-compete agreement by and between the
Company and Sellers dated March 15, 1996, and as amended June 15,
1996, will be terminated as of the effective date of the
Documents. Accordingly, the aforementioned employment and non-
compete agreement will be null and void as of the effective date
of the Documents. The relationship between the Company and
Sellers after the termination of the employment and non-compete
agreement shall be on a project-by-project basis. Sellers shall
have the option to develop products from the new products list
only if the Company fails to develop such products within a
twelve-month period from the effective date of the Documents.
5. ROYALTY AGREEMENT. Sellers, through his ownership of a
fifty percent interest in the Sines-Forte Partnership, is
entitled to a specified royalty on sales of the Random Ejection
Shuffler and Fantasy 21 table game (the "Royalty"). The Company
hereby agrees to purchase and Sellers hereby agrees to completely
assign, sell, convey and otherwise transfer the Royalty for the
price of Two Hundred Thousand and no/100ths Dollars
($200,000.00). Irrespective of whether the Sines-Forte
Partnership has been dissolved as of the effective date of the
Documents, Sellers hereby agree to completely assign, sell,
convey and otherwise transfer his right to the Royalty as of the
effective date of the Documents.
6. PURCHASE OF OPTION. Sellers are the owner of an option
to purchase 20,000 shares of Common Stock (the "Option").
Subject to the dissolution of the Sines-Forte Partnership, the
Company agrees to purchase and Sellers agree to sell the Option
at the price of $1.50 per underlying share, I.E. Thirty Thousand
and no/100ths Dollars ($30,000.00).
7. PURCHASE OF THE SHARES. Sellers are the owner of
930,682 shares of Common Stock. Subject to the dissolution of
the Sines-Forte Partnership, the Company agrees to purchase and
Sellers agree to sell 848,682 shares of Common Stock (the
"Shares") at the price of $2.50 per share, I.E. Two Million One
Hundred Twenty One Thousand Seven Hundred Five and no/100ths
Dollars ($2,121,705.00). Of the remaining 82,000 shares of
Common Stock, Sellers hereby agree to gift said 82,000 shares to
individuals and/or entities to be determined by Sellers at a time
no later than the effective date of the Documents.
8. PAYMENT FOR THE ROYALTY, THE OPTION PURCHASE AND THE
STOCK PURCHASE. As payment for the Royalty, the Option and the
Shares, the Company shall pay to Sellers Two Million Three
Hundred Fifty-One Thousand Seven Hundred Five and no/100ths
Dollars ($2,351,705.00 U.S.) in the form of a promissory note
(the "Promissory Note").
a. DATE. The Promissory Note shall be dated and
interest shall begin to accrue on even date with the
approval of the sale of the Random Ejection Shuffler by the
Board.
b. INTEREST AND TERM. The Promissory Note shall bear
an interest rate of six and one-half percent (6.5%) during
the first year and eight percent (8%) thereafter.
The Promissory Note shall be amortized over a ten
(10) year period with payments of interest
<PAGE>
Steven L. Forte
May 28, 1998
Page 3 of 5
only during the first year of the note, payable on the six
month and one year anniversary of the note, and payments of
principal and interest thereafter, payable on a monthly
basis. On the fifth anniversary of the Promissory Note, a
balloon payment of the remaining unpaid principal and
interest will be due and payable.
c. SECURITY. The Promissory Note shall be secured
(i) by the Shares and (ii) by a first security interest in
the patents for the Random Ejection Shuffler and Fantasy 21
table game (the "Patents"). The grant of the security
interest, as contemplated by this subsection, shall occur
upon the effective date of the Documents. In the event that
the Company requires the use of the Patents as security for
future financing, Sellers agree to release his first
security interest in the Patents (the "Release") in exchange
for (y) a reduction of fifty percent (50%) in the
outstanding principal of the Promissory Note and (z) a due-
on-sale amendment to the Promissory Note whereby the
remaining balance of the Promissory Note will be due and
owing upon a change of control of the Company.
d. DISCOUNT OF THE PROMISSORY NOTE. If the
Promissory Note is repaid by the Company within 180 days of
the date of the Promissory Note, the Company will be
entitled to a five percent (5%) discount on the outstanding
principal and interest at the time of repayment (the
"Discount").
e. NON-TRANSFERABILITY. The right of the Company to
the Discount and the Release are non-transferable and are
available to the Company only to the extent that there is no
change of control of the Company.
9. PRINCIPAL REDUCTION. In the event that the Company
completes its offering of 1,500,000 shares of Common Stock
presently pending pursuant to that certain U.S. Securities and
Exchange Commission Form SB-2 or SB-2/A (Commission File No. 333-
31373) (the "Offering"), the Company shall, pursuant to the
payment schedule in subsection (a) of this Section 10, reduce the
outstanding principal of the Promissory Note by the amount of
Seven Hundred Fifty Thousand and no/100ths Dollars ($750,000.00).
a. PAYMENT SCHEDULE. The Company will reduce the
outstanding principal of the Promissory Note as follows:
(i) upon the sale of 500,000 shares of Common Stock for
cash, the Company will reduce the outstanding principal of
the Promissory Note in the amount of Two Hundred Fifty
Thousand and no/100ths Dollars ($250,000.00) within fifteen
(15) calendar days after the receipt by the Company of the
proceeds from such sale; and (ii) upon completion of the
Offering, the Company will pay the remaining Five Hundred
Thousand and no/100ths Dollars ($500,000.00) within forty-
five (45) calendar days after the close of the Offering.
b. PRO RATA PRINCIPAL REDUCTION. In the event that
the Company fails to complete the Offering, but sells at
least 500,000 shares of Common Stock for cash, the Company
shall reduce the outstanding principal of the Promissory
Note as follows:
Principal Reduction = $750,000.00 x NUMBER OF SHARES OF
COMMON STOCK SOLD FOR CASH
-----------------------------------
1,500,000 Shares of Common Stock
<PAGE>
Steven L. Forte
May 28, 1998
Page 4 of 5
The pro rata reduction in principal shall be paid in
accordance with subsection (a) of this Section 10, I.E. with
an initial principal reduction of Two Hundred Fifty Thousand
and no/100ths Dollars ($250,000.00) within fifteen (15)
calendar days after the receipt by the Company of the
proceeds from the sale of 500,000 shares of Common Stock for
cash and a subsequent principal reduction of the balance
within forty-five (45) calendar days after the close of the
Offering.
10. SUBSEQUENT STOCK OFFERINGS. In the event that the
Company issues and sells shares of Common Stock in a registered
public offering of shares subsequent to the Offering (a
"Subsequent Offering"), the Company will agree to additional
principal reductions of the Promissory Note pursuant to the
following three alternative principal reduction schedules.
First, if the Company receives net cash proceeds, excluding those
proceeds received by selling stockholders, from a Subsequent
Offering less than or equal to $3,000,000, the Company shall
reduce the then outstanding principal of the Promissory Note by
25%. Second, if the Company receives net cash proceeds,
excluding those proceeds received by selling stockholders, from a
Subsequent Offering of greater than $3,000,000 and less than or
equal to $10,000,000, the Company shall reduce the then
outstanding principal of the Promissory Note by 50%. Third, if
the Company receives net cash proceeds, excluding those proceeds
received by selling stockholders, from a Subsequent Offering of
greater than $10,000,000, the Company shall reduce the then
outstanding principal of the Promissory Note by 100%.
a. RESTRICTION. The obligation of the Company to
reduce the outstanding principal of the Promissory Note upon
the sale of shares in a Subsequent Offering does not arise
in the event that the Company registers shares of Common
Stock with the Securities and Exchange Commission on a (i)
Form S-8 or other applicable form with respect to employee
benefit plans, or (ii) Form S-4 or other applicable form in
conjunction with a reincorporation or reorganization of the
Company.
11. CASINOVATIONS NOTE. On October 1, 1996, the Company
executed a promissory note to Sellers (the "Casinovations Note").
Notwithstanding the terms and conditions of this Letter
Agreement, the Company shall continue to pay $10,000.00 (U.S.)
per month pursuant to the terms of the Casinovations Note. As of
February 28, 1998, the outstanding balance of the Casinovations
Note was $133,386.47.
12. OPTION TO PURCHASE 175,000 SHARES. Sellers hold the
option to purchase 175,000 shares of common stock of the Company
from Richard Huson. Due to the existing contractual relationship
between Sellers and Mr. Huson, the Parties agree that the Company
will not purchase this option.
13. COOPERATION. The Parties agree to cooperate fully
with one another in order to achieve the purposes of this Letter
Agreement and to take all actions and execute and deliver all
documents. whether or not specifically described herein, that may
be required to carry out the purposes and intent of this Letter
Agreement. This Letter Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada.
<PAGE>
Steven L. Forte
May 28, 1998
Page 5 of 5
14. NOTIFICATION OF THE BOARD. Upon execution of this
Letter Agreement by the Parties, the Company shall, to the extent
it has not already, provide the Board notice of the Transaction
and/or file this Letter Agreement with the Board no later than
three (3) business days after the execution of the Letter
Agreement by the Parties.
Please execute and date this Letter Agreement to confirm the
mutual understandings and agreements of the Parties as set forth
herein.
Sincerely,
CASINOVATIONS INCORPORATED,
a Washington corporation
By:___________________________
Steven J. Blad
Its: President
ACKNOWLEDGEMENT AND ACCEPTANCE
Steven L. Forte, an individual, and Cheryl Forte, an
individual, hereby acknowledge and agree to the terms and
conditions of this Letter Agreement on this 28th day of May 1998.
By:____________________________
Steven L. Forte
By:____________________________
Cheryl Forte
<PAGE>
EXHIBIT 10.19
EXCLUSIVE DISTRIBUTORSHIP AGREEMENT
This Distributorship Agreement (the "Agreement") is
entered into this 28 day of May, 1998, and is effective May 28,
1998 (the "Effective Date"), between CASINOVATIONS INCORPORATED,
a Washington Corporation, Unites States of America, having its
registered address at 5240 S. Eastern Avenue, Las Vegas, Nevada
89119, USA ("Manufacturer") and Gaming 2000 LLC, Inc., a Nevada
corporation, having its registered address at 3237 Tompkins
Avenue, Las Vegas, Nevada 89103 ("Distributor").
THE PARTIES RECITE:
A. Manufacturer develops, manufactures, and sells
various types of casino equipment for lawful markets worldwide;
B. Distributor desires to obtain the exclusive
distributorship for the Manufacturer's products for sale in a
limited territory; and
C. The parties desire to enter into this agreement to
establish the terms and conditions of their distributor
relationship.
NOW THEREFORE, it is agreed between the parties as
follows:
ARTICLE 1
DISTRIBUTOR APPOINTMENT, PRODUCTS AND TERRITORY
1.01. APPOINTMENT AND PRODUCTS. Manufacturer
hereby appoints the Distributor, upon the terms and conditions of
this Agreement, exclusive rights to market and sell its Products
in the Territory defined herein. For purposes herein, the term
"Products" shall be defined as those products listed on Schedule
1, attached hereto and incorporated herein by reference.
1.02 TERRITORY. The exclusive distributorship provided
by this Agreement shall be limited to the Territory described in
Schedule 2, attached hereto and incorporated herein by reference.
1.03 EXCLUSIVE. The Manufacturer agrees not to sell
its Products in the Territory except as authorized herein. The
Distributor further agrees not to solicit, accept orders for or
sell or deliver outside the Territory the Products.
1
<PAGE>
ARTICLE 2
DEVELOPMENT OF TERRITORY, SALES AND SERVICE
2.01 BEST EFFORTS. 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.
2.02 ADVERTISING. From time to time special promotion
measures may be taken by either party such as magazine
advertisements, exhibitions, or other marketing tools. For the
protection of the Manufacturers good will, the Distributor shall
not use any advertising or promotional materials unless such
materials are supplied by the Manufacturer or are approved in
writing by the Manufacturer. Expenses of joint sales promotions
shall be borne on a percentage basis by both the Manufacturer and
Distributor, to a maximum amount of US $5,000.00 each per annum,
and will require prior written approval by both parties. The
percentage each party will contribute is based on the percent
each party receives from the revenues collected on the sale or
lease of the Products.
2.03 TRAINING. Manufacturer agrees to provide
technical training to Distributor's staff and/or customers at
Distributor's facility in Nevada without compensation.
Distributor or Distributor's customers shall bear round trip
airfare costs to said facility. Manufacturer will provide
reasonable accommodation and meals for Distributor's
technician(s) to be dispatched in this regard.
ARTICLE 3
WARRANTY
3.01 WARRANTY. The Manufacturer warrants that each of
the Products are free from defects in workmanship. This warranty
is voided upon any misuse of the Product, unauthorized repairs or
alterations of the Product, or abuse or negligent acts of the
licensee or user. This warranty is limited to the repair or
replacement of the Product and not for any consequential damages
or loss of use. This warranty is limited to twelve months after
delivery to the customer, when purchased. This warranty has no
limit when Product is leased by the customer.
3.02 LIMITATIONS. THIS WARRANTY IS EXPRESSLY IN LIEU
OF ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED AND OTHER
OBLIGATIONS OR LIABILITIES ON THE PART OF THE MANUFACTURER AND IN
NO EVENT SHALL THE MANUFACTURER BE LIABLE TO THE DISTRIBUTOR FOR
SPECIAL OR CONSEQUENTIAL DAMAGES BEYOND THOSE DAMAGES EXPRESSLY
PROVIDED HEREIN.
2
<PAGE>
3.03 EXERCISE OF WARRANTY. The Distributor shall
notify the Manufacturer in writing and within fifteen (15) days
from the discovery of any defect in the Products subject to the
warranty. Upon notice, the Manufacturer shall notify the
Distributor within two business (2) days of whether the
Manufacturer deems the defect to be covered by this Warranty, and
repair or replace within five (5) business days after receipt of
defective Product if covered by this Warranty.
3.04 SPARE PARTS. 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. For additional terms and
conditions of the supply 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 that the price of spare parts shall allow for reasonable
mark-up by Distributor consistent with other discounts on
Manufacturer's Products. For products leased by the customer,
Manufacturer will provide spare parts at no cost to Distributor
or customer.
3.05 INVENTORY. 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.
ARTICLE 4
PAYMENT, PRICE AND DELIVERY
4.01 PRICE.
(a) The minimum monthly lease rate
to the end user of the product shall be $550
USD per set, as described in Schedule 1, plus
a one time equipment fee of $500 USD. The
equipment fee may be waived only with prior
written consent of the Manufacturer. The
distribution of the lease payment shall be
set forth in Schedule 3.
(b) The equipment charge is due to Manufacturer
at the time the product is placed.
(c) Lease payments from the customer paid to
the Distributor will be due to Manufacturer
on the 20th day of the month following receipt
of payment from end user. The lease payment
is net before any applicable sales, use, Gaming
Income taxes. The Distributor has the
responsibility to report and collect all
related taxes.
3
<PAGE>
4.02 DELIVERY. All Products shall be delivered FOB Las
Vegas, Nevada, as the term is defined in the Uniform Commercial
Code, NRS Section 1.04, et. seq. Passage of title to the goods and
risk of loss shall pass to the Distributor upon receipt from the
carrier by the Manufacturer from its Distribution Center in Las
Vegas, Nevada.
4.03 CREDIT. the Manufacturer reserves the right to
delay any delivery or shipment if it determines that the
Distributor's credit or ability to pay for the Product is
materially impaired.
ARTICLE 5
ORDER AND SHIPMENT
5.01 ORDERS. 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 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 order.
5.02 APPLICABLE LAW. All sales made under this
Agreement shall be in accordance with and interpreted U.S. law.
5.03 FORCE MAJURE CLAUSE. 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.
ARTICLE 6
RELATIONSHIP OF THE PARTIES AND WARRANTIES
6.01 RELATIONSHIP. 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. This
Agreement does not form a joint venture or partnership
relationship in any form. Distributor agrees not to
4
<PAGE>
make any representation, promise, guarantee or warranty on
Manufacturer's behalf, except for what is stated in the agreement
between the Distributor and customer. The standard Distributor/
Customer agreement shall be approved by the Manufacturer.
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
as 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.
6.02 MANUFACTURER WARRANTIES. The Manufacturer
warrants to the best of its knowledge after
reasonable inquiry the following:
(a) There are no pending or threatened lawsuits
affecting the Manufacturer which would materially impact its
ability to perform under the terms and conditions of this
Agreement;
(b) The execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated
herein will not result in a breach of any other term, condition
or provision or constitute a default under any other Agreement or
Contract to which the Manufacturer is bound;
(c) That it has all rights and interest in the
Products, including patents, trademarks and copyrights. In the
event that any claim is brought against the Distributor for an
infringement of any patent, trademark or copyright relating to
the Products, the Distributor agrees to allow the Manufacturer to
direct and control resolution of the claim.
The Manufacturer shall indemnify and hold harmless the
Distributor and the consumer of the Product from any and all
damages resulting from any misrepresentation, breach of warranty
or covenant, or non-fulfillment of any agreement on the part of
the Manufacturer under this Agreement, including but not limited
to any claims from patent, trademark or copyright infringement as
it pertains to the products.
6.03 DISTRIBUTOR WARRANTIES. The distributor
represents and warrants as follows:
(a) That the Distributor has all necessary authority
to enter into this Agreement and that all corporate
authorizations have been obtained.
(b) That the execution of this Agreement will not
violate any rule, statute or laws of the Territory.
(c) That the execution of this Agreement by the
Distributor will not
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conflict or cause a breach by the Distributor of any contract the
Distributor may be a party to.
The Distributor shall indemnify and hold harmless the
Manufacturer and the consumer of the Product from any and all
damages resulting from any misrepresentation, breach of warranty
or covenant, or non-fulfillment of any agreement on the part of
the Distributor under this Agreement.
6.04 INSURANCE Both the Manufacturer and the Distributor
agree to carry, at their sole expense, a $1,000,000 comprehensive
public liability insurance policy insuring them for claims,
actions or demands made by a third-party that may arise from each
parties or performance under this Agreement or from defective
products. Each party shall be named as an additional insured.
The insurance required under this paragraph may be in the form of
a blanket liability coverage so long as the blanket policy does
not reduce the limits or reduce the coverage. The parties shall
cause a Certificate evidencing such insurance to be issued within
thirty (30) days from a request of a party. The insurance
policies shall contain a provision that the coverage's afforded
under the policies will not be cancelled, not renewed, or
materially altered until at least thirty (30) days prior written
notice has been given.
ARTICLE 7
RECORDS AND REPORTS
The Distributor shall maintain a complete record of all
Products sold or leased by the Distributor and furnish such data
to Manufacturer upon its request. The Distributor agrees to
permit the Manufacturer to inspect, within ten (10) days written
notice, any related records and documents upon its request.
ARTICLE 8
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.
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ARTICLE 9
TERM AND TERMINATION
9.01 TERM. 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. Manufacturer and
Distributor shall meet for an evaluation of Distributor's sales
efforts after 6 months from the date of the product being
approved by each Gaming jurisdiction's regulatory department, to
determine that sufficient sales and marketing efforts are being
put forth by Distributor. Should it be determined that sales and
marketing efforts are insufficient, it will be deemed as
termination for insufficient efforts. Should termination for
insufficient efforts occur, the Distributor shall continue to
invoice, receive and share revenues on the product placed by
Distributor for two (2) years following the date of termination,
or until the product is removed by end user, whichever occurs
first.
9.02 TERMINATION FOR CAUSE. If either party hereto
shall fail to perform any of the material 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
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. Such repurchase, If any, shall be at the same price
the Products were originally purchased by the Distributor, less a
ten percent (10%) repurchasing and shipping discount.
9.03 ASSIGNMENT OF ORDERS UPON TERMINATION. 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 Manufacturer's
Products.
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9.04 CONTINUED OBLIGATIONS. Neither the expiration nor
the termination of this Agreement shall release either party from
the obligation to pay any sum 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 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. In addition, Distributor
and Manufacturer agree that each party shall receive all funds,
due or received, under placed equipment on lease and/or sale
until the expiration of leases or removal of Product by customer.
9.05 GROUNDS FOR IMMEDIATE TERMINATION. Either party
shall be entitled to immediately terminate this Agreement by
notice in writing to the other for any of the following events:
(a) A of petition of bankruptcy or insolvency;
(b) Any adjudication of any bankruptcy or insolvency;
(c) The filing of any petition seeking reorganization
or readjustment or arrangement of the business under any law
relating to bankruptcy or insolvency;
(d) The appointment of a receiver for all or
substantially all of the property of either party;
(e) The making of any assignment or attempted
assignment for the benefit of creditors;
(f) The institution of any proceeding for the
liquidation or winding up of business or for
the termination of its corporate charter.
ARTICLE 10
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
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Distributor may pursue. Likewise, Manufacturer agrees that
inquiries received from customers or potential customers in the
Territory shall be referred to Distributor.
ARTICLE 11
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 ninety (90) day notice
thereof. Any product change shall not affect any pending orders
placed by Distributor.
In the event the Manufacturer terminates any Product
subject to this Agreement, the Distributor shall have the right
of first refusal to purchase the proprietary rights in the
Products so discontinued, based upon the same terms and
conditions as offered by Manufacturer to a third party. This
right of first refusal shall be effective for only one year after
the election to terminate a Product is made by the Manufacturer
and must be exercised within thirty (30) days after the
manufacturer notifies the Distributor of the terms of any offer.
ARTICLE 12
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.
ARTICLE 13
13.01 CONFIDENTIALITY.
Distributor agrees to hold all marketing, sales,
business and technical information regarding Manufacturer, its
products or its customers ("Confidential Information" more
specifically defined herein below) 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.
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13.02 DISCLOSURE OF CONFIDENTIAL INFORMATION.
(a) DEFINITION. "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 Manufacturer has a possessory
interest and which becomes known to Distributor.
"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 Manufacturer and any other
information of any kind whatsoever, whether written or not,
concerning, directly or indirectly, the Manufacturer, its plans,
programs or operations, which information is not generally known
in the businesses or industries in which the Manufacturer is or
may become engaged during Distributor's term of this Agreement.
The term "Confidential Information" includes all property
rights in the Products, including related trade names,
trademarks, logo types, insignia, trade designs, trade secrets,
patents, copyrights, product designs, materials, operating
methods and/or procedures, control systems, marketing secrets,
consensual engineering and product evaluations and or reviews
related to the Product.
(b) RESTRICTION ON USE. Any Confidential Information
received or developed by Distributor shall be used only in the
conduct by the Distributor of carrying out the objections and
terms of the Distributorship Agreement. Such Confidential
Information shall not be used by Distributor for any other
purpose unless otherwise directed or authorized in writing by the
Manufacturer.
(c) PROTECTION OF CONFIDENTIAL INFORMATION. The
Manufacturer and the Distributor expressly recognize and
acknowledge that any Confidential Information disclosed to or
developed by Distributor will not, at any time either during the
term of this Agreement, or three years thereafter, in any manner,
either directly or indirectly be disclosed, or communicated to
any person, firm or corporation, or any other business entity by
the Distributor, nor shall the Distributor use for his own
benefit or for any other purpose than the exclusive benefit of
the Manufacturer, its subsidiaries, successors, or assigns,
Confidential Information or any information whatsoever concerning
matters affecting or relating to the business of the Manufacturer
which the Distributor knows or has reason to know would be
valuable to competitors or potential competitors of the
Manufacturer, including but not limited to, Confidential
Information or information relating
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to the Manufacturer's relationships with actual or potential
customers or suppliers and to the needs and requirements of any
such actual or potential customers, not including any information
which is in the public domain provided that such information was
not public by reason of a breach of this article by the
Distributor or any other third-party who is under a covenant not
to disclose such Confidential Information. Furthermore, but not
by way of limitation of the foregoing, the Distributor shall not
(i) make known to any firm, person or corporation the names or
addresses of any of the customers of the Manufacturer 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
Manufacturer on whom the Distributor called or with whom he
became acquainted during this Agreement, either for itself or for
any other person, firm or corporation.
(d) RETURN OF CONFIDENTIAL INFORMATION. Upon the
Manufacturer's request, the Distributor shall return (or destroy
if requested by the Manufacturer) to the Manufacturer all
originals and copies of all documents pertaining to the
Confidential Information, including records, descriptions,
modifications, negatives, drawings, adaptations, or preliminary
drafts. The Distributor shall, upon request of the Manufacturer,
sign an affidavit acknowledging the compliance of this paragraph.
13.03 DAMAGES (REMEDIES OF MANUFACTURER UPON BREACH OF
AGREEMENT). In the event of any breach of this Agreement by the
Distributor, Manufacturer shall have all the remedies available
to it in law or equity. Without limiting the generality of the
foregoing, and in addition to any other remedy available to it,
Manufacturer shall have the immediate right to seek and obtain
injunctive relief enjoining such breach, it being hereby
acknowledged by the Distributor that Manufacturer's other legal
remedies are inadequate to compensate Manufacturer for the loss
which it would suffer as a result of any breach of the Agreement.
13.04 OWNERSHIP. The parties agree that ownership of
the Confidential Information shall remain vested with the
Manufacturer and the Distributor agrees to execute any and all
necessary documents to effectuate this result. The parties agree
that the client list and list of contact persons shall remain
sole property of the Distributor.
ARTICLE 14
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
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substantial change in the ownership, financial interests or
active management of Distributor. Manufacturer may assign this
agreement to a subsidiary or successor in interests.
ARTICLE 15
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.
ARTICLE 16
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 on or
for its business or Products 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.
ARTICLE 17
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
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remove or alter Manufacturer's patent number or other marks
affixed to the Products or permits the same to be done.
ARTICLE 18
MISCELLANEOUS
18.01 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.
18.02 BINDING VERSION. The official and binding
version of this Agreement shall be English irrevocable of the
language into which it may be translated.
18.03 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 GAMING 2000 LLC
5240 S. Eastern Avenue 3237 Tompkins Avenue
Las Vegas, Nevada 89119 USA Las Vegas, NV 89103
Attn: Mr. Steven J. Blad Attn: Mr. William O'Hara
Phone: 1-702-733-7195 Phone: 702-440-4263
Fax: 1-702-733-7197 Fax: 702-891-9775
18.04 GOVERNING LAW. This Agreement shall be
governed and construed in accordance with the laws of the state
of Nevada excluding any law or principle which would apply the
law of any other jurisdiction.
18.05 ARBITRATION. Both parties herein agree to
the following method of the arbitration (other than disputes
requiring injunctive relief):
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(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 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 and costs incurred with respect to such
proceeding.
(e) This provision 18.05 shall survive the expiration
or termination of this agreement for a period of three (3) years.
Each party agrees that no claim may be brought under this
agreement after a period of three (3) years.
18.06 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.
18.07 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.
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IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their authorized representatives.
Manufacturer: Distributor:
CASINOVATIONS INCORPORATED GAMING 2000 LLC, INC.
/s/ Steven J. Blad /s/ William O'Hara
- - ---------------------------- ------------------------------
(Signature) (Signature)
By: Mr. Steven J. Blad By: Mr. William O'Hara
Title: President and COO Title: President and CEO
Date: May 28, 1998 Date: May 28, 1998
----------------------- ------------------------------
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SCHEDULE 1
PRODUCTS
The product appointed by this Exclusive Distributor Agreement
shall be the Fantasy 21 Table Game. One set consists of a
Fantasy 21 display, one set of speakers, one table felt and one
sign.
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SCHEDULE 2
TERRITORY
The Territory shall consist of the United States of America ,
Canada, Cruise ships, Territories of the United States, and the
Caribbean Islands.
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SCHEDULE 3
PRICE
The minimum price to the end user shall be $550 USD per
month. The distribution of payment to Manufacturer and
Distributor shall be as set forth in the following table:
MONTH % TO MANUFACTURER % TO DISTRIBUTOR
1-5 75 25
6-36* 60 40
Thereafter 50 50
Should Distributor lease product for above the minimum price,
percentage split shall remain as above until Manufacturer has
been paid a total of $2062.50, then the percentage split shall
revert to 60%/40%.
*Should Distributor, at its option, allow the 13th month to
customer at no charge, there will be no payment or split for that
month.
The Distributor shall pay all customs, entry, or any duty,
license fees or taxes incurred by or associated with the entry of
the goods in the country of destination or the export of the
goods from the country of its manufacture, including all excise
taxes, sales tax and use tax.
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EXHIBIT 10.20
EXCLUSIVE DISTRIBUTORSHIP AGREEMENT
This Distributorship Agreement (the "Agreement") is
entered into this ____ day of _________, 1997, and is effective
_____________, 1997 (the "Effective Date"), between CASINOVATIONS
INCORPORATED, a Washington Corporation, United States of America,
having its registered address at 3909 South Maryland Parkway,
Suite 311, Las Vegas, Nevada 89119, USA ("Manufacturer") and
Belgian Gaming Technology, a Belgian corporation, having its
registered address at Heernislaan 111, B-9000 Gent, Belgium
("Distributor").
THE PARTIES RECITE:
A. Manufacturer develops, manufactures, and sells
various types of casino equipment for lawful markets worldwide;
B. Distributor desires to obtain the exclusive
distributorship for the Manufacturer's products for sale in a
limited territory; and
C. The parties desire to enter into this agreement to
establish the terms and conditions of their distributor
relationship.
NOW THEREFORE, it is agreed between the parties as
follows:
ARTICLE 1
DISTRIBUTOR APPOINTMENT, PRODUCTS AND TERRITORY
1.01. APPOINTMENT AND PRODUCTS. Manufacturer hereby
appoints the Distributor, upon the terms and conditions of this
Agreement, exclusive rights to market and sell its Products in
the Territory defined herein. For purposes herein, the term
"Products" shall be defined as those products listed on Schedule
1, attached hereto and incorporated herein by reference.
1.02 TERRITORY. The exclusive distributorship provided
by this Agreement shall be limited to the Territory described in
Schedule 2, attached hereto and incorporated herein by reference.
1.03 EXCLUSIVE. The Distributor agrees not to buy, sell
or otherwise deal within the Territory, any items which may be
competitive with the Products unless otherwise authorized by
Manufacturer in writing. The Manufacturer agrees not to sell its
Products in the Territory except as authorized herein. The
Distributor further agrees not to solicit, accept orders for or
sell or deliver outside the Territory the Products.
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ARTICLE 2
DEVELOPMENT OF TERRITORY, SALES AND SERVICE
2.01 BEST EFFORTS. 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.
2.02 ADVERTISING. From time to time special promotion
measures may be taken by either party such as magazine
advertisements, exhibitions, or other marketing tools. For the
protection of the Manufacturers good will, the Distributor shall
not use any advertising or promotional materials unless such
materials are supplied by the Manufacturer or are approved in
writing by the Manufacturer. Expenses of joint sales promotions
shall be borne on a fifty-fifty (50-50) basis, to a maximum amount
of US $5,000.00 each per annum, and will require prior written
approval by both parties.
2.03 TRAINING. Manufacturer agrees to provide
technical training to Distributor's staff and/or customers at
Distributor's facility in Belgium without compensation.
Distributor or Distributor's customers shall bear round trip
airfare costs to said facility. Manufacturer will provide
reasonable accommodation and meals for Distributor's
technician(s) to be dispatched in this regard.
ARTICLE 3
WARRANTY
3.01 WARRANTY. The Manufacturer warrants to the
Distributor, for up to twelve months after delivery, that each of
the Products are free from any defects in design, material and
workmanship as it pertains to its intended use. This warranty
does not cover any Products that have been repaired or altered
outside of the Manufacturers control so as to affect its
stability or reliability, nor which have been subject to misuse,
negligent acts or accidents. This warranty is limited to the
repair or replacement of any defective part of any Product. The
choice to repair or replace a part remains the sole discretion of
the Manufacturer.
3.02 LIMITATIONS. THIS WARRANTY IS EXPRESSLY IN LIEU
OF ALL OTHER WARRANTIES, EXPRESSED OR IMPLIED AND OTHER
OBLIGATIONS OR LIABILITIES ON THE PART OF THE MANUFACTURER AND IN
NO EVENT SHALL THE MANUFACTURER BE LIABLE TO THE DISTRIBUTOR FOR
SPECIAL OR CONSEQUENTIAL DAMAGES BEYOND THOSE DAMAGES EXPRESSLY
PROVIDED HEREIN. THIS WARRANTY RUNS ONLY TO THE MANUFACTURER AND
NOT TO ANY END-USER OR THIRD PARTY.
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3.03 EXERCISE OF WARRANTY. The Distributor shall
notify the Manufacturer in writing and within fifteen (15) days
from the discovery of any defect in the Products subject to the
warranty. Upon notice, the Manufacturer shall notify the
Distributor within ten (10) days of whether the Manufacturer
deems the defect to be covered by this Warranty.
3.04 SPARE PARTS. 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. For additional terms and
conditions of the supply 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 that the price of spare parts shall allow for reasonable
mark-up by Distributor consistent with other discounts on
Manufacturer's Products.
3.05 INVENTORY. 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.
ARTICLE 4
PAYMENT, PRICE, AND DELIVERY
4.01 PRICE. The Distributor shall pay Manufacturer in
United States Dollars (USD), for all Products ordered and
shipped at the prices set as per Schedule 3, incorporated herein
by this reference.
4.02 DELIVERY. All Products shall be delivered FOB Las
Vegas, Nevada, as the term is defined in the Uniform Commercial
Code, NRS Sec. 1.04, et seq. Passage of title to the goods and risk
of loss shall pass to the Distributor upon delivery to the
carrier by the Manufacturer from its Distribution Center in Las
Vegas, Nevada.
4.03 CREDIT. the Manufacturer reserves the right to
delay any delivery or shipment if it determines that the
Distributor's credit or ability to pay for the Products is
materially impaired.
ARTICLE 5
ORDER AND SHIPMENT
5.01 ORDERS. 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
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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 order.
5.02 APPLICABLE LAW. All sales made under this
Agreement shall be in accordance with and interpreted U.S. law.
5.03 FORCE MAJURE CLAUSE. 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.
ARTICLE 6
RELATIONSHIP OF THE PARTIES AND WARRANTIES
6.01 RELATIONSHIP. 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. This
Agreement does not form a joint venture or partnership
relationship in any form. 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
as 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.
6.02 WARRANTIES. The Distributor represents and
warrants as follows:
(a) That the Distributor has all necessary authority
to enter into this Agreement and that all corporate
authorizations have been obtained.
(b) That the execution of this Agreement will not
violate any rule, statute or laws of the Territory.
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<PAGE>
(c) That the execution of this Agreement by the
Distributor will not conflict or cause a breach by the
Distributor of any contract the Distributor may be a party to.
The Distributor agrees to indemnify and hold harmless
the Manufacturer from any and all liabilities, claims or damages
suffered by the manufacturer by reason of the representations not
being accurate.
ARTICLE 7
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. The Distributor agrees to permit
the Manufacturer to inspect, within ten (10) days written notice,
any related records and documents upon its request.
ARTICLE 8
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.
ARTICLE 9
TERM AND TERMINATION
9.01 TERM. 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
5
<PAGE>
the other, but shall in all respects be deemed to be subject to
terms and conditions identical with those contained herein.
Manufacturer and Distributor shall meet for an evaluation of
Distributor's sales efforts after 6 months from the date of this
Contract to determine that sufficient sales and marketing efforts
are being put forth by Distributor. Should it be determined that
sales and marketing efforts are insufficient, it will be deemed
as termination for cause.
9.02 TERMINATION FOR CAUSE. If either party hereto
shall fail to perform any of the 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 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. Such
repurchase, If any, shall be at the same price the Products were
originally purchased by the Distributor, less a ten percent (10%)
repurchasing and shipping discount.
9.03 ASSIGNMENT OF ORDERS UPON TERMINATION. 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 Manufacturer's
Products.
9.04 CONTINUED OBLIGATIONS. Neither the expiration nor
the termination of this Agreement shall release either party from
the obligation to pay any sum 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 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.
6
<PAGE>
9.05 GROUNDS FOR IMMEDIATE TERMINATION. Either party
shall be entitled to immediately terminate this Agreement by
notice in writing to the other for any of the following events:
(a) A of petition of bankruptcy or insolvency;
(b) Any adjudication of any bankruptcy or insolvency;
(c) The filing of any petition seeking reorganization
or readjustment or arrangement of the business under any law
relating to bankruptcy or insolvency;
(d) The appointment of a receiver for all or
substantially all of the property of either party;
(e) The making of any assignment or attempted
assignment for the benefit of creditors;
(f) The institution of any proceeding for the
liquidation or winding up of business or for the termination
of its corporate charter.
ARTICLE 10
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.
ARTICLE 11
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) day notice
thereof. Any product change shall not affect any pending orders
placed by Distributor.
7
<PAGE>
ARTICLE 12
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.
ARTICLE 13
13.01 CONFIDENTIALITY.
Distributor agrees to hold all marketing, sales,
business and technical information regarding Manufacturer, its
products or its customers ("Confidential Information" more
specifically defined herein below) 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.
13.02 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
Manufacturer (whether such records, books or lists are prepared
by the Distributor or otherwise come into the possession or use
of the Distributor). "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 Manufacturer has a possessory interest and
which becomes known to Distributor.
"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 Manufacturer and
any other information of any kind whatsoever, whether written or
not, concerning, directly or indirectly, the Manufacturer, its
plans, programs or operations, which information is not generally
known in the businesses or industries in which the
8
<PAGE>
Manufacturer is or may become engaged during Distributor's term
of this Agreement.
The term "Confidential Information" includes all property rights
in the Products, including related trade names, trademarks, logo
types, insignia, trade designs, trade secrets, patents,
copyrights, product designs, materials, operating methods and /or
procedures, control systems, marketing secrets, consensual
engineering and product evaluations and or reviews related to the
Product.
(b) RESTRICTION ON USE. Any Confidential
Information received or developed by Distributor shall be used
only in the conduct by the Distributor of carrying out the
objections and terms of the Distributorship Agreement. Such
Confidential Information shall not be used by Distributor for any
other purpose unless otherwise directed or authorized in writing
by the Manufacturer.
(c) PROTECTION OF CONFIDENTIAL INFORMATION. The
Manufacturer and the Distributor expressly recognize and
acknowledge that any Confidential Information disclosed to or
developed by Distributor will not, at any time either during the
term of this Agreement, or three years thereafter, 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 Distributor, nor shall the Distributor use
for his own benefit or for any other purpose than the exclusive
benefit of the Manufacturer, its subsidiaries, successors, or
assigns, Confidential Information or any information whatsoever
concerning matters affecting or relating to the business of the
Manufacturer which the Distributor knows or has reason to know
would be valuable to competitors or potential competitors of the
Manufacturer, including but not limited to, Confidential
Information or information relating to the Manufacturer'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 way of limitation of the
foregoing, the Distributor shall not (i) make known to any firm,
person or corporation the names or addresses of any of the
customers of the Manufacturer 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 Manufacturer on whom the
Distributor called or with whom he became acquainted during this
Agreement, either for itself or for any other person, firm or
corporation.
(d) RETURN OF CONFIDENTIAL INFORMATION. Upon the
Manufacturer's request, the Distributor shall return (or destroy
if requested by the Manufacturer) to the Manufacturer all
originals and copies of all documents pertaining to the
Confidential Information, including records, descriptions,
modifications, negatives, drawings, adaptations, or preliminary
drafts. The Distributor shall, upon request of the Manufacturer,
sign an affidavit acknowledging the compliance of this paragraph.
13.03 DAMAGES. The Manufacturer shall be entitled to
receive all damages, whether in equity or at law, relating to the
Distributor's breach of this clause, including
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<PAGE>
but not limited to the following non-cumulative remedies:
(a) Injunctive relief to enjoin the Distributor from
dissemination Confidential Information in violation of this
Agreement;
(b) Consequential damages, compensatory damages,
punitive damages and attorney fees and costs;
(c) Indemnification to the Manufacturer for any and
all costs and expenses that the Manufacture may incur in
enjoining or preventing the unauthorized use of the Confidential
Information by third-parities who obtain the Confidential
Information from the Distributor in violation of this Agreement.
13.04 OWNERSHIP. The parties agree that ownership of
the Confidential Information shall remain vested with the
Manufacturer and the Distributor agrees to execute any and all
necessary documents to effectuate this result.
ARTICLE 14
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.
ARTICLE 15
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.
10
<PAGE>
ARTICLE 16
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.
ARTICLE 17
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 on or
for its business or Products 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.
ARTICLE 18
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.
11
<PAGE>
ARTICLE 19
MISCELLANEOUS
19.01 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.
19.02 BINDING VERSION. The official and binding
version of this Agreement shall be English irrevocable of the
language into which it may be translated.
19.03 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 BELGIAN GAMING TECHNOLOGY
3909 South Maryland Parkway, Suite 311 Heernislaan 111
Las Vegas, Nevada 89119 USA B-9000 Gent, Belgium
Attn: Mr. Steven J. Blad Attn: Mr. Johan de Temmmerman
Phone: 1-702-733-7195 Phone: 011-32-9-233-8510
Fax: 1-702-733-7197 Fax: 011-32-9-233-8529
19.04 GOVERNING LAW. This Agreement shall be
governed and construed in accordance with the laws of the state
of Nevada 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.
19.05 ARBITRATION. Both parties herein agree to
the following method of the arbitration (other than disputes
requiring injunctive relief):
(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
12
<PAGE>
settled by arbitration in the United States 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.
(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 and costs incurred with
respect to such proceeding.
(e) This provision 19.05 shall survive the expiration
or termination of this agreement for a period of three (3)
years.
19.06 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.
19.07 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.
13
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their authorized representatives.
Manufacturer: Distributor:
CASINOVATIONS INCORPRATED BELGIAN GAMING TECHNOLOGY
/S/ /S/
(Signature) (Signature)
By: Mr. Steven J. Blad By: Mr. Johan de Temmerman
Title: President and COO Title: General Manager
Date: 16/12/97 Date: 18/12/97
14
<PAGE>
SCHEDULE 1
PRODUCTS
The product appointed by this Exclusive Distributor Agreement
shall be the Casinovations Random Ejection Card Shuffler.
15
<PAGE>
SCHEDULE 2
TERRITORY
The Territory shall consist of all countries of the European
Commonwealth, Eastern Europe and Africa, with the exception of
the Country of South Africa, any properties owned by Sun
International, excluding International cruise ships, but
including ferry ships.
16
<PAGE>
SCHEDULE 3
PRICE
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.
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<PAGE>
EXHIBIT 23
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Post-Effective Amendment No.
1 to the Registration Statement on Form SB-2 filed in behalf of
Casinovations Incorporated of our report dated February 5, 1998,
relating to the financial statements of Casinovations
Incorporated as of December 31, 1997 and to the reference to our
firm under the caption "EXPERTS" in the registration statement.
/s/ James E. Schifley & Associates, P.C.
James E. Scheifley & Associates, P.C.
Certified Public Accountants
June 5, 1998
Englewood, Colorado
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,703
<SECURITIES> 0
<RECEIVABLES> 43,560
<ALLOWANCES> 0
<INVENTORY> 229,249
<CURRENT-ASSETS> 311,137
<PP&E> 318,335
<DEPRECIATION> 37,505
<TOTAL-ASSETS> 797,341
<CURRENT-LIABILITIES> 1,956,996
<BONDS> 0
0
0
<COMMON> 6,180
<OTHER-SE> 3,970,070
<TOTAL-LIABILITY-AND-EQUITY> 797,341
<SALES> 345
<TOTAL-REVENUES> 348
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 458,120
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 62,408
<INCOME-PRETAX> (520,180)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (520,180)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
EXHIBIT 99.8
EMPLOYMENT AGREEMENT
OF
STEVEN J. BLAD
THIS EMPLOYMENT AGREEMENT ( this "Agreement"), is entered
into this 1st day of June, 1998, by and between CASINOVATIONS
INCORPORATED, a Washington corporation, authorized to do business
in Nevada (the "Company"), and STEVEN J. BLAD (the "Employee").
The parties recite that:
(a) The Employee is currently the President
and Chief Executive Officer of the Company,
and the Company desires to retain the
services of said Employee under the terms and
conditions of this Agreement.
(b) The Employee and the Company 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) The Company desires the knowledge,
skills and ability of the Employee for the
benefit of the Company.
(d) The Employee wishes to be retained by
the Company in accordance with the terms of
this agreement.
(e) The Employee recognizes the legitimate
need of the Company for protection of its
confidential information.
(f) 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.
<PAGE>
NOW THEREFORE, in consideration of the mutual promises set
forth herein, the Company and the Employee agree as follows:
1. EMPLOYMENT
The Company hereby retains the Employee upon the terms and
conditions hereinafter set forth, and the Employee hereby accepts
said terms and conditions.
2. TERM AND RENEWAL
Except as otherwise provided, this Agreement shall commence
as of June 1, 1998, and continue for a term of eighteen (18)
months, 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 Employee as President and
Chief Executive, 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 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 Board of Directors, 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 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.
5. COMPENSATION AND BENEFITS
5.1 COMPENSATION. For 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 Twelve Thousand Five Hundred Dollars ($12,500.00) through
December 31, 1998. From January 1, 1999 until December 31, 1999,
the
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<PAGE>
Employee shall receive a Base Salary for each calendar month
under this Agreement of Eighteen Thousand Five Hundred Dollars
($18,500) until such time as a new Base Salary is negotiated.
The Base Salary shall be payable in equal semi-monthly
installments on the first and fifteenth of each month.
(b) Stock Options. In addition to the Base Salary,
Employee shall receive "Stock Options" to purchase up to two
hundred thousand (200,000) shares of the Company's common stock
("Shares") under the following terms and conditions:
(i) Upon execution of this Agreement, the
Employee shall have a vested right to acquire
up to one hundred thousand (100,000) Shares
at One Dollar and Fifty Cents ($1.50) per
Share. This option cannot be exercised until
after six months from the effective date of
the Agreement.
(ii) Upon the Employee fulfilling his
obligations and the Company reaching its
goals for 1998, as reasonably established by
the Board of Directors of the Company, the
Employee 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 Employee has met his
obligations and the Company has reached its
goals shall be made at the discretion of the
Company's Board of Directors. The Employee
shall be entitled to a meeting with the Board
of Directors during January, 1999, to discuss
the option to be paid hereunder, if any.
The Stock Options to be issued under this
subparagraph shall be vested in the Employee
on January 31, 1999, subject to the
requirement that Employee continue to be
President and Chief Executive Officer of the
Company on January 31, 1999.
(iii) The Stock Options must be exercised
within five (5) years from the date the
Employee's rights are vested hereunder. The
Shares will be issued within Thirty (30) days
after the Employee notifies his intent to
exercise the options under this Agreement 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.
(iv) If the Company is to be sold, a portion
of the Stock Options granted pursuant to
paragraph 5.1(b)(i) not yet vested
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
3
<PAGE>
this same year. For example, if the Company
was to be sold on August 31, 1998, the
Employee would have an additional forty-two
thousand, eight hundred and fifty-seven Stock
Options vest on August 1, 1999. [(100,000
stock options for 7 months of 1998) x (3
months of employment/ 7 months)].
(v) If the Company is sold, all of the
Options granted to Employee under paragraph
5(b)(ii) will be vested in full as of the
last business day prior to the sale of the
Company.
(vi) For purposes of paragraph 5(b)(iv) and
(v) hereof, 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 (iii).
5.2 PAYMENT OF COMPENSATION. All payments made hereunder
shall be made to the Employee, unless the Employee notifies the
Company otherwise.
5.3 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 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
Employee or otherwise come into the possession or use of the
Employee). "Confidential Information" shall also mean and
include any product information,
4
<PAGE>
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.
(b) "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.
(c) 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.
(d) 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 tenure 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 (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
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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 in this Article or in
any other part of this Agreement shall restrict the ability of
the Employee to make, with the written consent of the Company and
in the ordinary course of his employment, 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 Eighteen (18) months
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 One Hundred
Thousand Dollars ($100,000); provided, however, that a breach of
both Articles 6 and 7 shall total Two Hundred Thousand Dollars
($200,000) in damages.
7. EMPLOYEES 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
aforementioned, 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 Employee
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
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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 this Agreement, he shall not
engage directly or indirectly as a proprietor, partner,
shareholder, director, officer, employee, agent, 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 employment.
(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 unreasonably 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 One Hundred Thousand Dollars ($100,000);
provided, however, that a breach of both Articles 6 and 7 shall
total Two Hundred Thousand Dollars ($200,000) 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 from
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
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for a period of twenty (2) days after written
notice by the Company to the Employee of any
such breach;
(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 this 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
Stock Option, 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 Employee 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
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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 in
this Agreement 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 be 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.
9.9 GENDER, NUMBER, ETC. Where applicable, the singular
includes the plural, the masculine includes the feminine, and
vice versa.,
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IN WITNESS WHEREOF, the parties have executed this
Agreement, delivery of which is hereby acknowledged, as of the
date first above written.
CASINOVATIONS INCORPORATED
By: ________________________________
Its: ________________________________
STEVEN J. BLAD
______________________________
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