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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) May 28, 1999
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Casinovations Incorporated
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(Exact name of Registrant as specified in charter)
Nevada
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(State or other jurisdiction of incorporation)
000-25855 91-1696010
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(Commission File (IRS Employee
Number) Identification No.)
6744 South Spencer Street, Las Vegas, Nevada 89119
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (702) 733-7195
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Not Applicable
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(Former name or former address, if changed since last report)
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ITEM 5. OTHER EVENTS
PURCHASE OF SHARES BY JAMES E. CRABBE
On May 28, 1999, Casinovations Incorporated, a Nevada
corporation (the "Company"), and James E. Crabbe, an individual
and existing stockholder of the Company, entered into a
subscription agreement (the "Subscription Agreement") whereby Mr.
Crabbe will purchase 2,000,000 shares (the "Shares") of the
Company's common stock, $.001 par value ("Common Stock") for
$2.60 per share for an aggregate subscription amount of
$5,200,000. Pursuant to the terms of the Subscription Agreement,
Mr. Crabbe delivered $1,300,000 upon execution of the
Subscription Agreement and agreed to pay the balance of
$3,900,000, in no more than three equal installments of not less
than $1,300,000, by July 10, 1999. Upon receipt of such payment
or payments, the Company will immediately cause the correct
number of the Shares (based upon $2.60 per share) to be issued to
Mr. Crabbe. The Company granted to Mr. Crabbe piggy-back
registration rights as part of this transaction.
After the complete funding of the Subscription Agreement and
issuance of 2,000,000 shares of Common Stock, Mr. Crabbe will be
the beneficial owner of 2,278,570 shares of Common Stock,
approximately 23.5% of the total shares outstanding as of May 31,
1999 (exclusive of 209,300 warrants and 442,307 shares issuable
to Mr. Crabbe pursuant to certain convertible notes). Mr. Crabbe
will thereby become the second largest stockholder of the Comapny
and has filed a Schedule 13D with the Securities and Exchange
Commission accordingly.
The Company intends to use the proceeds from the issuance of
the Shares to Mr. Crabbe for the acceleration of the Company's
manufacturing capabilities to meet the increasing demand for its
products, the international expansion of the Company's
intellectual property rights, the continued development of the
Company's SecureDrop Slot Accounting System, and general working
capital purposes.
CONVERSION OF PROMISSORY NOTE HELD BY RICHARD S. HUSON
On May 28, 1999, the Company and Richard S. Huson, a
director and controlling stockholder of the Company, entered into
a subscription agreement (the "Huson Agreement") whereby Mr.
Huson agreed to convert a certain portion of that certain
Promissory Note dated December 31, 1998 in the original principal
amount of $1,235,000 issued by the Company in favor of Mr. Huson
(the "Note") for shares of Common Stock at a conversion rate of
$2.60 per share. Pursuant to the terms of the Huson Agreement,
Mr. Huson converted $999,999 of outstanding indebtedness under
the Note in to 384,615 shares of Common Stock and received a
replacement promissory note.
As a result of Mr. Huson's partial conversion of the Note,
Mr. Huson beneficially owns 3,268,838 shares of Common Stock,
approximately 33.7% of the total shares of Common Stock
outstanding as of May 31, 1999.
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APPOINTMENT OF TIMOTHY P. LEYBOLD AS CHIEF FINANCIAL OFFICER
On May 28, 1999, the Company appointed Timothy P. Leybold as
the Company's Chief Financial Officer. Prior to joining the
Company and since 1995, Mr. Leybold served as Chief Financial
Officer for RLC Industries, Inc., a building products
manufacturing company with operations in Oregon and California
and revenues in excess of $800 million. In 1995, Mr. Leybold
served as Vice President - Financial Planning and Control for
Collins Resources, Inc., a natural resources company located in
Oregon. In 1994, Mr. Leybold served as interim Chief Financial
Officer for Entek, Inc., a manufacturer of battery separator
materials located in Oregon. From 1991 to 1994, Mr. Leybold was
Treasurer and Principal Accounting Officer for Sprouse-Reitz
Stores, Inc., a retail chain of general merchandise stores with
over 200 locations in the western United States. From 1986 to
1991, Mr. Leybold was Chief Financial Officer of The Cutler
Group, a holding company for various manufacturing companies
located in the western United States. From 1978 to 1986, Mr.
Leybold was a Manager at the Portland, Oregon office then
Seattle, Washington office of Arthur Andersen LLP. Mr. Leybold
received his B.B.A. with honors, maxima cum laude, from the
University of Portland in 1978 and his M.B.A. in finance from the
University of Oregon in 1996. Mr. Leybold is a member of the
Financial Executives Institute, Association for Corporate Growth,
and American Society of Certified Public Accountants.
VOLUNTARY ACCELERATION OF CONVERSION DATE OF CERTAIN 9.5%
CONVERTIBLE NOTES DUE 2004 AND EXERCISE OF CERTAIN CLASS E
WARRANTS
Pursuant to notices distributed by the Company to holders of
the Company's 9.5% Convertible Notes Due 2004 (the "Convertible
Notes"), the Company offered to provide a one-time two week
window to expire on May 31, 1999 for the conversion of the
Convertible Notes into shares of Common Stock at the stated
conversion rate of $2.60 per share. Pursuant to its terms, the
Convertible Notes may be converted beginning on the later of six
(6) months from the date of issuance or September 1, 1999.
Additionally, pursuant to notices distributed by the Company to
holders of the Company's Class E Warrants, the Company issued a
voluntary call of the Class E Warrants to expire on May 31, 1999
at the stated exercise price of $3.00 per share. In exchange for
the conversion of the Convertible Notes and the exercise of the
Class E Warrants, the Company offered to issue an additional set
of warrants equal to the number of and on similar terms and
conditions as the Class E Warrants exercised.
As the expiration of the conversion window and call period,
holders of the Convertible Notes converted $400,000 of
Convertible Notes into 153,843 shares of Common Stock and
exercised 72,800 Class E Warrants into 72,800 shares of Common
Stock for an aggregate of 226,643 shares of Common Stock. In
exchange for the conversion and exercise, the Company issued
72,800 warrants to the persons who converted their Convertible
Notes and exercised their Class E Warrants. As a result,
$1,500,000 of the Convertible Notes and 273,000 of the Class E
Warrants issued to holders of the Convertible Notes remain
outstanding.
Through the conversion of the Convertible Notes and the
exercise of the Class E Warrants, the Company converted $400,000
of indebtedness into Common Stock and received
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proceeds of $218,400. The Company intends to use such proceeds
for general working capital purposes.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(A) Financial Statements of Businesses Acquired.
Not Applicable.
(b) Pro Forma Financial Information.
Not Applicable.
(c) Exhibits.
10.1 Subscription Agreement dated May 28, 1999 by and
between Casinovations Incorporated and James E.
Crabbe.
10.2 Subscription Agreement dated May 28, 1999 by and
between Casinovations Incorporated and Richard
S. Huson.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned hereunto duly authorized.
CASINOVATIONS INCORPORATED
(Registrant)
Date: June 4, 1999 By: /s/ Steven J. Blad
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Steven J. Blad
President and Chief Executive
Officer
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EXHIBIT INDEX
EXHIBIT DESCRIPTION PAGE
NUMBER NUMBER
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10.1 Subscription Agreement dated May 28, 1999 by 7
and between Casinovations Incorporated and
James E. Crabbe.
10.2 Subscription Agreement dated May 28, 1999 by 14
and between Casinovations Incorporated and
Richard S. Huson.
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SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement") is made and
entered into as of the 28th day of May 1999, between
Casinovations Incorporated, a Nevada corporation (the "Company")
and the James E. Crabbe Revocable Trust, an Oregon revocable
living trust ("Purchaser"), and is delivered and executed in
connection with the Company's sale of the Company's common stock,
$0.001 par value (the "Common Stock").
1. DESCRIPTION OF SHARES
This Agreement sets forth the terms and conditions under
which Purchaser will purchase Two Million (2,000,000) shares of
the Company's Common Stock (the "Shares").
2. PURCHASE AND SALE OF SHARES
(a) Purchaser agrees to purchase and the Company agrees to
issue to Purchaser the Shares for Five Million Two Hundred
Thousand Dollars ($5,200,000) (based upon Two Dollars Sixty Cents
($2.60) per share) (the "Investment Amount"). Purchaser shall
pay the Investment Amount as follows: Upon execution of this
Agreement, Purchaser shall pay One Million Three Hundred Thousand
Dollars ($1,300,000) and the Company shall cause to be issued
Five Hundred Thousand (500,000) shares of the Shares. On or
about July 10, 1999, Purchaser shall pay the balance of the
Investment Amount, payable in no more than three equal
installments of not less than One Million Three Hundred Thousand
Dollars ($1,300,000) each and upon the receipt of the funds, the
Company will immediately cause the correct number of the Shares
(based upon $2.60 per share) to be issued to Purchaser.
(b) All funds payable by Purchaser shall be in cash or by
certified or cashiers check or wire transfer in same day funds.
3. RECEIPT OF DOCUMENTS
Purchaser hereby acknowledges receipt of a copy of: (1)
this Agreement; (2) the Company's Annual Report for the Year
ended December 31, 1998 on Form 10-KSB; (3) the Company's
Quarterly Report for the Quarter ended March 31, 1999 on Form 10-
QSB; (4) The Company's Notice of Annual Meeting of Stockholders
dated March 6, 1999 for the Meeting of Stockholders on March 29,
1999; (5) the Company's Current Report on Form 8-K dated March
29, 1999; and (6) the Company's Current Report on Form 8-K dated
April 30, 1999 (collectively, the "Documents").
4. USE OF PROCEEDS; NO REFUNDS
The Investment Amount shall be used to for general working
capital purposes. Upon execution and delivery of this Agreement,
the Investment Amount shall not, under any circumstances, be
refunded to Purchaser.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER
Purchaser represents and warrants to the Company as follows:
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(a) The undersigned trustee is the duly authorized trustee
and Purchaser has all necessary powers and authority to acquire
the Shares under the laws of the state of its domicile and under
the terms of the trust agreement, as amended, under which it was
created.
(b) Purchaser, either alone or through Purchaser's
purchaser representative (as that term is defined under Rule
501(h) of Regulation D under the Securities Act of 1933, as
amended (the "Securities Act") ("Purchaser's Representative,"
herein)), if any, has had an opportunity to ask questions of and
receive answers from duly designated representatives of the
Company concerning the terms and conditions of this Agreement and
has been afforded an opportunity to examine such documents and
other information which Purchaser or Purchaser's Representative,
if any, has requested for the purpose of answering any question
Purchaser or Purchaser's Representative, if any, may have
concerning the business and affairs of the Company.
(c) Purchaser's principal residence is located in the State
of Oregon. Purchaser has received and reviewed this Agreement and
the Documents and acknowledges the Company made available to
Purchaser at a reasonable time prior to the execution of this
Agreement the opportunity to ask questions and receive answers
concerning the business and affairs of the Company and the terms
and conditions of the sale of the Shares as contemplated by this
Agreement and to obtain any additional information (which the
Company possesses or can acquire without unreasonable effort or
expense) as may be necessary to verify the accuracy of
information furnished to Purchaser. Purchaser (i) is able to
bear the loss of his entire investment without any material
adverse effect on his economic stability, and (ii) has such
knowledge and experience in financial and business matters that
he is capable of evaluating the merits and risks of the
investment to be made by him pursuant to this Agreement.
(d) Purchaser and Purchaser's Representative, if any,
understand that the Shares are being offered and sold only to
"accredited investors" (as that term is defined under Rule 501(a)
of Regulation D), and PURCHASER REPRESENTS THAT PURCHASER IS AN
ACCREDITED INVESTOR. Purchaser understands the Company is relying
on Purchaser with respect to the accuracy of this representation.
(e) Purchaser and Purchaser's representative, if any,
understand that this Agreement may not comply with the
information requirements of Regulation D for offers and sales to
non-accredited investors (see Regulation D, Rule 502(b)), and,
consequently, Purchaser understands the significance of its
representation to the Company that it is an accredited investor.
Purchaser and Purchaser's representative, if any, acknowledge
that they were encouraged by the Company to request all
additional information which might be material or important in
order for Purchaser to make an informed investment decision with
respect to the Company.
(f) The Shares are being purchased for investment purposes
only for such Purchaser's own account and not with the view to,
or for resale in connection with, any distribution or public
offering thereof. Purchaser understands that the Shares have not
been registered under the Securities Act or any state securities
laws by reason of their contemplated issuance in transactions
exempt from the registration requirements of the Securities Act
and applicable state securities laws, and that the reliance of
the Company and others upon these exemptions is predicated in
part upon the representation by Purchaser.
(g) Purchaser has taken the time to carefully read this
Agreement, the Documents and any other information furnished to
Purchaser by the Company in connection with this Agreement.
(h) Purchaser was not solicited to purchase the Shares by
any means of general solicitation, including but not limited to
the following: (i) any advertisement, article, notice or other
communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio; (ii) any meeting
where attendees were invited by any general solicitation or
general advertising.
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(i) Purchaser and Purchaser's Representative, if any, are
aware that the Shares are and will be, when issued, "restricted
securities" as that term is defined in Rule 144 (the "Rule") of
the rules and regulations promulgated under the Securities Act.
Purchaser and Purchaser's Representative, if any, are fully aware
of the applicable limitations on the resale of the resulting
shares. The Rule only permits sales of "restricted securities"
held for not less than one year upon compliance with the
requirements of such Rule. If the Rule is available to
Purchaser, Purchaser may make only routine sales of the Shares in
limited amounts in accordance with the terms and conditions of
the Rule. Purchaser is fully aware that in any event, there is
not likely to be any market for the Shares and that finding a
purchaser for the Shares could be extremely difficult.
(j) Purchaser and Purchaser's Representative, if any,
understand that any and all certificates representing the
resulting shares shall bear a legend substantially as follows,
which legend Investor has read and understands:
The Shares represented by this Certificate have not
been registered under the Securities Act of 1933 (the
"Act") or the securities laws of any state and are
"restricted securities" as that term is defined in Rule
144 under the Act. Such Shares may not be offered for
sale, sold or otherwise transferred except pursuant to
an effective registration statement under the Act and
the applicable state securities laws or pursuant to an
exemption from registration thereunder, the
availability of which is to be established to the
satisfaction of counsel to the issuer.
(k) Purchaser acknowledges that in making its investment
decision Purchaser has relied upon its examination of the Company
and its officers, directors and employees regarding the merits
and risks involved. Investor has consulted its own attorney,
business or tax advisor as to legal, business or tax advice.
(l) Purchaser represents and warrants that Purchaser can
bear the economic risk of loss of Purchaser's entire investment
in the Company. Purchaser understands that an investment in the
Company involves substantial risks, including, without
limitation, the risk factors described in the Documents and the
following:
(i) NEED FOR ADDITIONAL FINANCING. The Company, at
this time, has limited capital resources. To continue
operations, the Company may require additional financing for
working capital and general business purposes. No assurance
can be given that the Company will obtain any additional
outside financing on terms that are favorable to the Company
or in amounts necessary to fund its cash requirements.
(ii) DILUTION. If the Company obtains additional funds
through private or public equity or debt financings,
Purchaser may experience substantial dilution as a
consequence of such future financings, including, without
limitation, a reduction in his respective percentage
ownership in the Company.
(iii) COMPETITION. The gaming and gaming related
products industry is characterized by intense competition.
Many of the Company's competitors have far greater
experience and financial resources than the Company. No
assurance can be given that the Company will be able to
compete effectively against its competitors.
(iv) DEPENDENCE ON KEY PERSONNEL. The Company's
success depends to a significant extent on the performance
of certain key personnel. The loss of such key personnel
could materially and adversely affect the Company. The
Company has not executed employment agreements with all such
key personnel.
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(v) LIMITATIONS ON TRANSFERABILITY. Transferability
of the Shares sold pursuant to this Agreement will be
restricted. Purchaser will be required to bear the economic
risk of his investment in the Company for an indefinite
period of time.
(vi) ABSENCE OF MARKET FOR THE SHARES. The Shares are
being offered exclusively to accredited investors for
investment purposes only. There is presently no public
market for the Shares. Although the Company intends to
cause its common stock to begin trading, there is no
assurance that this will occur or that if trading does
occur, that there will be an active or liquid trading market
for the Company's common stock. THE SHARES ARE ONLY
SUITABLE FOR PERSONS WHO HAVE SUBSTANTIAL FINANCIAL
RESOURCES, HAVE NO NEED FOR LIQUIDITY IN THEIR INVESTMENT IN
THE COMPANY AND WHO ARE PREPARED TO LOSE THEIR INVESTMENT IN
THE COMPANY IN ITS ENTIRETY.
(vii) TAX RISKS. An investment in the Shares may
involve material and substantial tax consequences to
Purchaser. Purchaser is urged to consult with tax counsel
and/or a tax accountant or Purchaser's own choice concerning
the tax consequences particular to Purchaser which may arise
from subscribing to, holding and/or disposing of the Shares.
6. REGISTRATION RIGHTS
(a) Purchaser shall have the right at any time to include
any and all of the Shares (together with other shares of Common
Stock beneficially owned by Purchaser or James E. Crabbe,
hereunder collectively, the "Shares") as part of any registration
of securities filed by the Company (other than in connection with
a transaction contemplated by Rule 145(a) promulgated under the
Securities Act of 1933, as amended (the "Securities Act"), or
pursuant to Form S-8 or any equivalent form); provided, however,
that, (i) if such Shares are freely saleable without restriction
under an exemption from the registration requirements of the
Securities Act or if such Shares are already covered by an
effective registration statement; or (ii) if, in the opinion of
the Company's managing underwriter, underwriters, placement agent
or placement agents, if any, for such offering, the inclusion of
the Shares, when added to the shares of Common Stock being
registered by the Company, will exceed the maximum amount of
Common Stock that can be marketed (A) at a price reasonably
related to their then current market value, or (B) without
materially and adversely affecting the entire offering, the
Company shall nevertheless register all or any portion of the
Shares required to be so registered but such Shares shall not be
sold by Purchase until the later of (Y) 90 days after the
registration statement for such offering has become effective and
(Z) 30 days after the offering of the Company's shares has been
completed; and provided further that, if any shares of Common
Stock are being registered for sale on behalf of other
stockholders in such offering and such stockholders have not
agreed to defer such sale until the expiration of such 90 day
period, the number of securities to be sold by all stockholders
in such public offering during such 90 day period shall be
apportioned pro rata among all such selling stockholders,
including Purchaser, according to the total amount of shares of
Common Stock proposed to be sold by said selling stockholders,
including Purchaser.
(b) All expenses incurred in connection with any
registration, qualification or compliance pursuant to the
registrations pursuant to this Section 6 shall be borne by the
Company, but Purchaser shall pay any and all commissions in
connection with the sale of the Shares and shall be responsible
for the costs of Purchaser's own counsel or other consultants in
connection with such registration or the subsequent sale of
Shares. Purchaser shall exercise the "piggy-back" registration
rights provided for in this Section 6 by giving written notice
within five (5) business days of the receipt of the Company's
notice of its intention to file a registration statement. The
Company shall cause any registration statement filed pursuant to
the "piggy-back" registration rights to remain effective until
all Shares registered thereunder are sold or are
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otherwise freely saleable without restriction under an exemption
from the registration requirements of the Securities Act.
(c) In the case of each registration effected by the
Company pursuant to this Section 6, the Company will keep
Purchaser advised in writing as to the initiation of each
registration statement and as to the completion thereof. At its
expense, the Company will use its reasonable best efforts to:
(i) Prepare and file with the Commission, and
applicable state securities regulatory agencies, such
amendments and supplements to such registration statement
and the prospectus used in connection with such registration
statement as may be necessary to comply with the provisions
of the Securities Act, and applicable state securities laws,
with respect to the disposition of all securities covered by
such registration statement;
(ii) Furnish such number of prospectuses and other
documents incident thereto, including any amendment of or
supplement to the prospectus, as Purchaser from time to time
may reasonably request;
(iii) Notify Purchaser, when a prospectus relating to
the registration of the Shares is required to be delivered
under the Securities Act, of the happening of any event as a
result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light
of the circumstances then existing, and at the request of
Purchaser, prepare and furnish to Purchaser a reasonable
number of copies of a supplement to or an amendment of such
prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Shares, such prospectus
shall not include an untrue statement of a material fact or
omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading
or incomplete in the light of the circumstances then
existing; and
(iv) Cause all such Shares registered pursuant
hereunder to be listed on each securities exchange or
quotation medium on which similar securities issued by the
Company are then listed or quoted, if any.
(d) The "piggy-back" registration rights granted to
Purchaser by the Company under this Section 6 may not be
transferred or assigned to a transferee or assignee without the
express written consent of the Company.
(e) The Company shall have the right to include the Shares
in any Registration Statement the Company should file under the
Securities Act for the public offering of shares of the Company's
Common Stock. In the event the Company should exercise its right
under this section, the Company is bound by the registration
procedures of Section 6.
7. INDEMNIFICATION BY PURCHASER
Purchaser agrees that it shall indemnify and hold harmless
the Company and its officers, directors, employees, agents and
professional advisors from and against any and all loss, damage,
liability, or expense, including costs and reasonable attorneys'
fees, that the foregoing, or any of them, may incur by reason of,
or in connection with, any misrepresentation, inaccurate
statement or material omission made by
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Purchaser herein, any breach of any of Purchaser's warranties, or
any failure on Purchaser's part to fulfill any of Purchaser's
covenants, agreements or obligations set forth herein.
8. AUTHORIZATION
Purchaser hereby authorizes the Company and its officers,
employees and agents to investigate Purchaser's personal and
business background including, without limitation, communication
with any employer, former employer, business associate,
government agency, bank or other credit reference. Purchaser
hereby authorizes any person, organization or entity that may
have any knowledge or information Purchaser personal or business
background to provide such information to the Company as the
Company may request.
9. NO BROKERS OR FINDERS
No person, firm or corporation has or will have, as a result
of any act or omission by such Purchaser, any right, interest or
valid claim against Purchaser or the Company for any commission,
fee or other compensation as a finder or broker, or in any
similar capacity, in connection with the transactions
contemplated by this Agreement.
10. MISCELLANEOUS
(a) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Nevada, disregarding
any principles of conflicts of law that would otherwise provide
for the application of the substantive law of another
jurisdiction. The Company and Purchaser agree that any legal
suit, action or proceeding arising out of or relating to this
Agreement shall be instituted exclusively in Nevada State
District Court or in the United States District Court for the
District of Nevada, waive any objection to the venue of any such
suit, action or proceeding and the right to assert that such
forum is not a convenient forum, and consent to the jurisdiction
of the Nevada State District Court or the United States District
Court for the District of Nevada in any such suit, action or
proceeding.
(b) This Agreement contains the entire agreement between
the Company and Purchaser with regard to the subject matter
hereof and may not be modified or waived except in a writing
signed by both the Company and Purchaser.
(c) The headings of this Agreement are for convenience and
reference only, and shall not limit or otherwise affect the
interpretation of any term or provision hereof.
(d) This Agreement and the rights, powers, and duties set
forth herein shall, except as otherwise expressly provided
herein, be binding upon and inure to the benefit of, the heirs,
executors, administrators, legal representatives, successors, and
assigns of the parties hereto.
(e) Purchaser may not assign any of Purchaser's rights or
interests in and under this Agreement without the prior written
consent of the Company, and any attempted assignment without such
consent shall be null and void and without any force or effect
whatsoever.
(f) If any legal action or any arbitration or other
proceeding is brought for the enforcement of this Agreement, or
because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing party or parties
shall be entitled to recover reasonable
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attorneys' fees and other costs incurred in that action or
proceeding, in addition to any other relief to which it may be
entitled.
(g) This Agreement shall be construed in accordance with
its intent and without regard to any presumption or any other
rule requiring construction against the party causing the same to
be drafted.
(h) Each party to this Agreement agrees that this Agreement
may be executed at different times and in multiple counterparts,
each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(i) If any provision of this Agreement, or any portion of
any provision, shall be deemed invalid or unenforceable for any
reason whatsoever, such invalidity or unenforceability shall not
affect the enforceability and validity of the remaining
provisions hereof.
IN WITNESS WHEREOF, the undersigned has executed this
Agreement as of the date first set forth above.
"PURCHASER" CASINOVATIONS INCORPORATED
/s/ James E. Crabbe By: /s/ Steven J. Blad
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JAMES E. CRABBE, TRUSTEE STEVEN J. BLAD
JAMES E. CRABBE REVOCABLE TRUST PRESIDENT AND CHIEF EXECUTIVE
OFFICER
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SUBSCRIPTION AGREEMENT
THIS SUBSCRIPTION AGREEMENT (this "Agreement") is made and
entered into as of the 28th day of May 1999, between
Casinovations Incorporated, a Nevada corporation (the "Company"),
and Richard Huson, an individual ("Investor"), and is delivered
and executed in connection with the Company's offer to sell
shares of the Company's common stock, par value $.001 ("Common
Stock").
1. GENERAL
This Agreement sets forth the terms and conditions under
which Investor will purchase the Shares of the Company, which has
been organized to research and develop, manufacture and market
gaming and gaming related products in return for partial
satisfaction of a certain promissory note in the original
principal amount of $1,235,000 dated December 31, 1998 (the
"Note"), by and between the Company and Investor, attached hereto
as EXHIBIT A, and incorporated herein by this reference.
Investor is a member of the Board of Directors ("Board") of the
Company and possesses significant information about the Company.
2. SUBSCRIPTION OFFER
(a) Investor, by signing this Agreement, hereby tenders
this subscription and offers to purchase 384,615 shares of Common
Stock (the "Shares") at the price of Two Dollars and Sixty Cents
($2.60) per share for a total subscription amount of Nine Hundred
Ninety Nine Thousand Nine Hundred Ninety Nine Dollars
($999,999.00) (the "Subscription Amount").
(b) The Company shall have the right, at its sole and
absolute discretion, to reject this subscription offer, or to
accept such subscription offer. If the Company accepts
Investor's subscription offer, the Company shall execute this
Agreement and return a copy of the same to Investor. If the
Company rejects Investor's subscription offer, the Company shall
return to Investor this Agreement, together with any payment made
by Investor to the Company, without interest or deduction.
3. SUBSCRIPTION AMOUNT AND PAYMENT
Investor hereby subscribes for the number of Shares as
stated above. In return for the Shares, the amount presently
owed by the Company to Investor by virtue of that certain Note
attached hereto as EXHIBIT A, shall be reduced in an amount equal
to the Subscription Amount, and Investor accepts the Shares as
payment in said amount of the Note.
4. RECEIPT OF DOCUMENTS
Investor hereby acknowledges receipt of a copy of this
Agreement.
5. USE OF PROCEEDS; NO REFUNDS
The Subscription Amount shall be used to reduce the amount
owing to Investor by the Company by virtue of the Note and
acceptance of the Shares by Investor shall represent payment of
the same. Upon execution and delivery of this Agreement, the
Subscription Amount shall not, under any circumstances, be
refunded to Investor.
6. REPRESENTATIONS AND WARRANTIES OF INVESTOR
Investor represents and warrants to the Company as follows:
<PAGE>
(a) Investor, either alone or through Investor's purchaser
representative (as that term is defined under Rule 501(h) of
Regulation D under the Securities Act of 1933, as amended (the
"Securities Act") ("Investor's Representative," herein)), if any,
has had an opportunity to ask questions of and receive answers
from duly designated representatives of the Company concerning
the terms and conditions of this Agreement and has been afforded
an opportunity to examine such documents and other information
which Investor or Investor's Representative, if any, has
requested for the purpose of answering any question Investor or
Investor's Representative, if any, may have concerning the
business and affairs of the Company. Investor is a member of the
Board of the Company and possesses significant information about
the Company and has access to the books, records and officers of
the Company.
(b) Investor's principal residence is located in the State
of Oregon. Investor has received and reviewed this Agreement and
the Exhibits attached hereto and acknowledges the Company made
available to Investor at a reasonable time prior to the execution
of this Agreement the opportunity to ask questions and receive
answers concerning the business and affairs of the Company and
the terms and conditions of the sale of the Shares as
contemplated by this Agreement and to obtain any additional
information (which the Company possesses or can acquire without
unreasonable effort or expense) as may be necessary to verify the
accuracy of information furnished to Investor. Investor (i) is
able to bear the loss of its entire investment in the Shares
without any material adverse effect on his economic stability,
and (ii) has such knowledge and experience in financial and
business matters that it is capable of evaluating the merits and
risks of the investment to be made by him pursuant to this
Agreement.
(c) Investor and Investor's Representative, if any,
understand that the Shares under this Agreement are being offered
and sold only to "accredited investors" (as that term is defined
under Rule 501(a) of Regulation D), and INVESTOR REPRESENTS THAT
INVESTOR IS AN ACCREDITED INVESTOR. Investor understands the
Company is relying on Investor with respect to the accuracy of
this representation.
(d) Investor and Investor's representative, if any,
understand that this Agreement may not comply with the
information requirements of Regulation D for offers and sales to
non-accredited investors (see Regulation D, Rule 502(b)), and,
consequently, Investor understands the significance of its
representation to the Company that it is an accredited investor.
Investor and Investor's representative, if any, acknowledge that
they were encouraged by the Company to request all additional
information which might be material or important in order for
Investor to make an informed investment decision with respect to
the Company.
(e) The Shares being acquired by Investor are being
purchased for investment for such Investor's own account and not
with the view to, or for resale in connection with, any
distribution or public offering thereof. Investor understands
that the Shares have not been registered under the Securities Act
or any state securities laws by reason of their contemplated
issuance in transactions exempt from the registration
requirements of the Securities and applicable state securities
laws, and that the reliance of the Company and others upon these
exemptions is predicated in part upon the representation by
Investor. Investor understands that the Shares may not be
transferred or resold without (i) registration under the
Securities Act and any applicable state securities laws, or (ii)
an exemption from the requirements of the Securities Act and
applicable state securities laws.
(f) Investor has taken the time to carefully read this
Agreement and any other information furnished to Investor by the
Company in connection with this Agreement.
(g) Investor was not solicited to purchase the Shares by
any means of general solicitation, including but not limited to
the following: (i) any advertisement, article, notice or other
communication published in any newspaper, magazine, or similar
media, or broadcast over television or radio; (ii) any meeting
where attendees were invited by any general solicitation or
general advertising.
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<PAGE>
(h) Investor and Investor's Representative, if any, are
aware that the Shares are and will be, when issued, "restricted
securities" as that term is defined in Rule 144 (the "Rule") of
the rules and regulations promulgated under the Act. Investor
and Investor's Representative, if any, are fully aware of the
applicable limitations on the resale of the Shares. The Rule
only permits sales of "restricted securities" held for not less
than one year upon compliance with the requirements of such Rule.
If the Rule is available to Investor-and representatives of the
Company hereby advise Investor that such availability is HIGHLY
UNLIKELY-Investor may make only routine sales of the Shares in
limited amounts in accordance with the terms and conditions of
the Rule. Investor is fully aware that in any event, there is
not likely to be any market for the Shares and that finding a
purchaser for the Shares could be extremely difficult.
(i) Investor and Investor's Representative, if any,
understand that any and all certificates representing the Shares
shall bear a legend substantially as follows, which legend
Investor has read and understands:
The Shares represented by this Certificate have not
been registered under the Securities Act of 1933
("Act") or the securities laws of any state and are
"restricted securities" as that term is defined in Rule
144 under the Act. Such Shares may not be offered for
sale, sold or otherwise transferred except pursuant to
an effective registration statement under the Act and
the applicable state securities laws or pursuant to an
exemption from registration thereunder, the
availability of which is to be established to the
satisfaction of counsel to the issuer.
(j) Investor acknowledges that in making its investment
decision Investor has relied upon its examination of the Company
and its officers, directors and employees regarding the merits
and risks involved. Investor has consulted its own attorney,
business or tax advisor as to legal, business or tax advice.
(k) Investor represents and warrants that Investor can bear
the economic risk of loss of Investor's entire investment in the
Company. Investor understands that an investment in the Company
involves substantial risks, including, without limitation, the
following:
(i) NEED FOR ADDITIONAL FINANCING. The Company, at
this time, has limited capital resources. To continue
operations, the Company may require additional financing for
working capital and general business purposes. No assurance
can be given that the Company will obtain any additional
outside financing on terms that are favorable to the Company
or in amounts necessary to fund its cash requirements.
(ii) DILUTION. If the Company obtains additional funds
through private or public equity or debt financings,
Investor may experience substantial dilution as a
consequence of such future financings, including, without
limitation, a reduction in his respective percentage
ownership in the Company.
(iii) COMPETITION. The gaming and gaming related
products industry is characterized by intense competition.
Many of the Company's competitors have far greater
experience and financial resources than the Company. No
assurance can be given that the Company will be able to
compete effectively against its competitors.
(iv) DEPENDENCE ON KEY PERSONNEL. The Company's
success depends to a significant extent on the performance
of certain key personnel. The loss of such key personnel
could materially and adversely affect the Company. The
Company has not executed employment agreements with all such
key personnel.
(v) LIMITATIONS ON TRANSFERABILITY. Transferability
of the Shares sold pursuant to this Agreement will be
restricted by state and federal securities laws and the
rules and regulations
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<PAGE>
promulgated thereunder. Investor will be required to bear
the economic risk of his investment in the Company for an
indefinite period of time.
(vi) ABSENCE OF MARKET FOR THE SHARES. The Shares are
being offered exclusively to accredited investors for
investment purposes only. There will be no public market
for the Shares, and the Company does not intend for the
Shares sold pursuant to this Agreement to be publicly
traded. Although the Company intends to cause the common
stock of the Company to begin trading, there is no assurance
that this will occur. The Company does not presently intend
to list the Shares on any securities exchange or to seek
approval for quotation thereof through any automated
quotation system. Accordingly, the Shares are not a liquid
investment. The Shares are only suitable for persons who
have substantial financial resources, have no need for
liquidity in their investment in the Company and who are
prepared to lose their investment in the Company in its
entirety.
(vii) TAX RISKS. An investment in the Shares may
involve material and substantial tax consequences to
Investor. Investor is urged to consult with tax counsel
and/or a tax accountant or Investor's own choice concerning
the tax consequences particular to Investor which may arise
from subscribing to, holding and/or disposing of the Shares.
(viii) LIQUIDITY CONDITION. As a Director of the
Company, Investor is fully aware of the Company's current
liquidity condition and is aware that the Company may seek
to increase the number of shares of stock currently being
publicly offered.
7. INDEMNIFICATION BY INVESTOR
Investor agrees that it shall indemnify and hold harmless
the Company and its officers, directors, employees, agents and
professional advisors from and against any and all loss, damage,
liability, or expense, including costs and reasonable attorneys'
fees, that the foregoing, or any of them, may incur by reason of,
or in connection with, any misrepresentation, inaccurate
statement or material omission made by Investor herein, any
breach of any of Investor's warranties, or any failure on
Investor's part to fulfill any of Investor's covenants,
agreements or obligations set forth herein.
8. AUTHORIZATION
Investor hereby authorizes the Company and its officers,
employees and agents to investigate Investor's personal and
business background including, without limitation, communication
with any employer, former employer, business associate,
government agency, bank or other credit reference. Investor
hereby authorizes any person, organization or entity that may
have any knowledge or information concerning Investor's personal
or business background to provide such information to the Company
as the Company may request.
9. NO BROKERS OR FINDERS
No person, firm or corporation has or will have, as a result
of any act or omission by such Investor, any right, interest or
valid claim against Investor or the Company for any commission,
fee or other compensation as a finder or broker, or in any
similar capacity, in connection with the transactions
contemplated by this Agreement.
10. MISCELLANEOUS
(a) This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Nevada, disregarding
any principles of conflicts of law that would otherwise provide
for the application of the substantive law of another
jurisdiction. The Company and Purchaser agree that any legal
suit, action or
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<PAGE>
proceeding arising out of or relating to this Agreement shall be
instituted exclusively in Nevada State District Court or in the
United State District Court for the District of Nevada, waive any
objection to the venue of any such suit, action or proceeding and
the right to assert that such forum is not a convenient forum,
and consent to the jurisdiction of the Nevada State District
Court or the United State District Court for the District of
Nevada in any such suit, action or proceeding.
(b) This Agreement contains the entire agreement between
the Company and Investor with regard to the subject matter hereof
and may not be modified or waived except in a writing signed by
both parties.
(c) The headings of this Agreement are for convenience and
reference only, and shall not limit or otherwise affect the
interpretation of any term or provision hereof.
(d) This Agreement and the rights, powers, and duties set
forth herein shall, except as otherwise expressly provided
herein, be binding upon and inure to the benefit of, the heirs,
executors, administrators, legal representatives, successors, and
assigns of the parties hereto.
(e) Investor may not assign any of Investor's rights or
interests in and under this Agreement without the prior written
consent of the Company, and any attempted assignment without such
consent shall be null and void and without any force or effect
whatsoever.
(f) If any legal action or any arbitration or other
proceeding is brought for the enforcement of this Agreement, or
because of an alleged dispute, breach, default, or
misrepresentation in connection with any of the provisions of
this Agreement, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and other
costs incurred in that action or proceeding, in addition to any
other relief to which it may be entitled.
(g) This Agreement shall be construed in accordance with
its intent and without regard to any presumption or any other
rule requiring construction against the party causing the same to
be drafted.
(h) If any provision of this Agreement, or any portion of
any provision, shall be deemed invalid or unenforceable for any
reason whatsoever, such invalidity or unenforceability shall not
affect the enforceability and validity of the remaining
provisions hereof.
In witness whereof, the undersigned has executed this
Agreement as of the date first ascribed above.
"INVESTOR"
/s/ Richard Huson
- -----------------------------------
RICHARD HUSON
Address: 2480 N.W. Tower Rock Road
Bend, Oregon 97701
(541) 383-2376
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<PAGE>
ACCEPTANCE OF SUBSCRIPTION AGREEMENT
On this _____ day of May 1999, Casinovations Incorporated, a
Nevada corporation (the "Company"), hereby accepts subscription
offer of Richard Huson, an individual, to purchase 384,615
shares, par value $.001, of the Company's common stock for a
total subscription amount of $999,999.00.
CASINOVATIONS INCOROPRATED
By: /s/ Steven J. Blad
--------------------------------
Steven J. Blad
Its: President and Chief Executive
Officer
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