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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-SB
GENERAL FORM FOR REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS UNDER SECTION 12(b)
OR 12(g) OF THE SECURITIES EXCHANGE ACT OF 1934
ADVANCED GAMING TECHNOLOGY, INC.
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(Name of Small Business Issuer in Its Charter)
Wyoming 98-015-222-6
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2482-650 West Georgia Street, P.O. Box 11610
Vancouver, British Columbia V6B 4N9
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(Address of principal executive offices) (Zip Code)
(604) 689-8841
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(Issuer's Telephone Number)
Securities to be registered under Section 12(b) of the Act:
None
Securities to be registered under Section 12(g) of the Act:
Common Stock, $.005 Par Value
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(Title of Class)
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Table of Contents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . i
PART I(*)
Item 1. Description of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. Description of Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Item 3. Directors, Executive Officers and Significant Employees . . . . . . . . . . . . 15
Item 4. Remuneration of Directors and Officers . . . . . . . . . . . . . . . . . . . . . 16
Item 5. Security Ownership of Management and Certain Security Holders . . . . . . . . . 18
Item 6. Interest of Management and Others in Certain Transactions . . . . . . . . . . . 19
Item 7. Description of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
PART II
Item 1. Market Price of and Dividends on the Registrant's Common Equity
and Other Shareholder's Matters . . . . . . . . . . . . . . . . . . . . . 20
Item 2. Legal Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Item 3. Changes in and Disagreements with Accountants . . . . . . . . . . . . . . . . . 21
Item 4. Recent Sales of Unregistered Securities . . . . . . . . . . . . . . . . . . . . 21
Item 5. Indemnification of Directors and Officers . . . . . . . . . . . . . . . . . . . 25
PART F/S
Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
PART III
Item 1. Index to Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Item 2. Description of Exhibits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
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(*/) The Company has elected to provide the disclosure required
by Alternative 2 of Part I of Form 10-SB (Items 6-12 of Model B of Form 1-A).
i
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INFORMATION REQUIRED IN REGISTRATION
STATEMENT
PART I(*/)
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
Advanced Gaming Technology, Inc., a Wyoming corporation (the
"Company"), is engaged in the design, assembly, supply, marketing and servicing
of gaming products, the core of which is its MAX Electronic Bingo Systems. The
Company is also engaged in developing and establishing gaming and entertainment
facilities in China and the Philippines, as well as designing and developing a
wireless, hand-held bingo unit for use in the United Kingdom. In addition, the
Company owns, through one of its wholly-owned subsidiaries, 178 acres of
undeveloped property in Stone County, Missouri. The Company's Common Stock is
traded on the National Association of Securities Dealers, Inc.'s (the "NASD's")
OTC Bulletin Board under the symbol "AGTI."
The Company was incorporated pursuant to the laws of the state of
Wyoming on November 20, 1963, under the name "MacTay Investment Co." On June
19, 1987, the Company's changed its name to "Auto N Corporation." On April 22,
1991, the Company changed its name again to "Advanced Gaming Technology, Inc."
when it acquired all of the assets and certain liabilities of Selectro Vision
Ltd., a California corporation, in exchange for 1,359,000 shares of the
Company's common stock, $.005 par value per share (the "Common Stock").
The principal executive offices of the Company are located at 2482-650
West Georgia Street, P.O. Box 11610, Vancouver, British Columbia, Canada, V6B
4N9. The Company also has a distribution center in Phoenix, Arizona, a
marketing office in Cleveland, Ohio, and an office in Branson, Missouri, where
its real estate holdings are located.
OPERATING LOSSES. The Company has incurred net losses of $5,692,499
and $8,983,277 for the fiscal years ended December 31, 1994 and December 31,
1995, respectively. Such operating losses reflect developmental and other
start-up activities. The Company expects to incur significant losses in the
near future. The Company's operations are subject to numerous risks associated
with establishing any new business, including unforeseen expenses, delays and
complications. There can be no assurance that the Company will achieve or
sustain profitable operations or that it will be able to remain in business.
FUTURE CAPITAL NEEDS AND UNCERTAINTY OF ADDITIONAL FUNDING. The
Company has generated minimal revenues from product distribution. Revenues are
not yet sufficient to support the Company's operating expenses and are not
expected to reach such levels during the next year. Since the Company's
formation, it has funded its operations and capital expenditures primarily
through private placements of debt and equity securities. See "Recent Sales of
Unregistered Securities." The Company expects that it
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(*/) The Company has elected to provide the disclosure required
by Alternative 2 of Part I of Form 10-SB (Items 6-12 of Model B of Form 1-A).
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will be required to seek additional financing in the future. There can be no
assurance that such financing will be available at all or available on terms
acceptable to the Company.
GOVERNMENT REGULATION. The Company's operations are subject to state
and local gaming laws as well as various federal laws and regulations governing
business activities with Native American Tribes. The state and local laws in
the United States which govern the lease and use of gaming products are widely
disparate and continually changing due to legislative and administrative
actions and judicial interpretations. If any changes occur in gaming laws
through statutory enactment or amendment, judicial decision or administrative
action restricting the manufacture, distribution or use of some or all of the
Company's products, the Company's present and proposed business could be
adversely affected. The operation of gaming on Native American reservations is
subject to the Indian Gaming Regulatory Act ("IGRA"). Under IGRA certain types
of gaming activities are classified as Class I, Class II or Class III. The
Company's business will be impacted based upon how its products are ultimately
classified. See "Business -- Government Regulation" and "Business -- Native
American Bingo Operations."
RISK OF LOW-PRICED STOCKS. Rules 15g-1 through 15g-9 promulgated
under the Securities Exchange Act of 1934 (the "Exchange Act") impose sales
practice and disclosure requirements on certain brokers and dealers who engage
in certain transactions involving "a penny stock."
Currently, the Company's Common Stock is considered penny stock for
purposes of the Exchange Act. The additional sales practice and disclosure
requirements imposed on certain brokers and dealers could impede the sale of
the Company's Common Stock in the secondary market. In addition, the market
liquidity for the Company's securities may be severely adversely affected, with
concomitant adverse effects on the price of the Company's securities.
Under the penny stock regulations, a broker or dealer selling penny
stock to anyone other than an established customer or "accredited investor"
(generally, an individual with net worth in excess of $1,000,000 or annual
incomes exceeding $200,000, or $300,000 together with his or her spouse) must
make a special suitability determination for the purchaser and must receive the
purchaser's written consent to the transaction prior to sale, unless the broker
or dealer or the transaction is otherwise exempt. In addition, the penny stock
regulations require the broker or dealer to deliver, prior to any transaction
involving a penny stock, a disclosure schedule prepared by the Securities and
Exchange Commission (the "SEC") relating to the penny stock market, unless the
broker or dealer or the transaction is otherwise exempt. A broker or dealer is
also required to disclose commissions payable to the broker or dealer and the
registered representative and current quotations for the securities. In
addition, a broker or dealer is required to send monthly statements disclosing
recent price information with respect to the penny stock held in a customer's
account and information with respect to the limited market in penny stocks.
LACK OF TRADEMARK AND PATENT PROTECTION. The Company relies on a
combination of patent, trade secret, copyright and trademark law, nondisclosure
agreements and technical security measures to protect its products.
Notwithstanding these safeguards, it is possible for competitors of the Company
to obtain its trade secrets and to imitate its products. Furthermore, others
may independently develop products similar or superior to those developed or
planned by the Company. While the Company may obtain patents with respect to
certain of its products, the Company may not have sufficient resources to
defend such patents, such patents may not afford all necessary protection and
competitors may develop equivalent or superior products which may not infringe
such patents. See "Business -- Patents and Trademarks."
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PRODUCTS
The Company's MAX Electronic Bingo Systems products currently include
three different products:
MAX(PLUS) The MAX(PLUS) Bingo System is the first
proprietary electronic bingo system developed by the Company.
Approximately 440 MAX(PLUS) units are currently in use across the
United States.
MAX(PLUS) is designed to increase bingo revenue at bingo
halls, reduce administration costs and increase the excitement of play
and the opportunity for bingo players to win. MAX(PLUS) gives players
the opportunity to play electronically up to 300 bingo cards
simultaneously. The maximum physical number of cards that an average
bingo player can manually daub (cover) is approximately 18. The
electronically operated MAX(PLUS) system keeps track of each card and
gives the player the option to display on the screen those most likely
to reach bingo first (6 to 300 cards at any given time). As the bingo
numbers are called they can be entered manually or automatically. The
manual setting keeps the players focused and feeling part of the game
as if they were playing a paper-based system. The automatic setting
lets the players relax and concentrate on their paper daubing, if they
are playing paper as well, or eating, drinking or engaging in
conversation if they are not.
For the bingo hall operator, electronic bingo systems, such as
the MAX(PLUS) Bingo System, may increase the revenue generated on a
daily basis by allowing players to play many more cards at a time.
Concession stand sales may also increase because players can consume
greater amounts within the same bingo session. By generating greater
gross revenues, the hall operator may be able to increase the size of
the prizes awarded and thereby attract larger and more spendthrift
crowds. In addition, the MAX(PLUS) Bingo System lets the operator
track necessary financial and analysis information by providing a
fully integrated accounting package.
MAX(LITE) The MAX(LITE) Bingo System is the newest addition
to the Company's electronic bingo product line. It is a portable,
hand-held electronic bingo unit which stores up to 50 different games
and allows users to play up to 300 bingo cards per game. The unit
measures 12" x 9" and offers many of the advantages of the MAX(PLUS)
system in a lightweight wireless package, which allows players freedom
of movement in the bingo hall, thus increasing the players' enjoyment
and the hall operators' revenue. Approximately 400 MAX(LITE) units
are currently in use in the United States.
MAX(SPEED) is a pari-mutuel system which has five progressive
jackpots with five different patterns for each game. A percentage of
player purchases can be selected and allocated toward a jackpot, which
allows a jackpot to be offered on every game. MAX(SPEED) is a high
speed bingo game which can be played every 45/60 seconds.
SONIC BINGO. In addition to the products described above, the Company
entered into a Letter of Intent with Sega Gaming Technology, Inc. ("Sega"),
dated May 13, 1996 (the "Sega Letter of Intent"), to manufacture and test Sonic
Bingo, a new fast-action electronic speed bingo game, which uses the Company's
MAX(SPEED) software. The Sega Letter of Intent provides for the creation of a
new corporation, to be owned sixty percent (60%) by Sega and forty percent
(40%) by the Company.
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Sonic Bingo is a high-stakes electronic speed bingo unit capable of
playing multiple cards simultaneously in sixty (60) second intervals. The
Sonic Bingo units will be available in various styles capable of accommodating
from 4 to 250 stations. The system is capable of being networked throughout
gaming halls, cruise ships, as well as an entire city or even a country
(depending upon regulatory approvals), which facilitates games involving major
progressive jackpots.
The Sonic Bingo prototype was introduced to the market at the World
Gaming Show held in Las Vegas held from October 1 to October 4, 1996, and is
being developed for introduction in 1997.
SALES AND MARKETING
The MAX Electronic Bingo Systems are leased to bingo halls by a
network of sales representatives and distributors, some of which are employees
of the Company and some of which are independent contractors. The cost to the
hall operator is based on a daily lease rate per unit, which reduces the
initial capital outlay of the operator. The Company's MAX Electronic Bingo
Systems complement paper-based bingo halls. The systems are modular and,
consequently, as their popularity builds, additional units can be added to the
systems. The Company is actively working to expand its distribution network
across North America and intends to accelerate its expansion schedule as its
network of distributors increases.
TARGET MARKETS. Native American, charity, military, casino and cruise
line bingo operations are considered by the Company to be prospective markets
for the Company's electronic bingo systems. Currently, the Company is focusing
its marketing efforts on the Native American and charity markets.
Initially, the Company has targeted the United States and Canadian
markets due to their size, proximity and familiarity. Other world markets with
significant bingo operations are the United Kingdom, Australia, New Zealand and
Europe. A large potential for electronic bingo also exists in Asia and Central
and South America. The Company may pursue these and other international
markets in the future.
MARKET SEGMENTS. The key segments of the bingo market are as follows:
HIGH STAKES NATIVE AMERICAN BINGO. There are presently over
200 bingo operations located on Native American reservations in the
United States and Canada. The largest bingo games in the United States
are believed to be run on Native American reservations. The bingo
halls located on these reservations typically seat between 300 and
2,000 players. Bingo games are conducted three to seven days per
week, playing up to 28 bingo sessions per week. The Company currently
has approximately 165 MAX(PLUS) units and approximately 250 MAX(LITE)
units in use on Native American reservations.
CHARITY BINGO. Charity bingo sessions are conducted on a
regular basis by parochial, private and public schools, churches,
fraternal orders, sororities, little leagues, symphony orchestras,
cultural and civic organizations, auxiliaries, various clubs,
synagogues, day care centers, retirement associations and a host of
other not-for-profit organizations across the United States and
Canada. Some of these bingo operations, because of their small size
or infrequency of operation, are not candidates for permanent
electronic installations, although portable electronic systems may be
provided to certain operations on a predetermined date and removed
after completion of the session.
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In many states, it is legal for a number of charities to
associate with each other for the purpose of operating bingo halls.
In North America, it is estimated that the majority of charity bingo
is conducted in this manner. Under this concept, the association
leases a suitable hall, plays bingo seven days per week, with a
specific charity accepting responsibility for operations each day of
the week. In the United States, this type of operation is known as a
"bingo barn." The result is a bingo operation that is much more
efficient than isolated charity games. All of these charity bingo
operations are strong candidates for the electronic systems.
The Company currently has approximately 275 MAX(PLUS) units and
approximately 150 MAX(LITE) units in use by charitable organizations.
REAL ESTATE HOLDINGS
On June 22, 1995, pursuant to an Agreement and Plan of Reorganization
by and among the Company, Branson Signature Resorts, Inc. ("Branson") and
certain shareholders of Branson, dated June 1, 1995 (the "Exchange Agreement"),
the Company acquired all the capital stock of Branson and its wholly-owned
subsidiaries in exchange for 5,999,820 shares of the Company's Common Stock.
Branson is a resort and land developer located in Branson, Missouri, which
owned two separate real estate properties: (i) a resort property with limited
existing development on site and (ii) 178 acres of undeveloped property in
Stone County, Missouri. On November 17, 1995, the Company disposed of the
resort property by forfeiture to the mortgage holder. The Company is currently
attempting to capitalize on the 178 acres of undeveloped property and has no
present plans for the improvement or development of such property.
The undeveloped property has been pledged to secure the repayment of
(i) promissory notes in an aggregate principal amount of $1,339,792 bearing
interest at nine percent (9%) per annum and due in July 2002, (ii) a promissory
note in the principal amount of $60,812 bearing interest at nine percent (9%)
per annum and due on demand (iii) a promissory note in the principal amount of
$500,000 bearing interest at 3% above the Chase Manhattan prime lending rate
and due in 2002 and (iv) convertible debentures in the aggregate principal
amount of $745,000 bearing interest at two percent (2%) per month, compounded
monthly, which are convertible into Common Stock at $.40 per share of Common
Stock until December 21, 1997.
RECENT ACQUISITIONS
PRISMS, INC. The Company entered into a Share Purchase Agreement,
dated September 26, 1996 (the "Prisms Agreement"), among (i) the Company, (ii)
Prisms, Inc., a North Carolina corporation ("Prisms") and (iii) the
shareholders of Prisms, to acquire all the issued and outstanding shares of
Prisms. The purchase price for the acquisition was $600,000, payable in
300,000 shares of the Company's Common Stock, with such shares having a deemed
value of $2.00 per share (the "Acquisition Shares"). Prisms' primary assets
are certain patents for the development of bingo and other entertainment games
which management of the Company believes favorably complement the Company's MAX
Electronic Bingo Systems. Prisms has invented seven (7) games under the
patents (the "Patented Products") and has trademarks in place for the Patented
Products.
Pursuant to the Prisms Agreement, in the event the Acquisition Shares
do not trade at a minimum average closing price of $2.00 per share as reported
by the NASD for the ten (10) day trading period preceding October 1, 1997, the
Company is required to issue additional shares of Common Stock so that the
total value of the Acquisition Shares issued is equal to $600,000. In
addition, upon the receipt by the
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Company of $10,000 of net sales for a Patented Product, the Company is required
to issue an additional 28,572 shares of Common Stock, at a deemed value of
$2.00 per share, for each such Patented Product (the "Product Shares"). In the
event the issued Product Shares do not trade at a minimum average closing price
of $2.00 per share as reported by the NASD for a ten (10) day trading period
commencing 12 months after the issuance of the Product Shares, the Company is
required to issue additional shares of Common Stock so that the total value of
the Product Shares is $57,144. The Company has not issued any Product Shares.
The former Prisms shareholders are also entitled to a royalty, payable
on a quarterly basis, equal to two percent (2%) of the net sale price of the
products after deduction of packaging and shipping costs, allowances made for
defective products, excise duties, value-added taxes or other similar taxes
charged or included in the price to the customer.
EXECUTIVE VIDEO SYSTEMS, INC. On February 9, 1995, pursuant to an
Agreement of Sale between the Company and the shareholders of Executive Video
Systems, Inc., a Maryland corporation ("Executive Video") which owns certain
proprietary software and technology relating to the MAX Bingo Systems, the
Company acquired all of the capital stock of Executive Video. The aggregate
purchase price of $715,650 consisted of cash and a Promissory Note in the
principal amount of $515,650 (the "Promissory Note"), plus a three percent (3%)
royalty on the gross revenues from the sale or lease of MAX(PLUS) until
February 9, 1998. All of the capital stock of Executive Video, as well as
250,000 shares of Common Stock of the Company, are held in escrow as security
for the Promissory Note. During 1995, a total of $10,342 was paid in
royalties, and the outstanding amount on the Promissory Note was $114,087 at
October 12, 1996.
NATIVE AMERICAN BINGO OPERATIONS
The Company currently has approximately 165 MAX(PLUS) units and
approximately 250 MAX(LITE) units in use on Native American reservations in
California, Connecticut, Iowa, New Mexico, Oklahoma and Washington.
THE INDIAN GAMING REGULATORY ACT. IGRA classifies games that may be
played on Native American land into three categories. Class I gaming includes
traditional Native American social and ceremonial games and is regulated only
by the tribes. Class II gaming includes bingo, pull-tabs, lotto, punch boards,
instant bingo, certain card games played under limited circumstances and other
games similar to bingo if those games are played at the same location where
bingo is played. Class III gaming consists of all forms of gaming that are not
Class I or Class II, such as video casino games, slot machines, most table
games such as black jack, craps and keno. Generally, Class II gaming may be
conducted on Native American lands if the state in which the Native American
reservation is located permits such gaming for any purpose by any person.
Class III gaming, on the other hand, may only be conducted pursuant to a
compact reached between the Native American tribe and the state in which the
tribe is located. See "Business -- Government Regulation."
PROPOSED COMANCHE BINGO HALL. On December 7, 1995, the Company
entered into a preliminary agreement with the Comanche Indian Tribe, a
federally recognized Indian tribe with a Constitution approved by the Secretary
of the Interior on January 9, 1967 (the "Comanche Tribe"), under which the
Company would design, finance, contract and manage a commercial gaming
enterprise (the "Enterprise").
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These arrangements are subject to approval and acceptance of the
Comanche Tribe and execution of a definitive agreement (the "Definitive
Agreement"). The Definitive Agreement has been prepared and is pending
approval by the Comanche Tribe. Under the terms of the Definitive Agreement,
the Company will receive thirty percent (30%) of the net revenues (as defined
in the Definitive Agreement) of the Enterprise and the Comanche Indian Tribe
will receive seventy percent (70%) of the net revenues. The Company estimates
that the capital costs will be between $3.5 and $4.0 million.
The first phase of the Enterprise entails the financing, construction,
and start-up, of a building of approximately 30,000 square feet on Comanche
Tribe Trust Lands near Lawton, Oklahoma. The building will house bingo,
pull-tab, a snack bar, full service restaurant/bar/lounge and other operations
that are permitted uses defined as "Class II Gaming" by IGRA. If permitted by
the Tribal-State Compact entered into between the Comanche Tribe and the State
of Oklahoma (the "Compact"), the building will also house off-track or
pari-mutuel betting. In addition, the first phase will also include space
within the facility for a Comanche tribal museum/cultural center of up to 5,000
square feet. The second phase of the project will entail renovating and/or
expanding the facility, and following the implementation of "Class III gaming,"
as defined by IGRA, the possible introduction of entertainment at the facility
and slot machine operations, keno, blackjack, poker or any other gaming allowed
under the Compact.
Under the Definitive Agreement, the Company will be responsible for
the day-to-day operation of the Enterprise, including the hiring, management,
training and dismissal of all employees, maintenance of books and records and
negotiation of contracts. The Definitive Agreement contemplates the Company
and another approved lender providing the financing for the Enterprise in the
form of two secured loans to the Comanche Indian Tribe. The terms of the loans
will be negotiated upon approval of the Definitive Agreement by National Indian
Gaming Commission (the "NIGC").
The Company is awaiting the approval of the Definitive
Agreement by the NIGC. In addition, the Company and it's executive officers
must be licensed to operate the Enterprise pursuant to the Tribe's Gaming
Ordinance. There is no assurance that such approval and licenses will be
obtained. Once the Definitive Agreement has been executed, the requisite
licenses have been obtained and the various conditions have been satisfied, the
Company believes it will take approximately twelve (12) months to construct and
set up both phases of the operation.
CHARITY OPERATIONS
The Company currently has approximately 275 MAX(PLUS) units and
approximately 150 MAX(LITE) units in use by charitable organizations in
California and Maryland.
VICTORVILLE, CALIFORNIA FACILITY. The Company entered into to a Lease
License Agreement, dated December 7, 1995 (the "Lease License Agreement"), with
G&J Production Trust ("G&J Production"). Pursuant to the Lease License
Agreement, G&J Production Trust leased the MAX(PLUS) Bingo System from the
Company for use in G&J Production's bingo operation located in Victorville,
California. The Company receives fifteen percent (15%) of the gross sales
revenues per session for session bingo and thirteen percent (13%) of G&J
Production's net revenues for speed bingo, subject to a minimum of $1,000 per
day and a maximum of $2,000 per day to be paid to the Company from both session
bingo and speed bingo. As required by the Lease License Agreement, the Company
contributed $20,000 for (i) advertising and prizes in connection with the grand
opening and (ii) design and installation of an exterior sign. In addition, the
Company is required to contribute three percent (3%) of the gross revenues it
receives from the Lease License Agreement up to a maximum of $5,000 per quarter
for certain
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promotions. As at September 30, 1996, the Lease License Agreement accounted
for approximately forty-eight percent (48%) of the revenues received by the
Company from the MAX(PLUS) Bingo System. The Lease License Agreement
terminates in March 1999.
PROPOSED OPERATIONS IN CHINA
GAOMING CITY, GUANGDONG, CHINA. In February 1995, the Province of
Guangdong, China granted a business license and certificate of approval for the
formation of a joint venture between the Company and Gaoming City Santian
Economic Development Company, a company affiliated with the City of Gaoming,
Guangdong, China ("Santian") to manufacture and sell in China a variety of
electronic gaming machines, including the Company's electronic bingo products..
The Company will own eighty percent (80%) of the joint venture and Santian will
own twenty percent (20%.) Pursuant to the joint venture agreement, the Company
will contribute the technology and, in conjunction with a major gaming
manufacturer, will design and build the manufacturing facilities and provide
$5,000,000 in start-up capital. The Company is currently searching for a major
gaming manufacturer to pursue this project and to provide the financing.
Santian will contribute a twenty (20) acre parcel of land for the manufacturing
plant, offices in Gaoming City and provide skilled labor, sales coordination
and will acquire the necessary development permits, zoning approvals and other
required permits and approvals. A finder's fee of 500,000 shares of the
Company's Common Stock was paid to a party in Hong Kong to facilitate securing
of the license and joint venture.
ENTERTAINMENT CENTERS. In August 1996, Palace Entertainment Limited,
a wholly-owned subsidiary of the Company organized under the laws of the
British Virgin Islands ("Palace Entertainment"), entered into a joint venture
agreement (the "Hainan Bosun Joint Venture Agreement") with Hainan Bosun
Tourism & Amusement Co. Ltd., a company organized under the laws of China
("Hainan Bosun") in connection with the operation of a 23 seat Royal Ascot
Horse Racing Machine (the "Royal Ascot Unit") in Haikou, Hainan Island, China.
Under the Hainan Bosun Joint Venture Agreement, Palace Entertainment is to
provide the Royal Ascot Unit and is responsible for the operation, maintenance
and repair of the machine as well as the hiring of personnel to operate the
machine. Hainan Bosun is responsible for providing certain licenses and
permits required for the operation and certain other costs and expenses.
Palace Entertainment will receive sixty percent (60%) and Hainan Bosun will
receive forty percent (40%) of the revenues (or losses) derived from the Royal
Ascot Unit, after deduction of certain expenses. The Hainan Bosun Joint
Venture Agreement terminates in August 1999.
The Company purchased the Royal Ascot Unit from Sega pursuant to a
Purchase, Finance and Security Agreement, dated February 21, 1996 (the 'Sega
Purchase Agreement").
In January 1996, the Company entered into a joint venture agreement
(the "Hainan Xin Joint Venture Agreement") with Hainan Xin Dao Trading Limited
("Hainan Xin") in connection with the operation of 150 slot/entertainment
machines (the "Slot Machines") in Haikou, Hainan Island, China . Under the
Hainan Xin Joint Venture Agreement, the Company is responsible for providing
the Slot Machines and working capital as well as managing the Slot Machines.
Hainan Xin is responsible for providing certain licenses and permits required
for the operation. The Company will receive thirty two percent (32%) and
Hainan Xin will receive sixty-eight percent (68%) of the net profits.
Currently, neither of these centers is operational due to the periodic
nationwide clean up of various black market activities, prostitution and
gambling. This clean up campaign ended at or about the end of July 1996, and
entertainment centers, such as the centers described above, which are not
considered gambling and therefore are legal, are gradually beginning to re-open
and new licenses are
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currently being issued. The Company is cautiously optimistic that both of the
entertainment centers described above will be operational in the near future.
Y.K.L. CORPORATION. Due to delays caused by the nationwide clean up
in China, the Company entered into a Letter of Agreement, dated December 17,
1996 (the "Letter Agreement"), with Y.K.L. Corporation, a company organized
under the laws of the Philippines ("Y.K.L."), pursuant to which Y.K.L. has
agreed to lease, for a period of 120 days commencing on the date of
installation, 25 of the Company's Slot Machines, which were originally to be
used in the Hainan Xin Joint Venture, for use on Y.K.L.'s luxury ocean liners.
Under the Letter Agreement, the Company will receive seventy percent (70%) of
the gross revenues, after payment of winnings, generated by the slot machines.
PROPOSED OPERATIONS IN THE PHILIPPINES
PASAY. The Company is pursing approvals to import and operate slot
machines in the City of Pasay. The City of Pasay has drafted an ordinance
designating the Company as a licensed gaming operation and a request from the
Mayor of Pasay has gone to the President of the Philippine's office seeking
permission to enact this ordinance under the Charter of the City of Pasay. The
Company is cautiously optimistic that the President will approve the ordinance.
The initial license fee is $400,000.
POLITICAL, LEGAL, ECONOMIC AND OTHER UNCERTAINTIES IN DEVELOPING COUNTRIES
GENERAL
The Company's proposed operations in China are subject to political
instability and government regulations relating to the gaming industry and
foreign investors. Any changes in regulations or shifts in political
conditions are beyond the control of the Company and may materially adversely
affect its business. Corporations are affected in varying degrees by
government regulations with respect to restrictions on production of sales,
price controls, import/export controls, income tax, expropriation of property
and environmental legislation. Operations may also be materially affected by
political and economic instability, economic or other sanctions imposed by
other countries, terrorism, civil wars, guerrilla activities, military
repression, crime, extreme fluctuations in currency exchange rates and
inflation. The stability of China and the Philippines may make it more
difficult for the Company to attain any required project financing from lending
institutions or private funding sources because such lending institutions or
private funding sources may be unwilling to finance projects in these countries
due to the investment risk.
DOING BUSINESS IN CHINA
JOINT VENTURES IN CHINA. Joint ventures between Chinese and foreign
parties in China take two basic forms: equity joint ventures ("Equity JVs")
and cooperative joint ventures ("Cooperative JVs"). Such entities are governed
by the Law of the People's Republic of China on Joint Ventures Using Chinese
and Foreign Investment and the Law of the People's Republic of China on Chinese
and Foreign Cooperative Joint Venture Enterprises, respectively, and
implementing regulations related thereto.
An Equity JV is a distinct legal entity established and registered as
a limited liability corporation. The parties to an Equity JV have rights in the
returns of the joint venture in proportion to their respective joint venture
interests. The operations of Equity JVs are subject to a number of laws and
regulations governing such matters as registered capital, capital
distributions, accounting, taxation, foreign exchange, labor and liquidation.
Transfer of an interest in an Equity JV requires both government
- 9 -
<PAGE> 12
approval and agreement among the parties. In addition, the parties in an Equity
JV cannot recover their investment of registered capital until the expiration
of the term of the joint venture.
A Cooperative JV may be structured as a legal entity similar to a
partnership or as a limited liability company. Cooperative JVs allow more
flexibility in arrangements among the parties. For example, the rights of a
party to a Cooperative JV in its profits need not correspond to its relative
capital investment in the venture. Cooperative JVs are subject to many of the
same laws and regulations as Equity JVs governing such matters as registered
capital, accounting, taxation, foreign exchange, labor and liquidation.
Transfer of an interest in a Cooperative JV also requires both government
approval and agreement among the parties.
RESTRICTIONS ON FOREIGN CURRENCY EXCHANGE. In order to meet foreign
currency obligations and remit dividends to foreign owners, a joint venture
operating in China must convert a portion of its funds from the Chinese
currency, the Renminbi (the "RMB"), to other currencies. Because China controls
its foreign currency reserves, RMB earnings within China cannot be freely
converted into foreign currencies except with government permission and at
rates which are determined in part by supply and demand at authorized financial
institutions, such as the People's Bank of China. In the event of shortages of
foreign currencies, joint ventures may be unable to convert sufficient RMB into
foreign currencies to enable them to comply with their foreign currency payment
obligations or to make distributions to equity holders located outside of
China.
The laws and regulations of China provide that only accounting profits
after payment of taxes, provision for losses for prior years and contributions
to special funds (for enterprise expansion, employee welfare and bonuses and a
general reserve), are available for dividend distributions to the partners of a
joint venture.
VOLATILITY OF EXCHANGE RATES. There has been significant volatility
in the exchange rates of RMB to U.S. Dollars in the recent past and future
exchange rates may also experience significant volatility.
ENVIRONMENTAL REGULATION. The Company's proposed operations in China
will be subject to central, provincial and local environmental protection laws
and regulations, which currently impose a uniform fee on industrial wastewater
discharges and a graduated schedule of pollution fees for the discharge of
waste substances in excess of applicable standards, require the payment of
fines for violations of laws, regulations or decrees and provide for the
possible closure by the central, provincial or local government of any facility
which fails to comply with orders requiring it to cease or cure certain
activities causing environmental damage.
PROPOSED OPERATIONS IN THE UNITED KINGDOM
The Company entered into a Leasing and Service Agency Agreement, dated
September 15, 1996 (the "Service Agency Agreement") with the Edward Thompson
Group, a privately held corporation established in 1867 and organized under the
laws of the United Kingdom ("Edward Thompson"). Edward Thompson has been
producing bingo tickets since 1957 and, the Company believes, is the leading
manufacturer and supplier of bingo paper and related products in the United
Kingdom.
The Service Agency Agreement requires the Company to use its best
efforts to engineer, manufacture, design and develop a wireless electronic
hand-held bingo unit named PartiMAX ("PartiMAX") for the United Kingdom bingo
market. Under the Service Agency Agreement, Edward
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<PAGE> 13
Thompson is responsible for, among other things, the marketing, leasing,
installation, training, customer service, repair service, warranty and
maintenance service of PartiMAX, and for all administration and collection
costs. Edward Thompson is also responsible for obtaining all necessary United
Kingdom government approvals required for the sale of PartiMAX in the United
Kingdom.
Under the Service Agency Agreement, until the aggregate revenue
received by the parties equals the lesser of 500,000 pounds sterling or the
Company's documented cost of the design, engineering and development of
PartiMAX, Edward Thompson will receive sixty percent (60%) and the Company will
receive forty percent (40%) of the gross revenues generated from the leasing,
installation and maintenance of PartiMAX in the United Kingdom, and thereafter,
both parties will receive fifty percent (50%) of the gross revenues. The
Company has not received any revenues to date in connection with the Service
Agency Agreement.
The Company intends to have a prototype PartiMAX unit ready for the
International Casino Exhibition Show to be held in London, England in late
January 1997.
PARTICIPATION AGREEMENT WITH FORTUNE ENTERTAINMENT CORPORATION
The Company entered into an Agreement, dated July 17, 1996 (the
"Participation Agreement"), with Fortune Entertainment Corporation, a company
organized under the laws of the Bahamas ("Fortune Entertainment"), under which
Fortune Entertainment has the right to receive a participating interest in the
Company's various international businesses (China, Philippines and United
Kingdom) as well as having the option to provide funding for the Company's
MAX(LITE) handset on a lease basis.
Under the Participation Agreement, Fortune Entertainment acquired or
has the right to acquire the following interests:
- upon receipt by the Company of $2,000,000 with respect to the
Company's gaming projects in China, a fifty percent (50%)
interest in the Company's interest in the Company's gaming
projects in China for $250,000 to be paid to the Company.
Fortune Entertainment is also entitled to acquire a fifty
percent (50%) interest in each additional slot parlor project
in China by payment of $250,000 with respect to each such
project. Fortune Entertainment will be required to pay its
pro rata share of the expenses and liabilities of the project.
Fortune Entertainment is also entitled to appoint one
representative to the board of directors of each joint venture
for every two directors appointed by the Company. See
"Business -- Proposed Operations in China."
- the right to acquire twenty five (25%) of the Company's
interest in each slot machine in the City of Pasay,
Philippines, for $250 for each slot machine. Fortune
Entertainment will also receive a minimum of twenty percent
(20%) in the complete City of Pasay project upon the receipt
of the Company of an aggregate of $1,000,000 with respect to
the slot machines. See "Business -- Proposed Operations in
the Philippines."
- the right to participate in the revenues received from the
leasing of the first 3,000 MAX(LITE) handsets. Fortune
Entertainment paid $1,000,000, in two separate payments, in
exchange for the right to receive $1.25 per day per MAX(LITE)
handset during the first year, $.75 per day per MAX(LITE)
handset during the second year and $.25 per day per MAX(LITE)
handset during the third and fourth years, based upon a 6-day
week and 52 week year. See "Business -- Products."
- 11 -
<PAGE> 14
- the right to acquire up to a fifteen percent (15%) carried
interest in the Company's bingo projects currently being
developed in the United Kingdom for $600,000 to be paid to the
Company. Fortune Entertainment must pay its pro rata share of
the costs and liabilities of the United Kingdom bingo
projects. On October 31, 1996, Fortune Entertainment exercised
its right and paid the Company $600,000.
- the right to acquire an 18.75% interest in the Company's
interest in the development of the Sega Sonic Bingo game in
exchange for $750,000 to be paid on or before September 30,
1996, of which $390,000 was paid to the Company on September
30, 1996. The Company and Fortune Entertainment are currently
negotiating the terms with respect to an extension of the
exercise date and payment terms.
- the right to acquire a fifty percent (50%) interest in the
Company's interest in the Sega Royal Ascot Horse Racing
Machine for approximately $375,000 for every unit installed.
See "Business -- Proposed Operations in China -- Entertainment
Centers."
If Fortune Entertainment exercises all of its rights under the
Participation Agreement, the Company will receive approximately $5,725,000 for
participating in the various ventures of the Company. As at October 31, 1996,
Fortune Entertainment had provided the Company with approximately $990,000.
GOVERNMENT REGULATION
In the United States, bingo is a legal gambling enterprise in the
District of Columbia and all states, except Utah and Hawaii. In 46 of those
States, it must be operated either by, or in association with, a not-for-profit
organization. The two states where it may be played under private ownership
for profit are Nevada and certain parts of Maryland. In any of the 48 states
where bingo and other forms of gaming are legal, bingo may be played on tribal
lands under tribal ordinance and with licensing approval by the tribes without
state regulation.
In each of the states where bingo is legal, the opening and operation
of a game requires a license. In other states licensing is controlled at the
state level. In some states it is controlled and issued at the local level.
Some states have formed and maintain formal gaming commissions. In several
states, the gaming commissions require that distributors, manufacturers and
suppliers of bingo products and equipment as well as their sales representative
obtain licenses. State regulations may limit the amount of revenues which the
Company can generate by limiting the number of sessions, revenues per session,
number of locations which may be operated, or other matters. The application
for administrative approval by the Nevada Gaming Control Board to market and
operate the Company's electronic bingo systems was filed to obtain access to
the Nevada market. The Company has also submitted applications for licenses in
several states where it expects to conduct business.
The state and local laws in the United States which govern the lease
and use of gaming products are widely disparate and continually changing due to
legislative and administrative actions and judicial interpretations. If any
changes occur in gaming laws through statutory enactment or amendment, judicial
decision or administrative action restricting the manufacture, distribution or
use of some or all of the Company's products, the Company's present and
proposed business could be adversely affected.
- 12 -
<PAGE> 15
Currently, the Company is leasing the majority of its products to
casinos and bingo halls operated by Native Americans. Under IGRA certain types
of gaming activities are classified as Class I, Class II or Class III. Class I
gaming includes traditional Native American social and ceremonial games and is
regulated only by the tribes. Class II gaming includes bingo, pull-tabs,
lotto, punch boards, instant bingo, certain card games played under limited
circumstances and other games similar to bingo if those games are played at the
same location where bingo is played. Class III gaming consists of all forms of
gaming that are not Class I or Class II, such as video casino games, slot
machines, most table games such as black jack, craps and keno. Generally,
Class II gaming may be conducted on Native American lands if the state in which
the Native American reservation is located permits such gaming for any purpose
by any person. Class III gaming, on the other hand, may only be conducted
pursuant to a compact reached between the Native American tribe and the state
in which the tribe is located. The Company's business will be impacted based
upon how its products are ultimately classified.
No assurances can be given that any of the Company's contracts will
be renewed upon the expiration of their term or that, if renewed, the terms
and conditions thereof will be favorable to the Company, nor can any assurances
be given that a tribe or tribes will not cancel any of such agreements prior to
expiration of their stated term. A failure to renew such contracts upon terms
favorable to the Company or the cancellation of a significant number of such
contracts would have a material adverse effect upon the Company's business and
results of operations.
COMPETITION
The fixed-base electronic bingo system market is presently an
established niche market in the bingo industry, but the portable electronic
bingo market has yet to be penetrated to any significant degree. The Company
believes it is well positioned to be one of the most advanced video style,
fixed-base bingo product and state-of-the-art portable electronic bingo
systems.
The Company believes it has approximately five main competitors, most
of which have substantially greater financial, marketing and technological
resources than the Company. In addition, since electronic bingo comprises only
a very small segment of the industry, it is conceivable that there will be new
products and new companies entering this area of business. Notwithstanding
this, the Company's management is of the opinion that with its constant
upgrading of its product and introduction of new products, the Company will be
able to attain a meaningful share of this relatively untapped market.
PATENTS AND TRADEMARKS
The Company relies on a combination of patent, trade secret, copyright
and trademark law, nondisclosure agreements and technical security measures to
protect its products. Notwithstanding these safeguards, it is possible for
competitors of the Company to obtain its trade secrets and to imitate its
products. Furthermore, others may independently develop products similar or
superior to those developed or planned by the Company. While the Company may
obtain patents with respect to certain of its products, the Company may not
have sufficient resources to defend such patents, such patents may not afford
all necessary protection and competitors may develop equivalent or superior
products which may not infringe such patents.
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<PAGE> 16
EMPLOYEES
As of October 29, 1996, the Company had 27 full-time employees, none
of whom is represented by any labor union.
ITEM 2. DESCRIPTION OF PROPERTY
The Company's principal executive offices are located in Vancouver,
British Columbia, Canada. In addition, the Company has a distribution center
in Phoenix, Arizona, a marketing office in Cleveland, Ohio and an office in
Branson, Missouri, where its real estate holdings are located. The Company
believes that such facilities are adequate to the Company's needs for the
foreseeable future.
Pursuant to lease dated March 13, 1995 and amended February 22, 1996
(the "Vancouver Lease"), the Company leases approximately 4,252 square feet in
Vancouver, British Columbia for its principal executive office. The annual
base rent under the Vancouver Lease is CDN $34,788. The Vancouver Lease
expires on March 31, 2000.
Pursuant to a lease dated July 1, 1996 (the "Phoenix Lease"), the
Company occupies 4,160 square feet as its showroom and distribution center in
Phoenix, Arizona. The annual base rent under the Phoenix Lease is
approximately $28,595. The Phoenix Lease expires June 30, 1999.
Pursuant to a lease, dated May 31, 1996 (the "Westlake Lease"), the
Company leases approximately 781 square feet in Westlake, Ohio. The annual
base rent under the Westlake Lease is $10,934. The Westlake Lease expires May
31, 1997.
The Company's wholly-owned subsidiary, River Oaks Holdings, Inc.
("River Oaks"), leases approximately 900 square feet in Branson, Missouri
pursuant to an Office Space Lease dated November 1, 1996 (the "Branson Lease").
River Oaks pays $300 per month rent under the Branson Lease. The Branson Lease
expires April 30, 1997.
On June 22, 1995, pursuant to the Exchange Agreement, the Company
acquired all the capital stock of Branson and its wholly-owned subsidiaries in
exchange for 5,999,820 shares of the Company's Common Stock. Branson is a
resort and land developer located in Branson, Missouri, which owned two
separate real estate properties: (i) a resort property with limited existing
development on site and (ii) 178 acres of undeveloped property in Stone County,
Missouri. On November 17, 1995, the Company disposed of the resort property by
forfeiture to the mortgage holder. The Company is currently attempting to
capitalize on the 178 acres of undeveloped property and has no present plans
for the improvement or development of such property.
The undeveloped property has been pledged to secure the repayment of
(i) promissory notes in an aggregate principal amount of $1,339,792 bearing
interest at nine percent (9%) per annum and due in July 2002, (ii) a promissory
note in the principal amount of $60,812 bearing interest at nine percent (9%)
per annum and due on demand (iii) a promissory note in the principal amount of
$500,000 bearing interest at three percent (3%) above the Chase Manhattan prime
lending rate and due in 2002 and (iv) convertible debentures in the aggregate
principal amount of $745,000 bearing interest at two percent (2%) per month,
compounded monthly, which are convertible at $.40 per share of Common Stock
until December 21, 1997.
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<PAGE> 17
ITEM 3. DIRECTORS, EXECUTIVE OFFICERS AND SIGNIFICANT EMPLOYEES
The current executive officers, directors and significant employees of
the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Pak Cheung 47 Director
Firoz Lakhani 52 President, Chief Operating Officer and Director
Donald Robert MacKay 44 Chief Financial Officer
Robert C. Silzer 50 Chairman, Chief Executive Officer and Director
</TABLE>
Each director is elected to hold office until the next annual meeting
of stockholders and until his successor is elected and qualified. All officers
serve at the discretion of the Board of Directors.
The following sets forth certain biographical information with respect
to the directors and executive officers of the Company.
PAK CHEUNG has been a Director of the Company since July 1994. Mr.
Cheung also serves as President of Comdex Industries, Ltd, a company he founded
in 1985. He also serves as a director of World Wide Industries, Ltd., a
pharmaceutical company and WEX Technologies, Inc., a company involved in the
development, marketing and sale of medical equipment and pharmaceuticals.
FIROZ LAKHANI has been the President, Chief Operating Officer and a
Director of the Company since September 1995. Mr. Lakhani served as a
Director at Olds Industries, Inc., a Canadian public company, from August 1993
to September 1995, and was employed at Park Georgia Realty, a real estate and
land development brokering company, from July 1990 to August 1993. From 1979
to 1990, Mr. Lakhani was employed at Montreal Trust Company, where he headed
the Commercial Real Estate Division.
DONALD ROBERT MACKAY has been the Chief Financial Officer of the
Company since August 1995. Prior to joining the Company, Mr. MacKay served as
the Manager -- Business Analysis at TCG International Inc. from March 1994 to
July 1995. Prior to that, Mr. MacKay was the Controller of Attachmate
Canada, Inc. (formerly KEA Systems Ltd.) from September 1993 to March 1994 and
was a Senior Financial Accountant at GLENTEL, Inc. from 1989 to September 1993.
ROBERT C. SILZER has been the Chairman, Chief Executive Officer and
Director of the Company since November 1993. He also currently serves as a
Director of InFOREtech Golf Technology where he has been since September 1995.
From 1986 to 1992, Mr. Silzer served as President and Chief Executive Officer
of Supercart International, Inc.
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<PAGE> 18
ITEM 4. REMUNERATION OF DIRECTORS AND OFFICERS
The following table summarizes the aggregate annual
remuneration paid or accrued by the Company to each of the Company's three
highest paid persons during the last completed fiscal year and to all officers
and directors as a group.
<TABLE>
<CAPTION>
Name of individual Capacities in which Aggregate
or identity of group remuneration was received Remuneration
- ------------------------------------- ------------------------------------- ------------
<S> <C> <C>
Firoz Lakhani President, Chief Operating Officer
and Director $91,667
Donald Robert MacKay Chief Financial Officer $82,500
Robert C. Silzer Chairman, Chief Executive Officer
and Director $137,500
Officers and Directors
as a Group (4 persons) $311,667
</TABLE>
EMPLOYMENT AGREEMENTS.
Effective January 1, 1994, the Company entered into an employment
agreement with Robert C. Silzer (the "Silzer Employment Agreement"), under
which Mr. Silzer serves as Chairman and Chief Executive Officer of the Company.
Pursuant to the Silzer Employment Agreement, Mr. Silzer was paid a salary of
$75,000 in 1994, $125,000 in 1995 and $137,500 in 1996. He deferred $37,500 of
his salary for the year 1996. Mr. Silzer will be paid a salary of $225,000 in
1997, $275,000 in 1998, $325,000 in 1999 and $375,000 in 2000. In addition,
Mr. Silzer is eligible to receive an annual bonus in an amount equal to 5% of
the net income of the Company and its subsidiaries. Mr. Silzer received a
signing bonus of 250,000 shares of Common Stock. Mr. Silzer was also paid an
automobile allowance of $800 per month in 1995 and $900 per month in 1996 and
will be paid an additional $100 per month for each calendar year of the term of
the Silzer Employment Agreement. Mr. Silzer was granted options to purchase
(i) 500,000 shares of the Company's Common Stock in 1995 at an exercise price
of $.30 per share and (ii) 750,000 shares of the Company's Common Stock in 1996
at an exercise price of $.50 per share. Mr. Silzer will be granted options to
purchase 1,000,000 shares of Common Stock of the Company for each of the years
1997, 1998 and 1999, all at an exercise price equal to fifty percent (50%) of
the ten day average trading price prior to the effective date of the option.
Mr. Silzer is entitled to receive a lump sum payment equal to the
present value, using an eight percent (8%) discount factor, of his salary for
the unexpired term of the Silzer Employment Agreement, plus the amount of any
performance bonus, grants of Common Stock and options which Mr. Silzer is
entitled, which shall be a minimum of $5,500,000 (the "Silzer Severance
Payment") if (i) Mr. Silzer is terminated by the Company without "just cause"
as determined under the common law of British Columbia or (ii) (a) there is a
change of control (as defined), (b) the Company employs any other senior
executive without Mr. Silzer's prior written consent or (c) materially alters
the duties of Mr. Silzer without Mr. Silzer's prior written consent. The
Silzer Employment Agreement also provides that Mr. Silzer shall not compete
with the Company for a period of twelve (12) months after termination of his
employment with the Company.
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<PAGE> 19
Effective September 5, 1995, the Company entered into an employment
agreement with Firoz Lakhani (the "Lakhani Employment Agreement"), under which
Mr. Lakhani serves as President and Chief Operating Officer of the Company.
Pursuant to the Lakhani Employment Agreement, Mr. Lakhani was paid a salary of
$6,250 per month from September 1, 1995 to December 31, 1995 and $91,667 in
1996. He deferred $33,333 of his salary for the year 1996. Mr. Lakhani will
be paid a salary of $175,000 in 1997, $225,000 in 1998, $275,000 in 1999 and
$325,000 in 2000. In addition, Mr. Lakhani is eligible to receive an annual
bonus in an amount equal to 3.5% of the net income of the Company and its
subsidiaries. Mr. Lakhani received a signing bonus of 200,000 shares of Common
Stock. Mr. Lakhani was also paid an automobile allowance of $700 per month in
1995 and $800 per month in 1996 and will be paid an additional $100 per month
for each calendar year of the term of the Lakhani Employment Agreement. Mr.
Lakhani was granted options to purchase (i) 300,000 shares of the Company's
Common Stock in 1995 at an exercise price of $.30 per share and (ii) 500,000
shares of the Company's Common Stock in 1996 at an exercise price of $.50 per
share. Mr. Lakhani will be granted options to purchase 750,000 shares of
Common Stock of the Company for each of the years 1997, 1998 and 1999, all at
an exercise price equal to fifty percent (50%) of the ten day average trading
price prior to the effective date of the option.
Mr. Lakhani is entitled to receive a lump sum payment equal to the
present value, using an eight percent (8%) discount factor, of his salary for
the unexpired term of the Lakhani Employment Agreement, plus the amount of any
performance bonus, grants of Common Stock an options which Mr. Lakhani is
entitled, which shall be a minimum of $4,250,000 (the "Lakhani Severance
Payment") if (i) Mr. Lakhani is terminated by the Company without "just cause"
as determined under the common law of British Columbia or (ii) (a) there is a
change of control (as defined), (b) the Company employs any other senior
executive without Mr. Lakhani's prior written consent or (c) materially alters
the duties of Mr. Lakhani without Mr. Lakhani's prior written consent. The
Lakhani Employment Agreement also provides that Mr. Lakhani shall not compete
with the Company for a period of twelve (12) months after termination of his
employment with the Company.
STOCK OPTIONS
Pursuant to separate stock option agreements and employment
agreements, the Company has granted options to purchase shares of Common Stock
of the Company to certain officers, directors, employees and consultants of the
Company. The following table sets forth information with respect to stock
options granted to the officers and directors of the Company and all executive
officers as a group:
<TABLE>
<CAPTION>
SHARES ISSUABLE EXERCISE PRICE EXPIRATION
NAME UPON EXERCISE PER SHARE DATE
---- -------------- --------- ----
<S> <C> <C> <C>
Pak Cheung 100,000 $.26 August 1, 2001
50,000 $.55 November 4, 2001
Firoz Lakhani 500,000 $.55 November 4, 2001
750,000 50% of the ten day January 1, 2000
average trading price
prior to the effective
date of the option
Donald Robert MacKay 225,000 $.55 November 4, 1998
</TABLE>
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<PAGE> 20
<TABLE>
<S> <C> <C> <C>
Robert Silzer 517,000 $.26 December 20, 2001
800,000 $.55 November 4, 2001
1,000,000 50% of the ten day January 1, 2000
average trading price
prior to the effective
date of the option
Officers and Directors 3,942,000
as a Group (4 persons)
</TABLE>
ITEM 5. SECURITY OWNERSHIP OF MANAGEMENT AND CERTAIN SECURITYHOLDERS
The following table sets forth the beneficial ownership of Common
Stock of the Company by (i) each person who, at November 30, 1996, was known by
the Company to own beneficially more than ten percent (10%) of the 41,286,702
outstanding shares of Common Stock of the Company, (ii) each of the three
highest paid persons who are officers and directors of the Company and (iii)
all officers and directors as a group.
<TABLE>
<CAPTION>
Name and Address Number of Shares Percent
of Owner Owned of Class
- -------------------------------------------- ---------------- --------
<S> <C> <C>
Paragon Holdings Ltd. 5,416,666 13.11%
P.O. Box N-272
Nassau Bahamas
Robert C. Silzer, Sr. 4,449,041(1) 10.20%(1)
2482-650 West Georgia Street
P.O. Box 11610
Vancouver, British Columbia
Firoz Lakhani 2,650,000(2) 6.23%(2)
2482-650 West Georgia Street
P.O. Box 11610
Vancouver, British Columbia
Donald Robert MacKay 325,000(3) *
2482-650 West Georgia Street
P.O. Box 11610
Vancouver, British Columbia
Pak Cheung 400,000(4) *
2482-650 West Georgia Street
P.O. Box 11610
Vancouver, British Columbia
All officers and directors
as a group (4 persons) 7,824,041(5) 17.30%(5)
</TABLE>
- -------------------
*less than 1%
- 18 -
<PAGE> 21
(1) Includes stock options which are exercisable by Mr. Silzer to acquire
2,317,000 shares of Common Stock and 175,000 shares held by Madge Silzer,
Mr. Silzer's wife.
(2) Includes stock options which are exercisable by Mr. Lakhani to acquire
1,250,000 shares of Common Stock.
(3) Includes stock options which are exercisable by Mr. MacKay to acquire
225,000 shares of Common Stock.
(4) Includes stock options which are exercisable by Mr. Cheung to acquire
150,000 shares of Common Stock and 30,000 shares held by Jean Cheung,
Mr. Cheung's wife.
(5) Includes all shares currently outstanding and those which are not
outstanding but which are subject to issuance upon exercise of stock options.
See footnote (1), (2), (3) and (4).
ITEM 6. INTERESTS OF MANAGEMENT AND OTHERS IN CERTAIN TRANSACTIONS
Firoz Lakhani, the President, Chief Operating Officer and a Director
of the Company, borrowed aggregate principal amount of $444,000 from the
Company, pursuant to (i) a promissory note in the principal amount of $250,000
dated January 30, 1996 and due on or before January 29, 2001, (ii) a promissory
note in the principal amount of $90,000 dated January 18, 1996 and due on or
before January 18, 2001 and (iii) a promissory note in the principal amount of
$104,000 dated January 3, 1996 and due on or before January 2, 2001 (the
"Lakhani Notes"). Interest accrues on the Lakhani Notes at the United States
Base Rate as may be set from time to time. At January 9, 1997, the United
States Base Rate was eight and one-half percent (8.5%).
Robert C. Silzer, the Chairman, Chief Executive Officer and a Director
of the Company, borrowed aggregate principal amount of $597,800 from the
Company, pursuant to (i) a promissory note in the principal amount of $375,000
dated January 30, 1996 and due on or before January 29, 2001, (ii) a promissory
note in the amount of $150,000 dated January 18, 1996 and due on or before
January 17, 2001, (iii) a promissory note in the principal amount of $72,800
dated January 2, 1996 and due on or before January 17, 2001 (the "Silzer
Notes"). Interest accrues on the Silzer Notes at the United States Base Rate
as may be set from time to time. At January 9, 1997, the United States Base
Rate was eight and one-half percent (8.5%).
ITEM 7. DESCRIPTION OF SECURITIES
The Company's authorized capital stock consists of 150,000,000 shares
of Common Stock, par value $.005 per share (the "Common Stock"), and 4,000,000
shares of cumulative, 10% cumulative Preferred Stock, par value $.10 per share
(the "Preferred Stock"). As of November 30, 1996, there were 41,286,702 shares
of Common Stock outstanding and 267 holders of record. None of the Company's
shares of Preferred Stock have been issued or are outstanding.
Each of the shares of Common Stock has equal dividend, liquidation and
voting rights. Holders of shares of Common Stock are entitled to one vote per
share on all matters to be voted upon by shareholders. Holders of the shares
of Common Stock are entitled to receive dividends when, and if, declared by the
board of directors from funds legally available therefore. The shares of
Common Stock are not redeemable, have no conversion rights and carry no
preemptive or other rights to subscribe for additional shares.
The rights of holders of shares of Common Stock as described above
will be subject to, and may be adversely affected by, the rights of holders of
any Preferred Stock that may be issued in the future. The Board of Directors
currently does not contemplate the issuance of any Preferred Stock.
- 19 -
<PAGE> 22
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
MARKET INFORMATION. The Company's Common Stock is traded on the
NASD's OTC Bulletin Board under the symbol "AGTI." The following table
presents the high and low bid quotations for the Common Stock as reported by
the NASD for each quarter during the last two years. Such prices reflect
inter-dealer quotations without adjustments for retail markup, markdown or
commission, and do not necessarily represent actual transactions.
<TABLE>
<CAPTION>
Year Period Low High
---- ------ --- ----
<S> <C> <C> <C>
1995 First Quarter $1.44 $2.56
Second Quarter .69 1.69
Third Quarter .28 1.13
Fourth Quarter .16 .44
1996 First Quarter .25 .99
Second Quarter .64 2.19
Third Quarter .99 1.61
Fourth Quarter .49 1.26
</TABLE>
DIVIDENDS. The Company has never declared or paid any cash dividends.
It is the present policy of the Company to retain earnings to finance the
growth and development of the business and, therefore, the Company does not
anticipate paying dividends on its Common Stock in the foreseeable future.
ITEM 2. LEGAL PROCEEDINGS.
In addition to ordinary routine litigation incidental to its business
operation, which the Company does not believe, in the aggregate, will have a
material adverse effect on the Company, or its operations, the Company is
engaged in the following lawsuits:
Braintech, Inc. ("Braintech") filed a statement of claim in the
Supreme Court of British Columbia on November 24, 1995 and amended on March 26,
1996 claiming default by the Company on three promissory notes. Braintech is
claiming damages in the amount of $200,000, plus interest of ten percent (10%)
per annum, and costs. The Company has filed a statement of defense and opposed
a motion for summary judgment.
In January 1996, Tierra Corporation ("Tierra") commenced an action in
the Circuit Court of Stone County, Missouri, claiming that River Oaks Resort
and Country Club, Inc. ("River Oaks") defaulted on a promissory note. Judgment
is sought in the principal amount of $74,105, plus interest since October 18,
1995, at 10% per annum. An answer has been filed on behalf of River Oaks
averring that Tierra has not performed conditions precedent to assessing any
deficiency and that no accounting regarding the disposition of security for
such note has been provided and, in addition, a counterclaim asserting Tierra
disposed of stock collateral in a commercially unreasonable manner.
Preliminary discovery has occurred but no depositions have been taken.
In February 1996, P.D.I., LLC, a Missouri limited liability company
("PDI") commenced an action in the Circuit Court of Stone County Missouri,
claiming breach of an agreement to construct a sewage treatment facility for
which damages are claimed, including alternative site development and
- 20 -
<PAGE> 23
attorney fees. In response, the Company and River Oaks have counterclaimed for
damages, in an amount to be determined at trial, incurred when plaintiff PDI
withdrew funds from the escrow fund created for construction of the sewage
treatment facility and the permit application for construction approval by the
Missouri Department of Natural Resources. Moreover, a claim has also made by
River Oaks and the Company that subsequent development attempted by PDI has
encroached upon property development belonging to River Oaks and the Company
without right to do so, including damages for disruption resulting therefrom.
In April 1996, Larry Newman ("Newman") commenced a mechanics' lien in
the Circuit Court of Stone County, Missouri, seeking $177,282, plus interest,
for excavation work performed during the period between July 19, 1995 to
September 25, 1995 on a road across the River Oaks development in Stone County.
Thereafter, on or about June 24, 1996, Jack L. Holt ("Holt") filed a similar
petition in the Circuit Court of Stone County, Missouri, claiming a mechanics'
lien for engineering and land surveying during the period May 16, 1995 to July
4, 1995 for a road across the River Oaks development property in the amount of
$9,610, plus interest. The Holt case has now been consolidated in the case
originally filed by Newman. The Company has filed a counterclaim alleging
Newman and Holt extended the road beyond the boundaries of the River Oaks
development property onto land owned by Sunset Cove, Ltd., a Missouri
corporation. The court has since ordered Sunset Cove, Ltd. joined as a party
needed for just adjudication. Discovery has not yet commenced.
On November 15, 1996, Fortunet, Inc., a Nevada corporation
("Fortunet"), filed a patent infringement claim against the company and certain
other companies which manufacture and distribute electronic bingo systems,
claiming that the defendants, including the Company, infringed Fortunet's
United States Patent No. 4,624,462 (the "Patent"). Fortunet seeks to enjoin
the defendants from any further alleged infringement of the Patent and is
seeking actual and enhanced damages as well as attorneys fees and other costs.
ITEM 3. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
The Company retained the services of Grant Thornton LLP ("Grant
Thornton") to perform an audit for the Company's 1995 fiscal year. Subsequent
to the retention, the Company and Grant Thornton learned that the Securities
and Exchange Commission (the "SEC") commenced a private investigation of the
Company and others involving possible violations of the registration and
antifraud provisions of the federal securities laws of the United States. At
such time as Grant Thornton learned of the investigation, it elected to cease
all audit activities. In December 1996, the SEC terminated its inquiry of the
Company and indicated that no enforcement action had been recommended.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES.
The following sets forth certain information regarding sales of, and
other transactions with respect to, securities of the Company issued within the
past three years, which sales and other transactions were not registered
pursuant to the Securities Act of 1933, as amended (the "Securities Act").
Unless otherwise indicated, no underwriters were used in such transactions.
On June 22, 1995, pursuant to the Branson Exchange Agreement, the
Company acquired all the capital stock of Branson and its wholly-owned
subsidiaries in exchange for the issuance of 5,999,820 shares of the Company's
Common Stock to the shareholders of Branson, of which 3,423,720 were issued
pursuant to the exemption afforded by Regulations S under the Securities Act
and 2,576,100 were issued pursuant to the exemption afforded by Section 4(2) of
the Securities Act.
- 21 -
<PAGE> 24
In December 1995, the Company issued 6,666,666 shares of Common Stock
to Paragon Holdings Ltd, a Bahamian corporation at a price of $.15 per share
for net proceeds to the Company of $1,000,000. The shares were issued in
reliance upon the exemption afforded by Rule 504 of Regulation D of the
Securities Act.
In December 1995, the Company issued a convertible promissory note
(the "December 1995 Note") in the principal amount of $70,000 to a non-U.S.
resident in an offshore transaction for net proceeds to the Company of $70,000.
The December 1995 Note was converted into 100,000 shares of Common Stock. The
December 1995 Note and the shares issued upon conversion were issued pursuant
to the exemption afforded by Regulations S under the Securities Act.
Pursuant to a Subscription Agreement, dated December 20, 1995, the
Company sold to S.D.A. List Brokers, Inc., a company organized under the laws
of Bermuda (the "Purchaser"), 600 Convertible Debenture Units, with 450 issued
on December 20, 1995 and 150 issued on January 19, 1996 for an aggregate
purchase price of $600,000. Each Convertible Debenture Unit is comprised of a
convertible debenture (the "Convertible Debenture") in the principal amount of
$1,000 and 3333.33 transferable and detachable warrants to purchase shares of
the Company's Common Stock (the "Warrants"). The Purchaser is also entitled to
a bonus payment of $150,000 per year payable each December 20th of 1996, 1997,
1998 and 1999. The bonus payment for 1996 was added to the principal amount
owed to the Purchaser and was not paid by the Company. The Convertible
Debentures bear interest at the rate of two percent (2%) per month, compounded
monthly, and are convertible at a conversion price of $.40 per share of Common
Stock until December 20, 1997. The Warrants are exercisable until December 21,
1997 at an exercise price of $.40 per share of Common Stock. The Purchaser has
the option to acquire an additional 1,000 Convertible Debenture Units. The
Convertible Debenture Units, including the Convertible Debentures and Warrants
were issued pursuant to the exemption afforded by Regulations S under the
Securities Act.
On June 22, 1995, pursuant to the Branson Exchange Agreement, the
Company acquired all the capital stock of Branson and its wholly-owned
subsidiaries in exchange for the issuance of 5,999,820 shares of the Company's
Common Stock to the shareholders of Branson, of which 3,423,720 shares were
issued pursuant to the exemption afforded by Regulations S under the Securities
Act and 2,576,100 shares were issued pursuant to the exemption afforded by
Section 4(2) of the Securities Act.
On September 26, 1996, the Company entered into an Agreement with
Prisms, Inc., a corporation organized under the laws of the State of North
Carolina, to acquire all the issued and outstanding shares by the Company
issuing 300,000 shares of Common Stock of the Company. The Company relied upon
the exemption afforded by Section 4(2) of the Securities Act. See "Business --
Recent Acquisitions -- Prisms, Inc."
River Oaks Resorts and Country Club, Inc. and the Company borrowed
$1,125,000 from Transworld Capital Ltd., a limited liability company organized
under the laws of the Cayman Islands ("Transworld") pursuant to a promissory
note dated December 10, 1994 in the principal amount of $1,125,000 (the
"Transworld Note"). In June 1995, River Oaks, the Company and Transworld
agreed to amend the promissory note pursuant to which Transworld was issued
608,000 shares of the Company's Common Stock and a promissory note in the
amount of $500,000 by River Oaks and the Company to Transworld in exchange for
cancellation of the Transworld Note. The Company relied upon the exemption
afforded by Section 4(2) of the Securities Act.
- 22 -
<PAGE> 25
In January 1996, the Company issued an aggregate of $500,000 in
convertible promissory notes (the "January 1996 Notes") and warrants (the
"January 1996 Warrants") to non-U.S. residents in an offshore transaction for
net proceeds to the Company of $500,000. The January 1996 Notes are interest
bearing, at the United States Base Rate and are all due in July 1997. At
January 9, 1997, the United States Base Rate was 8.5%. The January 1996 Notes
are convertible at the option of the holder into shares of Common Stock of the
Company at a conversion price of $.25 per share. The January 1996 Warrants
have an exercise price of $.50 per share and are exercisable until July 1997.
The Company relied upon the exemption from registration afforded by Regulation
S. Robert Hand received a finder's fee of $50,000 for placing certain of the
January 1996 Notes in the form of a convertible promissory note (the "Hand
Note") bearing interest, unless converted, at the United States Bank Prime
Rate. The Hand Note is convertible until July 1997 at the option of the holder
into shares of Common Stock of the Company at a conversion price of $.25 per
share. The Company relied upon the exemption afforded by Regulation S of the
Securities Act for the issuance of the Hand Note.
The Company also issued in January 1996 a convertible promissory note
in the principal amount of $250,000 (the "8.5% January 1996 Note") to a
non-U.S. resident in an offshore transaction for net proceeds to the Company of
$250,000. The 8.5% January 1996 Note bears interest at 8.5% per annum and is
due on January 20, 1997. The Company is currently negotiating an extension of
the 8.5% January 1996 Note. The 8.5% January 1996 Note is convertible into
781,250 shares of the Company's Common Stock at a conversion price of $.32 per
share. The Company relied upon the exemption from registration afforded by
Regulation S under the Securities Act.
The Company also issued a convertible note in the principal amount of
$200,000 (the "February 1996 Note") and warrant (the "February 1996 Warrant")
to a non-U.S. residents in an offshore transaction for net proceeds to the
Company of $200,000. The February 1996 Note, unless converted, bears interest
at the rate of the United States Bank Base Rate and is due in February 1997.
The February 1996 Note is convertible at the option of the holder into shares
of Common Stock of the Company at a conversion price of $.50 per share. The
February 1996 Warrant has an exercise price of $.80 per share and is
exercisable until February 1997. The Company relied upon the exemption from
registration afforded by Regulation S.
In April 1996, the Company issued an aggregate of $780,700 in
convertible notes (the "April 1996 Notes") and warrants (the "April 1996
Warrants") to non-U.S. residents in an offshore transaction for net proceeds to
the Company of $745,000. The April 1996 Notes do not bear interest and are all
due in April 1997. The April 1996 Notes are convertible at the option of the
holder into shares of Common Stock of the Company at a conversion price of $.50
per share. The April 1996 Warrants have an exercise price of $.70 per share
and are exercisable until April 1997. The Company relied upon the exemption
from registration afforded by Regulation S with respect to the issuance of the
April 1996 Notes. Kimbell Holdings Limited, a Wyoming Corporation, received a
finder's fee of $35,700 for placing certain of the April 1996 Notes in the form
of a convertible promissory note (the "Kimbell Note") bearing interest, unless
converted, at the United States Bank Prime Rate. The Kimbell Note is
convertible until May 15, 1997 at the option of the holder into shares of
Common Stock of the Company at a conversion price of $.50 per share. The
Company relied upon the exemption afforded by Section 4(2) of the Securities
Act for the issuance of the Kimbell Note.
The Company also issued an aggregate of $50,000 in convertible notes
(the "12% April 1996 Notes") and warrants (the "12% April 1996 Warrants") to
non-U.S. residents in an offshore transaction for net proceeds to the Company
of $50,000. The 12% April 1996 Notes, unless converted, bear interest at the
rate of 12% per annum and are due in April 1997. The 12% April 1996 Notes are
convertible at the
- 23 -
<PAGE> 26
option of the holder into shares of Common Stock of the Company at a conversion
price of $.50 per share. The 12% April 1996 Warrants have an exercise price of
$.80 per share and are exercisable until April 1997. The Company relied upon
the exemption from registration afforded by Regulation S.
In May 1996, the Company issued an aggregate of $450,000 in
convertible notes (the "May 1996 Notes") and warrants (the "May 1996 Warrants")
to non-U.S. residents in an offshore transaction for net proceeds to the
Company of $450,000. The May 1996 Notes, unless converted, bear interest at
the United States Bank Prime Rate and are all due in May 1997. The May 1996
Notes are convertible at the option of the holder into shares of Common Stock
of the Company at a conversion price of $1.00 per share. The May 1995 Warrants
have an exercise price of $1.30 per share and are exercisable until May 1997.
The Company relied upon the exemption from registration afforded by Regulation
S. Robert Taylor received a finder's fee of $45,000 for placing certain of the
May 1996 Notes in the form of a convertible promissory note (the "Taylor Note")
bearing interest, unless converted, at the United States Bank Prime Rate. The
Taylor Note is convertible until May 13, 1997 at the option of the holder into
shares of Common Stock of the Company at a conversion price of $1.00 per share.
The Company relied upon the exemption afforded by Regulation S of the
Securities Act for the issuance of the Taylor Note.
The Company also issued in May 1996 four convertible notes for an
aggregate of $755,000 in (the "May 1996 U.S. Notes") and net proceeds to the
Company of $755,000. The May 1996 U.S. Notes, unless converted, bear interest
at the United States Bank Prime Rate and are all due in May 1997. Three of the
four May 1996 U.S. Notes are convertible at the option of the holder into
shares of Common Stock of the Company at a conversion price of $1.20 per share
and one is convertible at the conversion price of $1.50 per share. The Company
relied upon the exemption afforded by Section 4(2) of the Securities Act.
The Company issued in August 1996 two convertible promissory notes in
the aggregate principal amount of $125,000 (the "August 1996 Notes") for net
proceeds to the Company of $125,000. The August 1996 Notes bear interest at
the United States Bank Base Rate and are due in August 1997. The August 1996
Notes are convertible into shares of the Company's Common Stock on the basis of
one share for every $.75 of the August 1996 Notes. The Company relied upon the
exemption afforded by Section 4(2) of the Securities Act.
The Company issued in September 1996 two convertible promissory notes
in the aggregate principal amount of $254,545.45 (the "September 1996 Notes")
for net proceeds to the Company of $254,545.45. The September 1996 Notes bear
interest at the United States Bank Base Rate and are due in September 1997.
The September 1996 Notes are convertible into shares of the Company's Common
Stock on the basis of one and one-third (1 1/3) share for every $1.00 of the
September 1996 Notes. The Company relied upon the exemption afforded by
Regulation S of the Securities Act.
The claims of the Section 4(2) exemptions for the shares of Common
Stock of the Company are based upon the fact that (a) such sales were made to a
limited number of knowledgeable and informed investors who are believed to of
had, or to have had acces to, such information about the Company as was
necessary to make an informed investment judgment, (b) the shares were acquired
for investment and with no view to distribution to the public and (c) the
certificates representing the shares bear legends which call attention to
restrictions on the distribution of the shares.
The claims of the Regulation S exemptions for the shares of Common
Stock of the Company are based upon the fact that (a) the purchasers were not
U.S. persons (as defined by Regulation S) and were outside the United States at
the time the buy was originated, (b) neither the Company nor any of the
Company's affiliates, nor any person acting on behalf of them, made any
directed selling efforts in the
- 24 -
<PAGE> 27
United States and (c) the certificates representing the shares bear legends
which call attention to restrictions on the distribution of the shares.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Wyoming Business Corporation Act ("WBCA"), W.S. 17-16-850 et seq.,
provides for indemnification of the Company's officers, directors, employees,
and agents against liabilities which they may incur in such capacities. A
summarization of circumstances in which such indemnification may be available
follows, but is qualified by reference to the Company's Articles of
Incorporation and the text of the statute.
In general, the Company may provide indemnification to any person made
a party to a proceeding because he is or was a director, officer, employee or
agent against liability incurred in the proceeding if such person (i) conducted
himself or herself in good faith; (ii) reasonably believed that his or her
conduct was in or at least not opposed to the Company's best interests; and
(iii) in the case of a criminal proceeding, has no reasonable cause to believe
that his or her conduct was unlawful. The Company may not, however, indemnify a
present or former director, officer, employee or agent in connection with (i) a
proceeding by or in the right of the Company in which the director, officer,
employee or agent was adjudged liable to the Company or (ii) any other
proceeding charging improper personal benefit to the director, officer,
employee or agent, whether or not involving action in his or her official
capacity, in which he or she was adjudged liable on the basis that personal
benefit was improperly received by such present or former director, officer,
employee or agent. The Company may pay for or reimburse the reasonable
expenses of present and former directors, officers, employees and agents who
are parties to a proceeding in advance of the final disposition of such
proceeding if the person seeking payment or reimbursement (i) furnishes a
written affirmation of his or her good faith belief that he or she met the
applicable standard of care under the WBCA; (ii) furnishes a written
undertaking to repay the advance if it is ultimately determined that he or she
did not meet the applicable standard of conduct; and (iii) it is determined, in
accordance with the WBCA, that the facts then known would not preclude
indemnification. The Company must indemnify a present or former director who is
wholly successful, on the merits or otherwise, in a proceeding against
reasonable expenses incurred in connection with the proceeding.
In addition, the Company has statutory authority to purchase insurance
to protect its officers, directors, employees, and agents against any
liabilities asserted against them, or incurred in connection with their service
in such capacities. Further, the Company may advance or reimburse funds to a
director who is a party to a proceeding, for reasonable expenses incurred in
connection with a proceeding.
PART F/S
The following financial statements are filed as part of this
registration statement on Form 10-SB:
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants F-1
Financial Statements
Consolidated Balance Sheets F-2
</TABLE>
- 25 -
<PAGE> 28
<TABLE>
<S> <C>
Consolidated Statement of Operations F-4
Consolidated Statement of Stockholders' Deficit
for the year ended December 31, 1994 F-5
Consolidated Statement of Stockholders' Deficit
for the year ended December 31, 1995 F-6
Consolidated Statements of Cash Flows F-7
Notes to Financial Statements F-9
</TABLE>
PART III
Item 1. Index to Exhibits
The following list describes the exhibits filed as part of this
registration statement on Form 10-SB:
<TABLE>
<CAPTION>
Exhibit Number Exhibit Page
- -------------- --------------------------------------------------------------------- ----
<S> <C>
2.1 Articles of Amendment to Articles of Incorporation of the Company
dated July 16, 1996.
2.2 Articles of Amendment to Articles of Incorporation of the Company
dated June 17, 1996.
2.3 Articles of Amendment of Auto N Corporation.*
2.4 Articles of Amendment of MacTay Investment Co.*
2.5 Articles of Incorporation of MacTay Investment Co.*
2.6 Bylaws of the Company*
6.1 Leasing and Service Agency Agreement dated September 15, 1996 with the
Edward Thompson Group.*
6.2 Letter of Intent with Sega Gaming Technology, Inc., dated May 13, 1996.
6.3 Agreement, dated July 17, 1996, with Fortune Entertainment Corporation.*
6.4 Preliminary Agreement with Comanche Indian Tribe.*
6.5 Share Purchase Agreement, dated September 26, 1994 among the Company,
Prisms and the shareholders of Prisms.*
6.6 Agreement of Sale dated February 9, 1995 between the Company and the
shareholders of Executive Video Systems, Inc.*
6.7 Agreement and Plan of Reorganization by and among the Company, Branson
Signature Resorts, Inc. and certain shareholders of Branson, dated June 1, 1995.*
6.8 Lease License Agreement, dated December 7, 1995, between the Company and
G&J Production Trust.*
6.9 Letter of Agreement, dated December 17, 1996, by and between the Company
and Y.K.L. Corporation.*
6.10 Employment Agreement with Robert Silzer.
6.11 Employment Agreement with Firoz Lakhani.
6.12 $250,000 Promissory Note of Firoz Lakhani dated January 30, 1996.
6.13 $90,000 Promissory Note of Firoz Lakhani dated January 18, 1996.
</TABLE>
- 26 -
<PAGE> 29
<TABLE>
<S> <C>
6.14 $104,000 Promissory Note of Firoz Lakhani dated January 3, 1996.
6.15 $150,000 Promissory Note of Robert Silzer dated January 18, 1996.
6.16 $375,000 Promissory Note of Robert Silzer dated January 30, 1996.
6.17 $72,800 Promissory Note of Robert Silzer dated January 2, 1996.
8.1 Consent of Accountants.
</TABLE>
- -----------------
*To be filed by amendment
- 27 -
<PAGE> 30
FINANCIAL STATEMENTS AND REPORT OF
INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
ADVANCED GAMING TECHNOLOGY, INC.
DECEMBER 31, 1995 AND 1994
AND
SEPTEMBER 30, 1996 AND 1995 (UNAUDITED)
<PAGE> 31
CONTENTS
Page
----
Report of Independent Certified Public Accountants F-1
Financial Statements
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-4
Consolidated Statement of Stockholders'
Deficit for the year ended December 31, 1994 F-5
Consolidated Statements of Stockholders' Deficit
for the year ended December 31, 1995 F-6
Consolidated Statements of Cash Flows F-7
Notes to Financial Statements F-9
<PAGE> 32
Report of Independent Certified Public Accountants
Board of Directors
Advanced Gaming Technology, Inc.
We have audited the accompanying consolidated balance sheets of
Advanced Gaming Technology, Inc. and subsidiaries as at December 31, 1995 and
1994, and the related consolidated statements of operation, stockholders
deficit, and cash flows for the years then ended. 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 Advanced Gaming
Technology, Inc. and subsidiaries as of December 31 1995 and 1994 and the
results of their operations, and their cash flows for the years then ended in
conformity with generally accepted accounting principles.
Respectfully submitted,
/s/ Robison, Hill & Co.
-----------------------------
Certified Public Accountants
Salt Lake City, Utah
July 5, 1996
F-1
<PAGE> 33
ADVANCED GAMING TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited)
as at
September 30 as at December 31,
---------- -----------------------
1996 1995 1994
---------- ---------- -----------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents (note B6) $ 21,311 $ 17,739 $ 184,885
Accounts receivable 152,999 34,827 -
Notes receivable (note C) - - 108,595
Minimum lease payments receivable - - 68,705
Inventory (note B2) 41,785 18,000 31,350
Prepaid expenses 81,620 71,705 -
---------- ---------- -----------
Total current assets 297,715 142,271 393,535
---------- ---------- -----------
PROPERTY AND EQUIPMENT (NOTE B3)
Office equipment 31,779 11,420 4,534
Computer equipment 48,481 31,988 13,600
Display equipment 20,763 17,521 17,521
Lease equipment 2,050,381 737,103 -
Gaming equipment 988,938 175,359 -
Leasehold Improvements 30,132 - -
---------- ---------- -----------
3,170,474 973,391 35,655
Less accumulated depreciation 469,192 248,798 5,997
---------- ---------- -----------
2,701,282 724,593 29,658
---------- ---------- -----------
OTHER
Security Deposit 50,930 50,930 -
Intangible assets (notes B4 and D) 504,080 1,061,782 540,365
Investment - land 4,137,732 4,126,307 -
Deferred development costs 150,527 - -
---------- ---------- -----------
Total other assets 4,843,269 5,239,019 540,365
---------- ---------- -----------
Total assets $7,842,266 $6,105,883 $ 963,558
========== ========== ===========
</TABLE>
F-2
<PAGE> 34
ADVANCED GAMING TECHNOLOGY, INC.
CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
(Unaudited)
as at
September 30 as at December 31,
------------- ---------------------------
1996 1995 1994
------------- ------------ -----------
<S> <C> <C> <C>
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES
Bank overdraft and revolving loan
(note E) $ - $ 175,897 $ -
Accounts payable 1,194,599 1,186,461 317,237
Accrued liabilities -
Salaries, wages and other
compensation - 194,800 142,042
Other 961,199 1,192,975 220,000
Stockholders' loans (note F) - 1,014,372 2,797,246
Notes payable (note G) 305,467 520,770 -
Deferred revenue 7,073 7,073 -
Current maturities of long-term debt
(note H) 1,031,889 1,433,508 -
------------ ------------ -----------
Total current liabilities 3,500,227 5,725,856 3,476,525
Long-term debt (note H) 2,875,178 2,376,941 -
Convertible promissory notes 4,442,838 - -
------------ ------------ -----------
10,818,243 8,102,797 3,476,525
------------ ------------ -----------
COMMITMENTS AND CONTINGENCIES (NOTE L)
Advances from joint venture partner 755,757 - -
------------ ------------ -----------
STOCKHOLDERS' DEFICIT
Preferred stock - $.10 par value;
authorized 4,000,000 shares;
none issued (note I) - - -
Common stock - $.005 par value;
authorized 40,000,000 shares 183,744 135,693 50,532
issued and outstanding 27,138,517
Additional paid-in capital 17,345,808 15,611,020 6,196,851
Accumulated deficit (21,261,286) (17,743,627) (8,760,350)
------------ ------------ -----------
Net stockholders' deficit (3,731,734) (1,996,914) (2,512,967)
------------ ------------ -----------
Total liabilities and
stockholders deficit $ 7,842,266 $ 6,105,883 $ 963,558
============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-3
<PAGE> 35
ADVANCED GAMING TECHNOLOGY, INC.
CONSOLIDATED STATEMENTS OF OPERATION
<TABLE>
<CAPTION>
(Unaudited)
For the nine months ended For the years ended
September 30, December 31,
---------------------------- ----------------------------
1996 1995 1995 1994
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Equipment lease revenue $ 586,140 $ 214,873 $ 381,928 $ 20,863
COST OF SALES (87,446) (20,115) (66,782) (4,629)
------------ ------------ ------------ ------------
GROSS MARGIN 498,694 194,758 315,146 16,234
------------ ------------ ------------ ------------
COSTS AND EXPENSES
Research and development 1,092,990 1,099,025 2,180,865 1,305,089
General and administration 1,762,734 1,702,970 2,077,779 3,593,063
------------ ------------ ------------ ------------
2,855,724 2,801,995 4,258,644 4,898,152
------------ ------------ ------------ ------------
OPERATING LOSS (2,357,030) (2,607,237) (3,943,498) (4,881,918)
Other income (expense)
Foreign exchange adjustments (note B5) (5,511) (1,646) 3,209 112,722
Financing costs and interest
Related parties - - - (890,765)
Other (629,505) (881,995) (1,923,756) (32,538)
Loss on disposal of assets (525,613) - (23,728) -
------------ ------------ ------------ ------------
LOSS FROM CONTINUING OPERATIONS (3,517,659) (3,490,878) (5,887,773) (5,692,499)
Discontinued operations (note J) - (136,306) (3,095,504) -
------------ ------------ ------------ ------------
NET LOSS $ (3,517,659) $ (3,627,184) $ (8,983,277 $ (5,692,499)
============ ============ ============ ============
Net loss per common share
Loss from continuing operations $ (.10) $ (.23) $ (0.34) $ (0.70)
Loss from discontinued operations - (.01) (0.18) -
------------ ------------ ------------ ------------
Net loss per common share $ (.10) $ (.24) $ (0.52) $ (0.70)
============ ============ ============ ============
Weighted average common shares
outstanding (note B7) 34,579,285 15,235,438 17,273,196 8,114,042
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE> 36
ADVANCED GAMING TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1994
<TABLE>
<CAPTION>
Price
Range Common Stock Additional
Per Share --------------------------- Paid-in Accumulated
($) Shares Amount Capital Deficit Total
---------- ---------- ----------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994 5,922,398 $ 29,612 $ 1,879,756 $ (452,457) $ 1,456,911
Prior year adjustments (note K) (2,615,394) (2,615,394)
Issuance of common shares -
for cash 1.00 200,000 1,000 199,000 200,000
for interest on stockholders' loans 2.28 219,118 1,096 498,170 499,266
to settle stockholders' loans 0.52 2,238,549 11,192 1,157,118 1,168,310
for signing bonuses 2.25 125,000 625 280,625 281,250
for salaries 0.48 461,451 2,307 216,882 219,189
for consulting services 1.70-2.43 290,000 1,450 636,050 637,500
to settle a patent dispute 2.25 50,000 250 112,250 112,500
to acquire gaming and manufacturing
license rights in China, less
finders' fees of $280,000 2.50 600,000 3,000 1,217,000 1,220,000
Net loss for the year (5,692,499) (5,692,499)
---------- ----------- ----------- ------------ -----------
Balance at December 31, 1994 10,106,516 $ 50,532 $ 6,196,851 $ (8,760,350) $(2,512,967)
========== =========== =========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE> 37
ADVANCED GAMING TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE YEAR ENDED DECEMBER 31, 1995
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1996 (UNAUDITED)
<TABLE>
<CAPTION>
Price
Range Common Stock Additional
Per Share ------------------------- Paid-in Accumulated
($) Shares Amount Capital Deficit Total
---------- ---------- ---------- ------------ ------------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 10,106,516 $ 50,532 $ 6,196,851 $ (8,760,350) $(2,512,967)
Issuance of common shares -
for cash, less finders fees of
$75,000 0.15-0.63 2,666,667 13,333 794,167 807,500
for security 0.26-1.60 1,535,000 7,675 7,675
for financing costs and interest,
less finders fees of $54,219 0.26-1.75 880,206 4,401 676,894 681,295
to settle stockholders' loans 0.40-0.92 3,452,940 17,265 1,638,984 1,656,249
to acquire subsidiary 0.63 5,999,820 30,000 3,807,158 3,837,158
for signing bonuses 0.41-1.50 160,000 800 151,612 152,412
for consulting services 0.39-1.82 1,279,368 6,397 915,644 922,041
for share and warrant options 1.50 450,000 2,250 672,750 675,000
to settle long-term debt 1.25 608,000 3,040 756,960 760,000
Net loss for the year (8,983,277) (8,983,277)
---------- ---------- ------------ ------------- -----------
Balance at December 31, 1995 27,138,517 135,693 15,611,020 (17,743,627) (1,996,914)
Conversion of notes payable .25-1.50 225,727 1,129 200,953 - 202,082
Conversion of warrants .50 112,966 564 55,918 - 56,482
For security .45 1,200,000 6,000 29,100 - 35,100
Private placement .15-.96 7,266,666 36,333 1,233,667 - 1,270,000
For consulting services .32-.79 55,000 275 28,900 - 29,175
For employee bonuses .30-.96 750,000 3,750 186,250 - 190,000
Net loss for nine months - - - (3,517,659) (3,517,659)
---------- ---------- ------------ ------------- -----------
Balance September 30, 1996 (Unaudited) 36,748,876 $ 183,744 $ 17,345,808 $ (21,261,286) $(3,731,734)
========== ========== ============ ============= ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE> 38
ADVANCED GAMING TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
(Unaudited)
for the nine months ended for the years ended
September 30, December 31,
--------------------------- --------------------------
1996 1995 1995 1994
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss $(3,517,659) $(3,627,184) $(8,983,277) $(5,692,499)
Adjustments to reconcile net loss to net
cash used in operating activities
Depreciation and amortization 378,096 417,486 448,986 41,102
Loss on sale of assets - - 23,728 -
Bad debt expense - - 35,401 219,421
Allowance for China gaming license rights 525,613 - - 1,150,000
Issuance of common stock for expenses 1,828,369 2,918,015
Deferred revenue - 33,073 7,073 -
Changes in assets and liabilities
Accounts receivable (118,172) 118,438 (34,827) -
Notes receivable - (33,500) 108,595 (90,782)
Minimum lease payments receivable - - 68,705 419,987
Inventory (23,785) 12,769 13,350 (31,350)
Prepaid expenses (9,915) (407,108) (71,705) -
Bank overdraft and revolving loan (175,897) 150,575 175,897 -
Accounts payable 8,138 189,945 869,224 227,376
Accrued liabilities (426,576) 930,791 1,025,733 40,789
----------- ----------- ----------- -----------
Net cash used in operating activities (3,360,157) (2,214,715) (4,484,748) (797,941)
----------- ----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Payments of deferred development costs (150,527) - - -
Proceeds from disposition of equipment - - - 38,066
Acquisition of gaming and manufacturing license - - - (150,000)
Notes and advances (215,303) - 520,770 (219,421)
Purchase of property and equipment (2,208,508) (458,049) (915,064) -
Security deposit - (50,930) (50,930) -
Acquisition of subsidiary - (200,000) (200,000) -
----------- ----------- ----------- -----------
Net cash used in investing activities (2,574,338) (708,979) (645,224) (331,355)
----------- ----------- ----------- -----------
</TABLE>
F-7
<PAGE> 39
ADVANCED GAMING TECHNOLOGY, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
<TABLE>
<CAPTION>
(Unaudited)
for the nine months ended for the years ended
September 30, December 31,
-------------------------- --------------------------
1996 1995 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING ACTIVITIES
Advances from joint venture partner $ 755,757 $ - $ - $ -
Stockholders' loans - 143,890 143,890 1,129,433
Proceeds from issuance of common stock 1,700,000 1,470,750 1,482,500 200,000
Finders' fees - - - (280,000)
Principal payments on notes payable (757,690) (816,462) (853,462) -
Proceeds from notes payable 4,240,000 1,977,995 4,189,898 -
----------- ----------- ----------- -----------
Net cash provided by financing activities 5,938,067 2,776,173 4,962,826 1,049,433
----------- ----------- ----------- -----------
NET INCREASE (DECREASE) IN CASH 3,572 (147,521) (167,146) (79,863)
CASH, BEGINNING OF PERIOD 17,739 184,885 184,885 264,748
----------- ----------- ----------- -----------
CASH, END OF PERIOD $ 21,311 $ 37,364 $ 17,739 $ 184,885
=========== =========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for interest $ 377,002 $ 39,104 $ 52,138 $ -
Non cash investing and financing activities:
- -------------------------------------------
Issuance of common stock for finders' fees $ 270,000 $ 110,469 $ 129,219 $ 152,500
Issuance of common stock to acquire gaming
and manufacturing license rights in China $ - $ - $ - $ 1,500,000
Issuance of common stock as settlement of
stockholders' loans $ 71,483 $ 576,250 $ 1,656,249 $ 1,168,310
Issuance of common stock for acquisition of
subsidiary $ - $ 3,837,158 $ 3,837,158 $ -
Issuance of common stock for debt reduction $ 45,600 $ 760,000 $ 760,000 $ -
</TABLE>
The accompanying notes are an integral part of these statements.
F-8
<PAGE> 40
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(References to September 30, 1996 and 1995 are unaudited)
NOTE A - HISTORY AND ORGANIZATION
The Company was incorporated under the laws of the State of Wyoming in
1963 under the name of Mactay Investment Co. At a special shareholder's meeting
held in 1987, the Corporation's name was changed to Auto N Corporation. The
company changed its name to Advanced Gaming Technology, Inc. in 1991.
The Company's executive offices are in Vancouver, B.C., Canada. The
Company is principally engaged in the development and marketing of electronic
bingo equipment in the United States and the United Kingdom, and in the
development of gaming opportunities in Asia.
NOTE B - SUMMARY OF ACCOUNTING POLICIES
A summary of the significant accounting policies applied in the
preparation of the accompany financial statements follows.
The unaudited financial statements as of September 30, 1996 and for the
nine months ended September 30, 1996 and 1995 reflect, in the opinion of
management, all adjustments (which include only normal recurring adjustments)
necessary to farily state the financial position and results of operations and
cash flows for the respective periods. Operating results for interim periods are
not necessarily indicative of the results which can be expected for full years.
1. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Advanced Gaming
Technology, Inc. and its wholly-owned subsidiaries, Executive Video Systems,
Inc., Palace Entertainment Limited, Branson Signature Resorts, Inc., Branson
Bluffs Resorts, Inc., River Oaks Resorts and Country Club, Inc., Allied Resorts,
Inc., and River Oaks Holdings, Inc. All significant intercompany accounts and
transactions have been eliminated.
F-9
<PAGE> 41
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(References to September 30, 1996 and 1995 are unaudited)
NOTE B - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
2. INVENTORY
Inventory consists of bingo equipment parts and is carried at lower of cost
(first-in, first-out method) or market value.
3. PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation is provided for in
amounts sufficient to relate the cost of depreciable assets to operations over
their estimated service lives, principally on a straight-line basis from 3 to 5
years.
Upon sale or other disposition of property and equipment, the cost and related
accumulated depreciation or amortization are removed from the accounts and any
gain or loss is included in the determination of income or loss.
Expenditures for maintenance and repairs are charged to expense as incurred.
Major overhauls and betterments are capitalized and depreciated over their
useful lives.
4. INTANGIBLE ASSETS
Organization costs are recorded at their acquisition costs and are amortized to
operations over their estimated useful lives of five years. Amortization is
computed on the straight-line method.
Manufacturing license rights are recorded at their acquisition cost and
amortized, straight-line, over five years effective July, 1995.
Goodwill and software rights were created by the excess of the purchase price
over cost of acquisitions made in 1995, and are amortized on a straight-line
basis over 5 years.
F-10
<PAGE> 42
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(References to September 30, 1996 and 1995 are unaudited)
NOTE B - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
5. TRANSLATION OF FOREIGN CURRENCY
All balance sheet accounts of foreign operations are translated into U.S.
dollars at the year-end rate of exchange and statement of operations items are
translated at the weighted average exchange rates for the year. The resulting
translation adjustments are made directly to a separate component of the
stockholders' equity. Certain foreign activities are considered to be an
extension of the U.S. operations, and the gain or loss resulting from
remeasuring these transactions into U.S. dollars is included in income. Gains or
losses from other foreign currency transactions, such as those resulting from
the settlement of foreign receivables or payables, are included in the
Statements of Operations.
6. CASH AND CASH EQUIVALENTS
For purposes of the Statement of Cash flows, the Company considers all highly
liquid debt instrument purchased with a maturity of three months or less to be
cash equivalents.
7. NET LOSS PER COMMON SHARE
Net loss per common share is calculated using the weighted average number of
common shares outstanding during each year. Common share equivalents are not
considered in the calculation of the weighted average number of shares
outstanding because they would decrease the net loss per common share.
8. INCOME TAXES
The Company has implemented the provisions of SFAS No. 109, "Accounting for
Income Taxes." SFAS No. 109 requires that income taxes be computed using the
liability method. Deferred taxes are determined based on the estimated future
tax effects of differences between the financial reporting and tax reporting
bases of assets and liabilities given the provisions of currently enacted tax
laws.
F-11
<PAGE> 43
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(References to September 30, 1996 and 1995 are unaudited)
NOTE B - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
9. REVENUE RECOGNITION
Revenue is generated on operating leases and is recognized and amortized over
the lease term on a straight-line basis except where the agreement provides for
a percentage of gross revenue in which case it is recognized on an accrual
basis.
10. RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed of." The Company is required to adopt SFAS No. 121 in fiscal 1996.
SFAS No. 121 addresses the accounting for (i) impairment of long-lived assets,
certain identified intangibles and goodwill related to assets to be held and
used, and (ii) long-lived assets and certain identifiable intangibles to be
disposed of. SFAS No. 121 required that long-lived assets and certain
identifiable intangibles to be held and used by an entity be reviewed for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the sum of the expected
future cash flows from the use of the asset and its eventual disposition
(undiscounted and without interest charges) is less than the carrying amount of
the asset, an impairment loss is recognized. Management does not expect that the
adoption of SFAS No. 121 will have a material impact on the Company's
consolidated financial statements.
11. PERVASIVENESS OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
F-12
<PAGE> 44
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(References to September 30, 1996 and 1995 are unaudited)
NOTE B - SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
12. RECLASSIFICATIONS
Certain reclassifications have been made in the 1994 financial statements to
conform with the 1995 presentation.
NOTE C - NOTES RECEIVABLE
Notes receivable consist of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Unsecured note receivable relative to the
sale of software, non-interest bearing,
due in equal and consecutive monthly
installments of $25,444 $ - $ 105,793
Unsecured note receivable, non-interest
bearing, no fixed terms of repayment - 2,802
----------- -----------
$ - $ 108,595
=========== ===========
NOTE D - INTANGIBLE ASSETS
- --------------------------
Intangible assets consist of the following:
1995 1994
----------- -----------
Gaming license rights - China
Gross $ 1,150,000 $ 1,150,000
Less allowance (1,150,000) (1,150,000)
----------- -----------
Net - -
----------- -----------
Manufacturing license rights
Gross 500,000 500,000
Accumulated amortization (50,000) -
----------- -----------
Net 450,000 500,000
----------- -----------
Software rights
Gross 692,405 -
Accumulated amortization (121,171) -
----------- -----------
Net 571,234 -
----------- -----------
</TABLE>
F-13
<PAGE> 45
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(References to September 30, 1996 and 1995 are unaudited)
NOTE D - INTANGIBLE ASSETS (CONTINUED)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Organization Costs
Gross 57,175 50,457
Accumulated amortization (16,627) (10,092)
----------- -----------
Net 40,548 40,365
----------- -----------
Net intangible assets $ 1,061,782 $ 540,365
=========== ===========
</TABLE>
NOTE E REVOLVING BANK LOAN
The Company has a line-of-credit agreement with a bank which enables
the Company to borrow up to a maximum of $150,000. As of December 31, 1995,
$150,000 was outstanding under this agreement. Borrowings on the line-of-credit
accrue interest at the bank's prime rate plus two percent and are due on demand.
Interest is payable monthly. The agreement expires January 31, 1996, and
subsequent to year end was paid in full.
NOTE F - STOCKHOLDERS' LOANS
Stockholders' loans consist of the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Due to employees, non-interest bearing $ 208,333 $ 1,192,500
Due to directors, employees for consulting
services, non-interest bearing - 197,496
Due to stockholders, interest bearing at 10% 82,910 -
Due to stockholders, non-interest bearing 723,129 1,407,250
----------- -----------
Less current maturities (1,014,372) (2,797,246)
----------- -----------
Net stockholders' loans $ - $ -
=========== ===========
</TABLE>
Of the 1994 loans, $1,080,000 was settled in 1995, for stock.
Of the 1995 loans, $931,462 was settled in 1996, for stock.
F-14
<PAGE> 46
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(References to September 30, 1996 and 1995 are unaudited)
NOTE G - NOTES PAYABLE
<TABLE>
<CAPTION>
1995 1994
--------- -----------
<S> <C> <C>
Due to a corporation, non-interest bearing,
repayable at $15,000 per month, secured
by certain equipment $ 134,750 $ -
Due to an individual, interest equal to
principal, principal and interest
repayable in January 1996, unsecured 97,283 -
Due to an individual, interest equal to
principal, principal and interest
repayable in January 1996, unsecured 48,234 -
Due to an individual, interest equal to
principal, principal and interest
repayable in January 1996, unsecured 49,049 -
Due to an individual, interest equal to
principal, principal and interest
repayable in January 1996, unsecured 48,641 -
Due to an individual, interest equal to
principal, principal and interest
repayable in January 1996, unsecured 48,641 -
Due to a corporation, interest at 10%,
principal and interest due at year
end, unsecured 24,172 -
Due to an individual, interest negotiated
at $12,000, principal and interest due
March 15, 1996, unsecured 70,000 -
---------- -----------
Total notes payable $ 520,770 $ -
========== ===========
NOTE H - LONG-TERM DEBT
- -----------------------
Long-term debt consists of the following:
1995 1994
---------- -----------
Note payable with interest at 9%, quarterly
interest only payments through July
2002, with the remaining balance due in July
2002, collateralized by deed of trust $1,200,169 $ -
Note payable with interest at 9%, quarterly
interest only payments through July
2002, with the remaining balance due in July
2002, collateralized by deed of trust $ 80,000 $ -
</TABLE>
F-15
<PAGE> 47
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(References to September 30, 1996 and 1995 are unaudited)
NOTE H - LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Note payable with interest at 9%,
quarterly interest only payments through July
2002, with the remaining balance due in July
2002, collateralized by deed of trust $ 50,000 $ -
Note payable with interest at 9%,
quarterly interest only payments through July
2002, with the remaining balance due in July
2002, collateralized by deed of trust $ 9,623 $ -
Note payable with interest at 10%, quarterly
interest only balance due on demand,
collateralized by deed of trust 60,812 -
Note payable with interest at 3% above the
Chase Manhattan prime lending rate, due
in quarterly principal installments of
$17,857 plus accrued interest, matures
January 2002 500,000 -
Note payable with interest at 10%, princi-
pal is due at year end, and secured by
100,000 shares of the company 75,106 -
Note payable with interest at 10%, due in
monthly installments of $1,613 including
interest, collateralized by contract for
deed 37,644 -
Note payable with interest at 10%, due
on demand 3,600 -
Note payable with interest at 9%, due on
demand 55,000 -
</TABLE>
F-16
<PAGE> 48
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(References to September 30, 1996 and 1995 are unaudited)
NOTE H - LONG-TERM DEBT (CONTINUED)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Note payable with interest at 7%, due
in February 1996, secured by software
rights and 250,000 shares of the Company;
subsequent to year end, $300,000 was
repaid and the balance renegotiated with
18 equal monthly payments at 8% 496,516 -
Loan payable with interest at 20%, due in
monthly installments of $12,953 including
interest, matures June 1997, secured by
500,000 shares of the Company; additionally,
the Company is required to pay 10% of net
revenues from a joint venture project $ 191,979 $ -
Convertible Debenture, total facility
$1,000,000, advanced $450,000 at year
end, principal and interest due December
1996, interest at 2% per month compounded
monthly, principal and accrued interest
convertible into common stock in whole
or part at holder's option, redeemable
by the Company at any time to maturity 450,000 -
Bonus consideration of $150,000 per year
for four years due on loan anniversary
convertible to stock at holder's option 600,000 -
---------- -----------
3,810,449 -
Current maturities (1,433,508) -
----------- -----------
Net long-term debt $ 2,376,941 $ -
=========== ===========
</TABLE>
F-17
<PAGE> 49
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(References to September 30, 1996 and 1995 are unaudited)
NOTE H - LONG-TERM DEBT (CONTINUED)
Annual principal payments on long-term debt are as follows:
<TABLE>
<CAPTION>
<S> <C>
1996 $1,433,508
1997 598,461
1998 227,876
1999 150,000
2000 -
Thereafter 1,400,604
----------
$3,810,449
==========
</TABLE>
NOTE I - PREFERRED STOCK
The Board of Directors of the Company has the authority to issue
4,000,000 shares of 10% cumulative preferred stock, par value $.10 per share.
NOTE J - DISCONTINUED OPERATIONS
In June 1995, the Company acquired two separate real estate properties
in Branson, Missouri. The resort property (Branson Bluffs Resort, Inc.) had
limited existing development on the site (restaurant, golf course, motel, time
share units). In order to bring this resort operation into an economically
viable segment, a substantial capital injection had to be made. Since the
Company's focus is not on long-term real estate development, the Company
disposed of this holding by forfeiture to the mortgage holder on November 17,
1995.
The Company's remaining property comprises approximately 170
F-18
<PAGE> 50
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(References to September 30, 1996 and 1995 are unaudited)
NOTE J - DISCONTINUED OPERATIONS (Continued)
acres of prime development site in Stone Country, Missouri. This asset has shown
substantial appreciation from the date of acquisition. The Company is currently
attempting to capitalize on this asset.
<TABLE>
<S> <C>
Loss from operations (income taxes - nil) $ (83,594)
Loss on disposal (income taxes - nil) (3,011,910)
-----------
Total discontinued operations $(3,095,504)
===========
</TABLE>
NOTE K - PRIOR PERIOD ADJUSTMENTS
The balance sheet at December 31, 1994 has been restated to reflect the
correction of understatements in expenses of $2,615,394. Deficit at January 1,
1994 has been charged $2,615,394. The adjustment expenses $415,394 of previously
deferred expenses, unrecorded compensation for services rendered in the amount
of $700,000 all related to operations during 1993 and earlier, and writes down
$1,500,000 of patents and other intangible rights acquired in 1991.
NOTE L - COMMITMENTS AND CONTINGENCIES
The United States Securities and Exchange Commission ("SEC") is
conducting a private investigation of the Company and others involving possible
violations of the registration and antifraud provisions of the federal
securities laws of the United States. The Company is cooperating with the SEC
and has produced voluminous documents; the availability of management also has
been offered. Although the outcome of the investigation cannot be predicted with
any assurance, management nevertheless is cautiously optimistic that any action
that may be taken by the SEC will not have a materially adverse effect on its
business, properties or financial position and condition.
F-19
<PAGE> 51
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(References to September 30, 1996 and 1995 are unaudited)
NOTE L - COMMITMENTS AND CONTINGENCIES (CONTINUED)
The Company leases its offices and certain equipment under long-term
operating leases. Future minimum lease payments under these operating leases are
as follows:
<TABLE>
<S> <C>
1996 $ 204,375
1997 192,386
1998 206,948
1999 218,827
2000 58,589
</TABLE>
The Company has just begun principal operations and, as of yet, has not
generated significant revenues. As is common with a start-up company, the
Company has substantial losses from operations. At year end, its current
liabilities exceeded its current assets by $5,600,000 and its total liabilities
exceeded its total assets by $2,000,000. The accompanying financial statements
have been prepared in conformity with generally accepted accounting principles,
which contemplate continuation of the Company as a going concern.
In view of the matters described in the preceding paragraph, management
has taken the following steps to significantly change its operating and
financial structure, which it believes are sufficient to provide the Company
with the ability to continue in existence.
- A new President and Chief Financial Officer have been retained,
allowing the Chief Executive Officer to focus on corporate financing,
marketing and development of international operations.
F-20
<PAGE> 52
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(References to September 30, 1996 and 1995 are unaudited)
NOTE L - COMMITMENTS AND CONTINGENCIES (CONTINUED)
- Development of the Company's newest product, the patented MAX(LITE)
hand-held electronic bingo system, has been launched. Management is
planning a marketing and sales program, with a resulting positive cash
flow in 1996.
- Orders for the Company's core product, the MAX(PLUS) fixed base unit
electronic bingo system, have increased significantly.
- The Company is negotiating with an equity participation partner, which,
if successful, will allow it to complete its international projects.
- The Company's first gaming centre in China is proceeding, and
management anticipates positive cash flows from this and additional
centres in 1996.
- During the early part of 1996, the Company has raised $4,240,000 to
fund its capital requirements, signed lease-to-purchase agreements with
two major suppliers to acquire $900,000 of gaming equipment, and leased
200 of its MAX(PLUS) electronic bingo units to the first all-electronic
bingo hall in the United States.
Management believes that the Company has been nurtured to a stage
whereby the above actions will ensure its future profitability.
From time to time, the Company becomes subject to litigation, which it
considers routine to its business activities. Management believes, after
consultation with legal counsel, that the ultimate resolution of these matters
will not materially affect the accompanying consolidated financial statements.
F-21
<PAGE> 53
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(References to September 30, 1996 and 1995 are unaudited)
NOTE M - STOCK OPTIONS AND WARRANTS (CONTINUED)
All options and warrants have been granted at exercise prices greater
than the market value on the date of granting except for 4,225,000 options
issued to employees. All options vest 100% at date of grant.
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Options outstanding, beginning of year 625,000 -
Granted 6,999,097 625,000
Expired (350,000) -
Exercised (50,000) -
----------- -----------
Options and warrants outstanding,
end of year $ 7,224,097 $ 625,000
=========== ===========
Option and warrant price for options
and warrants outstanding, end of
year 0.25- 1.00-
$ 2.19 $ 3.50
=========== ===========
Options and warrants granted
subsequent to year end 2,611,400
===========
Option and warrant price range
granted subsequent to year end 0.25-
$ 2.19
NOTE N - SEGMENT INFORMATION
Geographic segments:
1995 1994
----------- -----------
Revenue
United States $ 381,928 $ 20,863
=========== ===========
Operating loss
Asia 794,058 1,835,543
United States 507,530 957,101
Other corporate expenses 2,641,910 2,816,757
----------- -----------
$ 3,943,498 $ 5,609,401
=========== ===========
</TABLE>
F-22
<PAGE> 54
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(References to September 30, 1996 and 1995 are unaudited)
NOTE N - SEGMENT INFORMATION (CONTINUED)
Geographic segments:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Assets
Asia $ 666,359 $ 500,000
United States 5,370,419 260,230
Canada 69,105 203,328
---------- ----------
$6,105,883 $ 963,558
========== ==========
</TABLE>
NOTE O - INCOME TAXES
Deferred taxes result from temporary differences in the recognition of
income and expenses for income tax reporting and financial statement reporting
purposes. Deferred benefits of $3,300,000 and $1,900,000 for the years ended
December 31, 1995 and 1994, respectively, are the result of net operating losses
and the gaming license rights reserve.
The company has recorded net deferred income taxes in the accompanying
consolidated balance sheets as follows:
<TABLE>
<CAPTION>
as at December 31
----------------------------
1995 1994
----------- -----------
<S> <C> <C>
Future deductible temporary differences
related to reserves, accruals, and
net operating losses $ 3,300,000 $ 1,900,000
Valuation allowance (3,300,000) (1,900,000)
----------- -----------
Net deferred income tax asset $ - $ -
=========== ===========
</TABLE>
As of December 31, 1995, the Company had a net operating loss ("NOL")
carryforward for income tax reporting purposes of approximately $14,600,000
available to offset future taxable
F-23
<PAGE> 55
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(References to September 30, 1996 and 1995 are unaudited)
NOTE O - INCOME TAXES (CONTINUED)
income. This net operating loss carryforward expires at various dates between
December 31, 2008 and 2010. An NOL generated in a particular year will expire
for federal tax purposes if not utilized within 15 years. Additionally, the
Internal Revenue Code contains provisions which could reduce or limit the
availability and utilization of these NOLs if certain ownership changes have
taken place or will take place. In accordance with SFAS No. 109, a valuation
allowance is provided when it is more likely than not that all or some portion
of the deferred tax asset will not be realized. Due to the uncertainty with
respect to the ultimate realization of the NOLs, the Company established a
valuation allowance for the entire net deferred income tax asset of $3,300,000
as of December 31, 1995, which includes $391,000 from the gaming license rights
reserve and $2,909,000 from net operating loss carryforward. Also consistent
with SFAS No. 109, an allocation of the income (provision) benefit has been made
to the loss from discontinued operations which has had a corresponding effect on
the income (provision) benefit associated with the loss from continuing
operations.
The differences between the effective income tax rate and the federal
statutory income tax rate on the loss from continuing operations are presented
below.
<TABLE>
<CAPTION>
For the Years Ended
December 31,
----------------------------
1995 1994
------------ -----------
<S> <C> <C>
Benefit at the federal statutory rate
of 34% $ 3,000,000 $ 1,900,000
Nondeductible expense (88,000) (56,000)
Utilization of gaming license rights - (391,000)
Utilization of net operating loss
carryforward (2,919,000) (1,443,000)
Other 7,000 (10,000)
----------- -----------
$ - $ -
=========== ===========
</TABLE>
F-24
<PAGE> 56
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(References to September 30, 1996 and 1995 are unaudited)
NOTE P - RELATED PARTY TRANSACTIONS
In addition to the transactions disclosed in note F to the financial
statements, the Company transacted the following with related parties:
Year Ended December 31, 1994:
Management fees paid to a company controlled by officers, shareholders,
and directors of the Company were $82,569.
Interest incurred of $890,765 on various temporary loans advanced by
officers, shareholders, and directors of the Company.
Write-off of $184,948 advanced to a former officer determined by
management to be uncollectible.
Finders' fees of $112,500 incurred upon the securing of shareholder
loans and common stock private placements, paid by an issuance of
shares during the year to a company related to a former officer of the
Company.
Consulting fees of $814,500 paid to officers, shareholders, and
directors of the Company.
Year ended December 31, 1995
Loan of $25,000 advanced by a director, officer, and shareholder of the
Company.
NOTE Q - ACQUISITION OF SUBSIDIARIES
1. EXECUTIVE VIDEO SYSTEMS, INC.
On February 9, 1995, pursuant to an agreement, the Company acquired all
of the capital stock of Executive Video Systems, Inc.,
F-25
<PAGE> 57
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(References to September 30, 1996 and 1995 are unaudited)
NOTE Q - ACQUISITION OF SUBSIDIARIES (CONTINUED)
a Maryland Corporation. The acquisition has been accounted for by the purchase
method.
The following is a summary of the assets acquired, at fair value
assigned thereto:
<TABLE>
<S> <C>
Equipment $ 22,672
Intangible assets - Software rights 692,978
--------
Total $715,650
========
Purchase consideration:
Cash $200,000
Promissory notes 515,650
--------
Total $715,650
========
</TABLE>
The Company has issued 250,000 common shares held in escrow as security to the
promissory notes. All of the capital stock of Executive Video Systems, Inc. is
held in escrow as security to the promissory notes.
The Company is committed to pay to former stockholders of Executive
Video Systems, Inc. a royalty of three percent of gross revenues from the use of
its software rights until February 9, 1998. During 1995, a total of $10,342 was
paid in royalties.
2. BRANSON SIGNATURE RESORTS, INC.
On June 22, 1995, pursuant to an agreement, the Company acquired all of
the capital stock of Branson Signature Resorts, Inc. and its wholly-owned
subsidiaries. Branson Signature Resorts,
F-26
<PAGE> 58
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(References to September 30, 1996 and 1995 are unaudited)
NOTE Q - ACQUISITION OF SUBSIDIARIES (CONTINUED)
Inc. is a resort and land developer located in Branson, Missouri. The
acquisition was accounted for by the purchase method. The following is a summary
of the net assets acquired, at fair value assigned thereto:
<TABLE>
<S> <C>
Investment-land $ 4,090,000
Property and equipment 3,880,000
Current liabilities (573,322)
Long-term debt (2,783,303)
-----------
$ 4,613,375
===========
</TABLE>
The Company issued 5,999,820 shares under Regulation S and 144 of the
Securities Act of 1934. On November 17, 1995, the Company determined that it was
in the best interest of the Company to divest itself of the resort operations
segment of its business (note J).
NOTE R - SUBSEQUENT EVENTS
The Company has raised $4,240,000 for working capital and to fund its
capital requirements. These funds were generated from a private placement
($1,000,000) and convertible promissory notes ($2,950,000), and advanced from a
joint venture partner ($290,000). Options and warrants associated with the
convertible promissory notes totaling 13,841,667, ranging in price from $0.25 to
$1.50, have been granted. Additionally, as disclosed in note F, $931,462 of
stockholder loans were settled for stock.
In March, 1996, the Company leased 200 of its MAXPLUS electronic bingo
units to the first all-electronic bingo hall in the U.S. Capital and start-up
costs of approximately $475,000 were expended, and annual revenues in excess of
$500,000 are anticipated.
The Company has acquired $900,000 of gaming equipment from two
F-27
<PAGE> 59
ADVANCED GAMING TECHNOLOGY, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1995
(References to September 30, 1996 and 1995 are unaudited)
NOTE R - SUBSEQUENT EVENTS (CONTINUED)
major suppliers on a lease-to-purchase basis over periods of six and eighteen
months. This equipment will be used in the Company's gaming centres in China.
In June 1996, the Company signed a letter of agreement with the leading
manufacturer and supplier of bingo related products in the United Kingdom to
design, manufacture, and lease a portable electronic bingo handset. This new
product is expected to generate revenues for the Company by the first quarter of
1997.
The Company's newest product, the MAX(LITE) portable handset, has been
successfully beta tested by an existing MAX(PLUS) customer. On May 14, 1996, the
Company committed approximately $750,000 for the manufacture of these units to
be available for lease in August, 1996. Additionally, the Company has hired a
Vice President, Sales and Marketing to market this product.
In May 1996, the Company executed an agreement with a leading
developer, manufacturer, and supplier of gaming software and hardware to develop
a new electronic speed bingo game. The Company expects revenues to commence in
late 1996 or the first quarter of 1997.
F-28
<PAGE> 60
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934,
the registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized.
Advanced Gaming Technology, Inc.
Date: January 16, 1997 By:
---------------------------------
Firoz Lakhani, President, Chief
Operating Officer and Director
This registration statement has been signed by the following persons
in the capacities and on the dates indicated.
Name Title Date
- ---------------------- -------------------------- ---------------
Chairman, Chief Executive Officer January 16, 1997
- ---------------------- and Director
Robert Silzer
Chief Financial Officer January 16, 1997
- ----------------------
Donald Robert MacKay
President, Chief Operating Officer January 16, 1997
- ---------------------- and Director
Firoz Lakhani
<PAGE> 1
EXHIBIT 2.1
ARTICLES OF AMENDMENT TO ARTICLES OF
INCORPORATION OF
ADVANCED GAMING TECHNOLOGY, INC.
The undersigned corporation adopts the following amendment to its Articles of
Incorporation:
FIRST: The name of the corporation is Advanced Gaming Technology, Inc.
SECOND: The following Amendment to the Articles of Incorporation was adopted
by the Shareholders on July 19, 1994 in the manner prescribed by law:
Article IV of the Articles of Incorporation of Advanced Gaming
Technology, Inc. was amended to read as follows:
The aggregate number of shares of stock which this corporation shall
have authority to issue is 40,000,000 common shares of five mil
($0.005) par value common stock and four million shares of cumulative,
ten percent (10%) cumulative preferred stock with a ten cent ($0.10)
par value.
THIRD: The number of shares of the common stock of the corporation
outstanding at the time of the adoption was 9,200,000; the number of shares of
common stock entitled to vote was 9,200,000; and 5,700,000 shares of the common
stock of the corporation were represented at the meeting.
FOURTH: 5,700,000 shares of the common stock of the corporation were voted for
the amendment and zero shares of the common stock were voted against the
amendment.
DATED: 17th day of June, 1996.
ADVANCED GAMING TECHNOLOGY, INC.
By:
-----------------------------
Chairman
<PAGE> 1
EXHIBIT 2.2
ARTICLES OF AMENDMENT TO ARTICLES OF
INCORPORATION OF
ADVANCED GAMING TECHNOLOGY, INC.
The undersigned corporation adopts the following amendment to its Articles of
Incorporation:
FIRST: The name of the corporation is Advanced Gaming Technology, Inc.
SECOND: The following Amendment to the Articles of Incorporation was adopted
by the Shareholders on June 21, 1996 in the manner prescribed by law:
Article IV of the Articles of Incorporation of Advanced Gaming
Technology, Inc. was amended to read as follows:
The aggregate number of shares of stock which this corporation shall
have authority to issue is 150,000,000 common shares of five mil
($0.005) par value common stock and four million shares of cumulative,
ten percent (10%) cumulative preferred stock with a ten cent ($0.10)
par value.
THIRD: The number of shares of the common stock of the corporation
outstanding at the time of the adoption was 35,969,082; the number of shares of
common stock entitled to vote was 35,969,082; and 14,243,265 shares of the
common stock of the corporation were represented at the meeting, representing
39.60% of the issued and outstanding shares.
FOURTH: 8,904,197 shares of the common stock of the corporation were voted for
the amendment and 5,339,068 shares of the common stock were voted against the
amendment.
DATED: 16th day of July, 1996.
ADVANCED GAMING TECHNOLOGY, INC.
By:
-----------------------------
Chairman
<PAGE> 1
EXHIBIT 6.2
LETTER OF INTENT
This Letter of Intent is dated May 13, 1996,
BETWEEN ADVANCED GAMING TECHNOLOGY, INC. a corporation duly
incorporated under the laws of Wyoming and having an
office at 2462, 650 West Georgia Street, in the City
of Vancouver, British Columbia, Canada V6B 4NB.
("AGTI")
AND SEGA GAMING TECHNOLOGY, INC. a corporation duly
incorporated under the laws of Nevada and having an
office at 6311 South Industrial Road, Las Vegas,
Nevada 89118.
("SGTI").
SGTI and AGTI propose the following:
1. SGTI and AGTI shall jointly develop a prototype of a new bingo game
called "Sonic Bingo," which is intended to be a high stake, fast playing,
electronic bingo game. This new bingo game shall be based upon AGTI's existing
bingo game technology and SGTI's proprietary Sonic The Hedgehog(R) character
and related trademarks. With respect to the prototype, the development budget
shall be $55,000; any expenditure in excess of this amount must be mutually
agreed by SGTI and AGTI. AT this time, SGTI and AGTI have contributed $5,500
each. They have agreed to share equally the remaining balance. This
production of the prototype is tentatively scheduled for completion by end of
June, 1996.
2. Upon completion of the prototype, SGTI and AGTI shall engage in
mutually agreed testing of the prototype, both as to its functionality and as
to its market potential.
3. Upon successful completion of the testing of the prototype, SGTI and
AGTI will form a new company ("Newco"), in legal form to be determined, for the
purpose of manufacturing, marketing, distributing and selling "Sonic Bingo."
4. In consideration of its sublicense to Newco to use Sonic The
Hedgehog(R) and related trademarks, SGTI shall own 60% of the capital stock of
Newco. In consideration of its license to Newco to use AGTI's bingo game
technology, AGTI shall own 40% of Newco. In
<PAGE> 2
addition, SGTI and AGTI shall each contribute initial working capital to Newco,
in an amount to be mutually agreed and in accordance with their respective
percentages of ownership of the capital stock of Newco. The board of directors
and officers of Newco shall be as mutually agreed by SGTI and AGTI.
5. All terms and conditions concerning the matters described in this
letter shall be stated in a definitive agreement that will be subject to the
approval of the parties, acting on advice of counsel. Those terms and
conditions will include representations, warranties, covenants, and indemnities
that are usual and customary in a transaction of this nature. SGTI and AGTI
anticipate that the definitive agreement will be executed as soon as possible
upon successful completion of the testing program.
6. Except as to Sections 1 and 2 above and in the following items (a)
through (d) below (which are intended to be binding and enforceable), there is
no legally binding or enforceable contract between the parties pertaining to
the subject matter of this Letter of Intent, and statements of intent or
understandings in this Letter of Intent shall not be deemed to constitute any
offer, acceptance, or legally binding agreement and do not create any rights or
obligations for or on the part of any party to this Letter of Intent.
(a) Confidentiality: Any confidential or proprietary matters (except
publicly available or freely usable material as otherwise lawfully
obtained from another source) respecting any party will be kept in
strict confidence by the other party to this Letter of Intent. If for
any reason the subject transaction does not occur, or if this Letter
of Intent is terminated for any reason, then each party will return
all confidential or proprietary materials that it has received from
the other party to the disclosing party, and (upon request) will
certify in writing that it has retained no copies of the same.
(b) Publicity: Neither party will issue any public announcement
concerning the transaction or this Letter of Intent without the
approval of the other party, except as may be required by law. The
parties intend to issue a joint press release announcing this Letter
of Intent, in form mutually agreed.
(c) Fees and Expenses: Each party agrees to pay the legal and other fees
and expenses incurred by it related to the matters
<PAGE> 3
described in this Letter of Intent, whether or not the definitive
agreement is executed.
(d) Termination: Either party may terminate this Letter of Intent
immediately upon notice to the other party. In the event of
termination, SGTI shall have no further right with respect to AGTI's
technology, and AGTI shall have no further rights with respect to
Sonic The Hedgehog(R) and related trademarks.
<PAGE> 4
IN WITNESS THEREOF the parties have executed or caused this Letter of
Intent to be executed by their duly authorized officers as of the day and first
above written.
SEGA GAMING TECHNOLOGY, INC.
- ------------------------------------
By: Douglas R. Sanderson
Its: President
ADVANCED GAMING TECHNOLOGY, INC.
- ------------------------------------
By: Robert C. Silzer
Its: President
<PAGE> 1
EXHIBIT 6.10
THIS EMPLOYMENT AGREEMENT made as of the 1st day of January,
1996.
BETWEEN:
ADVANCED GAMING TECHNOLOGY INC. a
Wyoming corporation with an office at 2482 - 650 West
Georgia Street, Vancouver, British Columbia, V7B 4N9
(the "Company")
AND
ROBERT C. SILZER, SR.
2385 - 133 A Street
White Rock, British Columbia
V4A 9S9
( the "Executive")
WHEREAS:
A. The Executive has been employed by the Company in the position of
Chairman and Chief Executive Officer since January 1, 1994, and as a result of
such employment has enjoyed and will continue to enjoy benefits therefrom;
B. Each of the Company and the Executive desire that the Executive
continue as Chairman and Chief Executive Officer of the Company;
C. The company and the Executive have agreed to set out and confirm the
terms and conditions of the continued employment of the Executive by the
Company as hereinafter set forth.
THIS AGREEMENT WITNESSES that in consideration of the premises and of
the mutual covenants and agreements hereinafter set forth, the parties hereto
hereby agree with each other as follows:
<PAGE> 2
- 2 -
1. Position. The Executive will continue to serve the Company as the
Chairman and Chief Executive Officer and, in such offices, the Executive will
manage and have responsibility for the operations of the Company and all such
other affairs of the Company as may be designated from time to time by the
Board of Directors of the Company. In connection with his responsibilities,
the Executive will report to and be subject to the lawful and proper
instructions and directions of the Board of Directors of the Company.
2. Term. The employment of the Executive with the Company commenced on
January 1, 1994 and the employment of the Executive shall continue until
December 31, 2000 (the "Term"), or until the employment of the Executive is
otherwise terminated as provided herein. Forthwith upon execution of this
Agreement, the Company will pay or provide to the Executive as a signing bonus,
at the sole option of the Executive, either an amount equal to (US)$100,000 or
250,000 Class A Common voting shares of the Company. The parties may renew
this Agreement by mutual agreement provided that for the purposes of renewal
negotiations the provisions of this Agreement will apply with all necessary
incidental amendments unless specifically altered and the salary and other
remuneration provided for the Executive in the last year of the Term will be
the minimum remuneration. If either party does not wish to renew the
Agreement, that party will advise the other party on or before June 30, 2000.
3. Salary. The Company paid to the Executive a salary of (US)$75,000 for
1994 and (US $125,000 for 1995 and thereafter the Company will pay the
Executive an annual salary effective January 1 of each year of the Term as
follows:
<TABLE>
<CAPTION>
=======================================
YEAR (US)$
---------------------------------------
<S> <C>
---------------------------------------
1996 175,000
---------------------------------------
1997 225,000
---------------------------------------
1998 275,000
---------------------------------------
1999 325,000
---------------------------------------
2000 375,000
=======================================
</TABLE>
The annual salary will be subject to applicable statutory withholdings
and deductions and will be paid in equal consecutive semi-monthly installments.
During the Term the Company will also pay to the Executive a performance bonus,
and provide common stock grants and options, in accordance with the provisions
of Schedules A and B hereto.
During the Term, the Company will review with the Executive, at least
once a year and prior to December 31, the annual salary, bonus payments and
benefits provided by the Company to the Executive to determine the basis for
any increases thereto in addition to those increases set out above with the
objective of ensuring that the remuneration is at least at market level.
Either the Company or the Executive may require the assistance of a mutually
agreed independent executive remuneration consultant as part of the review
process at the
<PAGE> 3
- 3 -
sole cost of the Company. If the parties cannot agree on the consultant, KPMG
or its designate will act as the consultant. The recommendations of the
consultant for salary increases will be binding on the parties but in no event
will the increases in salary and other remuneration be lower than expressly
provided herein.
Notwithstanding the foregoing, the Company will ensure that the
Executive at all times during the Term receives total salary and other
remuneration that is the highest total salary and other remuneration received
by any employee of the Company or received by any other person directly or
indirectly performing personal service or services for the Company.
4. Executive Benefits. The Company will pay or cause to be paid the
entire premium cost of the following insured benefits for the Executive and his
family:
(a) dental plan;
(b) medical plan which will be the B.C. Medical Services Plan if
available, and if not, an insured medical plan providing at
least the same benefits as the B.C. Medical Services Plan;
(c) group health and welfare insurance plan which will include
life insurance providing a benefit of at least the greater of
U.S.$1,000,000 or four times the annual base salary as
established in Section 3, extended health, short term
disability, long term disability and accidental death and
dismemberment;
(d) key person insurance with a benefit equal to at least
U.S.$1,000,000 payable 75% as directed by the Executive and
25% to Firoz Lakhani;
(e) membership in a business, social or recreational club of the
Executive's sole choice including all initiation fees and all
monthly dues and payments;
(f) and any other benefit or perquisite available to any other
employees of the Company or generally provided to executives
of companies similar to the Company;
as these benefit plans currently exist or, if not in existence, as otherwise
arranged by the Company on the terms as set out herein. The Company will
consult with the Executive on the terms and conditions of each benefit and if
there is any dispute as to whether a benefit should be provided under (f) above
or in respect of any terms and conditions of these benefits plans not expressly
set out above, the parties will retain KPMG or its designate at the Company's
cost to provide binding recommendations on any unresolved terms.
<PAGE> 4
- 4 -
If this Agreement is terminated for any reason other than for just
cause, the Company will provide to the Executive and his family the foregoing
benefits for the unexpired period of the Term.
5. Holidays. The Executive will be entitled to 4 weeks' vacation with
pay in each of 1994, 1995 and 1996, and 6 weeks' vacation with pay in each of
1996, 1997, 1998, 1999 and 2000, at such time or times as the Executive may
determine consistent with the requirements of the Company's business. The
Executive's vacation will be cumulative and, accordingly, if the Executive
fails to take his vacation in any calendar year it will be carried over to the
following year. If this Agreement is terminated during the Term, the Company
will calculate the vacation entitlement for that year on a pro rata basis and
add it to any vacation entitlement accrued from prior years. In addition to
any other provision of this Agreement, accrued but untaken vacation entitlement
at the time of termination of employment will be paid to the Executive by the
Company based on the Executive's salary at the time of termination.
6. Automobile. The Company will pay to the Executive the sum of (US)$800
per month in 1995, which will be increased by an additional (US)$100 per month
for each calendar year of the Term, as a car allowance and, in addition, will
pay to the Executive the aggregate of all expenses actually and properly
incurred by him in connection with the operation of his automobile (except
depreciation expense).
7. Expense Reimbursement. The Company will reimburse the Executive for
all travelling and other expenses actually and properly incurred by him in
connection with his duties hereunder and the Executive will be entitled to
travel first class and stay in top class, five star hotels. The Company will
also reimburse the Executive for all travelling expenses actually and properly
incurred by him for his spouse where it is determined by the Executive to be
reasonably in the interests of the Company for the Executive's spouse to travel
with him on Company business.
8. Executive's Covenant. Subject to Section 5, the Executive will well
and faithfully serve the Company full time and will use his best endeavours to
promote the interests of the Company and shall devote his full time, skill,
labour and attention to the business of the Company.
9. Confidentiality. The Executive acknowledges that:
(a) in the course of carrying out, performing and fulfilling his
responsibilities to the Company hereunder, he will have access
to and will be entrusted with detailed confidential
information, know how and trade secrets relating to the
business and affairs of the Company including, without
limitation, finances, products, services, dealings and
transactions of the Company, and the names,
<PAGE> 5
- 5 -
address, preferences or other particular business requirements
of its customers and that the disclosure of confidential
information, know how and trade secrets of the Company to
competitors or to the public would be highly detrimental to
the best interests of the Company;
(b) in the course of performing his obligations to the Company
hereunder the Executive will be one of the principal
representatives of the Company and as such will be
significantly responsible for maintaining or enhancing the
goodwill of the Company; and
(c) the right to maintain the confidentiality of such confidential
information, know how and trade secrets of the Company and the
right to preserve its goodwill constitute proprietary rights
which the Company is entitled to protect;
and the Executive will not, either during the Term or at any time thereafter,
disclose to any person, firm or corporation or otherwise use any such detailed
confidential information, know how and trade secrets for any purpose other than
the purposes of the Company and the Executive will not disclose or use for any
purpose other than for those of the Company the private affairs of the Company,
or any other private information which he may acquire during the course of his
employment hereunder with relation to the business and affairs of the Company,
except as required by law. The Executive acknowledges that the covenant
contained in this paragraph is necessary and fundamental for the protection of
the business of the Company and that a breach by the Executive will result in
damage to the Company which would not be adequately compensated by monetary
award to the Company and that, in addition to all of the remedies available to
it, the Company shall be entitled to the immediate remedy of a restraining
order, injunction or other form of relief as may be decreed or issued by any
court of competent jurisdiction to restrain or enjoin the Executive from
breaching any such covenant or provision.
10. Termination by the Company. The Company may at any time during the
Term terminate the employment of the Executive for just cause, without notice
and without liability for any claim, action or demand. "Just cause" for
termination of this Agreement will mean just cause as determined under the
common law of British Columbia.
The Company acknowledges that the Executive has prior to the date of
this Agreement made, and will in the future make, a valuable contribution to
the Company not recognized in salary or bonuses paid or to be paid to the
Executive hereunder, which is relevant to the entitlement of the Executive to
the severance pay, including without limitation the performance bonuses and
common stock grants and options, owed in the event this Agreement is terminated
prior to the end of the Term.
The Company at any time during the Term terminate the employment of
the Executive by paying to the Executive a lump sum amount equal to the present
value
<PAGE> 6
- 6 -
(calculated using an 8% discount factor) of his salary for the unexpired period
of the Term, and by providing to him the amount of any performance bonus and
common stock grants and options to which the Executive is or becomes entitled
to pursuant to Schedule A and Schedule B. Notwithstanding the foregoing, the
Executive will be entitled to a minimum payment of (US) $5,500,000 if the
Company terminates the employment of the Execute without just cause. The lump
sum payment, performance bonus and stock rights under this Section 10 would
constitute severance pay in lieu of notice of termination.
11. Termination by the Executive. If any one of the following occurs
during the Term;
(a) change of control;
(b) the Company employs or engages, in addition to those Senior
Executives of the Company employed on the date of this
Agreement, any other senior executive, whether as an employee,
consultant or otherwise, without the prior written consent of
the Executive; or
(c) materially alters the duties and responsibilities of the
Executive without his prior written consent,
the Executive may in his sole discretion terminate his employment within one
hundred and twenty (120) days of becoming aware of such event by giving the
Company ninety (90) days notice in writing of his resignation. In the event of
any such termination by the Executive under this Section 11, the Company will
pay or cause to be paid to the Executive a lump sum amount equal to the present
value (calculated using an 8% discount factor) of the Executive's salary for
the unexpired period of the Term and will provide to him any performance bonus
and common stock grants and options to which the executive is or becomes
entitled to pursuant to Schedules A and B. Notwithstanding the foregoing the
Executive will be entitled to a minimum payment on termination of
(US)$5,500,000 under this Section 11.
For the purposes of this Agreement, "change of control" means the
occurrence of:
(a) the sale or a series of sales occurring within any 12 month
period, other than a sale to an affiliate of the Company (as
that term is defined in the British Columbia Company Act), of
net assets of the Company having a value greater than 50% of
the fair market value of the net assets of the Company
determined on a consolidated basis prior to such sale or prior
to the first of a series of sales occurring within any 12
month period;
(b) the disposition of all or substantially all of the assets of
the Company where such sale or disposition is required by
applicable law to be approved as a special resolution of the
shareholders of the Company; or
<PAGE> 7
- 7 -
(c) any event or series of events pursuant to which on any date
those persons who are members of the board of directors of the
Company as of the date of this Agreement and continue to be
members of the board of directors no longer represent a
majority of the total number of members of the board of
directors.
12. Payment of Severance. The Company will pay to the Executive all
monies owing under Section 10 or Section 11 including any monies owing or to
become owing under Schedule A within 30 days of the date of termination. The
amount of performance bonus payable to the Executive for the unexpired portion
of the Term will be calculated using the projections of the Company as they
exist at the time of termination for Net Income over that period and using an
8% discount factor. Notwithstanding the termination of employment, the Company
will remain obligated to provide the Executive all stock options as set out in
Schedule B. If there is any dispute as to the calculation of any amounts owing
hereunder, either party may refer resolution of this issue to a mutually agreed
consultant, or failing agreement to KPMG or its designate, for resolution by
arbitration pursuant to the Commercial Arbitration Act. The arbitration will
occur in Vancouver, Canada. The decision of the third party will be binding on
both parties. The Company will promptly provide to the Executive upon request
any information including documentation relevant to the calculation of monies
owing or claimed owing under this Agreement. Notwithstanding any dispute over
the calculation of any amount owing under this Agreement, the Company will pay
to the Executive the minimum payment under Section 10 or Section 11 within 30
days of termination of employment of the Executive.
13. Non-Competition. The Executive will not during the Protected Period
(as hereinafter defined), directly or indirectly, either individually or in
partnership or in conjunction with any person, firm, association, syndicate or
corporation as principal, agent, employee, director, officer, shareholder or
contractor or in any other manner whatsoever, carry on or be engaged in or
concerned with or work for or financially interested in or advise or permit his
name or any part thereof to be used or employed by any person, firm,
association, syndicate or corporation engaged in or concerned with or
interested in any business competitive with the business of the Company in the
world. Notwithstanding the foregoing, the Executive may invest in or have an
interest in entities traded on any public market or offered by any national
brokerage house, if and so long as the interest does not exceed 9% of the
voting control any such entity. "Protected Period" means the period commencing
from the date hereof and ending 12 months after the termination of this
employment of the Executive hereunder.
The Executive agrees and acknowledges this covenant is given for good
and valuable consideration (receipt of which is hereby acknowledged) and that
by reason of his unique knowledge of and his association with the business of
the Company, the scope of this covenant as to both time and area is reasonable
and commensurate with the protection of the
<PAGE> 8
- 8 -
legitimate interests of the Company. This restrictive covenant will continue
in effect after the termination of the employment and the termination of this
agreement for any reason and this restrictive covenant is severable for that
purpose. If any part of this covenant is held to be void or unenforceable by a
court of competent jurisdiction, that part may be severed and replaced by the
widest term that would not be held to be void or unenforceable. The Executive
waives all defences to the strict enforcement of this provision.
14. Survival. The obligations and acknowledgments of the Company and
Executive set out in Section 4, 10, 11, 12 and 13 and Schedule B will survive
the termination of this Agreement.
15. Waiver or Modification. No failure or delay of the Company or the
Executive in exercising any power or right hereunder shall operate as a waiver
thereof nor shall any single or partial exercise of such right or power
preclude any other right or power hereunder. No amendment, modification or
waiver of any condition of this agreement or consent to any departure by the
Executive therefrom shall in any event be effective unless the same shall be in
writing signed by the Company.
16. Time of Essence. Time shall be of the essence hereof.
17 Further Assurances. The Executive and the Company will do, execute
and deliver, or will cause to be done, executed and delivered, all such further
deeds, instruments, documents, acts, documents and things as the Company or
Executive may reasonably require for the purpose of giving effect to this
Agreement.
18. Governing Law. This agreement and its application and interpretation
will be governed exclusively by the laws prevailing in British Columbia.
19. Notices. Any notice required to be given hereunder by any party shall
be deemed to have been well and sufficiently given if mailed by prepaid
registered mail or delivered at the address of the other parties hereto set
forth or at such other address in British Columbia as the other parties may
from time to time direct in writing, and any such notice shall be deemed to
have been received, if mailed, telexed or telegraphed, 48 hours after the time
of mailing, telexing or telegraphing, and if delivered, upon the date of
delivery. If normal mail service, telex service or telegraph service is
interrupted by strike, slowdown, force majeure or other cause, a notice sent by
the impaired means of communication will not be deemed to be received until
actually received, and the party sending the notice shall utilize any other
services which have not been so interrupted or shall deliver such notice in
order to ensure prompt receipt thereof. The addresses for notice will, until
changed, be:
<PAGE> 9
- 9 -
In the case of the Company:
2482 - 650 West Georgia Street
Vancouver, B.C.
V6B 4N9
In the case of the Executive:
2385 - 133 A Street
White Rock, B.C.
V4A 9S9
20. Change of Address. Any party may, by notice to the other, change its
address for notice to some other address located in British Columbia and will
so change its address for notice whenever its existing address for notice
ceases to be adequate for delivery both by hand and in the ordinary course of
the mail.
21. Entire Agreement. This Agreement supersedes and replaces all previous
rights, agreements and understandings between the parties hereto whether
written or oral, and sets out the entire agreement between the parties hereto
with respect to the employment of the Executive by the Company.
22. Captions. The captions appearing in this Agreement have been inserted
for reference and as a mater of convenience only and in no way define, limit or
enlarge the scope or meaning of this Agreement or any provision hereof.
23. Binding Agreement. This agreement will enure to the benefit of and be
binding upon the respective successors and permitted assigns of the parties.
24. Severability. If any part of this Agreement is determined to be void
or unenforceable in whole or in part, it will not be deemed to affect or impair
the validity of any part hereof which will continue in full force and effect
and be construed as if this Agreement had been executed without the invalid
part and it is hereby declared the intention of the parties at this Agreement
would it been executed without reference to any part which may for any reason
be determined to be void or unenforceable.
25. Expenses. The Company will pay all reasonable out-of-pocket expenses
of the Executive, including fees and disbursements of his solicitors, in
connection with the preparation and negotiation of this Agreement.
<PAGE> 10
- 10 -
26. Independent Legal Advice. The Executive hereby acknowledges that he
has been advised by the Company to seek independent legal advice.
IN WITNESS WHEREOF this agreement has been executed as of the day and
year first above written.
THE CORPORATE SEAL of )
ADVANCED GAMING TECHNOLOGY INC. )
was hereunto affixed in the presence of: )
) C/S
)
- ----------------------------------------------
)
- ----------------------------------------------
)
)
)
Signed, Sealed and Delivered )
by ROBERT SILZER in the presence of: )
)
)
- ---------------------------------------------- -------------------------
Name ) ROBERT SILZER
)
)
- ----------------------------------------------
Address )
)
)
- ----------------------------------------------
)
)
)
- ----------------------------------------------
Occupation )
)
<PAGE> 11
- 11 -
SCHEDULE A
PERFORMANCE BONUSES
1. A bonus plan is agreed to which would reward the Executive based on
the Net Income of the Company (including its subsidiaries, and its
affiliates as this term is defined in the British Columbia Company
Act) during the Term. In each year during the Term, the Executive
will be entitled to a payment from the Company of an amount equal to
5% of the Net Income of the Company for that Year.
2. "Net Income" has the meaning ascribed to it under generally accepted
accounting principles in Canada determined in a manner consistent with
prior periods but in any event will be exclusive of prior losses and
depreciation and before tax.
3. All payments of cash for each year will be made by the Company within
90 days of the end of the fiscal year of the Company. If the fiscal
year of the Company is not a calendar year then in the last calendar
year of the Term, the Executive will be entitled to a pro-rated
performance bonus based on the number of full or partial months
between the end of the fiscal year in 2000 and the end of the Term
which will be payable on the Net Income for the fiscal year ending
after December 31, 2000.
<PAGE> 12
- 12 -
SCHEDULE B
STOCK OPTION AGREEMENT
1. Grant of Option: Pursuant to the provisions of paragraph 3 of the
subject Employment Agreement entitled "Salary", the Company hereby
grants to the Executive the option to purchase certain shares of
common stock of the Company and in accordance with the terms and
conditions set forth herein.
2. Number of Shares and Option Periods: The stock options granted herein
(collectively the "options") shall be exercisable for the number of
shares and at the share price as set forth below:
<TABLE>
<CAPTION>
Year No. Shares Share Price (U.S.)
---- ----------- -----------------
<S> <C> <C> <C>
1. 1995 500,000 $0.30
2. 1996 750,000 $0.50
3. 1997 1,000,000 Fifty percent (50%) of the ten (10) day average
trading price prior to the effective date of the
option.
4. 1998 1,000,000 Fifty percent (50%) of the ten (10) day average
trading price prior to the effective date of the
option.
5. 1999 1,000,000 Fifty percent (50%) of the ten (10) day average
trading price prior to the effective date of the
option.
</TABLE>
The number of shares available to Executive set out above represent
minimum only and the Board will have the discretion to grant further
stock options.
3. Cumulative Options: The options are to be cumulative in nature and
are exercisable at any time up to two (2) years from the first (1st)
calendar day following the effective day of the option. Accordingly,
by way of illustration and for the sake of clarity, the initial option
for 500,000 shares will be exercisable at any time beginning January
1, 1996 up to and including January 1, 1998.
4. Manner of Exercise: The option shall be exercisable by the Executive
by providing written notice to the Company of his intention to
exercise his option. Payment for the
<PAGE> 13
- 13 -
option shares shall be required within ten (10) business days of the
written notice provided to the Company.
5. Nature of Option Shares: The shares to be issued to the Executive
shall be issued pursuant to SEC Regulation S. The shares shall be
restricted for resale to U.S. persons for a period of time as
dictated by the reporting or non-reporting SEC status of the Company.
6. Survival of Employment: The options granted herein shall survive and
remain in effect upon the voluntary or involuntary termination of
employment of the Executive with the Company.
7. Merger or Consolidation of Company: Notwithstanding the merger of one
or more corporations into the Company or any consolidation of the
Company and one or more corporations in which the Company is either
the surviving corporation or is not the surviving corporation, this
Stock Option Agreement shall survive any such merger or consolidation
and the exercise of the option under this Agreement shall be applied
on a pro-rata basis. Still further, the shares underlying this Stock
Option Agreement shall be adjusted appropriately for the increase or
decrease in the number of issued shares resulting from a subdivision
or consolidation of shares or the payment of a stock dividend thereon
or any other increase or decrease in the number of shares effected
without receipt of consideration by the Company.
<PAGE> 1
EXHIBIT 6.11
THIS EMPLOYMENT AGREEMENT made as of the 1st day of January,
1996.
BETWEEN:
ADVANCED GAMING TECHNOLOGY INC. a Wyoming corporation with an office
at 2482 - 680 West Georgia Street, Vancouver, British Columbia, V6B
4N9
(the "Company")
AND
FIROZ LAKHANI,
212 - 7150 Adera Street
Vancouver, British Columbia
V6P 5C4
( the "Executive")
WHEREAS:
A. The Executive has been employed by the Company in the position of
President and Chief Operating Officer since September 1, 1995, and as a result
of such employment has enjoyed and will continue to enjoy benefits therefrom;
B. Each of the Company and the Executive desire that the Executive
continue as President and Chief Operating Officer of the Company;
C. The Company and the Executive have agreed to set out and confirm the
terms and conditions of the continued employment of the Executive by the
Company as hereinafter set forth.
THIS AGREEMENT WITNESSES that in consideration of the premises and of
the mutual covenants and agreements hereinafter set forth, the parties
hereto hereby agree with each other as follows:
1. Position. The Executive will continue to serve the Company as the
President and Chief Operating Officer and, in such offices, the Executive will
manage and have responsibility for the
<PAGE> 2
- 2 -
operations of the Company and all such other affairs of the Company as may be
designated from time to time by the Board of Directors of the Company. In
connection with his responsibilities, the Executive will report to and be
subject to the lawful and proper instructions and directions of the Board of
Directors of the Company through its designate, the Chief Executive Officer.
2. Term. The employment of the Executive with the Company commenced on
September 1, 1995 and the employment of the Executive shall continue under this
Agreement until December 31, 2000 (the "Term"), or until the employment is
otherwise terminated as provided herein. Forthwith upon execution of this
Agreement, the Company will pay or provide to the Executive as a signing bonus,
at the sole option of the Executive, either an amount equal to (US)$75,000 or
200,000 Class A Common voting shares of the Company. The parties may renew
this Agreement by mutual agreement provided that for the purposes of renewal
negotiations the provisions of this Agreement will apply with all necessary
incidental amendments unless specifically altered and the salary and other
remuneration provided for the Executive in the last year of the Term will be
the minimum remuneration. If either party does not wish to renew the
Agreement, that party will advise the other party on or before June 30, 2000.
3. Salary. The Company paid to the Executive a salary of (US)$6,250 per
month from September 1, 1995 to December 31, 1995 and thereafter the Company
will pay the Executive an annual salary effective January 1 of each year of the
Term as follows:
<TABLE>
<CAPTION>
===================================
YEAR (US)$
-----------------------------------
<S> <C>
1996 125,000
-----------------------------------
1997 175,000
-----------------------------------
1998 225,000
-----------------------------------
1999 275,000
-----------------------------------
2000 325,000
===================================
</TABLE>
The annual salary will be subject to applicable statutory withholdings and
deductions and will be paid in equal consecutive semi-monthly instalments.
During the Term the Company will also pay to the Executive a performance bonus,
and provide common stock grants and options, in accordance with the provisions
of Schedules A and B hereto.
During the Term, the Company will review with the Executive, at least
once a year and prior to December 31, the annual salary, bonus payments and
benefits provided by the Company to the Executive to determine the basis for
any increases thereto in addition to those increases set out above with the
objective of ensuring that the remuneration is at least at market level.
Either the Company or the Executive may require the assistance of a mutually
agreed independent executive remuneration consultant as part of the review
process at the sole cost of the Company. If the parties cannot agree on the
consultant, KPMG or its designate will act as the consultant. The
recommendations of the consultant for salary increases will be binding on the
parties but in
<PAGE> 3
- 3 -
no event will the increases in salary and other remuneration be lower than
expressly provided herein.
Notwithstanding the foregoing, the Company will ensure that the
Executive at all times during the Term receives total salary and other
remuneration that is the second highest total salary and other remuneration
received by any employee of the Company or received by any other person directly
or indirectly performing personal service or services for the Company.
4. Executive Benefits. The Company will pay or cause to be paid the
entire premium cost of the following insured benefits for the Executive and his
family:
(a) dental plan;
(b) medical plan which will be the B.C. Medical Services Plan if
available, and if not, an insured medical plan providing at
least the same benefits as the B.C. Medical Services Plan;
(c) group health and welfare insurance plan which will include
life insurance providing a benefit of at least the greater of
U.S. $1,000,000 or four times the annual base salary as
established in Section 3, extended health, short term
disability, long term disability and accidental death and
dismemberment;
(d) key person insurance with a benefit equal to at least U.S.
$1,000,000 payable 75% as directed by the Executive and 25% to
Robert Silzer;
(e) membership in a business, social or recreational club of the
Executive's sole choice including all initiation fees and all
monthly dues and payments;
(f) and any other benefit or perquisite available to any other
employees of the Company or generally provided to executives
of companies similar to the Company;
as these benefit plans currently exist or, if not in existence, as otherwise
arranged by the Company on the terms as set out herein. The Company will
consult with the Executive on the terms and conditions of each benefit and if
there is any dispute as to whether a benefit should be provided under (f) above
or in respect of any terms and conditions of these benefits plans not expressly
set out above, the parties will retain KPMG or its designate at the Company's
cost to provide binding recommendations on any unresolved terms.
<PAGE> 4
- 4 -
If this Agreement is terminated for any reason other than for just
cause, the Company will provide to the Executive and his family the foregoing
benefits for the unexpired period of the Term.
5. Holidays. The Executive will be entitled to 4 weeks' vacation with
pay in each of 1995 (pro rated), 1996, 1997, and 1998, and 5 weeks' vacation
with pay in each of 1999 and 2000, at such time or times as the Executive may
determine consistent with the requirements of the Company's business. The
Executive's vacation will be cumulative and, accordingly, if the Executive
fails to take his vacation in any calendar year it will be carried over to the
following year. If this Agreement is terminated during the Term, the Company
will calculate the vacation entitlement for that year on a pro rata basis and
add it to any vacation entitlement accrued from prior years. In addition to
any other provision of this Agreement, accrued but untaken vacation entitlement
at the time of termination of employment will be paid to the Executive by the
Company based on the Executive's salary at the time of termination.
6. Automobile. The Company will pay to the Executive the sum of (US)$700
per month in 1995, which will be increased by an additional (US)$100 per month
for each calendar year of the Term, as a car allowance and, in addition, will
pay to the Executive the aggregate of all expenses actually and properly
incurred by him in connection with the operation of his automobile (except
depreciation expense).
7. Expense Reimbursement. The Company will reimburse the Executive for
all travelling and other expenses actually and properly incurred by him in
connection with his duties hereunder and the Executive will be entitled to
travel first class and stay in top class, five star hotels. The Company will
also reimburse the Executive for all travelling expenses actually and properly
incurred by him for his spouse where it is determined by the Executive to be
reasonably in the interests of the Company for the Executive's spouse to travel
with him on Company business.
8. Executive's Covenant. Subject to Section 5, the Executive will well
and faithfully serve the Company full time and will use his best endeavors to
promote the interests of the Company and shall devote his full time, skill,
labour and attention to the business of the Company.
9. Confidentiality. The Executive acknowledges that:
(a) in the course of carrying out, performing and fulfilling his
responsibilities to the Company hereunder, he will have access
to and will be entrusted with detailed confidential
information, know how and trade secrets relating to the
business and affairs of the Company including, without
limitation, finances, products, services, dealings and
transactions of the Company, and the names, address,
preferences or other particular business requirements of its
customers and that the disclosure of confidential information,
know how and trade secrets of the Company to competitors or to
the public would be highly detrimental to the best interests
of the Company;
<PAGE> 5
- 5 -
(b) in the course of performing his obligations to the Company
hereunder the Executive will be one of the principal
representatives of the Company and as such will be
significantly responsible for maintaining or enhancing the
goodwill of the Company; and
(c) the right to maintain the confidentiality of such confidential
information, know how and trade secrets of the Company and the
right to preserve its goodwill constitute proprietary rights
which the Company is entitled to protect;
and the Executive will not, either during the Term or at any time thereafter,
disclose to any person, firm or corporation or otherwise use any such detailed
confidential information, know how and trade secrets for any purpose other than
the purposes of the Company and the Executive will not disclose or use for any
purpose other than for those of the Company the private affairs of the Company,
or any other private information which he may acquire during the course of his
employment hereunder with relation to the business and affairs of the Company,
except as required by law. The Executive acknowledges that the covenant
contained in this paragraph is necessary and fundamental for the protection of
the business of the Company and that a breach by the Executive will result in
damage to the Company which would not be adequately compensated by monetary
award to the Company and that, in addition to all of the remedies available to
it, the Company shall be entitled to the immediate remedy of a restraining
order, injunction or other form of relief as may be decreed or issued by any
court of competent jurisdiction to restrain or enjoin the Executive from
breaching any such covenant or provision.
10. Termination by the Company. The Company may at any time during the
Term terminate the employment of the Executive for just cause, without notice
and without liability for any claim, action or demand. "Just cause" for
termination of this Agreement will mean just cause as determined under the
common law of British Columbia.
The Company acknowledges that the Executive has prior to the date of
this Agreement made, and will in the future make, a valuable contribution to
the Company not recognized in salary or bonuses paid or to be paid to the
Executive hereunder, which is relevant to the entitlement of the Executive to
the severance pay, including without limitation the performance bonuses and
common stock grants and options, owed in the event this Agreement is terminated
prior to the end of the Term.
The Company at any time during the Term terminate the employment of
the Executive by paying to the Executive a lump sum amount equal to the present
value (calculated using an 8% discount factor) of his salary for the unexpired
period of the Term, and by providing to him the amount of any performance bonus
and common stock grants and options to which the Executive is or becomes
entitled to pursuant to Schedule A and Schedule B. Notwithstanding the
foregoing, the Executive will be entitled to a minimum payment of (US)
$4,250,000 if the Company terminates the employment of the Executive without
just cause. The lump sum
<PAGE> 6
- 6 -
payment, performance bonus and stock rights under this Section 10 would
constitute severance pay in lieu of notice of termination.
11. Termination by the Executive. if any one of the following occurs
during the Term;
(a) change of control;
(b) the Company employs or engages, in addition to those Senior
Executives of the Company employed on the date of this
Agreement, any other senior executive, whether as an employee,
consultant or otherwise, without the prior written consent of
the Executive; or
(c) materially alters the duties and responsibilities of the
Executive without his prior written consent,
the Executive may in his sole discretion terminate his employment within one
hundred and twenty (120) days of becoming aware of such event by giving the
Company ninety (90) days notice in writing of his resignation. In the event of
any such termination by the Executive under this Section 11, the Company will
pay or cause to be paid to the Executive a lump sum amount equal to the present
value (calculated using an 8% discount factor) of the Executive's salary for
the unexpired period of the Term and will provide to him any performance bonus
and common stock grants and options to which the Executive is or becomes
entitled to pursuant to Schedules A and B. Notwithstanding the foregoing, the
Executive will be entitled to a minimum payment on termination of
(US)$4,250,000 under this Section 11.
For the purposes of this Agreement, "change of control" means the
occurrence of:
(a) the sale or a series of sales occurring within any 12 month
period, other than a sale to an affiliate of the Company (as
that term is defined in the British Columbia Company Act), of
net assets of the Company having a value greater than 50% of
the fair market value of the net assets of the Company
determined on a consolidated basis prior to such sale or prior
to the first of a series of sales occurring within any 12
month period;
(b) the disposition of all or substantially all of the assets of
the Company where such sale or disposition is required by
applicable law to be approved as a special resolution of the
shareholders of the Company; or
(c) any event or series of events pursuant to which on any date
those persons who are members of the board of directors of the
Company as of the date of this
<PAGE> 7
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Agreement and continue to be members of the board of directors
no longer represent a majority of the total number of members
of the board of directors.
12. Payment of Severance. The Company will pay to the Executive all
monies owing under Section 10 or Section 11 including any monies owing or to
become owing under Schedule A within 30 days of the date of termination. The
amount of performance bonus payable to the Executive for the unexpired portion
of the Term will be calculated using the projections of the Company as they
exist at the time of termination for Net Income over that period and using an
8% discount factor. Notwithstanding the termination of employment, the Company
will remain obligated to provide the Executive all stock options as set out in
Schedule B. If there is any dispute as to the calculation of any amounts owing
hereunder, either party may refer resolution of this issue to a mutually agreed
consultant, or failing agreement to KPMG or its designate, for resolution by
arbitration pursuant to the Commercial Arbitration Act. The arbitration will
occur in Vancouver, Canada. The decision of the third party will be binding on
both parties. The Company will promptly provide to the Executive upon request
any information including documentation relevant to the calculation of monies
owing or claimed owing under this Agreement. Notwithstanding any dispute over
the calculation of any amount owing under this Agreement, the Company will pay
to the Executive the minimum payment under Section 10 or Section 11 within 30
days of termination of employment of the Executive.
13. Non-Competition. The Executive will not during the Protected Period
(as hereinafter defined), directly or indirectly, either individually or in
partnership or in conjunction with any person, firm, association, syndicate or
corporation as principal, agent, employee, director, officer, shareholder or
contractor or in any other manner whatsoever, carry on or be engaged in or
concerned with or work for or financially interested in or advise or permit his
name or any part thereof to be used or employed by any person, firm,
association, syndicate or corporation engaged in or concerned with or
interested in any business competitive with the business of the Company in the
world. Notwithstanding the foregoing, the Executive may invest in or have an
interest in entities traded on any public market or offered by any national
brokerage house, if and so long as the interest does not exceed 9% of the
voting control any such entity. "Protected Period" means the period commencing
from the date hereof and ending 12 months after the termination of this
employment of the Executive hereunder.
The Executive agrees and acknowledges this covenant is given for good
and valuable consideration (receipt of which is hereby acknowledged) and that
by reason of his unique knowledge of and his association with the business of
the Company, the scope of this covenant as to both time and area is reasonable
and commensurate with the protection of the legitimate interests of the
Company. This restrictive covenant will continue in effect after the
termination of the employment and the termination of this agreement for any
reason and this restrictive covenant is severable for that purpose. If any
part of this covenant is held to be void or unenforceable by a court of
competent jurisdiction, that part may be severed and replaced by the
<PAGE> 8
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widest term that would not be held to be void or unenforceable. The Executive
waives all defences to the strict enforcement of this provision.
14. Survival. The obligations and acknowledgments of the Company and
Executive set out in Section 4, 10, 11, 12 and 13 and Schedule B will survive
the termination of this Agreement.
15. Waiver or Modification. No failure or delay of the Company or the
Executive in exercising any power or right hereunder shall operate as a waiver
thereof nor shall any single or partial exercise of such right or power
preclude any other right or power hereunder. No amendment, modification or
waiver of any condition of this agreement or consent to any departure by the
Executive therefrom shall in any event be effective unless the same shall be in
writing signed by the Company.
16. Time of Essence. Time shall be of the essence hereof.
17 Further Assurances. The Executive and the Company will do, execute
and deliver, or will cause to be done, executed and delivered, all such further
deeds, instruments, documents, acts, documents and things as the Company or
Executive may reasonably require for the purpose of giving effect to this
Agreement.
18. Governing Law. This agreement and its application and interpretation
will be governed exclusively by the laws prevailing in British Columbia.
19. Notices. Any notice required to be given hereunder by any party shall
be deemed to have been well and sufficiently given if mailed by prepaid
registered mail or delivered at the address of the other parties hereto set
forth or at such other address in British Columbia as the other parties may
from time to time direct in writing, and any such notice shall be deemed to
have been received, if mailed, telexed or telegraphed, 48 hours after the time
of mailing, telexing or telegraphing, and if delivered, upon the date of
delivery. If normal mail service, telex service or telegraph service is
interrupted by strike, slowdown, force majeure or other cause, a notice sent by
the impaired means of communication will not be deemed to be received until
actually received, and the party sending the notice shall utilize any other
services which have not been so interrupted or shall deliver such notice in
order to ensure prompt receipt thereof. The addresses for notice will, until
changed, be:
In the case of the Company:
2482 - 650 West Georgia Street
Vancouver, B.C.
V6B 4N9
<PAGE> 9
- 9 -
In the case of the Executive:
212 - 7150 Adera Street
Vancouver, B.C.
V6P 5C4
20. Change of Address. Any party may, by notice to the other, change its
address for notice to some other address located in British Columbia and will
so change its address for notice whenever its existing address for notice
ceases to be adequate for delivery both by hand and in the ordinary course of
the mail.
21. Entire Agreement. This Agreement supersedes and replaces all previous
rights, agreements and understandings between the parties hereto whether
written or oral, and sets out the entire agreement between the parties hereto
with respect to the employment of the Executive by the Company.
22. Captions. The captions appearing in this Agreement have been inserted
for reference and as a matter of convenience only and in no way define, limit
or enlarge the scope or meaning of this Agreement or any provision hereof.
23. Binding Agreement. This agreement will enure to the benefit of and be
binding upon the respective successors and permitted assigns of the parties.
24. Severability. If any part of this Agreement is determined to be void
or unenforceable in whole or in part, it will not be deemed to affect or impair
the validity of any part hereof which will continue in full force and effect
and be construed as if this Agreement had been executed without the invalid
part and it is hereby declared the intention of the parties at this Agreement
would it been executed without reference to any part which may for any reason
be determined to be void or unenforceable.
25. Expenses. The Company will pay all reasonable out-of-pocket expenses
of the Executive, including fees and disbursements of his solicitors, in
connection with the preparation and negotiation of this Agreement.
26. Independent Legal Advice. The Executive hereby acknowledges that he
has been advised by the Company to seek independent legal advice.
IN WITNESS WHEREOF this agreement has been executed as of the day and
year first above written.
<PAGE> 10
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THE CORPORATE SEAL of )
ADVANCED GAMING TECHNOLOGY INC )
was hereunto affixed in the presence of: )
) C/S
)
- --------------------------------------------
)
- --------------------------------------------
)
)
)
Signed, Sealed and Delivered )
by FIROZ LAKHANI in the presence of: )
)
)
- -------------------------------------------- --------------------------
Name ) FIROZ LAKHANI
)
)
- --------------------------------------------
Address )
)
)
- --------------------------------------------
)
)
- --------------------------------------------
Occupation )
)
<PAGE> 11
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SCHEDULE A
PERFORMANCE BONUSES
1. A bonus plan is agreed to which would reward the Executive based on
the Net Income of the Company (including its subsidiaries and its
affiliates as this term is defined in the British Columbia Company
Act) ding the Term. In each year during the Term, the Executive will
be entitled to a payment from the Company of an amount equal to 3.5%
of the Net Income of the Company for that Year.
2. "Net Income" has the meaning ascribed to it under generally accepted
accounting principles in Canada determined in a manner consistent with
prior periods but in any event will be exclusive of prior losses and
depreciation and before tax.
3. All payments of cash for each year will be made by the Company within
90 days of the end of the fiscal year of the Company. If the fiscal
year of the Company is not a calendar year then in the last calendar
year of the Term, the Executive will be entitled to a pro-rated
performance bonus based on the number of full or partial months
between the end of the fiscal year in 2000 and the end of the Term
which will be payable on the Net Income for the fiscal year ending
after December 31, 2000.
<PAGE> 12
- 13 -
SCHEDULE B
STOCK OPTION AGREEMENT
1. Grant of Option: Pursuant to the provisions of paragraph 3 of the
subject Employment Agreement entitled "Salary", the Company hereby
grants to the Executive the option to purchase certain shares of
common stock of the Company and in accordance with the terms and
conditions set forth herein.
2. Number of Shares and Option Periods: The stock options granted herein
(collectively the "options") shall be exercisable for the number of
shares and at the share price as set forth below:
<TABLE>
<CAPTION>
Year No. Shares Share Price (U.S.)
---- ----------- -----------------
<S> <C> <C> <C>
1. 1995 300,000 $0.30
2. 1996 500,000 $0.50
3. 1997 750,00 Fifty percent (50%) of the ten (10) day average
trading price prior to the effective date of the
option.
4. 1998 750,000 Fifty percent (50%) of the ten (10) day average
trading price prior to the effective date of the
option.
5. 1999 750,000 Fifty percent (50%) of the ten (10) day average
trading price prior to the effective date of the
option.
</TABLE>
The number of shares available to Executive set out above represent
minimum only and the Board will have the discretion to grant further
stock options.
3. Cumulative Options: The options are to be cumulative in nature and
are exercisable at any time up to two (2) years from the first (1st)
calendar day following the effective day of the option. Accordingly,
by way of illustration and for the sake of clarity, the initial option
for 300,000 shares will be exercisable at any time beginning January
1, 1996 up to and including January 1, 1998.
4. Manner of Exercise: The option shall be exercisable by the Executive
by providing written notice to the Company of his intention to
exercise his option. Payment for the
<PAGE> 13
- 14 -
option shares shall be required within ten (10) business days of the
written notice provided to the Company.
5. Nature of Option Shares: The shares to be issued to the Executive
shall be issued pursuant to SEC Regulation S. The shares shall be
restricted for resale to U.S. persons for a period of time as
dictated by the reporting or non-reporting SEC status of the Company.
6. Survival of Employment: The options granted herein shall survive and
remain in effect upon the voluntary or involuntary termination of
employment of the Executive with the Company.
7. Merger or Consolidation of Company: Notwithstanding the merger of one
or more corporations into the Company or any consolidation of the
Company and one or more corporations in which the Company is either
the surviving corporation or is not the surviving corporation, this
Stock Option Agreement shall survive any such merger or consolidation
and the exercise of the option under this Agreement shall be applied
on a pro-rata basis. Still further, the shares underlying this Stock
Option Agreement shall be adjusted appropriately for the increase or
decrease in the number of issued shares resulting from a subdivision
or consolidation of shares or the payment of a stock dividend thereon
or any other increase or decrease in the number of shares effected
without receipt of consideration by the Company.
<PAGE> 1
EXHIBIT 6.12
PROMISSORY NOTE
USD $250,000.00 Dated: 30 January 1996
Firoz Lakhani of 212 - 7150 Adera Street in the City of Vancouver, Province of
British Columbia hereby promises to pay to Advanced Gaming Technology, Inc. of
Suite 2482-650 West Georgia Street, in the City of Vancouver, Province of
British Columbia, the sum of two hundred fifty thousand (US $250,000.) United
States dollars plus accrued interest for the time of this Note. Interest shall
be paid monthly and calculated based on the United States Base Rate as may be
set from time to time.
This Note, plus accrued interest shall be due and payable in full, on or before
29 January 2001.
IN WITNESS WHEREOF the parties have caused this Promissory Note to be executed
on the date first above written.
- ---------------------- -----------------------------------
Witnessed Firoz Lakhani
ADVANCED GAMING TECHNOLOGY, INC.
- ---------------------- -----------------------------------
Witnessed Authorized Signatory
<PAGE> 1
EXHIBIT 6.13
PROMISSORY NOTE
USD $90,000.00 Dated: 18 January 1996
Firoz Lakhani of 212 - 7150 Adera Street in the City of Vancouver, Province of
British Columbia hereby promises to pay to Advanced Gaming Technology, Inc. of
Suite 2482-650 West Georgia Street, in the City of Vancouver, Province of
British Columbia, the sum of ninety thousand (US $90,000.) United States
dollars plus accrued interest for the time of this Note. Interest shall be
paid monthly and calculated based on the United States Base Rate as may be set
from time to time.
This Note, plus accrued interest shall be due and payable in full, on or before
17 January 2001.
IN WITNESS WHEREOF the parties have caused this Promissory Note to be executed
on the date first above written.
- ---------------------- -----------------------------------
Witnessed Firoz Lakhani
ADVANCED GAMING TECHNOLOGY, INC.
- ---------------------- -----------------------------------
Witnessed Authorized Signatory
<PAGE> 1
EXHIBIT 6.14
PROMISSORY NOTE
USD $104,000.00 Dated: 3 January 1996
FOR VALUE RECEIVED, the undersigned promises to pay to the order of Advanced
Gaming Technology, Inc., the sum of one hundred four thousand United States
(USD 104,000) dollars. Payment of principal is due, either in part or full, on
or before 02 January 2001. The outstanding prepaid amount shall bear interest
at the rate of United States Base rate as may be set from time to time and
shall be due and payable on a monthly basis. All payments are to be made at PO
Box 11610, Suite 2482 - 650 West Georgia Street, Vancouver, BC, Canada V6B 4N9,
or at such other place as the holder hereof may from time to time designate.
IN WITNESS WHEREOF the parties have caused this Promissory Note to be executed
on the date first above written.
- ---------------------- -------------------------
Witnessed FIROZ LAKHANI
<PAGE> 1
EXHIBIT 6.15
PROMISSORY NOTE
USD $150,000.00 Dated: 18 January 1996
ROBERT C. SILZER, SR. of 2385 - 133A Street, in the City of White Rock,
Province of British Columbia hereby promises to pay to Advanced Gaming
Technology, Inc. of Suite 2482-650 West Georgia Street, in the City of
Vancouver, Province of British Columbia, the sum of one hundred fifty thousand
(US $150,000) United States dollars plus accrued interest for the time of this
Note. Interest shall be paid monthly and calculated based on the United States
Base Rate as may be set from time to time.
This Note, plus accrued interest shall be due and payable in full, on or before
17 January 2001.
IN WITNESS WHEREOF the parties have caused this Promissory Note to be executed
on the date first above written.
- ---------------------- -----------------------------------
Witnessed ROBERT C. SILZER, SR.
ADVANCED GAMING TECHNOLOGY, INC.
- ---------------------- -----------------------------------
Witnessed Authorized Signatory
<PAGE> 1
EXHIBIT 6.16
PROMISSORY NOTE
USD $375,000.00 Dated: 30 January 1996
ROBERT C. SILZER, SR. of 2385 - 133A Street, in the City of White Rock,
Province of British Columbia hereby promises to pay to Advanced Gaming
Technology, Inc. of Suite 2482-650 West Georgia Street, in the City of
Vancouver, Province of British Columbia, the sum of three hundred seventy five
thousand (US $375,000.) United States dollars plus accrued interest for the
time of this Note. Interest shall be calculated based on the United States
Base Rate as may be set from time to time.
This Note, plus accrued interest shall be due and payable in full, on or before
29 January 2001.
IN WITNESS WHEREOF the parties have caused this Promissory Note to be executed
on the date first above written.
- ---------------------- -----------------------------------
Witnessed ROBERT C. SILZER, SR.
ADVANCED GAMING TECHNOLOGY, INC.
- ---------------------- -----------------------------------
Witnessed Authorized Signatory
<PAGE> 1
EXHIBIT 6.17
PROMISSORY NOTE
USD $72,800.00 Dated: 02 January 1996
FOR VALUE RECEIVED, the undersigned promises to pay to the order of ADVANCED
GAMING TECHNOLOGY, INC., the sum of seventy two thousand eight hundred (USD
72,800.00) United States Dollars. Payment of principal is due, either in part
or full at any time on or before 17 January 2001. The outstanding principal
amount shall bear interest at the rate of United States Base Rate as may be set
from time to time and shall be due and payable on a monthly basis. All
payments are to be made at PO Box 11610, Suite 2482 - 650 West Georgia Street,
Vancouver, BC, Canada V6B 4N9, or at such other place as the holder hereof may
from time to time designate.
IN WITNESS WHEREOF the parties have caused this Promissory Note to be executed
on the date first above written.
- ---------------------- ------------------------
Witnessed ROBERT C. SILZER, SR.
<PAGE> 1
EXHIBIT 8.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We hereby consent to the inclusion in this Registration Statement on Form 10-SB
of our report dated July 5, 1996 on our audit of the financial statements of
Advanced Gaming Technology, Inc.
/s/
Robison, Hill & Co.
Certified Public Accountants
Salt Lake City, Utah
January 14, 1997
