<PAGE>
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
[ ] TRANSITION REPORT PURSUANT TO SECTION 13
OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________to__________
Commission File Number 0-22498
ACRES GAMING INCORPORATED
(Exact name of registrant as specified in its charter)
NEVADA 88-0206560
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
815 NW NINTH STREET
CORVALLIS, OREGON 97330
(Address of principal executive offices)
541-753-7648
(Registrant's telephone number)
Check whether the registrant (1) filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days. Yes___x____ No _______
The number of shares of Common Stock, $.01 par value, outstanding on
January 31, 1997 was 8,740,506.
<PAGE>
ACRES GAMING INCORPORATED
Table of Contents
Page
----
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at December 31, 1996 and
June 30, 1996 3
Statements of Operations for the Three and Six Months Ended
December 31, 1996 and 1995 4
Statements of Cash Flows for the Six Months Ended
December 31, 1996 and 1995 5
Notes to Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8
PART II -- OTHER INFORMATION 10
SIGNATURES 12
INDEX TO EXHIBITS 13
<PAGE>
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACRES GAMING INCORPORATED
BALANCE SHEETS
ASSETS
December 31, 1996
(unaudited) June 30, 1996
----------------- --------------
CURRENT ASSETS:
Cash and cash equivalents $6,250,000 $2,500,000
Receivables 4,420,000 910,000
Inventories 4,309,000 2,692,000
Prepaid expenses 226,000 94,000
----------------- -------------
Total current assets 15,205,000 6,196,000
----------------- -------------
PROPERTY AND EQUIPMENT:
Furniture and fixtures 524,000 515,000
Equipment 1,986,000 1,348,000
Leasehold improvements 509,000 506,000
Accumulated depreciation (1,627,000) (1,329,000)
----------------- -------------
Total property and equipment 1,392,000 1,040,000
OTHER ASSETS 390,000 395,000
----------------- -------------
$16,987,000 $7,631,000
----------------- -------------
----------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $942,000 $1,456,000
Accrued expenses 595,000 440,000
Customer deposits 542,000 1,748,000
----------------- -------------
Total current liabilities 2,079,000 3,644,000
----------------- -------------
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value, 50,000,000
shares authorized, 8,740,306 and
7,601,150 shares issued and outstanding
at December 31 and June 30, 1996 87,000 76,000
Additional paid-in capital 19,279,000 11,224,000
Accumulated deficit (4,458,000) (7,313,000)
----------------- -------------
Total stockholders' equity 14,908,000 3,987,000
----------------- -------------
$16,987,000 $7,631,000
----------------- -------------
----------------- -------------
The accompanying notes are an integral part of these balance sheets.
<PAGE>
ACRES GAMING INCORPORATED
STATEMENTS OF OPERATIONS
For the Three and Six Months Ended December 31, 1996 and 1995
(unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
December 31, December 31,
------------------------- ------------------------------
1996 1995 1996 1995
------------ ---------- ------------- ------------
<S> <C> <C> <C> <C>
NET REVENUES $ 5,675,000 $ 982,000 $ 12,243,000 $ 1,861,000
COST OF REVENUES 2,306,000 575,000 5,414,000 1,017,000
------------ ---------- ------------- ------------
GROSS PROFIT 3,369,000 407,000 6,829,000 844,000
------------ ---------- ------------- ------------
OPERATING EXPENSES:
Research and development 1,117,000 526,000 1,985,000 1,078,000
Selling, general and administrative 970,000 742,000 2,108,000 1,356,000
------------ ---------- ------------- ------------
Total operating expenses 2,087,000 1,268,000 4,093,000 2,434,000
------------ ---------- ------------- ------------
INCOME (LOSS) FROM OPERATIONS 1,282,000 (861,000) 2,736,000 (1,590,000)
OTHER INCOME 84,000 -- 119,000 12,000
------------ ---------- ------------- ------------
NET INCOME (LOSS) $ 1,366,000 $ (861,000) $ 2,855,000 $ (1,578,000)
------------ ---------- ------------- ------------
------------ ---------- ------------- ------------
NET INCOME (LOSS) PER SHARE $ 0.15 $ (0.11) $ 0.32 $ (0.21)
------------ ---------- ------------- ------------
------------ ---------- ------------- ------------
SHARES USED IN PER
SHARE COMPUTATION 9,217,000 7,629,000 8,803,000 7,688,000
------------ ---------- ------------- ------------
------------ ---------- ------------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
<PAGE>
ACRES GAMING INCORPORATED
STATEMENTS OF CASH FLOWS
For the Six Months Ended December 31, 1996 and 1995
(unaudited)
1996 1995
------------ --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 2,855,000 $ (1,578,000)
Adjustments to reconcile net
income (loss) to net cash from operations
Depreciation and amortization 415,000 301,000
Amortization of warrants -- 48,000
Changes in assets and liabilities
Receivables (3,510,000) (79,000)
Inventories (1,617,000) (17,000)
Prepaid expenses (132,000) (44,000)
Accounts payable and accrued expenses (359,000) 27,000
Customer deposits (1,206,000) (360,000)
---------------------------
Net cash from operating activities (3,554,000) (1,702,000)
---------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (650,000) (188,000)
Capitalized software costs -- (44,000)
Other, net (112,000) (81,000)
---------------------------
Net cash from investing activities (762,000) (313,000)
---------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock 8,066,000 358,000
Borrowings under line of credit -- 434,000
---------------------------
Net cash from financing activities 8,066,000 792,000
---------------------------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 3,750,000 (1,223,000)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 2,500,000 1,325,000
---------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 6,250,000 $ 102,000
---------------------------
The accompanying notes are an integral part of these statements.
<PAGE>
ACRES GAMING INCORPORATED
Notes to Unaudited Financial Statements
1. Unaudited Financial Statements
Certain information and note disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been omitted from these unaudited financial statements.
These statements should be read in conjunction with the Company's Annual
Report on Form 10-K for the year ended June 30, 1996 filed with the
Securities and Exchange Commission.
In the opinion of management, the interim financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary in
order to make the financial statements not misleading. The results of
operations for the six month period ended December 31, 1996 are not
necessarily indicative of the operating results for the full year or future
periods.
2. Inventories consist of the following:
December 31, 1996 June 30, 1996
----------------- -------------
Raw Materials $3,207,000 $1,464,000
Work-in-progress 1,023,000 718,000
Finished Goods 79,000 510,000
--------------- ------------
$4,309,000 $2,692,000
--------------- ------------
3. Income Taxes
At December 31, 1996, the Company had cumulative net operating losses of
approximately $4,145,000 which are available to offset future taxable
income through 2011. The Company has provided a valuation allowance for
the entire amount of the benefit related to these net operating loss
carryforwards as realizability is uncertain at this time. Deferred tax
liabilities were insignificant as of December 31, 1996.
4. Per Share Computation
Net income (loss) per share was computed by dividing net income (loss) by
the weighted average number of shares of common stock and dilutive common
stock equivalents outstanding using the treasury stock method. Common
stock equivalents include shares issuable upon exercise of outstanding
stock options and warrants.
5. Stockholders' Equity
In November 1993, the Company completed its initial public offering and
issued 1,667,500 units ("Units"), consisting of 1,667,500 shares of common
stock and 833,750 Redeemable Warrants. The net proceeds of the offering
were $7,153,000. The Redeemable Warrants expired on October 27, 1996.
Prior to the expiration date, substantially all of the warrants were
exercised resulting in net proceeds to the Company of approximately
$6,170,000. In connection with the offering, the Company granted the
underwriter warrants to purchase 145,000 Units at $6.00 per share. The
underwriter warrants were all exercised in October, 1996, resulting in net
proceeds to the Company of approximately $1,400,000.
<PAGE>
In June 1995, the Company issued 400,000 shares of common stock to a group
of private investors for net proceeds of $2,255,000. In connection with
this offering, the Company granted warrants to purchase 40,000 shares of
the Company's common stock at $7.20 per share which approximated market
value at that date.
In exchange for services, the Company issued warrants in 1995 to purchase
195,000 shares of common stock to two companies and two individuals.
Exercise prices of the warrants range from $4.75 to $9.00 per share. The
warrants expire between April, 1998 and September, 2000. Of these,
warrants to purchase 50,000 shares were valued at $96,000 and recorded as
paid in capital and amortized over the term of the related service
agreement. For the three and six month periods ended December 31, 1995,
expense associated with these warrants was $24,000 and $48,000,
respectively.
6. Subsequent Event
In January 1997, the Company and International Game Technology ("IGT")
entered into agreements to form a strategic alliance (the "Strategic
Alliance"). Under the Strategic Alliance, the Company plans to (i) create
proprietary games, using IGT equipment as the foundation, to be installed
under leasing or revenue sharing agreements in casinos; (ii) sell its
Concept III Bonusing Technology and player tracking components for use in
IGT Smart System-TM- player tracking/slot accounting installations;
(iii) eventually withdraw from part of the player tracking/slot accounting
business; (iv) have its displays and other game enhancements tools
incorporated into IGT's slot machines; and (v) develop promotions for use
on IGT's Wide Area Network that supports "Megabucks," "QuarterMania" and
other progressive jackpot promotions.
As part of the Strategic Alliance, the Company and IGT have executed a
Stock Purchase Agreement, pursuant to which IGT purchased 519,481 shares of
the Series A Convertible Preferred Stock of the Company, generating gross
proceeds to the Company of $5,000,000 . IGT may purchase up to an
additional 519,480 shares of the Series A Convertible Preferred Stock in
increments not less than 103,896 shares on or before August 8, 1997.
<PAGE>
ACRES GAMING INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company's Concept III products are designed to enhance casino
profitability by making gaming machines more fun to play while providing the
control, accounting and security functions necessary to ensure more efficient
casino operation.
RESULTS OF OPERATIONS
The Company's net revenues for the three months ended December 31, 1996
were $5,675,000, an increase of 478% over net revenues of $982,000 during the
three months ended December 31, 1995. For the six-month period ended December
31, 1996, net revenues were $12,243,000, an increase of 558% over $1,861,000 for
the first half of the prior fiscal year. These increases in revenues were
primarily the result of significant volume shipments of bonusing components to
other game manufacturers, the delivery of a slot bonusing system and progressive
jackpot displays for a casino being developed in Melbourne, Australia and the
installation of total slot systems, including bonusing, slot accounting and
player tracking at three domestic casinos.
Gross profit as a percentage of net revenue was 59% in the three-month
period ended December 31, 1996, compared to 41% for the same period in the prior
year. For the six-month period ended December 31, 1996, gross margin increased
to 56% from 45% for the same period in 1995. The increase in gross margin is a
result of changes in the mix of products sold and the economies of absorbing
certain fixed costs over larger sales volumes.
In order to support growth in revenue and continue to develop its products,
the Company has hired additional personnel and expanded a sales and service
office in Las Vegas, Nevada. As a result, operating expenses increased to
$2,087,000 in the three-month period ended December 31, 1996 from $1,268,000 in
the same period in 1995 and, for the six-month period ended December 31,
increased to $4,093,000 in 1996 from $2,434,000 in 1995.
<PAGE>
ACRES GAMING INCORPORATED
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES
The Company's operations have historically used cash. During the six
months ended December 31, 1996, net cash used by operating activities was
$3,555,000, primarily resulting from volume-related increases in working
capital, including changes in accounts receivable, inventory and customer
deposits. During the same period, the Company spent $650,000 on capital
equipment.
The Company's principal sources of liquidity have been net proceeds from
its initial public offering (IPO) in November, 1993 and from exercise of the
Redeemable Warrants in October, 1996. Net proceeds to the Company from exercise
of the Redeemable Warrants and from the IPO were $6,170,000 and $7,153,000,
respectively.
As of December 31, 1996, the Company had cash and cash equivalents of
$6,250,000, compared to $2,500,000 as of June 30, 1996. In addition, in
January, 1997, the Company entered into agreements to form a strategic alliance
with IGT and issued 519,481 shares of Series A Convertible Preferred Stock for
gross proceeds of $5,000,000. IGT may purchase up to an additional 519,480
shares of the Series A Convertible Preferred Stock, at the same price as its
initial purchase, in increments not less than 103,896 shares on or before
August 8, 1997.
The Company's cash and cash equivalents balances are expected to be
sufficient to fund the Company's operations for at least the next 12 months.
Certain statements in this Form 10-Q contain "forward-looking" information
(as defined in Section 27A of the Securities Act of 1933, as amended) that
involve risks and uncertainties, including, but not limited to, developments in
the Company's strategic alliance with IGT, the timing of receipt, installation
and regulatory approval of orders, competition, government regulation, market
acceptance, product development, customer concentration, technological change,
the effect of economic conditions on the gaming industry generally, and other
risks detailed in the Company's Securities and Exchange Commission filings,
including the Company's Form 10-K for the fiscal year ended June 30, 1996.
<PAGE>
PART II -- OTHER INFORMATION
Item 2. Changes in Securities
On November 12, 1996, shareholders approved an amendment to the
Company's Articles of Incorporation to authorize a class of Serial
Preferred Stock, the terms of which may be designated by the Board of
Directors. See Item 4 "Submission of Maters to a Vote of Security
Holders." In January 1997, the Company created an initial series of
Preferred Stock, consisting of 1,038,961 shares, which it designated Series
A Convertible Preferred Stock ("Series A Stock") and issued 519,481 shares.
The Series A Stock is entitled to receive non-cumulative dividends at a
rate per share equal to 3 percent of $9.625, the initial per share purchase
price. Holders of the Series A Stock will have the option, upon notice to
the Company, to convert shares of Series A Stock into shares of Common
Stock based upon the applicable conversion price in effect at the time of
conversion. The initial conversion price for each share of Series A Stock
is the lesser of the price at which the Series A Stock was initially issued
and the average closing price of the Company's Common Stock for the period
of thirty days prior to the date of conversion of shares of Series A Stock.
The conversion price is subject to adjustments for certain events relating
to the Common Stock including stock splits and combinations, dividends and
distributions, reclassification, exchange, substitution, reorganization,
merger, or sale of assets. The Series A Stock is subject to redemption,
subject to certain conditions, at a price equal to the purchase price plus
any declared but unpaid dividends.
So long as 25 percent of the shares of Series A Stock originally
issued by the Company remain outstanding, holders of the Series A Stock are
entitled as a class to elect one director. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Company, the
holders of the Series A Stock will be entitled to receive a liquidation
preference of $9.625 per share plus any declared but unpaid dividends prior
to the distribution of any of the Company's assets to holders of the Common
Stock. Any assets remaining after the distribution to holders of the
Series A Stock will be distributed to holders of the Common Stock.
The Company has granted to IGT, the sole holder of shares of the
Series A Stock, certain rights to demand registration of the Common Stock
underlying the Series A Stock which may be exercised on or after
December 31, 1997. Those rights require the Company to register with the
SEC the shares of Common Stock issuable on conversion of the Series A
Stock. The Company has agreed to pay all the expenses of one such
registration. The Company has agreed to indemnify certain parties in
connection with such registration, including any underwriters. The Company
also granted piggy-back and S-3 rights to IGT.
Item 4. Submission of Matters to a Vote of Security Holders
The Company's Annual Meeting of Shareholders was held on November 12, 1996.
The following actions were taken at the Annual Meeting:
ELECTION OF DIRECTOR. John F. Acres was elected to serve as a director for
a term of one year. Of the shareholders entitled to vote at the meeting,
4,434,410 shareholders voted FOR his election, none voted AGAINST it and
200 shareholders ABSTAINED.
<PAGE>
APPROVAL OF AMENDMENT OF THE COMPANY'S ARTICLES OF INCORPORATION. An
amendment to the Articles of Incorporation to authorize a class of
Preferred Stock to be designated by the Board of Directors was approved.
Of the shareholders entitled to vote at the meeting, 4,315,324 shareholders
voted FOR the amendment, 117,986 voted AGAINST it and 1,300 shareholders
ABSTAINED. See Item 2 "Changes in Securities."
APPROVAL OF AMENDMENT TO 1993 STOCK OPTION AND INCENTIVE PLAN. An
amendment to the 1993 Stock Option and Incentive Plan to increase the
number of shares issuable thereunder by 750,000 shares was approved. Of
the shareholders entitled to vote at the meeting, 4,221,324 shareholders
voted FOR the amendment, 211,986 voted AGAINST it, and 1,300 shareholders
ABSTAINED.
RATIFICATION OF APPOINTMENT OF ARTHUR ANDERSEN LLP AS INDEPENDENT PUBLIC
ACCOUNTANTS. The Board of Directors' appointment of Arthur Andersen as
independent public accountants was ratified. Of the shareholders entitled
to vote at the meeting, 4,434,610 shareholders voted FOR the ratification
and none voted AGAINST it or ABSTAINED
Item 5. Other Information
On January 29, 1997, the Company executed documents creating a strategic
alliance with IGT, a slot manufacturer. As part of this Strategic
Alliance, the Company issued 519,481 shares of preferred stock to IGT for
gross proceeds of $5,000,000. IGT will also have the option, through
August 8, 1997, to purchase an additional 519,480 shares of preferred
stock, in increments of not less than 103,896 shares, for the same price.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
See Exhibit Index.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter covered by
this Form 10-Q.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ACRES GAMING INCORPORATED
(Registrant)
Date: February 13, 1997 By /S/ ROBERT W. BROWN
---------------------------------
Robert W. Brown
Executive Vice President, Chief
Financial Officer, Secretary and
Treasurer
(Principal Accounting and Financial
Officer)
<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ------- -----------
3.1 Articles of Incorporation of Acres Gaming Incorporated, as amended
*3.2 Bylaws
4.1 Preferred Stock Certificate
10.1 Employment contract between Acres Gaming Incorporated and John F.
Acres
**10.2 Acres Gaming Incorporated 1993 Stock Option and Incentive Plan, as
Amended.
10.3 Stock Purchase Agreement between Acres Gaming Incorporated and IGT
dated January 28, 1997.
10.4 Registration Rights Agreement between Acres Gaming Incorporated and
IGT dated January 28, 1997.
10.5 Master Agreement for Product Development, Purchase and Sales between
Acres Gaming Incorporated and International Game Technology, Inc.,
dated January 27, 1997.
11.1 Statement of Computation of Earnings Per Share
27.2 Financial Data Schedule
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
* Incorporated by reference from the Company's Quarterly Report on Form 10-Q
for the period ended September 30, 1996.
** Incorporated by reference from the Company's Definitive Proxy Statement on
Form 14A dated October 31, 1996.
<PAGE>
Exhibit 3.1
ARTICLES OF INCORPORATION OF
JFA ENTERPRISES, INC.
KNOW ALL MEN BY THESE PRESENTS:
That we, the undersigned, for the purpose of association to establish a
corporation for the transaction of business and the promotion and conduct of the
objects and purposes hereinafter stated, under the provisions of and subject to
the requirements of the laws of the State of Nevada, do make, record and file
these Articles of Incorporation in writing.
AND WE DO HEREBY CERTIFY:
I.
The name of the corporation is:
JFA ENTERPRISES, INC.
II.
The principal office of the corporation in Nevada is to be located at 701
E. Bridger Ave., Suite 801, Las Vegas, Nevada, and the Resident Agent in charge
thereof shall be JEFFREY A. SILVER. The corporation may also maintain an office
or offices at such other places within or outside the State of Nevada, as it may
from time to time determine. Corporate business of every kind and nature may be
conducted, and meeting of directors and stockholders held outside the State of
Nevada, the same as in the State of Nevada.
III.
The corporation may engage in any lawful activity.
IV.
This corporation is authorized to issue only one class of shares of stock,
the total number of which is 2,500, without nominal or par value. Such stock
may be issued by the corporation from time to time and for such consideration as
may be fixed from time to time by the Board of Directors thereof. The shares of
stock shall be designated "Common Stock" and the holders thereof shall be
entitled to one vote for each share held by them.
PAGE 1
<PAGE>
V.
Members of the governing board shall be styled Directors, and the number of
directors shall not be less than three (3), unless the total number of
shareholders of the corporation shall be less than three (3) in number, then the
Board of Directors shall be equal to the number of shareholders, pursuant to the
terms of N.R.S. 78.115. The names and post office addresses of the first Board
of Directors, which shall consist of three members are as follows:
Name Post Office Address
---- -------------------
Susan Lambert 701 E. Bridger, Suite 801
Las Vegas, Nevada 89101
Drinda Howell 701 E. Bridger, Suite 801
Las Vegas, Nevada 89101
Shirley Parraguirre 701 E. Bridger, Suite 801
Las Vegas, Nevada 89101
The number of the Directors of this corporation may from time to time be
increased or decreased as set forth hereinabove by an amendment to the Bylaws in
that regard, and without the necessity of amending these Articles of
Incorporation.
VI.
The capital stock of this corporation, after the amount of the subscription
price is paid in cash or in kind, shall be and remain non-assessable and shall
not be subject to assessment to pay the debts of the corporation, and the
private property of the stockholders shall not be liable for debts or
liabilities of the corporation.
PAGE 2
<PAGE>
VII.
This corporation shall have perpetual existence.
EXECUTED this 28th day of December, 1997.
/s/ Susan Lambert
-----------------------
SUSAN LAMBERT
/s/ Drinda Howell
-----------------------
DRINDA HOWELL
/s/ Shirley Parraguirre
-----------------------
SHIRLEY PARRAGUIRRE
STATE OF NEVADA )
) ss
COUNTY OF CLARK )
On December 28, 1997, personally appeared before me, a Notary Public, SUSAN
LAMBERT, DRINDA HOWELL, and SHIRLEY PARRAGUIRRE, who acknowledged to me that
they executed the foregoing instrument.
/s/ Patricia Songailo
-----------------------
NOTARY PUBLIC
/SEAL/
PAGE 3
<PAGE>
CERTIFICATE OF AMENDMENT
TO
ARTICLES OF INCORPORATION
OF
JFA ENTERPRISES, INC.
A NEVADA CORPORATION
The undersigned, being the President and Secretary of JFA Enterprises,
Inc., a Nevada Corporation, hereby declares that on the 4th day of January, 1985
the original Articles of Incorporation for JFA Enterprises, Inc., a Nevada
Corporation were filed with the Secretary of State of Nevada and on or about the
30th day of January, 1985 said Articles of Incorporation were filed with the
Clerk of Clark County, Nevada.
The undersigned further declares that on the 5th day of March, 1990, the
Corporation's Board of Directors adopted unanimously a resolution to amend said
Articles to change the Corporation's capital structure from 2,500 shares of no
par common stock to one million (1,000,000) shares of par value common stock,
having a par value of $.01 per share; which resolution was then submitted to and
unanimously approved by the Corporation's shareholders at a special meeting. As
a result of said action, the Corporation has amended its Articles of
Incorporation as follows:
1. Article IV of the Corporation's Articles of Incorporation shall be
amended only by deleting the first sentence and substituting the following in
lieu thereof:
"The total number of shares which the Corporation is authorized to issue is
1,000,000 shares of par value common stock, with a par value of $.01 per
share."
IN WITNESS WHEREOF, the undersigned has executed this Amendment to Articles
of Incorporation this 5th day of March , 1990.
JFA ENTERPRISES, INC.
By:/s/ John F. Acres
------------------------
JOHN F. ACRES
Its: President and Secretary
PAGE 1
<PAGE>
STATE OF NEVADA )
) ss:
COUNTY OF CLARK )
On this 5th day of March , 1990, personally appeared JOHN F.
ACRES, before me, a Notary Public, State of Nevada, the President and Secretary
of JFA ENTERPRISES, INC., a Nevada corporation, who acknowledged that he
executed the above instrument on behalf of said Corporation.
/s/ Joan L. Meierhofer
-------------------------------------
NOTARY PUBLIC, State of Nevada
[Seal]
PAGE 2
<PAGE>
ARTICLES OF MERGER UNDER NRS SECTION 78.458
1. NAMES
The name and place of incorporation of each constituent corporation is as
follows: (i) JFA Enterprises, Inc., a Nevada corporation ("Surviving
Corporation"), (ii) AT Information, Inc., a Nevada corporation ("AT Info") and
(iii) Gaming Innovations, Inc., a Nevada corporation ("Gaming"). AT Info and
Gaming are hereinafter referred to as "Merging Corporations". The name of the
Surviving Corporation from and after the Effective Date shall be JFA
Enterprises, Inc.
2. BOARD ADOPTION
A plan of merger in which the Merging Corporations merge into the Surviving
Corporation has been adopted by the board of directors of each corporation
pursuant to NRS Section 78.451 and recommended for shareholder approval.
3. STOCKHOLDER APPROVAL
On September 3, 1993, the plan of merger was submitted to and approved by
the shareholders of each corporation pursuant to NRS Section 78.453. The total
number of the Surviving Corporation's shares entitled to vote on the plan of
merger was 765,722, all of which were cast in favor of the approval of the plan.
The total number of AT Info's shares entitled to vote on the plan of merger was
113,412, all of which were cast in favor of the approval of the plan. The total
number of Gaming's shares entitled to vote on the plan of merger was 1,000, all
of which were cast in favor of the approval of the plan.
4. AMENDMENTS TO THE ARTICLES
The Surviving Corporation's Articles of Incorporation filed in the Office
of the Nevada Secretary of State on January 4, 1995, and amended on March 12,
1990 are further amended as follows:
(a) Article I of the Surviving Corporation's Articles of Incorporation
shall be deleted in its entirety and the following substituted therefor:
The name of the Corporation is: Acres Gaming Incorporated.
(b) Article IV of the Surviving Corporation's Articles of Incorporation is
hereby deleted in its entirety and the following substituted therefor:
PAGE 1
<PAGE>
This corporation is authorized to issue only one class of stock, the
total number of which is 50,000,000 shares with a par value of $.01 per
share. Such stock may be issued by this corporation from time to time and
for such consideration as may be fixed from time to time by the Board of
Directors thereof. The shares of stock shall be designated "Common Stock"
and the holders thereof shall be entitled to one vote for each share held
by them.
No holder of outstanding shares of this corporation shall have any
preemptive rights with respect to (1) any shares of any class of stock of
this corporation, whether now or hereafter authorized, (2) any warrants,
rights, or options to purchase any such shares, or (3) any obligations
convertible into any such shares or into warrants, rights, or options to
purchase any such shares.
(c) The first sentence of the first paragraph of Article V of the
Surviving Corporation's Articles is hereby deleted in its entirety and the
following substituted therefor:
Members of the governing board shall be styled directors and the
number of directors of this corporation shall be at least one and no more
than such number of directors as may from time to time be required under
the Bylaws of this corporation.
(d) The last paragraph of Article V of the Surviving Corporation's
Articles is hereby deleted in its entirety.
(e) The following Article VIII is hereby added to the Surviving
Corporation's Articles:
ARTICLE VIII
No director or officer of this corporation shall be personally liable
to this corporation or any of its stockholders for damages for breach of
fiduciary duty as a director or officer involving any act or omission of
any such director or officer; provided however, that the foregoing
provision shall not eliminate or limit the liability of a director or
officer (i) for acts or omissions which involve intentional misconduct,
fraud or a knowing violation of law, or (ii) the payment of dividends in
violation of Section 78.300 of the Nevada Revised Statutes. Any repeal or
modification of this provision by the stockholders of this corporation
shall be prospective only, and shall not adversely affect any limitation
PAGE 2
<PAGE>
on the personal liability of a director or officer of this corporation for
acts or omissions prior to such repeal or modification.
(f) The following Article IX is hereby added to the Surviving
Corporation's Articles:
ARTICLE IX
OBLIGATIONS OF CERTAIN BENEFICIAL OWNERS;
RIGHTS OF REDEMPTION
A. Notwithstanding any other provisions of these Articles, but subject to
the provisions of any resolution of the Board of Directors creating
any series of preferred stock or any other class of stock which has a
preference over common stock with regard to dividends or upon
liquidation, outstanding shares of Capital Stock held by a
Disqualified Holder shall be subject to redemption at any time by the
Corporation by action of the Board of Directors. The terms and
conditions of such redemption shall be as follows:
(1) the redemption price of the shares to be redeemed pursuant to
this section A of Article IX shall be equal to the Fair Market
Value of such shares or such other redemption price as required
by pertinent state or federal law pursuant to which the
redemption is required;
(2) the redemption price of such shares may be paid in cash,
Redemption Securities or any combination thereof;
(3) if less than all the shares held by Disqualified Holders are to
be redeemed, the shares to be redeemed shall be selected in such
manner as shall be determined by the Board of Directors, which
may include selection first of the most recently purchased shares
thereof, selection by lot, or selection in any other manner
determined by the Board of Directors;
(4) at least thirty (30) days' written notice of the Redemption Date
shall be given to the record holders of the shares selected to be
redeemed (unless waived in writing by any such holder) provided
that the Redemption Date may be the date on which written notice
shall be given to record
PAGE 3
<PAGE>
holders if the cash or Redemption Securities necessary to effect
the redemption shall have been deposited in trust for the benefit
of such record holders and subject to immediate withdrawal by
them upon surrender of the stock certificates for their shares to
be redeemed;
(5) from and after the Redemption Date or such earlier date as
mandated by pertinent state or federal law, any and all rights of
whatever nature, which may be held by the Beneficial Owners of
shares selected for redemption (including, without limitation,
any rights to vote or participate in dividends declared on stock
of the same class or series as such shares), shall cease and
terminate and they shall thenceforth be entitled only to receive
the cash or Redemption Securities payable upon redemption; and
(6) such other terms and conditions as the Board of Directors shall
determine.
B. Definitions. Capitalized terms used in this Article IX shall have the
meanings provided below:
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 under the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the
"Act"). The term "registrant" as used in said Rule 12b-2 shall mean the
Corporation.
"Beneficial Owner" shall mean any person who, singly or together with
any of such person's Affiliates or Associates, directly or indirectly, has
"beneficial ownership" of Capital Stock (as determined pursuant to Rule
13d-3 of the Act).
"Capital Stock" shall mean any common stock, preferred stock, special
stock, or any other class or series of stock of the Corporation.
"Disqualified Holder" shall mean any Beneficial owner of shares of
Capital Stock of the Corporation or any of its Subsidiaries, whose holding
of shares of Capital Stock may result or, when taken together with the
holding of shares of Capital Stock by any other Beneficial Holder, may
result, in the judgment of the Board of Directors, in (i) the disapproval,
modification, or non-renewal of any contract under which
PAGE 4
<PAGE>
the Corporation or any of its Subsidiaries has sole or shared authority to
manage any of its operations, or (ii) the loss or non-reinstatement of any
license or franchise from any governmental agency held by the Corporation
or any Subsidiary to conduct any portion of the business of the Corporation
or any Subsidiary, which license or franchise is conditioned upon some or
all of the holders of Capital Stock meeting certain criteria.
"Fair Market Value" of a share of Capital Stock shall mean the average
Closing Price for such a share for each of the 45 most recent days during
which shares of stock of such class or series shall have been traded
preceding the day on which notice of redemption shall have been given
pursuant to Paragraph (4) of section A of Article IX; provided, however,
that if all shares of stock of such class or series are not traded on any
securities exchange or in the over-the-counter market, "Fair Market Value"
shall be determined by the Board of Directors in good faith; and provided,
further, however, that "Fair Market Value" as to any stockholder who
purchases any stock subject to redemption within 120 days prior to a
Redemption Date need not (unless otherwise determined by the Board of
Directors) exceed the purchase price paid for such shares. "Closing Price"
on any day means the reported closing sales price or, in case no such sale
takes place, the average of the reported closing bid and asked price on the
composite tape for the New York Stock Exchange-listed stocks, or, if stock
of the class and series in question is not quoted on such composite tape on
the New York Stock Exchange, or, if such stock is not listed on such
exchange, on the principal United States Securities Exchange registered
under the Act on which such stock is listed, or, if such stock is not
listed on any such exchange, the highest closing sales price or bid
quotation for such stock on the National Association of Securities Dealers,
Inc., Automated Quotation System (including the National Market System) or
any system then in use, or, if no such prices or quotations are available,
the fair market value on the day in question as determined by the Board of
Directors in good faith.
"Person" shall mean any natural person, corporation, firm,
partnership, association, government, governmental agency, or any other
entity, whether acting in an individual, fiduciary, or any other capacity.
"Redemption Date" shall mean the date fixed by the Board of Directors
for the redemption of any shares of stock of the Corporation pursuant to
section A of this Article IX.
PAGE 5
<PAGE>
"Redemption Securities" shall mean any debt or equity securities of
the Corporation, any Subsidiary or any other corporation, or any
combination thereof, having such terms and conditions as shall be approved
by the Board of Directors and which, together with any cash to be paid as
part of the redemption price, in the opinion of any nationally recognized
investment banking firm selected by the Board of Directors (which may be a
firm which provides other investment banking, brokerage or other services
to the Corporation), has a value, at the time notice of redemption is given
pursuant to Paragraph (4), section A of Article IX, at least equal to the
Fair Market Value of the shares to be redeemed pursuant to section A of
Article IX (assuming, in the case of Redemption Securities to be publicly
traded, such Redemption Securities were fully distributed and subject only
to normal trading activity).
"Subsidiary" shall mean any company of which a majority of any class
of equity security is beneficially owned by the Corporation.
5. PLAN OF MERGER
The complete executed plan of merger is attached hereto as Exhibit "A" and
incorporated herein by this reference
6. EFFECTIVE DATE
The merger shall be effective upon filing of these Articles with the Nevada
Secretary of State.
JFA ENTERPRISES, INC.
By: /s/ John F. Acres
----------------------------
John F. Acres
Its: President and Secretary
Date: 9/11/93
---------------------------
AT INFORMATION, INC.
PAGE 6
<PAGE>
By: /s/ John F. Acres
-----------------------------
John F. Acres
Its: President and Secretary
Date: 9/11/93
---------------------------
GAMING INNOVATIONS, INC.
By: /s/ John F. Acres
-----------------------------
John F. Acres
Its: President and Secretary
Date: 9/11/93
---------------------------
STATE OF NEVADA )
) ss:
COUNTY OF CLARK )
On this 11th day of September , 1993, before me, the
undersigned, a Notary Public in and for said State, personally appeared JOHN F.
ACRES who is President and Secretary of JFA ENTERPRISES, INC., a Nevada
corporation, President and Secretary of AT INFORMATION, INC., a Nevada
corporation, and President and Secretary of GAMING INNOVATIONS, INC., a Nevada
corporation, personally known to me or proved to me on the basis of satisfactory
evidence to be the person who executed the ARTICLES OF MERGER UNDER NRS SECTION
78.458 on behalf of said corporations, and acknowledged to me that he executed
the same for the purposes therein stated.
WITNESS my hand and official seal.
/s/ Joan Wiley
-------------------------------
Notary Public
[SEAL]
PAGE 7
<PAGE>
EXHIBIT "A"
PLAN OF MERGER UNDER NRS 78.451
1. MERGER
AT Information, Inc., a Nevada corporation, and Gaming Innovations, Inc., a
Nevada corporation, hereinafter individually and collectively referred to as
"Merging Corporations" shall be merged into JFA Enterprises, Inc., a Nevada
corporation, which shall be the surviving corporation ("Surviving Corporation").
2. TERMS AND CONDITIONS
The terms and conditions of the merger are as follows:
a. The Merging Corporations shall be merged into the Surviving
Corporation in accordance with the provisions of NRS 78.451, ET SEQ.
b. Except as provided in paragraph 9 below, the articles of incorporation
and bylaws of the Surviving Corporation in effect on the Effective Date shall be
the articles of incorporation and bylaws of the surviving corporate entity. The
directors and officers of the Surviving Corporation on the Effective Date shall
be the directors and officers of the surviving corporate entity.
c. On the Effective Date, each of the outstanding shares of each of the
Merging Corporations' stock, shall be converted into share(s) of the Surviving
Corporation's stock, and shall be fully paid and nonassessable.
3. MANNER OF EXCHANGE
The manner and basis of converting shares of the Merging Corporation's
stock into shares of the Surviving Corporation's stock shall be as follows:
a. The outstanding shares of the Surviving Corporation's stock shall not
be changed or converted as a result of the Merger and, following the Effective
Date, all shares of the Surviving Corporation's then-authorized stock shall
remain authorized shares of the Surviving Corporation, and all shares of the
Surviving Corporation's then-outstanding stock shall remain outstanding shares
of the Surviving Corporation and shall be fully paid and nonassessable and shall
be subject to all the provisions of this Plan.
PAGE 1
<PAGE>
b. On the Effective Date, each common share of Gaming Innovations, Inc.'s
stock shall be converted into one issued and outstanding common share of the
Surviving Corporation's stock and each common share of AT Information, Inc.'s
stock shall be converted in .36984 of an issued and outstanding common share of
the Surviving Corporation's stock. Each holder of the outstanding common shares
of the Merging Corporations shall, upon the surrender to the Surviving
Corporation of the certificate(s) evidencing such shares, be entitled to receive
certificate(s) for the appropriate number of common shares of the Surviving
Corporation's stock.
4. STOCKHOLDER APPROVAL
Upon approving this Plan, the board of directors of the Surviving
Corporation and the board of directors of each Merging Corporation shall each
submit and recommend this Plan for approval by its respective stockholders under
NRS 78.453. Each stockholder meeting shall be noticed and held on or before
September 3, 1993.
5. EFFECTIVE DATE
The Merger shall become effective upon the filing of Articles of Merger by
the Surviving Corporation with the Nevada Secretary of State under NRS 78.458
(the "Effective Date").
6. CONDITIONS TO MERGER
Anything to the contrary in this Plan notwithstanding, the Merger shall not
be made effective if, prior to the Effective Date, (i) the boards of directors
of the Surviving Corporation and the Merging Corporations elect that the Merger
be abandoned, or (ii) if any material litigation shall be pending or threatened
against (a) the Surviving Corporation or the Merging Corporations, or (b) any of
the Corporation's assets, or (c) the Merger, which in the judgment of the board
of directors of either the Surviving Corporation or the Merging Corporations
renders it inadvisable to proceed with the Merger.
If the board of directors of the Surviving Corporation or either Merging
Corporation elects that the Merger shall not be made effective as provided under
this paragraph 6, then notice of same shall be given to the other Corporations,
and this Plan shall become void and of no effect, and there shall be no
liability on the part of either the Surviving Corporation or the Merging
Corporations, or the board of directors or stockholders of any of the
Corporation.
PAGE 2
<PAGE>
7. DISTRIBUTION OF NEW SHARES
If the Merger becomes effective, the Merging Corporations authorize the
Surviving Corporation to take or cause to be taken such steps as the Surviving
Corporation may deem necessary or advisable in order to effect the distribution,
on the basis and terms specified in this Plan, of the Surviving Corporation's
share certificates which the holders of each Merging Corporation's shares shall
be entitled to receive under the terms of the Merger.
8. FURTHER DOCUMENTS
To the extent permitted by law, from time to time, as and when requested by
the Surviving Corporation or by its successors or assigns, each Merging
Corporation shall execute and deliver or cause to be executed and delivered all
such deeds and instruments and to take or cause to be taken such further or
other action as the Surviving Corporation may deem necessary or desirable, in
order to vest in and confirm to the Surviving Corporation, title to and
possession of any property of the Merging Corporations acquired by the Surviving
Corporation by reason of or as a result of the Merger, and otherwise to carry
out the intent and purposes of this Plan, and the proper officers and directors
of the Surviving Corporation are fully authorized in the name of the Merging
Corporations or otherwise to take any and all such action.
9. OTHER AMENDMENTS TO ARTICLES OF INCORPORATION OF THE SURVIVING CORPORATION
(a) Article I of the Surviving Corporation's Articles of Incorporation
shall be deleted in its entirety and the following substituted therefor:
The name of the Corporation is: Acres Gaming Incorporated.
(b) Article IV of the Surviving Corporation's Articles of Incorporation
shall be deleted in its entirety and the following substituted therefor:
This corporation is authorized to issue only one class of stock, the
total number of which is 50,000,000 shares with a par value of $.01 per
share. Such stock may be issued by this corporation from time to time and
for such consideration as may be fixed from time to time by the Board of
Directors thereof. The shares of stock shall be designated "Common Stock"
and the holders thereof shall be entitled to one vote for each share held
by them.
No holder of outstanding shares of this corporation shall have any
preemptive rights with respect to (1) any shares of any class of
PAGE 3
<PAGE>
stock of this corporation, whether now or hereafter authorized, (2) any
warrants, rights, or options to purchase any such shares, or (3) any
obligations convertible into any such shares or into warrants, rights, or
options to purchase any such shares.
(c) The first sentence of the first paragraph of Article V of the
Surviving Corporation's Articles shall be deleted in its entirety and the
following substituted therefor:
Members of the governing board shall be styled directors and the
number of directors of this corporation shall be at least one and no more
than such number of directors as may from time to time be required under
the Bylaws of this corporation.
(d) The last paragraph of Article V shall be deleted in its entirety.
(e) The following Article VIII shall be added to the Surviving
Corporation's Articles:
No director or officer of this corporation shall be personally liable
to this corporation or any of its stockholders for damages for breach of
fiduciary duty as a director or officer involving any act or omission of
any such director or officer; provided however, that the foregoing
provision shall not eliminate or limit the liability of a director or
officer (i) for acts or omissions which involve intentional misconduct,
fraud or a knowing violation of law, or (ii) the payment of dividends in
violation of Section 78.300 of the Nevada Revised Statutes. Any repeal or
modification of this provision by the stockholders of this corporation
shall be prospective only, and shall not adversely affect any limitation on
the personal liability of a director or officer of this corporation for
acts or omissions prior to such repeal or modification.
(f) The following Article IX shall be added to the Surviving Corporation's
Articles:
ARTICLE IX
OBLIGATIONS OF CERTAIN BENEFICIAL OWNERS;
RIGHTS OF REDEMPTION
A. Notwithstanding any other provisions of these Articles, but subject to
the provisions of any resolution of the Board of Directors creating
any series of preferred stock or any other class of stock which has a
preference over common stock with regard
PAGE 4
<PAGE>
to dividends or upon liquidation, outstanding shares of Capital Stock
held by a Disqualified Holder shall be subject to redemption at any
time by the Corporation by action of the Board of Directors. The
terms and conditions of such redemption shall be as follows:
(1) the redemption price of the shares to be redeemed pursuant to
this section A of Article IX shall be equal to the Fair Market Value
of such shares or such other redemption price as required by pertinent
state or federal law pursuant to which the redemption is required;
(2) the redemption price of such shares may be paid in cash,
Redemption Securities or any combination thereof;
(3) if less than all the shares held by Disqualified Holders are to
be redeemed, the shares to be redeemed shall be selected in such
manner as shall be determined by the Board of Directors, which may
include selection first of the most recently purchased shares thereof,
selection by lot, or selection in any other manner determined by the
Board of Directors;
(4) at least thirty (30) days' written notice of the Redemption Date
shall be given to the record holders of the shares selected to be
redeemed (unless waived in writing by any such holder) provided that
the Redemption Date may be the date on which written notice shall be
given to record holders if the cash or Redemption Securities necessary
to effect the redemption shall have been deposited in trust for the
benefit of such record holders and subject to immediate withdrawal by
them upon surrender of the stock certificates for their shares to be
redeemed;
(5) from and after the Redemption Date or such earlier date as
mandated by pertinent state or federal law, any and all rights of
whatever nature, which may be held by the Beneficial Owners of shares
selected for redemption (including, without limitation, any rights to
vote or participate in dividends declared on stock of the same class
or series as such shares), shall cease and terminate and they shall
thenceforth be entitled only to receive the cash or Redemption
Securities payable upon redemption; and
(6) Such other terms and conditions as the Board of Directors shall
determine.
PAGE 5
<PAGE>
B. Definitions. Capitalized terms used in this Article IX shall have the
meanings provided below:
"Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 under the General Rules and
Regulations under the Securities Exchange Act of 1934, as amended (the
"Act"). The term "registrant" as used in said Rule 12b-2 shall mean the
Corporation.
"Beneficial Owner" shall mean any person who, singly or together with
any of such person's Affiliates or Associates, directly or indirectly, has
"beneficial ownership" of Capital Stock (as determined pursuant to Rule
13d-3 of the Act).
"Capital Stock" shall mean any common stock, preferred stock, special
stock, or any other class or series of stock of the Corporation.
"Disqualified Holder" shall mean any Beneficial owner of shares of
Capital Stock of the Corporation or any of its Subsidiaries, whose holding
of shares of Capital Stock may result or, when take together with the
holding of shares of Capital Stock by any other Beneficial Holder, may
result, in the judgment of the Board of Directors, in (i) the disapproval,
modification, or non-renewal of any contract under which the Corporation or
any of its Subsidiaries has sole or shared authority to manage any of its
operations, or (ii) the loss or non-reinstatement of any license or
franchise from any governmental agency held by the Corporation or any
Subsidiary to conduct any portion of the business of the Corporation or any
Subsidiary, which license or franchise is conditioned upon some or all of
the holders of Capital Stock meeting certain criteria.
"Fair Market Value" of a share of Capital Stock shall mean the average
Closing Price for such a share for each of the 45 most recent days during
which shares of stock of such class or series shall have been traded
preceding the day on which notice of redemption shall have been given
pursuant to paragraph (4) of section A of Article IX; provided, however,
that if all shares of stock of such class or series are not traded on any
securities exchange or in the over-the-counter market, "Fair Market Value"
shall be determined by the Board of Directors in good faith; and provided,
further, however, that "Fair Market Value" as to any stockholder who
purchases any stock subject to redemption within 120 days prior to a
Redemption Date need not (unless otherwise determined
PAGE 6
<PAGE>
by the Board of Directors) exceed the purchase price paid for such shares.
"Closing Price" on any day means the reported closing sales price or, in
case no such sale takes place, the average of the reported closing bid and
asked price on the composite tape for the New York Stock Exchange-listed
stocks, or, if stock of the class and series in question is not quoted on
such composite tape on the New York Stock Exchange, or, if such stock is
not listed on such exchange, on the principal United States Securities
Exchange registered under the Act on which such stock is listed, or, if
such stock is not listed on any such exchange, the highest closing sales
price or bid quotation for such stock on the National Association of
Securities Dealers, Inc., Automated Quotation System (including the
National Market System) or any system then in use, or, if no such prices or
quotations are available, the fair market value on the day in question as
determined by the Board of Directors in good faith.
"Person" shall mean any natural person, corporation, firm,
partnership, association, government, governmental agency, or any other
entity, whether acting in an individual, fiduciary, or any other capacity.
"Redemption Date" shall mean the date fixed by the Board of Directors
for the redemption of any shares of stock of the Corporation pursuant to
section A of this Article IX.
"Redemption Securities" shall mean any debt or equity securities of
the Corporation, any Subsidiary or any other corporation, or any
combination thereof, having such terms and conditions as shall be approved
by the Board of Directors and which, together with any cash to be paid as
part of the redemption price, in the opinion of any nationally recognized
investment banking firm selected by the Board of Directors (which may be a
firm which provides other investment banking, brokerage or other services
to the Corporation), has a value, at the time notice of redemption is given
pursuant to Paragraph (4), section A of Article IX, at least equal to the
Fair Market Value of the shares to be redeemed pursuant to section A of
Article IX (assuming, in the case of Redemption Securities to be publicly
traded, such Redemption Securities were fully distributed and subject only
to normal trading activity).
PAGE 7
<PAGE>
"Subsidiary" shall mean any company of which a majority of any class
of equity security is beneficially owned by the Corporation.
Approved Approved
-------- --------
AT INFORMATION, INC. JFA ENTERPRISES, INC.
By: /s/ John F. Acres By: /s/ John F. Acres
------------------------- ---------------------------
John F. Acres John F. Acres
Its: President Its: President
Date: September 1, 1993 Date: September 1, 1993
Approved
--------
GAMING INNOVATIONS, INC.
By: /s/ John F. Acres
---------------------------
John F. Acres
Its: President
Date: September 1, 1993
PAGE 8
<PAGE>
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After Issuance of Stock) Filed by:
ACRES GAMING INCORPORATED
----------------------------------------------
Name of Corporation
We the undersigned Joseph A. Huseonica and
----------------------------------------------------
President or Vice President
Robert W. Brown of Acres Gaming Incorporated
- ---------------------------------------- ------------------------------------
Secretary or Assistant Secretary Name of Corporation
do hereby certify:
That the Board of Directors of said corporation at a meeting duly convened,
held on the 4th day of September , 19 96 , adopted a resolution to
----- ------------------ ---
amend the original articles as follows:
Article 4 is hereby amended to read as follows:
-----
ARTICLE 4. SHARES
4.1 AUTHORIZED CAPITAL.
The corporation is authorized to issue two classes of stock to be
designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares of stock which the corporation shall have authority to issue
shall be 70,000,000, consisting of 50,000,000 shares of Common Stock with a par
value of $.01 per share, and 20,000,000 shares of Preferred Stock with a par
value of $.01 per share.
4.2 COMMON STOCK.
Subject to any preferential or other rights granted to any series of
Preferred Stock, the holders of shares of the Common Stock shall be entitled to
receive dividends out of funds of the corporation legally available therefor, at
the rate and at the time or times as may be provided by the Board of Directors
and shall be entitled to receive distributions legally payable to stockholders
on the liquidation of the corporation. The holders of shares of Common Stock,
on the basis of one vote per share, shall have the right to vote for the
election of members of the Board of Directors of the corporation and the right
to vote on all other matters, except where a separate class or series of the
corporation's stockholders vote by class or series.
4.3 PREFERRED STOCK.
Shares of Preferred Stock may be issued from time to time in one or more
series, in any manner permitted by law, as determined from time to time by the
Board of Directors and stated in the resolution or resolutions providing the
issuance thereof, prior to the issuance of any shares thereof. The Board of
Directors shall have the authority to fix and determine the rights and
preferences of the shares of any series so established
PAGE 1
<PAGE>
4.4 PREEMPTIVE RIGHTS.
No holder of outstanding shares of this corporation shall have any
preemptive rights with respect to (i) any shares of any class of stock of this
corporation, whether now or hereafter authorized, (ii) any warrants, rights, or
options to purchase any such shares, or (iii) any obligations convertible into
any such shares or into warrants, rights, or options to purchase any such
shares.
The Amendment to the Articles of Incorporation was approved by a vote of
4,315,324 shares, which votes constitute a majority of each class of stock
outstanding and entitled to vote thereon.
/s/ Joseph A. Huseonica
--------------------------------------
President or Vice President
/s/ Robert W. Brown
--------------------------------------
Secretary or Assistant Secretary
State of Oregon )
--------------
) ss.
County of Benton )
--------------
On January 23, 1997 , personally appeared before me, a Notary Public,
----------------------
Joseph A. Huseonica and Robert W. Brown , who acknowledged
---------------------------------------------------
Names of Persons Appearing and Signing Document
that they executed the above instrument.
/s/ Constance J. Kanas Joki
-------------------------------------------
Signature of Notary
(NOTARY STAMP OR SEAL)
/SEAL/
PAGE 2
<PAGE>
CERTIFICATE OF DESIGNATION
OF
PREFERENCES OF PREFERRED STOCK
OF
ACRES GAMING INCORPORATED
A NEVADA CORPORATION
1. The undersigned, Joseph A. Huseonica and Robert W. Brown hereby
certify that:
2. They are the duly elected and acting President and Secretary,
respectively, of Acres Gaming Incorporated, a Nevada corporation (the
"Corporation").
Pursuant to authority given by the Corporation's Articles of Incorporation,
the Board of Directors of the Corporation has duly adopted the following
recitals and resolutions:
WHEREAS, the Board of Directors of the Corporation is authorized to
determine or alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock, to fix the
number of shares constituting any such series and to determine the designation
thereof, or any of them, and
WHEREAS, the Corporation has not issued any shares of such Preferred Stock
and the Board of Directors of the Corporation desires, pursuant to its authority
as aforesaid, to determine and fix the rights, preferences, privileges and
restrictions relating to the initial series of said Preferred Stock and the
number of shares constituting and the designation of said series;
NOW, THEREFORE, BE IT RESOLVED, that the Board of Directors hereby fixes
and determines the designation of, the number of shares constituting, and the
rights, preferences, privileges and restrictions relating to, said initial
series of Preferred Stock as follows:
1.1 DESIGNATIONS
The initial series of Preferred Stock shall be designated "Series A
Convertible Preferred Stock." The term "Preferred Stock" as used herein refers
to the Series A Convertible Preferred Stock.
PAGE 1
<PAGE>
2.1 NUMBER OF SHARES
The number of shares constituting the Preferred Stock shall be 1,038,961
shares.
3.1 CONVERSION AND SALE PRICE
The term "Conversion Price" as used herein shall mean the price per share
at which the Preferred Stock is convertible into Common Stock, initially equal
to the lesser of (i) the Sale Price (as defined), and (ii) the average closing
price of the Corporation's Common Stock for the period of thirty (30)
consecutive trading days prior to the date of conversion of shares of the
Preferred Stock. The term "Sale Price" shall mean $9.625, which is the price at
which the Preferred Stock is originally to be issued.
4.1 DIVIDENDS
In addition to the adjustments for certain dividends and distributions
covered by Sections 4.4(c) and 4.4(d), the holders of the Preferred Stock shall
be entitled to receive non-cumulative dividends at a rate per share equal to 3%
of the Sale Price. Any dividends declared and not paid in cash may be paid in
the form of either (i) the issuance of additional shares of Preferred Stock
based on the Conversion Price or (ii) credit(s) to the holder's account with the
Corporation for products, if any, of the Corporation that such holder purchases
from the Corporation by mutual agreement between the Corporation and the holder.
4.2 LIQUIDATION PREFERENCE
In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of the Preferred Stock
shall be entitled to receive, prior and in preference to any distribution of any
of the assets of the Corporation to the holders of the Common Stock, an amount
per share equal to the Sale Price, plus a further amount equal to any declared
but unpaid dividends thereon before any payment shall be made or any assets
distributed to the holders of Common Stock. If upon such liquidation,
dissolution or winding up of the Corporation, the assets thus distributed among
the holders of the Preferred Stock shall be insufficient to permit the payment
in full of the aforesaid preferential amounts, the entire assets of the
Corporation to be distributed shall be distributed among the holders of the
Preferred Stock so that the holder of each share of Preferred Stock shall
receive the same percentage of the Sale Price of such share as is received by
every other holder of Preferred Stock.
PAGE 2
<PAGE>
Following the completion of the distribution of the stated liquidation
preferences to be paid to the holders of the Preferred Stock, any remaining
assets shall be distributed to the holders of the Common Stock of the
Corporation; provided, however, if no shares of Common Stock are outstanding at
the time of such distribution, the holders of the Preferred Stock shall be
entitled to receive, ratably (assuming conversion of all shares of Preferred
Stock to Common Stock), all assets of the Corporation remaining after the
payment of the stated liquidation preferences of the Preferred Stock as set
forth herein.
4.3 CONVERSION RIGHTS
The holders of the Preferred Stock shall have the option, upon notice to
the Corporation, at any time and from time to time, to convert the shares of
Preferred Stock into fully paid and nonassessable shares of Common Stock based
upon the applicable Conversion Price in effect at the time of conversion. Each
share of Preferred Stock shall be convertible into that number of shares of
Common Stock which results from dividing the Sale Price by the Conversion Price
in effect at the time of conversion. The Corporation shall pay or make
adjustment for any declared but unpaid dividends on the shares of Preferred
Stock surrendered for conversion.
4.4 CONVERSION PROCEDURE
(a) Before a holder of the Preferred Stock shall be entitled to
convert the same into shares of Common Stock, such holder shall surrender the
certificate or certificates therefor, duly endorsed in blank or accompanied by
proper instruments of transfer, at the office of the Corporation or of any
transfer agent for the shares of the Preferred Stock, and shall give written
notice to the Corporation at such office that such holder elects to convert the
same and shall state in writing therein the name or names in which such holder
wishes the certificate or certificates for shares of Common Stock to be issued.
The Corporation shall, as soon as practicable thereafter, issue and deliver at
the address of the holder of the Preferred Stock, or to the holder's nominee or
nominees, certificates for the number of full shares of Common Stock to which
the holder shall be entitled, as aforesaid, together with cash in lieu of any
fraction of a share as hereinafter provided in Section 4.4(i). Such conversion
shall be deemed to have been made as of the date of such surrender of the shares
of the Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on said date.
PAGE 3
<PAGE>
(b) ADJUSTMENT FOR STOCK SPLITS AND COMBINATIONS
If the Corporation shall at any time after the filing of this Certificate
of Designation (the "Filing Date") effect a subdivision or combination of the
outstanding Common Stock, the Conversion Price then in effect immediately before
such subdivision or combination shall be proportionately decreased or increased.
Any adjustment under this subsection shall become effective at the close of
business on the effective date of the subdivision or combination.
(c) ADJUSTMENT FOR CERTAIN DIVIDENDS AND DISTRIBUTIONS
If the Corporation at any time after the Filing Date shall issue additional
shares of Common Stock, by reason of the declaration or payment of a dividend or
other distribution on the Common Stock payable in additional shares of Common
Stock, then and in each such event, the Conversion Price then in effect shall be
decreased as of the time of such issuance or, if such a record date shall have
been fixed, as of the close of business on such record date, by multiplying the
Conversion Price then in effect by a fraction:
(i) the numerator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date, and
(ii) the denominator of which shall be the total number of shares of
Common Stock issued and outstanding immediately prior to the time of such
issuance or the close of business on such record date plus the number of
shares of Common Stock issuable in payment of such dividend or
distribution;
provided, however, that if such record date shall have been fixed and such
dividend is not fully paid or if such distribution is not fully made on the date
fixed therefor, the Conversion Price shall be recomputed accordingly as of the
close of business on such record date and thereafter the Conversion Price shall
be adjusted pursuant to this subsection as of the time of actual payment of such
dividends or distributions.
(d) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS
If the Corporation at any time after the Filing Date shall make or issue,
or fix a record date for the determination of holders of Common Stock entitled
to receive, a dividend or other distribution payable in securities of the
Corporation other than shares of Common Stock, then and in each such event
provision shall be made so that the holders of the Preferred Stock shall receive
upon conversion thereof in addition to the number of shares of Common Stock
receivable thereupon, the amount of securities of the Corporation which the
holders would have received had the holders' Preferred
PAGE 4
<PAGE>
Stock been converted into Common Stock on the date of such event and had
thereafter, during the period from the date of such event to and including the
conversion date, retained such securities (together with any distributions
payable thereon during such period) receivable by them as aforesaid during such
period, giving application to all adjustments called for during such period
under Section 4.4 with respect to the rights of the holders of the Preferred
Stock.
(e) ADJUSTMENT FOR RECLASSIFICATION, EXCHANGE OR SUBSTITUTION
If the Common Stock issuable upon the conversion of the Preferred Stock
shall be changed into the same or different number of shares of any class or
classes of stock, by capital reorganization, involving exchange, substitution,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for above, or a reorganization, merger, consolidation
or sale of assets provided for below), then the holders of the shares of
Preferred Stock shall have the right thereafter to convert each such share into
the same kind and amount of shares of stock and other securities and property
receivable upon such exchange, reclassification or other change, as a holder of
the number of shares of Common Stock into which such shares of Preferred Stock
might have been converted immediately prior to such substitution,
reclassification or other change, all subject to further adjustment as provided
herein.
(f) REORGANIZATION, MERGER, CONSOLIDATION OR SALE OF ASSETS
If at any time there shall be a capital reorganization of the Common Stock
(other than a subdivision, combination, reclassification or exchange of shares
provided for elsewhere in this Section 4.4) or a merger or consolidation of the
Corporation with or into another corporation, or the sale of all or
substantially all of the Corporation's properties and assets to any other
person, then, as a part of such reorganization, merger, consolidation or sale,
provision shall be made so that the holders of the Preferred Stock shall
thereafter be entitled to receive upon conversion of such Preferred Stock, the
number of shares of stock or other securities or property of the Corporation, or
of the successor corporation resulting from such reorganization, merger,
consolidation or sale, to which a holder of Common Stock deliverable upon
conversion would have been entitled upon such capital reorganization, merger,
consolidation or sale.
(g) MINIMUM ADJUSTMENT
No adjustment of the Conversion Price shall be made in an amount less than
$0.02, but any such lesser adjustments shall be carried forward and shall be
made at the time together with the next subsequent adjustment which together
with any adjustments so carried forward shall amount to $0.02 or more.
PAGE 5
<PAGE>
(h) CERTIFICATE OF ADJUSTMENT
Upon the occurrence of each adjustment or readjustment of the Conversion
Price of the Preferred Stock pursuant to this Section 4.4, the Corporation shall
promptly compute such adjustment or readjustment in accordance with the terms
hereof and prepare and furnish to the holders of the Preferred Stock, as
applicable, a certificate, signed by the Chairman of the Board, the President or
the Chief Financial Officer, setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
(i) FRACTIONAL SHARES
No fractional shares of Common Stock shall be issued upon conversion of
Preferred Stock. In lieu of any fractional shares to which the holder would
otherwise be entitled, the Corporation shall pay cash equal to the product of
such fraction multiplied by the fair market value of one share of the
Corporation's Common Stock on the date of conversion, as determined reasonably
and in good faith by the Board.
(j) RESERVATION OF STOCK ISSUABLE UPON CONVERSION
The Corporation shall at all times reserve and keep available, out of its
authorized but unissued Common Stock, solely for the purpose of effecting the
conversion of the Preferred Stock, the full number of shares of Common Stock
deliverable upon the conversion of all shares of the Preferred Stock from time
to time outstanding. The Corporation shall from time to time, in accordance
with the laws of the State of Nevada, use its best efforts to increase the
authorized amount of its Common Stock if at any time the authorized number of
shares of Common Stock remaining unissued shall not be sufficient to permit the
conversion of all of the shares of the Preferred Stock at the time outstanding.
(k) PAYMENT OF TAXES
The Corporation shall pay any and all issuance and other taxes that may be
payable in respect of any issuance or delivery of Common Stock upon conversion
of the Preferred Stock pursuant hereto. The Corporation shall not, however, be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of Common Stock in a name other than that in which
the Preferred Stock so converted was registered, and no such issuance or
delivery shall be made unless and until the person requesting such issuance has
paid to the Corporation the amount of any such tax.
PAGE 6
<PAGE>
(l) NO DILUTION OR IMPAIRMENT
The Corporation will not, by amendment of its Articles of Incorporation or
through any reorganization, transfer of assets, consolidation, merger,
dissolution, issuance or sale of securities or any other voluntary action, avoid
or seek to avoid the observance of performance of any of the terms to be
observed or performed hereunder by the Corporation, but will at all times in
good faith assist in the carrying out of all the provisions of this Section 4.4
and in the taking of all such action as may be necessary or appropriate in order
to protect the conversion rights of the holder of the Preferred Stock against
impairment.
4.5 REDEMPTION
On or at any time after the earlier of (i) five years from the date of
issuance of the Preferred Stock and (ii) the date that the number of shares of
the Corporation's Common Stock owned by John F. Acres is less than 1,000,000
(such number to be adjusted for any stock dividend or stock split effected after
the date hereof), the Preferred Stock will be subject to redemption at any time
and from time to time, in whole or in part, at the option of the holders of the
Preferred Stock or the Corporation. Any such redemption shall be at the Sale
Price of the Preferred Stock to be redeemed plus all declared but unpaid
dividends on the shares of Preferred Stock to be redeemed. The redemption
procedure shall be as set forth in this Section 4.5.
(a) REDEMPTION PROCEDURE FOR PREFERRED STOCK HOLDER
Either the holders of the Preferred Stock or the Corporation may initiate
redemption of the Preferred Stock in accordance with this Section 4.5, by
mailing written notice (the "Redemption Notice"), postage prepaid, to the other
at least 30 days but not more that 60 days prior to the date fixed for
redemption (the "Redemption Date"). The Redemption Notice shall state (A) the
number of shares of Preferred Stock to be redeemed, (B) the Redemption Date and
the total Redemption Price, and (C) that the holders will surrender to the
Corporation, in the manner and at the place designated by the Corporation, the
certificate or certificates representing the shares of Preferred Stock to be
redeemed. Thereupon the Redemption Price of such shares shall be payable to the
entity whose name appears on such certificate or certificates of Preferred Stock
as the owner thereof, and each surrendered certificate shall be canceled.
If at the time of any redemption required pursuant to this Section 4.5 the
aggregate of (a) the funds of the Corporation legally available for the
redemption of Preferred Stock plus (b) the funds of all subsidiaries legally
available for the payment of dividends to the Corporation (directly, or
indirectly through one or more subsidiaries) and which, upon receipt by the
Corporation, would be legally available
PAGE 7
<PAGE>
for the redemption of Preferred Stock is insufficient to redeem the Preferred
Stock, such aggregate funds shall be used to redeem the maximum possible number
of shares of Preferred Stock, if any, pro rata based on the number of shares of
Preferred Stock held by each of the holders thereof. Thereafter, any additional
such funds shall immediately be so used by the Corporation to redeem the balance
of the shares which the Corporation has become obligated to redeem, but which it
has not redeemed.
4.6 VOTING RIGHTS OF PREFERRED STOCK
So long as 130,000 shares (such number shall be increased by one share for
each additional four shares of Preferred Stock sold by the issuer pursuant to
Section 4 of that certain Stock Purchase Agreement dated January 23, 1997
between IGT, a Nevada corporation, and the Corporation (the "Stock Purchase
Agreement")) or more of the Preferred Stock are outstanding, the holders of the
Preferred Stock shall be entitled, as a class, to elect one director.
4.7 PROTECTIVE PROVISIONS OF PREFERRED STOCK
So long as 130,000 shares (such number shall be increased by one share for
each additional four shares of Preferred Stock sold by the issuer pursuant to
Section 4 of the Stock Purchase Agreement) or more of the Preferred Stock are
outstanding, the Corporation shall not, without the vote or written consent of
the holders of the Preferred Stock approve any amendments to the articles of
incorporation of the Corporation to do any of the following or to otherwise do
any of the following:
(a) alter or change the rights, preferences or privileges of the
shares of Preferred Stock;
(b) increase the authorized number of shares of Series A Preferred
Stock or issue any shares of stock with rights, including liquidation
preferences, superior to the Preferred Stock;
(c) effect any sale, lease, assignment, transfer, or other conveyance
of all or substantially all of the assets of the Corporation or any of its
subsidiaries, or any consolidation or merger involving the Corporation or
any of its subsidiaries if the Corporation or its subsidiary is not the
surviving corporation, or any consolidation or merger involving the
Corporation or any of its subsidiaries if the Corporation or its subsidiary
is the surviving corporation but the holders of the capital stock of the
Corporation before the consolidation or merger own less than 50% of the
Corporation after the consolidation or merger, or any reclassification or
other change of any stock, or any recapitalization of the Corporation, or
any voluntary dissolution, liquidation or winding up of the Corporation;
PAGE 8
<PAGE>
(d) permit any direct or indirect subsidiary or other entity owned by
the Corporation to sell any equity security or similar interest or any
right to acquire an equity security or similar interest in such entity.
4.8 STATUS OF CONVERTED STOCK
In case any shares of Preferred Stock shall be converted pursuant to
Section 4.3 hereof, the shares so converted shall assume the status of
authorized but undesignated and unissued shares of Preferred Stock.
4.9 NOTICES
Any notice required herein except as otherwise specifically provided
herein, to be given to a holder of the Preferred Stock shall be in writing and
may be delivered by personal service, sent by overnight professional courier
service, sent by telegraph or cable or sent by United States registered or
certified mail, return receipt requested, with postage thereon fully prepaid.
All such communications shall be addressed to such holder of record at its
address appearing on the books of the Corporation. If sent by telegraph or
cable, a confirmed copy of such telegraphic or cabled notice shall promptly be
sent by mail (in the manner provided above) to the holders. Service of any such
communication made only by mail shall be deemed complete on the date of actual
delivery as shown by the addressee's registry or certification receipt or at the
expiration of the third business day after the date of mailing, whichever is
earlier in time.
RESOLVED FURTHER, that the Chairman of the Board, the President or any Vice
President and the Secretary or any Assistant Secretary of the Corporation are
each authorized to execute, verify and file a certificate of designation of
preferences of preferred stock in accordance with the General Corporation Law of
the State of Nevada.
3. The authorized number of shares of preferred stock of the Corporation
is 20,000,000 shares, and the number of shares constituting Series A Convertible
Preferred Stock, none of which has been issued, is 1,038,961 shares.
PAGE 9
<PAGE>
IN WITNESS WHEREOF, the undersigned has executed this Certificate on
January 23, 1997.
/s/ Joseph A. Huseonica
-------------------------------------
Joseph A. Huseonica
/s/ Robert W. Brown
-------------------------------------
Robert W. Brown
State of Oregon )
---------------------
) ss.
County of Benton )
-------------------
On January 23, 1997 , personally appeared before me, a Notary Public,
---------------------
Joseph A. Huseonica and Robert W. Brown , who acknowledged
- -------------------------------------------------------------
Names of Persons Appearing and Signing Document
that they executed the above instrument.
/s/ Constance J. Kanas Joki
-------------------------------------
Signature of Notary
(NOTARY STAMP OR SEAL)
/SEAL/
PAGE 10
<PAGE>
Exh 4.1
SEE RESTRICTIONS ON REVERSE SIDE
[LOGO]
[NUMBER] [SHARES]
ACRES GAMING INCORPORATED
ORGANIZED UNDER THE LAWS
OF THE STATE OF NEVADA
THIS CERTIFIES THAT SPECIMEN IS THE
REGISTERED HOLDER OF ZERO (0) ------------------------------------ SHARES
OF THE SERIES A CONVERTIBLE PREFERRED STOCK, $.01 PAR VALUE PER SHARE,
TRANSFERABLE ONLY ON THE BOOKS OF THE CORPORATION BY THE HOLDER HEREOF IN
PERSON OR BY ATTORNEY UPON SURRENDER OF THIS CERTIFICATE PROPERLY ENDORSED.
IN WITNESS WHEREOF, THE SAID CORPORATION HAS CAUSED THIS CERTIFICATE TO BE
SIGNED BY ITS DULY AUTHORIZED OFFICERS, AND ITS CORPORATE SEAL TO BE
HEREUNTO AFFIXED
THIS DAY OF A.D. 19
[SEAL]
----------------------- -----------------------
SECRETARY PRESIDENT
<PAGE>
The securities evidenced by this Certificate have not been registered under
the Securities Act of 1933, as amended (the "Act"), or applicable state law,
and no interest therein may be sold, distributed, assigned, offered, pledged
or otherwise transferred unless (i) there is an effective registration
statement under the Act and applicable state securities laws (if required)
covering any such transaction involving said securities; (ii) this
Corporation receives an opinion of legal counsel for the holder of these
securities reasonably satisfactory to this Corporation stating that
such transaction is exempt from registration; or (iii) this Corporation
otherwise satisfies itself that such transaction is exempt from registration.
Upon written request, the Corporation will furnish to any shareholder,
without charge, a full statement of the designation, preference, limitations,
and relative rights applicable to the shares of each class of stock
authorized to be issued and, with respect to any preferred or special class
which the Corporation is authorized to issue in series, the variations in
rights, preferences and limitations for shares of each such series, so far as
the same have been fixed and determined, and the authority of the Board
of Directors to fix and determine the relative rights and preferences of
subsequent series.
The securities represented by this Certificate are also subject to redemption
by the Company in accordance with Article IX of the Company's Articles of
Incorporation.
<PAGE>
EXHIBIT 10.1
EMPLOYMENT AGREEMENT
This Employment Agreement ("Agreement") is entered into as of July 1, 1996,
by and between John F. Acres of 3324 N.W. Elmwood Drive, Corvallis, Oregon
("Employee") and Acres Gaming, Inc., a Nevada corporation whose principal place
of business is located at 815 N.W. 9th Street, Corvallis, Oregon ("Employer").
RECITALS
WHEREAS Employer is engaged in developing, manufacturing, and marketing of
electronic casino, accounting, game monitoring and game promotion systems; and
WHEREAS Employee is willing to be employed by Employer and Employer is
willing to employ Employee on the terms, conditions and agreements hereinafter
set forth.
For the reasons set forth above, and in consideration of the mutual
promises and agreements hereinafter set forth, Employer and Employee hereby
agree as follows:
SECTION 1. EMPLOYMENT
1.1 EMPLOYMENT
Employer hereby employs Employee for a term commencing July 1, 1996 through
June 30, 2001 (the "Term").
1.2 DUTIES
During the term of this Agreement, Employee shall perform faithfully and
to the best of Employee's ability such management duties as may be assigned
from time to time by the Board of Directors of Employer, which shall be as
the Chief Executive Officer. The parties recognize that a significant
portion of Employee's time shall be devoted to research, creating new
products and business opportunities for Employer and that Employee is most
effective if he is not required to maintain regular hours in Employer's
facilities. Therefore, there is no requirement that Employee be present in
Employer's facilities for any specific periods or hours.
<PAGE>
SECTION 2. TERM
The initial term of employment under this Agreement shall be for five
years, commencing on July 1, 1996, subject, however, to prior termination as
hereinafter provided.
SECTION 3. COMPENSATION
Employer shall pay Employee:
(a) A base annual salary as indicated below:
Beginning July 1, 1996 $250,000.00
Beginning July 1, 1997 $300,000.00
Beginning July 1, 1998 $350,000.00
Beginning July 1, 1999 $400,000.00
Beginning July 1, 2000 $450,000.00
Such salary shall be payable at the same intervals as the other officers of
Employer are paid and shall be subject to customary withholding taxes and
other employment taxes as required by law.
(b) An annual bonus ("Bonus") payable on or before September 30 of each
year with respect to the preceding fiscal year, determined in accordance with
the table below.
Fiscal
Year Ending Profits Bonus
- --------------- -------------------------- ----------------------------------
June 30, 1997 If less than $1,000,000 $50,000
If $1,000,000 or more $100,000, plus 5% of the
amount by which Profits
exceed $1,000,000
- -------------------------------------------------------------------------------
<PAGE>
June 30, 1998 If less than $1,000,000 None
If $1,000,000 or more but $50,000
less than $2,000,000
If $2,000,000 or more $100,000, plus 5% of the
amount by which Profits
exceed $2,000,000
- -------------------------------------------------------------------------------
June 30, 1999 If less than $2,000,000 None
If $2,000,000 or more but $50,000
less than $3,000,000
If $3,000,000 or more $100,000, plus 5% of the
amount by which Profits
exceed $3,000,000
- -------------------------------------------------------------------------------
June 30, 2000 If less than $2,000,000 None
If $2,000,000 or more but $50,000
less than $3,000,000
If $3,000,000 or more $100,000, plus 5% of the
amount by which Profits
exceed $3,000,000
- -------------------------------------------------------------------------------
June 30, 2001 If less than $2,000,000 None
If $2,000,000 or more but $50,000
less than $3,000,000
If $3,000,000 or more $100,000, plus 5% of the
amount by which Profits
exceed $3,000,000
"Profits" of Employer shall mean Income Before Income Taxes as adjusted to
add back any bonus paid pursuant to this Section 3(b). Profits for each fiscal
year shall be calculated by the certified public accountants regularly employed
to audit the books of Employer. Such calculation shall be in accordance with
generally accepted accounting principles applied on a basis consistent with the
practices of Employer.
<PAGE>
(c) Employee shall have the right to receive and participate in any
additional "fringe benefits," which may from time to time be made generally
available to Employer's executive officers, including, but not limited to,
health and accident insurance, disability insurance or other insurance
programs any pension or profit-sharing plans and stock option plans.
SECTION 4. FACILITIES AND EXPENSES/ADDITIONAL BENEFITS
Employer shall provide Employee with an office, secretarial and technical
help, and such other facilities and services as may be suitable to his
position and adequate for the performance of his duties. Employee is
expected, from time to time, to incur expenses which the Employee deems
reasonable and necessary for promoting and conducting the business of
Employer, including expenses for civic club membership and participation,
entertainment, travel (including first-class air fare, when Employee deems it
appropriate), and similar items. Employer shall reimburse Employee for
out-of-pocket expenses actually and necessarily incurred by him in the
promotion and conduct of the business of Employer against reasonable
substantiation submitted to Employer with respect thereto, provided, however,
that Employee must receive the written approval of the Board of Directors
prior to incurring reimbursable expenses for travel and entertainment which
would total more than $25,000 in any calendar month.
SECTION 5. TRADE SECRETS/COVENANT NOT TO COMPETE
(a) For purposes of this Agreement, the term "Confidential Information"
means any and all information not generally known by others with whom
Employer does or plans to do business or with whom Employer directly or
indirectly competes and includes, but is not limited to, information relating
to Employer's research and development activities, its inventions,
discoveries, findings, designs and ideas, products and services, sales and
marketing, manufacturing processes and methods, costs, sources of supply,
customer lists, profits and profit margins, pricing policies or methods,
personnel information and business relationships, intellectual property and
the filing or pendency of patent applications. Confidential Information also
includes information comparable to the foregoing and that Employer may
receive or has received belonging to customers, suppliers, consultants and
others who do business with Employer. Employee shall not, either during or
after the Term of this Agreement, disclose to any person or organization
other than Employer or its affiliates, or utilize for the benefit or profit
of Employee or any other person or organization other than Employer or its
affiliates, any Confidential Information. Employee shall not keep elsewhere
than on Employer premises, nor remove therefrom, any property of Employer or
its affiliates, except and only so long as may be required for the
performance of Employee's duties for Employer. In the event of
<PAGE>
termination of Employee's employment with Employer, Employee shall
immediately return to Employer any property of Employer or its affiliates in
Employee's possession, under Employee's control or removed by Employee from
Employer's premises.
(b) Employee will not, during the term of employment hereunder, (i) be
engaged or interested in any manner, directly or indirectly, as a partner,
officer, director, stockholder (ownership of up to 5% of the outstanding shares
of any publicly held company excepted), advisor, employee or in any other
capacity, in any other activity, business, or entity which is competitive with
or substantially similar to the then existing or proposed business of Employer
or any subsidiary or (ii) directly or indirectly solicit or entice or in any way
divert any customer or supplier of Employer or any subsidiary away therefrom.
(c) At the option of Employer, covenants contained in Section 5(b) shall
continue in effect after termination of Employee's employment hereunder for the
remainder of the Term as follows:
(i) If Employee's employment is terminated pursuant to
Sections 10(b), (c)(i) or (f), Employer shall continue to pay Employee the
base salary set forth in Section 3(a) at the rates, the times and for the
periods specified in Section 3(a); and
(ii) If Employee's employment is terminated pursuant to
Sections 10(a), (c)(ii), (d) or (g), Employer shall pay Employee amounts
equal to 50% of the base salary set forth in Section 3(a) at the rates, the
times and for the periods specified in Section 3(a).
If Employer fails to make any payment under this Section 5(c)within 30 days
of the date due, Employee will have no further obligations under Sections
5(b) or 5(c). Whether an activity is competitive or substantially similar to
the then-existing or proposed business of Employer or subsidiary shall be
determined by reference to business actually being done or which had been
specifically approved by Employer's (or subsidiary's) board of directors
prior to the date Employee terminated employment.
(d) Employee acknowledges that the provisions of this Section 5 are
essential to Employer; that Employer would not enter into this Agreement if it
did not include covenants not to disclose confidential information, compete with
Employer or any affiliated entities thereof, or solicit customers of Employer or
any such affiliated entities; and that damages sustained by Employer as a result
of a breach of any of these covenants cannot be adequately remedied by damages,
and Employee agrees that Employer, in addition to any other remedy it may have
under this Agreement or at
<PAGE>
law, shall be entitled to injunctive and other equitable relief to prevent or
curtail any breach of any provision of this Section 5 and that the salary and
bonuses provided for herein constitute bonafide advancement within the
meaning of ORS 653.295.
SECTION 6. INTELLECTUAL PROPERTY
(a) "Intellectual Property" means and shall include, but not be limited
to, inventions, findings, ideas, improvements, designs, discoveries (whether or
not patentable and whether or not reduced to practice), copyrights, and
copyrightable material, Confidential Information and know-how, made or conceived
by Employee (whether made solely by Employee or jointly with others) during the
term and within the scope of Employee's employment with Employer which directly
relate to the actual or demonstrably anticipated business of Employer or its
affiliates or which are suggested by or result from any task assigned to
Employee on behalf of Employer or which Employee created at Company facilities.
"Intellectual Property" does not mean and shall not include Employee Property
(as defined in Section 6(c) below).
(b) All Intellectual Property and any patent, patent application,
trademark or trademark registration, copyright or copyright registration or
record resulting therefrom shall be the exclusive property of Employer or its
designee.
(c) The following shall be the property of Employee and not of Employer
("Employee Property"):
any tangible or intangible property developed in whole or in part by
Employee for which no equipment, supplies, facility, Intellectual
Property nor Confidential Information of Employer was used and which
was developed entirely on Employee's own time and which does not
directly relate to the actual or demonstrably anticipated business of
Employer, and which does not result from any work performed by
Employee for Employer.
SECTION 7. DISCLOSURE OF INTELLECTUAL PROPERTY
Employee shall immediately disclose to Employer or its designee and keep
adequate records relating to any Intellectual Property which is conceived,
discovered or made by Employee, either solely or jointly with others, during the
term and in the scope of Employee's employment with Employer.
<PAGE>
SECTION 8. ASSIGNMENT OF INTELLECTUAL PROPERTY
(a) Employee agrees to assign to Employer Employee's entire world-wide
right, title and interest in and to any Intellectual Property heretofore
developed or developed during the Term.
(b) Employee further agrees to make all lawful oaths and declarations and
to execute documentation requested by Employer at any time during or after
Employee's employment with Employer, including an assignment for each item of
Intellectual property that Employer may request and on such forms as Employer
may provide. If Employee is unable or unwilling to execute such forms of
assignment and/or documents relating to such assignment, Employee agrees and
hereby grants to Employer an irrevocable limited power of attorney to execute
such forms or documents on Employee's behalf.
(c) Employee further agrees to assist Employer during and subsequent to
Employee's employment with Employer and thereafter during the period of any
extension of the covenants contained in Section 5(b) in every lawful way
including but not limited to testifying and/or otherwise supporting Employer in
the obtaining and/or enforcement of its Intellectual Property, without
reimbursement other than normal compensation as an employee of Employer, or, if
Employee's employment with Employer has been terminated, at mutually agreed upon
times and for compensation at the rate of $3000 per day plus expenses, to obtain
for the benefit of Employer patents, trademarks, copyrights, design protection
and similar legal protections of Intellectual Property in any and all countries,
irrespective of whether Employee believes such Intellectual Property to be
patentable, subject to trademark protection, copyrightable or otherwise
protectable.
SECTION 9. EMPLOYEE'S OBLIGATIONS AFTER TERMINATION OF THIS AGREEMENT
Except as set forth in the next sentence, all of Employee's duties,
obligations and liabilities end with the termination of this Agreement.
Sections 5, 6, 7, 8 and 9 shall survive the termination of Employee's employment
with Employer and the expiration of the term of this Agreement.
SECTION 10. TERMINATION
In the event of termination of Employee's employment, all compensation and
benefits set forth in this Agreement shall terminate except as specifically
provided in this Section 10 and Section 5(c). No termination of employment
under this Section 10 shall affect the provisions of Section 5.
<PAGE>
(a) Employer's Board of Directors shall have the right to immediately and
without notice terminate Employee's employment hereunder in the event of any
fraud, embezzlement, dishonesty or other illegal act by Employee, which
adversely affects Employer or any other act or omission which substantially
impairs Employer's business, good will or reputation or any incident which
materially compromises Employee's reputation or ability to represent Employer
with the public. If Employee's employment is terminated pursuant to this
Section 10(a), Employee will be paid any unpaid annual salary which has accrued
as of the date of such termination but shall not be entitled to receive any
bonus in respect of the year in which termination occurs.
(b) Employer's Board of Directors shall have the right, after February 1,
1999, to terminate Employee's employment hereunder without cause, in which case
Employee will be paid a bonus under Section 3(b) for the entire applicable
fiscal year in which employment is terminated, plus six (6) months' severance
pay at the rate then in effect under Section 3(a).
(c) (i) In the event of a material breach or evasion by Employer of any
of the terms of this Agreement which has not been cured within thirty (30) days
after written notice specifying such breach or evasion has been given by
Employee, Employee thereupon may immediately and without further notice,
terminate his employment hereunder and shall be entitled to immediate payment of
liquidated damages equal to 12 months of salary at the then current rate plus an
amount equal to the prior fiscal year's bonus.
(ii) In the event of a material breach or evasion by Employee of any
of the terms of this Agreement (including, but not limited to, failure of or
refusal by Employee to carry out the directions of Employer's Board of
Directors, which directions are reasonably consistent with the other duties
herein set forth to be performed by Employee), which has not been cured within
thirty (30) days after written notice specifying such breach or evasion has been
given by Employer, Employer thereupon may immediately and without further
notice, terminate Employee's employment. If Employee's employment is terminated
pursuant to this Section 10(c)(ii), Employee will be paid any unpaid annual
salary which has accrued as of the date of such termination but shall not be
entitled to receive any bonus in respect of the year in which termination
occurs.
(d) Anything herein contained to the contrary notwithstanding, in the
event that Employer shall sell substantially all of its assets, or if more than
thirty-five percent (35%) of the voting power of then issued and outstanding
capital stock of Employer should be acquired by any investor or by one
affiliated group of investors acting in concert during the term of this
Agreement, then Employee may, in his sole discretion, elect to terminate
employment hereunder immediately. Such election to
<PAGE>
terminate employment may be made by Employee within 60 days of the last day
of the month on which closing of said sale or transfer occurs. If Employee's
employment is terminated pursuant to this Section 10(d), Employee will be
paid any unpaid annual salary which has accrued as of the date of such
termination but shall not be entitled to receive any bonus in respect of the
year in which termination occurs. [pro rata bonus?]
(e) In the event of Employee's death during the term of this Agreement,
this Agreement shall terminate immediately and without notice and the Employee's
estate shall be entitled to receive any unpaid annual salary which has accrued
as of the date of such termination plus a pro rata portion, based on the number
of days worked for the applicable fiscal year, of any bonus under Section 3(b)
for the fiscal year in which such termination occurs.
(f) Employee's employment shall terminate immediately and without notice,
unless otherwise agreed by Employer's Board of Directors, in the event Employee
shall become permanently disabled (i.e., shall have been continuously unable or
unwilling to perform his material duties hereunder for at least ninety percent
(90%) of the time during any consecutive six (6) month period, because of ill
health, physical or mental disability or for any cause beyond his control). If
Employee's employment is terminated pursuant to this Section 10(f), Employee
will be paid any unpaid annual salary which has accrued as of the date of such
termination, but shall not be entitled to receive any bonus in respect of the
year in which termination occurs.
(g) Employee may terminate employment hereunder without cause after
February 1, 1999, in which case Employee will be paid any unpaid annual salary
accrued to the date of termination, but shall not be entitled to receive any
bonus under Section 3(b) in respect of the year in which termination occurs. If
Employee voluntarily terminates employment before [February 1, 1999], Employer
shall have the right to seek damages for breach of this Agreement.
SECTION 11. KEY MAN INSURANCE
Employee will cooperate with Employer, including taking such medical
examinations as Employer reasonably shall deem necessary if Employer shall
desire to obtain a "key man" insurance policy with respect to Employee, which
policy shall be owned by Employer and shall name Employer as beneficiary.
SECTION 12. ENTIRE AGREEMENT
This Agreement contains the complete agreement concerning the employment
arrangement between the parties and shall, as of the effective date hereof,
supersede all other prior agreements between the parties with respect to the
subject matter
<PAGE>
hereof. Neither party has relied on any prior representations in entering
into this Agreement.
SECTION 13. MODIFICATION OF CONTRACT
No cancellation, waiver, amendment, alteration or modification of this
Agreement or of any covenant, condition, or limitation herein contained shall be
valid unless in writing and duly executed by the party to be charged therewith.
No failure on the part of Employer to exercise, and no delay in exercising, any
right, power, privilege or remedy granted herein shall operate as a waiver
thereof; nor shall any single or partial exercise of such right, power,
privilege or remedy preclude any other or further exercise thereof or the
exercise of any other right. Unless otherwise stated in writing, no waiver of
any breach of any provisions of this Agreement shall be, or be construed to be,
a waiver of any preceding or succeeding breach of the same or any other
provision. The parties further agree that the provisions of this Section may
not be waived or amended except as set forth in this Section and that any oral
or implied agreement which conflicts with any of the foregoing shall be void,
unenforceable and of no force and effect.
SECTION 14. SEVERABILITY OF TERMS
If any term or provision of this Agreement is invalid, illegal or incapable
of being enforced by any rule of law or public policy, all other terms,
covenants, conditions and provisions of this Agreement shall nevertheless remain
in full force and effect, provided that the invalidity, illegality or
unenforceability of such term or provision does not materially impair either
(i) the parties' ability to consummate their respective duties with respect to,
or (ii) the economic substance of, the employment relationship established
hereby. If the invalidity, illegality or unenforceability of any term or other
provision materially impairs either (i) a party's ability to consummate its
duties hereunder in the manner contemplated hereby, or (ii) the economic
substance of the employment relationship, the parties shall, if at all possible,
amend this Agreement so as to effect the original intention of the parties to
the fullest extent otherwise possible.
SECTION 15. ASSIGNMENT
The parties agree that the services covered by this Agreement are strictly
personal and that this Agreement is not assignable or transferable by Employee
or Employer, either voluntarily or by operation of law, without the prior
written consent of the other party.
<PAGE>
SECTION 16. NOTICES
All notices, requests, approvals, demands or other communication of any
kind which any party may be required or may desire to serve on the other in
connection with this Agreement shall be in writing and shall be deemed to have
been duly and sufficiently given if addressed to the parties at their respective
addresses designated below and:
(a) personally delivered with proof of delivery thereof (any notice so
delivered shall be deemed to have been received at the time so delivered);
(b) sent by Federal Express (or other similar overnight courier)
designating next day delivery (any notice so delivered shall be deemed to have
been received on the next business day following receipt by the courier);
(c) sent by United States registered or certified mail, return receipt
requested, postage prepaid (any notice so sent shall be deemed to have been
received three (3) business days after mailing in the United States); or
(d) sent by telecopier or facsimile machine which automatically generates
a transmission report that states the date and time of the transmission, the
length of the document transmitted and the telephone number of the recipient's
telecopier or facsimile machine (with a copy thereof sent in accordance with
subparagraphs (a), (b) or (c) above) (any notice so delivered shall be deemed to
have been received (i) on the date of transmission, if so transmitted before
5:30 p.m. (local time of the recipient) on a business day, or (ii) on the next
business day, if so transmitted on or after 5:30 p.m. (local time of the
recipient) on a business day or if transmitted on a day other than a business
day).
All notices shall be addressed to the parties at the addresses as set forth
below. Either party may, by notice given pursuant to this Section, change the
person or persons and/or address or addresses, or designate an additional person
or persons or an additional address or addresses, for its notices, but notice of
a change of address shall only be effective upon receipt as set forth above.
If to Employer:
Acres Gaming, Inc.
815 N.W. 9th Street
Corvallis, OR 97330
Telecopier No.: (541) 753-7524
<PAGE>
If to Employee:
John F. Acres
3324 N.W. Elmwood Drive
Corvallis, OR 97330
Telecopier No.: ______________
SECTION 17. JURISDICTION/ATTORNEY'S FEES
If legal action is initiated relative to this Agreement or the rights or
obligations of any party hereunder, the parties hereto stipulate and agree that
such action must be initiated, maintained and continued in Oregon. The
nonprevailing party in such action shall pay the reasonable attorneys' fees of
the prevailing party, with the amounts to be determined by the court, or the
arbitrators, in said action.
SECTION 18. CAPTIONS
Captions of the Sections of this Agreement are for the convenience of
reference only, and the words contained therein shall in no way be held to
explain, modify, amplify, or aid in the interpretation, construction or meaning
of the provisions of this Agreement.
SECTION 19. CUMULATIVE RIGHTS
The rights and remedies provided herein are cumulative and not exclusive of
any other rights or remedies which Employer or Employee shall otherwise have at
law or equity.
SECTION 20. CHOICE OF LAW
It is the intention of the parties hereto that this Agreement and the
performance hereunder and all suits and special proceedings hereunder be
governed by and construed in accordance with and pursuant to the laws of the
State of Oregon.
SECTION 21. ARBITRATION
All claims, disputes and questions whatsoever, except those requiring an
equitable remedy (e.g., an injunction against a breach of any restrictive
covenant), which shall arise either during the term of this Agreement or
afterward between the parties hereto or their respective representatives,
relating to this Agreement, or the construction or application hereof, or any
other matter in any way relating to the rights, duties, and liabilities of
either party hereunder, shall be referred to a board of arbitration as follows:
Each party shall select one arbitrator, within ten (10) calendar days of its
receipt of a written demand therefor, and these two arbitrators so chosen
<PAGE>
shall, within ten (10) calendar days of their appointment, appoint a third
arbitrator, and said arbitrators shall, by majority decision within sixty
(60) calendar days thereafter, determine the matter in dispute. Such
arbitration shall be conducted in accordance with the rules of the American
Arbitration Association then in effect. The arbitrators' determination shall
be final and binding upon the parties. Judgment may be entered upon such
determination and may be enforced in accordance with applicable law in any
court having jurisdiction thereof.
THE UNDERSIGNED EMPLOYEE ACKNOWLEDGES THAT HE HAS READ THE FOREGOING
AGREEMENT AND FULLY UNDERSTANDS THE MEANING AND CONSEQUENCES OF THE TERMS
CONTAINED HEREIN. THE UNDERSIGNED EMPLOYEE FURTHER ACKNOWLEDGES THAT, TO THE
EXTENT DEEMED APPROPRIATE, HE HAS EMPLOYED AND CONSULTED WITH HIS OWN COUNSEL
CONCERNING THIS AGREEMENT AND, HAVING CONSIDERED SUCH LEGAL ADVICE, HE HAS
EXECUTED IT AS HIS FREE AND VOLUNTARY ACT AND DEED.
IN WITNESS WHEREOF, the parties have executed this Agreement at Las Vegas,
Nevada as of the date above written.
EMPLOYEE EMPLOYER
Acres Gaming Inc.,
a Nevada corporation
_________________________________ By: ______________________________
John F. Acres Name: Joseph A. Huseonica
Its: President
<PAGE>
EXHIBIT 10.3
STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is dated this 28th day of
January, 1997 by and between IGT, a Nevada corporation (the "Buyer"), and Acres
Gaming, Inc., a Nevada corporation (the "Seller").
WHEREAS, the Buyer desires to purchase and the Seller desires to sell
certain amounts of its Series A Convertible Preferred Stock (the "Preferred
Stock"), as hereinafter set forth.
NOW, THEREFORE, in consideration of the mutual promises and agreements set
forth herein, the Buyer and the Seller agree as follows:
1. PURCHASE AND SALE
Subject to the terms and conditions set forth in this Agreement, at the
closing referred to in Section 5 hereof, the Seller will initially sell and
transfer to the Buyer, and the Buyer may purchase a maximum of 519,481 shares of
the Preferred Stock.
2. TERMS OF THE PREFERRED STOCK
The rights and preferences of the Preferred Stock (including any Preferred
Stock issued in connection with the payment of dividends, as contemplated below)
shall be as set forth in the Seller's Certificate of Designation, a copy of
which is attached hereto as Exhibit "A".
3. PURCHASE PRICE
The Buyer shall pay to the Seller, as the purchase price for the Preferred
Stock (the "Stock Purchase Price") $9.62 1/2 per share. The stock purchase
price shall be paid in the manner provided in Section 5 hereof.
4. BUYER'S PURCHASE OF ADDITIONAL SHARES
The Buyer may purchase from Seller on the same terms and conditions set
forth in Sections 2 and 3 above, up to 519,480 additional shares of the
Preferred Stock, in increments not less than 103,896 shares, as determined
solely by the Buyer, if purchased on or before August 8, 1997.
5. CLOSING
5.1 TIME AND PLACE
The Closing of the transfer and delivery of the documents and instruments
necessary to consummate the purchase and sale contemplated by this Agreement
(the "Closing") shall be held at the offices of Seller's Counsel on January 28,
1997, or at such other time or place as the Buyer and the Seller may agree. The
date on which the Closing is actually held hereunder is sometimes referred to
herein as the "Closing
<PAGE>
Date". The date or dates, if any, on which the Closing with respect to the
additional shares of Preferred Stock shall occur is referred to herein as the
"Additional Shares Closing Date" and shall occur five business days after Buyer
gives Seller written notice of its desire to purchase additional share of
Preferred Stock as permitted by Section 4 of this Agreement.
5.2 CONDITIONS OF BUYER'S OBLIGATIONS AT INITIAL CLOSING
The obligations of Buyer under Section 1 of this Agreement are subject to
the fulfillment at or before the Closing Date of each of the following
conditions:
5.2A REPRESENTATIONS AND WARRANTIES TRUE AT SERIES A CLOSING
Except for changes contemplated by this Agreement, the representations
and warranties of Seller contained in Section 6 hereof shall be true when made
and shall be true on and as of the Closing Date with the same effect as though
such representations had been made on and as of the Closing Date.
5.2B PERFORMANCE
Seller shall have performed and complied with all agreements and
conditions contained herein required to be performed and complied with by it on
or before the Closing Date, and, without limiting the generality of the
foregoing, shall have obtained all consents, approvals, authorizations,
registrations and qualifications required to complete the transactions
contemplated hereby.
5.2C COMPLIANCE CERTIFICATE
There shall have been delivered to Buyer a certificate, dated the
Closing Date, signed by Seller's President, certifying that the conditions
specified in Sections 5.2A and 5.2B have been performed and complied with in all
respects.
5.2D PROCEEDINGS AND DOCUMENTS
All corporate and other proceedings in connection with the
transactions contemplated at the closing and all documents incident thereto
shall be reasonably satisfactory in form and substance to Buyer.
5.2E REGISTRATION RIGHTS AGREEMENT
Buyer and Seller shall enter into a Registration Rights Agreement in
the form of Exhibit "B" hereto.
5.2F BLUE SKY
Seller shall have obtained all necessary Blue Sky law permits and
qualifications, or secured an exemption therefrom, required by any state for the
offer and sale of the Preferred Stock, and the Common Stock issuable upon
conversion of the Preferred Stock.
2
<PAGE>
5.2G OPINION OF COUNSEL
There shall have been delivered to Buyer the opinion of Seller's
counsel dated the Closing Date in the form attached hereto as Exhibit "C".
5.2H EMPLOYMENT CONTRACT
The Employment Contract dated as of July 1, 1996 between Seller and
John Acres shall be in full force and effect and shall not have been amended or
modified.
5.2I AMENDMENT OF ARTICLES OF INCORPORATION
The Articles of Incorporation of Seller shall have been amended to
authorize the issuance of the Preferred Stock and such amendment shall have
received the required approval of the shareholders of Seller. Seller shall have
delivered to Buyer stock certificate(s) representing 519,481 shares of
Preferred Stock.
5.2J NO PROHIBITION
Neither the consummation nor the performance of this Agreement will,
directly or indirectly (with or without notice or lapse of time), materially
contravene, or conflict with, or result in a material violation of, or cause
Seller or any person or entity affiliated with Seller to suffer any material
adverse consequence under (a) any applicable legal requirement or order, or (b)
any legal requirement or order that has been published, introduced, or otherwise
formally proposed by or before any governmental body, and no proceeding
challenging the transaction contemplated herein shall be pending or threatened.
5.2K OTHER AGREEMENT(S)
The Seller and Buyer shall have entered into an appropriate technology
agreement(s), which shall be reasonably satisfactory in form and substance to
both parties.
5.3 CONDITIONS OF THE SELLER'S OBLIGATIONS AT INITIAL CLOSING
The obligations of Seller under Section 1 of this Agreement are subject to
the fulfillment at or before the Closing Date of each of the following
conditions:
5.3A REPRESENTATIONS AND WARRANTIES TRUE AT SERIES A CLOSING
The representations and warranties of the Buyer contained in Section 7
hereof shall be true when made and shall be true on and as of the Closing Date
with the same effect as though said representations and warranties had been made
on and as of the Closing Date.
3
<PAGE>
5.3B PAYMENT
Buyer shall have made payment to Seller by check or wire transfer in
the amount of $5,000,004.60.
5.3C PERFORMANCE
Buyer shall have performed and complied with all agreements and
conditions contained herein required to be performed and complied with by it on
or before the Closing Date, and, without limiting the generality of the
foregoing, shall have obtained all consents, approvals, authorizations,
registrations and qualifications required to complete the transactions
contemplated hereby.
5.3D COMPLIANCE CERTIFICATE
There shall have been delivered to Seller a certificate, dated the
Closing Date, signed by Buyer's President, certifying that the conditions
specified in Sections 5.3A and 5.3C have been performed and complied with in all
respects.
5.3E PROCEEDINGS AND DOCUMENTS
All corporate and other proceedings to be conducted by Buyer in
connection with the transactions contemplated at the closing and all documents
incident thereto shall be reasonably satisfactory in form and substance to
Seller.
5.3F NO PROHIBITION
Neither consummation nor the performance of this Agreement will,
directly or indirectly (with or without notice or lapse of time), materially
contravene, or conflict with, or result in a material violation of, or cause
Seller or any person or entity affiliated with Seller to suffer any material
adverse consequence under (a) any applicable legal requirement or order, or (b)
any legal requirement or order that has been published, introduced, or otherwise
formally proposed by or before any governmental body, and no proceeding
challenging the transaction contemplated herein shall be pending or threatened.
5.3G OTHER AGREEMENT(S)
The Seller and Buyer shall have entered into an appropriate technology
agreement(s), which shall be reasonably satisfactory in form and substance to
both parties.
5.4 CONDITIONS OF BUYER'S OBLIGATIONS AT ADDITIONAL SHARES CLOSING DATE(S)
The obligations of the Buyer to purchase additional shares of Preferred
Stock after giving notice of its intention to do so is subject to the
fulfillment at or before the Additional Shares Closing Date of each of the
following conditions each of which may be waived at its sole discretion.
4
<PAGE>
5.4A REPRESENTATIONS AND WARRANTIES TRUE AT ADDITIONAL SHARES CLOSING DATE
The representations and warranties of Seller contained in Section 6
hereof shall be true when made and shall be true on and as of the Additional
Shares Closing Date with the same effect as though such representations and
warranties had been made on and as of the initial Closing Date, except for
changes occurring since the initial Closing Date, none of which changes shall
have had a material and adverse affect on the business, properties or prospects
of the Seller, and for changes in the capitalization of Seller occurring as a
result of the issuance of the Preferred Stock.
5.4B PERFORMANCE
Seller shall have performed and complied with all agreements and
conditions contained herein required to be performed and complied with by it on
or before the Additional Shares Closing Date.
5.4C BLUE SKY
Seller shall have obtained all necessary Blue Sky law permits and
qualifications, or secured an exemption therefrom required by any state for the
offer and sale of the additional shares of Preferred Stock, and Common Stock
issuable upon conversion of such shares of Preferred Stock.
5.4D OPINION OF COUNSEL
There shall have been delivered to Buyer the opinion of counsel to
Seller, dated the Additional Shares Closing Date, substantially in the form
attached hereto as Exhibit C with appropriate changes to reflect the fact that
additional shares of Preferred Stock are being issued.
6. REPRESENTATIONS AND WARRANTIES OF SELLER
Except as set forth in the Schedule of Exceptions, attached hereto as
Schedule 6.0, Seller represents and warrants to Buyer as follows:
6.1 ORGANIZATION OF THE SELLER; AUTHORITY
The Seller is a corporation duly organized, validly existing and in good
standing under the laws of the State of Nevada. The Seller has all requisite
power, authority, and capacity to execute and deliver this Agreement and all
other agreements, documents, and instruments contemplated hereby and to carry
out all actions required of it pursuant to the terms of this Agreement, and this
Agreement has been duly executed and delivered by the Seller and constitutes the
legal, valid, and binding obligation of the Seller, enforceable against the
Seller in accordance with its terms.
5
<PAGE>
6.2 TITLE TO PREFERRED STOCK
All of the shares of the Preferred Stock, when duly authorized and issued
to Buyer, will be free and clear of any security interest, liens, claims,
charges, encumbrances of any kind, or restrictions against the transfer or
assignment thereof imposed by Seller, except as imposed by applicable
securities laws, gaming laws and Section 7.7 and Section 9.2.
6.3 NO CONFLICT
After giving effect to the proposed amendment to the Articles of
Incorporation, and after Seller authorizes the issuance of the Preferred Stock,
neither the execution and delivery of this Agreement nor the consummation or
performance of it will, directly or indirectly (with or without notice or lapse
of time), contravene, conflict with or result in a violation of (A) any
provision of the organizational documents of the Seller, or (B) any resolution
adopted by the board of directors or the stockholders of Seller, or (C) any
mortgage, indenture, contract, agreement, instrument, judgment, decree or order,
to which Seller is bound or any statute, rule or regulation applicable to
Seller.
6.4 CONFORMITY TO LAW
The Seller has materially complied with, and is in material compliance
with, (a) all material laws, statutes, governmental regulations, and all
material judicial or administrative tribunal orders, judgments, writs,
injunctions, decrees, or similar commands applicable to its business (including,
without limitation, any labor, environmental, occupational health, zoning, or
other law, regulation or ordinance); (b) all material unwaived terms and
provisions of all material contracts, agreements, and indentures to which the
Seller is a party, or by which the Seller is subject; and (c) its charter
documents and Bylaws, each as amended to date. The Seller has not committed,
been charged with, or been under investigation with respect to, nor does there
exist, any material violation of any material provision of any federal, state,
or local law or administrative regulation in respect of its business.
6.5 PATENTS, TRADEMARKS, ETC.
Seller owns or has the right to use, free and clear of all liens, charges,
claims and restrictions, all trademarks, service marks, trade names, copyrights,
proprietary information, licenses and rights necessary to its business as now
conducted, and will not, to Seller's knowledge, when so acting, infringe upon or
otherwise act adversely to the right or claimed right of any person under or
with respect to any of the foregoing. Seller has not received any communications
alleging that Seller has violated or, by conducting its business as proposed,
would violate, the proprietary or intellectual property rights of any other
person or entity and Seller is not aware of any violation or infringement by a
third party of any of Seller's licenses, trademarks, service marks, trade names,
copyrights, trade secrets or other proprietary rights.
6
<PAGE>
6.6 REGISTRATION RIGHTS
Except as set forth in Schedule 6.0 and contemplated by Section 5.2E of
this Agreement, Seller is not under any obligation to "register" any of its
outstanding securities or any of its securities which may hereafter be issued.
For purposes of this Agreement, the term "register" refers to a registration
effected by filing a registration statement in compliance with the Securities
Act of 1933, as amended or the securities laws of any state.
6.7 CAPITALIZATION
The authorized capital of Seller consists of (or will consist of prior to
the initial Closing Date):
(a) PREFERRED STOCK: 20,000,000 shares of preferred stock, $.01 par
value, 1,038,961 of which will have been designated Series A
Convertible Preferred Stock. The rights, privileges and
preferences of the Series A Convertible Preferred Stock will be
as stated in the Certificate of Designation.
(b) COMMON STOCK: 50,000,000 shares of Common Stock, $.01 par value. As of
December 6, 1996, there are 8,071,856 issued and outstanding shares
of Seller's Common Stock.
Except (i) as set forth on Schedule 6.0 hereto and (ii) with regard to the
Preferred Stock to be sold hereunder, no options, calls, warrants, conversion on
privileges, preemptive rights, rights of first refusal or other commitments or
rights, of any character whatsoever, are outstanding or in existence with
respect to the purchase or other acquisition of any of the authorized but
unissued capital stock of Seller.
6.8 FINANCIAL STATEMENTS
Seller has delivered to Buyer: (a) audited consolidated balance sheets as
at June 30 in each of the years 1993 through 1996, and the related audited
consolidated statements of operations, stockholders' equity, and cash flows for
each of the fiscal years then ended, together with the reports thereon of Arthur
Andersen, independent certified public accountants; and (b) an unaudited
consolidated balance sheet as of September 30, 1996 (the "Interim Balance
Sheet") and the related unaudited statements of operations, stockholders' equity
and cash flow for the nine months then ended, including in each case the notes
thereto. Such financial statements and notes fairly present the financial
condition and the results of operations, changes in stockholders' equity, and
cash flow as at the respective dates of and for the period referred to in such
financial statements, all in accordance with GAAP, subject, in the case of
interim financial statements, to normal recurring year-end adjustments (the
effect of which will not, individually or in the aggregate, be materially
adverse) and the absence of notes.
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6.9 BOOKS AND RECORDS
The books of account, minute books, stock record books, and other records
of the Seller, all of which have been made available to Buyer, are complete and
correct and have been maintained in accordance with sound business practices,
including the maintenance of an adequate system of internal controls. The minute
books contain accurate and complete records of all meetings held of, and
corporate action taken by, the stockholders, the Board of Directors, and
committees of the Board of Directors, and no meeting of any such stockholders,
Board of Directors, or committee has been held for which minutes have not been
prepared and are not contained in such minute books.
6.10 NO UNDISCLOSED LIABILITIES
The Seller has no material liabilities or obligations of any nature which
are required to be disclosed in financial statements, including footnotes
thereto, prepared in accordance with GAAP (whether known or unknown and whether
absolute, accrued, contingent, or otherwise ) except for liabilities or
obligations reflected or reserved against in the Balance Sheet as of June 30,
1996 and current liabilities incurred in the ordinary course of business since
the date thereof.
6.11 BROKERS
Except as set forth in the Schedule of Exceptions, the Seller has not
retained, utilized, or been represented by any broker or finder in connection
with the transaction contemplated by this Agreement.
6.12 DISCLOSURE
(a) The representations and warranties of Seller in this Agreement, and
the reports filed with the Securities and Exchange Commission ("SEC") since
January 1, 1995, taken as a whole and in light of the circumstances in
which they were made, do not omit to state a material fact necessary to
make the statements herein or therein, not misleading.
(b) There is no fact known to Seller that has specific application to
Seller (other than general economic or industry conditions) and that
materially adversely affects the business, financial condition, or results
of operations of the Seller (on a consolidated basis) that has not been set
forth in this Agreement or reflected in the SEC filings of the Seller.
6.13 CONSENTS OF THIRD PARTIES
Except as set forth in the Schedule of Exceptions, the Seller has no
obligation to secure any consent from any third party in order to permit the
consummation of the transaction contemplated by this Agreement.
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7. REPRESENTATIONS AND WARRANTIES OF THE BUYER
The Buyer represents and warrants to the Seller as follows:
7.1 ORGANIZATION AND STANDING OF BUYER
The Buyer is a corporation duly organized, validly existing, and in good
standing under the laws of the State of Nevada. The Buyer has full power and
authority under its Certificate of Incorporation and Bylaws and applicable laws
to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. Buyer has taken all corporate action necessary for the
authorization, execution, and delivery of this Agreement and the other
agreements and transactions contemplated herein, the performance of all
obligations of Buyer hereunder and thereunder and the authorization and delivery
of this Agreement and the other agreements contemplated herein, and this
Agreement and the other agreements constitute valid and legally binding
obligations of Buyer, enforceable in accordance with its and their terms.
7.2 NO CONFLICT
Neither the execution and delivery of this Agreement nor the consummation
or performance of it will, directly or indirectly (with or without notice or
lapse of time), contravene, conflict with or result in a violation of (A) any
provision of the organizational documents of Buyer, (B) any resolution adopted
by the board of directors or the stockholders of Buyer, or (C) any mortgage,
indenture, contract, agreement, instrument, judgment, decree or order, to which
Buyer is bound or any statute, rule or regulations applicable to Buyer.
7.3 PURCHASE ENTIRELY FOR OWN ACCOUNT
This Agreement is made with Buyer in reliance upon Buyer's representation
to the Seller, which, by Buyer's execution of this Agreement, Buyer hereby
confirms, that the Preferred Stock to be received by the Buyer and the Common
Stock issuable upon conversion of the Preferred Stock will be acquired for
investment for Buyer's own account and not with a view to the distribution of
any part thereof, and that Buyer has no present intention of selling, granting
any participation in, or otherwise distributing the same in a manner contrary to
the Securities Act of 1933, as amended (the "Act"), or applicable state
securities laws.
7.4 CERTAIN PROCEEDINGS
There is no pending proceeding that has been commenced against Buyer and
that challenges, or may have the effect of preventing, delaying, making illegal,
or otherwise interfering with this transaction. To Buyer's knowledge, no such
proceeding has been threatened.
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7.5 INVESTMENT EXPERIENCE
Buyer represents that it is an "accredited investor" as defined in
Regulation D promulgated under the Act.
7.6 RESTRICTED SECURITIES
Buyer understands that the Preferred Stock and the Common Stock issuable
upon conversion of the Preferred Stock are characterized as "restricted
securities" under the federal securities laws inasmuch as it is being acquired
from the Seller in a transaction not involving a public offering and that under
such laws and applicable regulations such securities may be resold without
registration under the Act only in certain limited circumstances and in
accordance with the terms and conditions set forth in the legend described in
Section 7.7 below. In this connection, the Buyer represents that it is familiar
with SEC Rule 144, as in effect, and understands the resale limitations imposed
thereby and by the Act.
7.7 LEGEND
It is understood that the certificates evidencing the Preferred (and the
Common Stock issuable upon conversion of the Preferred Stock) may bear the
following legends:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE LAW, AND
NO INTEREST THEREIN MAY BE SOLD, DISTRIBUTED, ASSIGNED, OFFERED, PLEDGED OR
OTHERWISE TRANSFERRED UNLESS (i) THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS (IF REQUIRED) COVERING ANY
SUCH TRANSACTION INVOLVING SAID SECURITIES; (ii) THIS CORPORATION RECEIVES AN
OPINION OF LEGAL COUNSEL FOR THE HOLDER OF THESE SECURITIES REASONABLY
SATISFACTORY TO THIS CORPORATION STATING THAT SUCH TRANSACTION IS EXEMPT FROM
REGISTRATION; OR (iii) THIS CORPORATION OTHERWISE SATISFIES ITSELF THAT SUCH
TRANSACTION IS EXEMPT FROM REGISTRATION.
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
REDEMPTION BY THE COMPANY IN ACCORDANCE WITH ARTICLE IX OF THE COMPANY'S
ARTICLES OF INCORPORATION.
7.8 RESIDENCE
For purposes of the application of state securities laws, the Buyer
represents that it is a resident of Nevada.
7.9 NO SELLER SECURITIES
Neither Buyer nor any affiliate owns any debt or equity securities,
including bank and trade debt, of the Seller.
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8. COVENANTS OF SELLER PRIOR TO CLOSING DATE
8.1 ACCESS AND INVESTIGATION
Between the date of this Agreement and the Closing Date, Seller will (a)
afford Buyer and its affiliates and representatives full and free access to
Seller's personnel, contracts, books and records, and other documents and data,
(b) furnish Buyer with copies of all such contracts, books and records, and
other existing documents and data as Buyer may reasonably request, and (c)
furnish Buyer with such additional financial, operating, and other data and
information as Buyer may reasonably request.
8.2 OPERATION OF SELLER'S BUSINESS
Between the date of this Agreement and the Closing Date, Seller will
conduct its business only in the ordinary course of business.
8.3 REQUIRED APPROVALS
As promptly as practicable after the date of this Agreement, Seller will
make all filings required to be made by it in order to consummate this
Agreement. Between the date of this Agreement and the Closing Date, Seller will,
(a) cooperate with Buyer with respect to all filings that Buyer elects to make
or is required to make in connection with the purchase, and (b) cooperate with
Buyer in obtaining all consents.
8.4 NOTIFICATION
Between the date of this Agreement and the Closing Date, Seller will
promptly notify Buyer in writing if Seller becomes aware of any fact or
condition that causes or constitutes a breach of any of Seller's representations
and warranties as of the date of this Agreement, or if Seller becomes aware of
the occurrence after the date of this Agreement of any fact or condition that
would (except as expressly contemplated by this Agreement) cause or constitute a
breach of any such representation or warranty had such representation or
warranty been made as of the time of occurrence or discovery of such fact or
condition.
9. COVENANTS OF BUYER
9.1 APPROVALS OF GOVERNMENTAL BODIES
As promptly as practicable after the date of this Agreement, Buyer will
make all filings required to be made by it to consummate this Agreement. Between
the date of this Agreement and the Closing Date, Buyer will cooperate with
Seller with respect to all filings that Seller is required to make in connection
with this Agreement, and cooperate with Seller in obtaining all required
consents; PROVIDED that this Agreement will not require Buyer to dispose of or
make any change in any portion of its business or to incur any other burden to
obtain a governmental authorization.
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9.2 PURCHASE OF ADDITIONAL SELLER SECURITIES
Except as set forth in Section 4. of this Agreement, after the date hereof,
the Buyer agrees that neither it nor any affiliate will purchase, directly or
indirectly, before the earliest of (a) five years from the Closing Date or (b)
the date when the number of shares of the Common Stock owned by John F Acres is
less than 1,000,000 shares (adjusted for any stock splits or stock dividends
after the date hereof), any debt or equity securities including bank and trade
debt, of Seller without the prior written consent of Seller, such consent not to
be unreasonably withheld. Notwithstanding this provision, the Buyer may at any
time purchase additional equity securities of the Seller PROVIDED that Buyer
shall not, without the consent of the Seller, own more than 20% of the then
outstanding Common Stock of the Seller, including for calculation of the Buyer's
interest, the shares of Common Stock into which the Preferred Stock owned by the
Buyer is convertible at the time of such purchase.
9.3 SALE OF SELLER SECURITIES
Buyer shall not, without the prior written consent of Seller, such consent
not to be unreasonably withheld, directly or indirectly sell, transfer, assign,
exchange, convey, donate, pledge, hypothecate or otherwise dispose of any debt
or shares of the Preferred Stock of Seller. Any such sale shall be of all
shares of the Preferred Stock of Seller then owned by Buyer, and Seller shall
have the right to purchase said securities on the same terms and conditions
Buyer proposes to sell such securities to a third party. Seller shall have 30
days in which to approve any sale after receipt of written notice from Buyer
(which shall contain the name of the buyer(s), price and terms) or in which to
exercise its right to purchase said securities.
10. COVENANTS OF SELLER AFTER THE INITIAL CLOSING DATE
Until Buyer owns less than Ten Percent (10%) of the Preferred Stock or the
shares of Common Stock into which such Preferred is convertible, Seller hereby
covenants and agrees as follows:
10.1 FINANCIAL INFORMATION
Seller will furnish the following reports to Buyer:
(a) Within 90 days after the end of each fiscal year, a balance sheet of
Seller, as of the end of such fiscal year, and statements of
operations, stockholders' equity and cash flows for such year,
prepared in accordance with generally accepted accounting principles
and setting forth in each case in comparative form the figures for the
previous fiscal year, all in reasonable detail and certified by
independent public accountants of reputable and recognized national
standing selected by Seller;
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(b) Within 45 days after the end of each fiscal quarter, financial
statements of Seller as at the end of such quarter (including a
balance sheet, statements of operations, shareholders' equity and cash
flows, in form prepared in accordance with generally accepted
accounting principles (except for the absence of accompanying notes
and subject to normal year-end adjustments).
(c) Copies of all filings made with the SEC, NASDAQ or any exchange on
which Seller's securities are traded.
10.2 MAINTENANCE OF INSURANCE AND LICENSES
Seller shall maintain insurance covering its operations that is customary
in scope and amount for entities engaged in similar businesses. Seller shall
maintain its trademarks, service marks, trade names, copyrights, proprietary
information, licenses and rights necessary to its business as now conducted.
10.3 COMPLIANCE WITH LAW
Seller will comply with all laws, statutes, governmental regulations, and all
judicial or administrative tribunal orders, judgments, writs, injunctions,
decrees, or similar commands applicable to its business (including, without
limitation, any labor, environmental, occupational health, zoning or other law,
regulation or ordinance).
10.4 INDEMNIFICATION
Seller will indemnify, defend and hold harmless each representative of
Buyer that serves as a director of Seller who is a party to or is threatened to
be made a party in any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, from all
liabilities arising therefrom, including attorneys' fees, judgments, fines and
amounts paid in settlement actually incurred by the director in connection with
any such action, suit or proceeding; provided, however, that the action of such
director is not determined (by a final judicial determination) to have been the
result of bad faith or deliberately wrongful conduct. The director shall have
the right to select counsel to defend such action, suits or proceedings, which
counsel shall be reasonably acceptable to Seller. Seller will cause the Bylaws
and Articles of Incorporation of Seller to contain provisions with respect to
limitation of liability and indemnification of directors to the maximum extent
permitted by law.
11. TERMINATION
11.1 TERMINATION EVENTS
This Agreement may, by notice given prior to or at the Closing, be
terminated:
(a) By either Buyer or Seller if a material breach of any provision of
this Agreement has been committed by the other party and such breach has
not been waived;
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(b) (i) By Buyer if any of the conditions in Section 5.2 has not been
satisfied as of the Closing Date or if satisfaction of such a condition is
or becomes impossible (other than through the failure of Buyer to comply
with its obligations under this Agreement) and Buyer has not waived such
condition on or before the Closing Date; or (ii) by Seller, if any of the
conditions in Section 5.3 has not been satisfied as of the scheduled
Closing or if satisfaction of such a condition is or becomes impossible
(other than through the failure of Seller to comply with its obligations
under this Agreement) and Seller has not waived such condition on or before
the scheduled Closing;
(c) By mutual consent of Buyer and Seller; or
(d) By either Buyer or Seller if the Closing has not occurred (other than
through the failure of any party seeking to terminate this Agreement to
comply fully with its obligations under this Agreement) on or before
January 31, 1997, or such later date as the parties may agree upon.
11.2 EFFECT OF TERMINATION
Each party's right of termination under Section 11.1 is in addition to any
other rights it may have under this Agreement or otherwise, and the exercise of
a right of termination will not be an election of remedies. If this Agreement is
terminated pursuant to Section 11.1, all further obligations of the parties
under this Agreement will terminate, except that the obligations in Sections
12.1 and 12.13 will survive; provided, however, that if this Agreement is
terminated by a party because of the breach of the Agreement by the other party
or because one or more of the conditions to the terminating party's obligations
under this Agreement is not satisfied as a result of the other party's failure
to comply with its obligations under this Agreement, the terminating party's
right to pursue all legal remedies will survive such termination unimpaired.
12. GENERAL
12.1 EXPENSES
All expenses of the preparation, execution, and consummation of this
Agreement and of the transactions contemplated hereby, including, without
limitation, attorneys', accountants' and outside advisors' fees and
disbursements, shall be borne by the party incurring such expenses.
12.2 NOTICES
All notices, demands, and other communications hereunder shall be in
writing or by written telecommunication, and shall be deemed to have been duly
given if delivered personally, or if mailed by certified mail, return receipt
requested, postage prepaid, or sent by written telecommunication, as follows:
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If to the Seller, to:
Acres Gaming, Inc.
815 N.W. 9th Street
Corvallis, Oregon 97330
Attention: John Acres, Chairman
with a copy to:
PERKINS COIE
1211 S.W. 5th Avenue, Suite 1500
Portland, OR 97204
Attention: Patrick J. Simpson
If to the Buyer, to:
IGT
5270 Neil Road
Reno, Nevada 89502
Attention: G. Thomas Baker, President/Chief Operating Officer
with a copy to:
IGT
5270 Neil Road
Reno, Nevada 89502
Attention: Brian McKay, Vice President/General Counsel
12.3 ENTIRE AGREEMENT
This Agreement contains the entire understanding of the parties, supersedes
all prior agreements and understandings relating to the subject matter hereof,
and shall not be amended except by a written instrument hereafter signed by all
of the parties hereto.
12.4 GOVERNING LAW
The validity and construction of this Agreement shall be governed by the
laws of the State of Nevada.
12.5 SECTIONS AND SECTION HEADINGS
All enumerated subdivisions of this Agreement are herein referred to as
"section" or "subsection." The headings of sections and subsections are for
reference only and shall not limit or control the meaning hereof.
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12.6 ASSIGNS
This Agreement shall be binding upon and inure to the benefit of the heirs
and successors of each of the parties. Neither this Agreement nor the
obligations of any party hereunder shall be assignable or transferable by such
party without the prior written consent of the other party hereto.
12.7 SURVIVAL AND MATERIALITY OF REPRESENTATIONS AND WARRANTIES
The representations and warranties of the parties hereto contained in this
Agreement or otherwise made in writing in connection with the transactions
contemplated hereby (in each case except as affected by the transactions
contemplated by this Agreement) shall be deemed to have been relied on by the
other parties hereto and shall survive the Closing and the consummation of the
transactions contemplated hereby for a period of one year.
12.8 FURTHER ASSURANCES
The Seller and the Buyer shall execute and deliver to the appropriate other
party such other instruments as may be reasonably required in connection with
the performance of this Agreement, and each shall take all such further actions
as may be reasonably required to carry out the transactions contemplated by this
Agreement.
12.9 NO IMPLIED RIGHTS OR REMEDIES
Except as otherwise expressly provided herein, nothing herein expressed or
implied is intended or shall be construed to confer upon or to give any person,
firm, or corporation, other than the Seller and the Buyer and their respective
shareholders, any rights or remedies under or by reason of this Agreement.
12.10 COUNTERPARTS
This Agreement may be executed in multiple counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
12.11 JURISDICTION; SERVICE OF PROCESS
Any action or proceeding seeking to enforce any provision of, or based on
any right arising out of, this Agreement may be brought against any of the
parties in the courts of the State of Nevada, County of Washoe, or, if it has or
can acquire jurisdiction, in the United States District Court for the District
of Nevada, and each of the parties consents to the jurisdiction of such, courts
(and of the appropriate appellate courts) in any such action or proceeding and
waives any objection to venue laid therein. Process in any action or proceeding
referred to in the preceding sentence may be served on any party anywhere in the
world.
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12.12 SEVERABILITY
If any provision of this Agreement is held invalid or unenforceable by any
court of competent jurisdiction, the other provisions of this Agreement will
remain in full force and effect. Any provision of this Agreement held invalid or
unenforceable only in part or degree will remain in full force and effect to the
extent not held invalid or unenforceable.
12.13 CONFIDENTIAL INFORMATION
Any information concerning Buyer and its affiliates furnished to the
Seller, or by Seller to Buyer, or any of their respective officers, attorneys,
accountants, consultants, representatives or agents (collectively, such party's
"Representatives"), in connection with the transactions contemplated by this
Agreement shall be treated as confidential information. The party so furnished
the information (the "Recipient") shall not disclose such information and shall
use its best efforts to keep its Representatives from disclosing such
information, except that the Recipient may disclose the confidential information
or portions thereof (i) to Recipient's Representatives who need to know such
information for the purpose of advising the Recipient in connection with the
transactions contemplated by this Agreement; (ii) if, at the time of the
disclosure, the confidential information is generally available to and known by
the public (other than as a result of disclosure directly or indirectly in
violation of any duty of confidentiality); or (iii) if the information has been
independently acquired or developed by the Recipient without violating a duty of
confidentiality. To the extent that the Recipient or one of its Representatives
may become legally compelled to disclose any confidential information not
encompassed by (i), (ii), or (iii) above, the Recipient or its Representative
may disclose such information if the Recipient has used its commercially
reasonable efforts, and has afforded the delivering party the opportunity, to
obtain an appropriate protective order or other satisfactory assurance of
confidential treatment for the information required to be disclosed. In the
event that the transactions contemplated by this Agreement are not consummated,
the Recipient and its Representatives shall return to the delivering party all
written information furnished by the delivering party.
12.14 NO PUBLICITY
Except as provided herein, neither Buyer nor Seller shall make any public
disclosure or publicity release pertaining to the existence of this Agreement or
of the subject matter contained herein without the consent of the other parties
hereto. Notwithstanding the foregoing, each party shall be permitted to make
such specific disclosures to the public or to governmental agencies as its
counsel shall deem necessary to maintain compliance with and to prevent
violation of applicable federal or state laws. In the event that either party
proposes to issue, make or distribute any press release, public announcement or
other written publicity or disclosure prior to the Closing Date that refers to
the transaction(s) contemplated herein, the party proposing to make such
disclosure shall provide a copy of such disclosure to the other parties and
shall afford the other parties reasonable opportunity (subject to any legal
obligation of prompt disclosure) to comment on such disclosure or the portion
thereof which refers to the transactions contemplated herein prior to making
such disclosure.
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IN WITNESS WHEREOF, and intending to be legally bound hereby, the parties
hereto have caused this Agreement to be duly executed and delivered by their
respective duly authorized officers as an instrument under seal as of the date
and year first above written.
SELLER:
------------------------------
By:
---------------------------
Its:
--------------------------
BUYER:
------------------------------
By:
---------------------------
Its:
--------------------------
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SCHEDULE 6.0
6.6 REGISTRATION RIGHTS
Seller issued Ladenburg, Thalmann & Co. Inc. ("Ladenburg") a warrant dated
October 9, 1995 (the "Warrant") to purchase 125,000 shares of Seller's common
stock at a purchase price of $9.00 per share. Pursuant to Section 5 of the
Warrant, Seller has granted Ladenburg demand registration rights, and piggy-back
registration rights for the period from September 15, 1998 to September 15,
2000. Seller must pay all expenses incurred in connection with any registration
pursuant to Section 5 of the Warrant, including attorneys' fees and expenses
incurred in connection with such registration other than underwriting discounts
and applicable transfer taxes.
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EXHIBIT 10.4
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") which shall be
effective as of January 28, 1997, is made and entered into by and among Acres
Gaming Incorporated, a Nevada corporation (the "Company"), and IGT, a Nevada
Corporation, (the "Investor").
RECITALS
WHEREAS, the Company and the Investor are parties to that certain
Stock Purchase Agreement, dated as of September __, 1997 (the "Purchase
Agreement"), pursuant to which the Investor proposes to purchase Series A
Convertible Preferred Stock (the "Preferred Stock"); and
WHEREAS, in order to induce the Investor to enter into the Purchase
Agreement, the Company has agreed to provide the registration rights set forth
in this Agreement with respect to the "Registrable Securities" (as such term is
defined in Section 1);
NOW, THEREFORE, in consideration of the foregoing premises and the
mutual covenants and agreements herein contained, the parties, intending to be
legally bound, hereby agree as follows:
1. DEFINITIONS. For purposes of this Agreement:
(a) the term "Common Stock" means the Company's authorized
voting common stock, $.01 par value, and any class of securities issued in
exchange for the Common Stock or into which the Common Stock is converted;
(b) the term "Holder" means any person owning of record
Registrable Securities or any permitted assignee thereof in accordance with
Section 11 hereof;
(c) the term "Initiating Holders" means the Holders of 25% or
more of the Registrable Securities then outstanding;
(d) the term "Registrable Securities" means: (i) the Common
Stock issued upon conversion of the Preferred Stock purchased pursuant to
the Purchase Agreement, and (ii) any Common Stock of the Company issued as
a dividend or other distribution with respect to, or in exchange for or in
replacement of, such Preferred Stock or Common Stock;
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(e) the term "Registration Expenses" means all expenses
incurred by the Company in complying with Sections 2, 3 and 14 hereof,
including, without limitation, all registration and filing fees,
underwriters' expense allowances (but not including non-accountable or
other fixed percentage allowances), printing expenses, fees and
disbursements of counsel for the Company, blue sky fees and expenses, and
the expense of any special audits incident to or required by any such
registration (but not including the compensation of regular employees of
the Company which shall be paid in any event by the Company);
(f) the terms "register," "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement
or similar document in compliance with the 1933 Act, and the declaration or
ordering of the effectiveness of such registration statement or document by
the Securities and Exchange Commission;
(g) the term "Selling Expenses" means all fees and disbursements
of counsel to the Holders (as a group) and all underwriting discounts and
selling commissions applicable to the sale of Registrable Securities, and
all non-accountable underwriters' expense allowances that constitute a
fixed percentage of the proceeds of the offering or of the offering price;
and
(h) the number of shares of Registrable Securities "then
outstanding" shall be the number of shares of Common Stock outstanding
which are, and the number of shares of Common Stock which upon issuance of
then exercisable or convertible securities will be, Registrable Securities.
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2. DEMAND REGISTRATION RIGHTS.
(a) If the Company shall receive, at any time commencing on the
earlier of (i) the conversion of the Preferred Stock purchased pursuant to
the Purchase Agreement or (ii) December 31, 1997, a written request from
the Initiating Holders with respect to the Registrable Securities, that the
Company file a registration statement under the 1933 Act covering the
registration of at least 35% of the Registrable Securities (or any
remaining smaller balance or any lesser percentage if the anticipated
aggregate offering price to public would exceed $5,000,000), the Company
shall promptly give written notice of such request (together with a list of
the jurisdictions in which the Initiating Holders intend to attempt to
qualify such securities under applicable state securities laws) to all
Holders and shall as soon as practicable, subject to the limitations of
this Section 2, effect the registration under the 1933 Act of all such
Registrable Securities which the Initiating Holders request to be
registered, together with all of the Registrable Securities of any other
Holder or Holders who so request by notice to the Company which is given
within 30 days after the notice from the Company described above.
Notwithstanding the foregoing, if the Company shall furnish to the
Initiating Holders a certificate signed by the President of the Company
stating that in the good faith judgment of the Board of Directors it would
be seriously detrimental to the Company for a registration statement to be
filed in the near future, then the Company's obligation to use its best
efforts to file a registration statement shall be deferred for a period not
to exceed 120 days; provided, however, that the Company shall not obtain
such a deferral more than once in any 12-month period.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request
made pursuant to this Section 2 and the Company shall include such
information in the written notice referred to in Section 2(a). In such
event, the right of any Holder to include its Registrable Securities in
such registration shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting (unless otherwise mutually agreed by a majority in
interest of the Initiating Holders, by the underwriter, by the Company, and
by such Holder) to the extent provided herein.
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(c) All Holders proposing to distribute their securities through
such underwriting (together with the Company as provided in Section 4(e))
shall enter into an underwriting agreement in customary form with the
representative of the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders and
reasonably acceptable to the Company. Notwithstanding any other provisions
of this Section 2, if the underwriter advises the Initiating Holders in
writing that marketing factors require a limitation of the number of shares
to be underwritten, the Initiating Holders shall so advise all Holders of
Registrable Securities, and the number of shares of Registrable Securities
that may be included in the registration and underwriting shall be
allocated among all Holders thereof pro rata based on the number of shares
held by such Holders at the time of filing of the registration statement.
No Registrable Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice
to the Company, the underwriter and, unless otherwise provided, the
Initiating Holders. The securities so withdrawn shall also be withdrawn
from registration. If the underwriter has not limited the number of
Registrable Securities to be underwritten, the Company may include its
securities for its own account in such registration if the underwriter so
agrees and if the number of Registrable Securities which would otherwise
have been included in such registration and underwriting will not thereby
be limited.
(d) The Company is obligated to effect only three demand
registrations for the Holders pursuant to this Section 2. The second
demand for registration may not be made until at least 12 months after the
first demand for registration was made and the third demand may not be made
until at least 12 months after the second demand was made.
3. PIGGY-BACK REGISTRATION RIGHTS. If, at any time the Company
proposes to register (including for this purpose a registration effected by the
Company for shareholders other than the Holders) any of its securities under the
1933 Act in connection with the public offering of such securities solely for
cash (other than a registration form relating to: (a) a registration of a stock
option, stock purchase or compensation or incentive plan or of stock issued or
issuable pursuant to any such plan, or a dividend investment plan; (b) a
registration of securities proposed
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<PAGE>
to be issued in exchange for securities or assets of or in connection with a
merger or consolidation with, another corporation; or (c) a registration of
securities proposed to be issued in exchange for other securities of the
Company), the Company shall, each such time, promptly give each Holder written
notice of such registration together with a list of the jurisdictions in which
the Company intends to attempt to qualify such securities under applicable state
securities laws. Upon the written request of any Holder given within 30 days
after written notice from the Company in accordance with Section 17, the Company
shall, subject to the provisions of Section 7 (in the case of an underwritten
offering), cause to be registered under the 1933 Act all of the Registrable
Securities that each such Holder has requested to be registered; provided,
however, in the event and to the extent such a Holder may freely sell his
Registrable Securities without registration under the 1933 Act without regard to
any restrictions set forth in Rule 144 under the 1933 Act and the person
acquiring the securities does not acquire "restricted Securities" within the
meaning of Rule 144, the Company may elect not to register such Registrable
Securities.
4. OBLIGATIONS OF THE COMPANY. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration statement to
become effective, and, upon the request of the Holders of a majority of the
Registrable Securities registered thereunder, keep such registration
statement effective for up to one year unless all Registrable Securities to
be distributed pursuant to such registration statement have been sold prior
to the expiration of such one-year period;
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to comply
with the provisions of the 1933 Act with respect to the disposition of all
securities covered by such registration statement;
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may
5
<PAGE>
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under the securities laws of such
jurisdictions as the Company believes shall be reasonably appropriate for
the distribution of the securities covered by the registration statement
and such jurisdictions as the Holders participating in the offering shall
reasonably request, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or
to file a general consent to service of process in any such jurisdiction,
and further provided that (anything in this Agreement to the contrary
notwithstanding with respect to the bearing of expenses) if any
jurisdiction in which the securities shall be qualified shall require that
expenses incurred in connection with the qualification of the securities in
that jurisdiction be borne by selling shareholders and provided there is
no exemption from such requirement by reason of the Company's obligation to
pay such expenses pursuant to the foregoing provisions of this Section 4,
such expenses shall be payable by the selling Holders pro rata, to the
extent required by such jurisdiction; and
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement with terms
generally satisfactory to the managing underwriter of such offering. Each
Holder participating in such underwriting shall also enter into and perform
its obligations under such an agreement.
5. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Agreement that
the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities. In that connection, each selling Holder shall
be required to represent to the Company that all such information which is given
is both complete and accurate in all material respects.
6. EXPENSES OF REGISTRATION. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Agreement shall be borne by the Company except that Registration Expenses
incurred by the Company in complying a request for (i) a
6
<PAGE>
second and third demand for registration under Section 2 hereof and (ii) any
registration made under Section 14 hereof shall be borne by the Holders of the
securities so registered pro rata on the basis of the number of shares so
registered, and in all cases all Selling Expenses shall be borne by the Holders
of the securities so registered pro rata on the basis of the number of shares so
registered.
7. UNDERWRITING REQUIREMENTS. The right of any Holder to
"piggyback" in an underwritten public offering of the Company's securities
pursuant to Section 3 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and any other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of Section 3 and this Section 7, if the
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten the underwriter may exclude some or all of the
Registrable Securities from such registration and underwriting, provided that
the Holders are allowed to participate in the offering in the same proportion
(based on the total number of securities held by such Holders at the time of
filing of the registration statement) as any other shareholder of the Company
existing as of the date of this Agreement participating in the offering. Any
reduction in the number of Registrable Securities included in such registration
shall be borne equally by the Holders as a group pro rata based on the number of
shares held by such Holders at the time of filing of the registration statement.
If any Holder disapproves of the terms of any such underwriting, it may elect to
withdraw therefrom by written notice to the Company and the underwriter. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
8. DELAY OF REGISTRATION. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Agreement.
9. INDEMNIFICATION. If any Registrable Securities are included in a
registration statement under this Agreement:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the officers, directors and partners of each
Holder,
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<PAGE>
any underwriter (as defined in the 1933 Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning
of the 1933 Act or the Securities Exchange Act of 1934, as amended (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they or any of them may become subject under the 1933
Act, the 1934 Act or any other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof)
arise from or are based upon any of the following statements, omissions or
violations (collectively a "Violation") (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto; (ii) the
omission or alleged omission to state therein a material fact required to
be stated therein, or necessary to make the statements therein not
misleading; or (iii) any violation or alleged violation by the Company of
the 1933 Act, the 1934 Act, any state securities law or any rule or
regulation promulgated under the 1933 Act, the 1934 Act or any state
securities law, each as applicable to the subject registration statement;
and the Company will reimburse each such Holder, officer, director or
partner, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending
any such loss, claim, damage, liability, or action; provided, however, that
the indemnity agreement contained in this Section 9 shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company
be liable in any such case for any such loss, claim, damage, liability, or
action to the extent that it arises from or is based upon a violation which
occurs in reliance upon and in conformity with written information
furnished expressly for use in connection with such registration by any
such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the registration statement, each person, if any,
who controls the Company within the meaning of the 1933 Act, any
underwriter (within the meaning of the 1933 Act) for the Company, any
person who controls such underwriter, any other Holder selling securities
in such registration statement or any of its
8
<PAGE>
directors or officers or any person who controls such Holder against any
losses, claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, controlling person, or underwriter
or other such Holder or director, officer or controlling person may become
subject, under the 1933 Act, the 1934 Act or any other federal or state
law, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise from or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each
such Holder will reimburse any legal or other expenses reasonably incurred
by the Company or any such director, officer, controlling person,
underwriter or controlling person, other Holder, officer, director or
controlling person in connection with investigating or defending any such
loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this Section 9 shall not apply to amounts
paid in settlement of any such loss, claim damage, liability or action if
such settlement is effected without the consent of the Holder which consent
shall not be unreasonably withheld; provided, that in no event shall any
indemnity under this Section 9(b) exceed the gross proceeds from the
offering received by the Holder.
(c) In order to provide for just and equitable contribution in
circumstances in which the indemnification provided for in this Section 9
is applicable but for any reason is held to be unavailable from the Company
or any Holder, the Company and the Holders participating in the
registration shall contribute to the aggregate losses, claims, damages and
liabilities (including any investigation, legal and other expenses incurred
in connection with, and any amount paid in settlement of, any action, suit
or proceeding or any claims asserted) to which the Company and the
participating Holders may be subject based on (i) the relative fault of the
indemnifying party and indemnified parties in connection with the actions
that resulted in the claims and (ii) the ratio of the proceeds received by
the participating Holders on the one hand and the Company and all selling
shareholders (other than the participating holders) on the other hand and,
with respect to the second factor, the Company shall be responsible for the
portion represented by the ratio of proceeds received by the Company to the
total proceeds received by the Company and all selling shareholders (other
than participating Holders); provided, however, that no person guilty of
9
<PAGE>
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. For purposes of this
Section 9(c), each person, if any, who controls the Company or any Holder
within the meaning of the Securities Act, each officer of the Company who
shall have signed the registration statement and each director of the
Company shall have the same rights to contribution as the Company.
(d) No settlement of any action in which the Holders
participating in a registration are defendants shall be effected without
the prior written consent of such Holders unless (i) the obligations of the
Company for indemnification or contribution pursuant to this Agreement
survive and are not extinguished by reason of the settlement and remain in
full force and effect under applicable federal and state laws, rules,
regulations and orders or (ii) all claims and actions against the
participating Holders and each person who controls a participating holder
within the meaning of Section 14 of the Securities Act or Section 20 of the
Exchange Act are extinguished by the settlement and the indemnifying party
obtains a full release of all claims and actions against the participating
Holders and each such control person, which release shall be to the
reasonable satisfaction of the participating Holders.
(e) Promptly after receipt by an indemnified party under this
Section 9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 9,
notify the indemnifying party in writing of the commencement thereof and
the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with
counsel selected by the indemnifying party or parties and reasonably
acceptable to the indemnified party; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and
expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would
be inappropriate due to actual or potential differing interests between
such indemnified party and any other party represented by such counsel in
such proceeding (and provided further that all indemnified parties
similarly situated shall be represented jointly by a single counsel). The
failure to notify an indemnifying
10
<PAGE>
party within a reasonable time of the commencement of any such action, to
the extent prejudicial to its ability to defend such action, shall relieve
such indemnifying party of any liability to the indemnified party under
this Section 9, but the omission so to notify the indemnifying party will
not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 9.
(f) The obligations of the Company and the Holders under this
Section 9 shall survive through the completion of any offering of
Registrable Securities in a registration statement made under the terms of
this Agreement and otherwise.
10. REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view of
making available to the Holders the benefits of Rule 144 promulgated under the
1933 Act and any other rule or regulation of the SEC that may at any time permit
a Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) use its best efforts to make and keep public information
available, as those terms are understood and defined in SEC Rule 144, at
all times;
(b) use its best efforts to file with the SEC in a timely manner
all reports and other documents required of the Company under the 1933 Act
and the 1934 Act;
(c) furnish to any Holder so long as the Holder owns any
Registrable Securities, forthwith upon request: (i) a written statement
by the Company that it has complied with the reporting requirements of
Rule 144, the 1933 Act and the 1934 Act or that it qualifies as a
Registrant where securities may be resold pursuant to Form S-3; (ii) a copy
of the most recent annual or quarterly report of the Company and all other
reports and documents filed by the Company with the SEC; and (iii) such
other information as may be reasonably requested in availing any Holder of
any rule or regulation of the SEC which permits the selling of any such
securities without registration; and
(d) take such action as is necessary to enable the Holders to
use Form S-3 for the sale of their Registrable Securities.
11. ASSIGNMENT OF REGISTRATION RIGHTS. [Reserved].
11
<PAGE>
12. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of at least a majority of the then outstanding
Registrable Securities enter into any agreement with any holder or prospective
holder of any securities of the Company which would: (a) allow such holder or
prospective holder to include such securities in any registration filed under
Section 2 hereof if such inclusion would adversely affect the rights of any
Holder of Registrable Securities hereunder; or (b) not provide for the
conversion of such other holders from demand registration to a piggyback
registration in the event the Holders elect to demand registration under this
Agreement within 30 days after a demand by such other holders; or (c) permit
such holder or prospective holder to "piggyback" in a public offering of the
Company's securities, except where such "piggyback" rights would not cause the
holders to be able to sell in such offering a minimum of the greater of (i)
their pro rata share (based on shares held by all shareholders participating in
the offering) of the shares to be included in the offering and (ii) 20% of the
shares of selling shareholders to be included in the offering.
13. "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that it
shall not, to the extent requested by the Company and an underwriter of Common
Stock (or other securities) of the Company, sell or otherwise transfer or
dispose of any Registrable Securities or any interest therein in a market or
other transaction during the 180-day period following the effective date of a
registration statement of the Company filed under the 1933 Act; provided,
however, that all officers, directors and significant shareholders (I.E., those
shareholders who beneficially own greater than 5% of the Company's outstanding
stock) of the Company and all other persons with registration rights (other than
pursuant to this agreement) enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such 180-day period.
14. FORM S-3 REGISTRATION. If the Company shall receive, at any time
commencing on the earlier of (i) the conversion of the Preferred Stock purchased
pursuant to the Purchase Agreement or (ii) December 31, 1997, a request or
requests from the Initiating Holders that the Company effect a registration on
Form S-3 (or any similar successor form) and any related qualification or
compliance with respect to
12
<PAGE>
all or a part of the Registrable Securities owned by such Holder or Holders, the
Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all
such qualifications and compliance as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of
such Holder's or Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within 15 days after receipt of such written notice
from the Company; provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance
pursuant to this Section 14: (i) if the Company is not qualified as a
registrant entitled to use Form S-3 (or the applicable successor form); or
(ii) if the Holders, together with the holders of any other securities of
the Company entitled to inclusion in such registration, propose to sell
Registrable Securities and any other securities at an aggregate price to
the public of less than $2,500,000; or (iii) if the Company has, within the
12-month period preceding the date of such request, already effected two
registrations on Form S-3 (or applicable successor form) for the Holders
pursuant to this Section 14; (iv) the number of securities proposed to be
sold are then eligible to be sold under Rule 144 in a single three month
period; or (v) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or
compliance.
Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders. Registrations effected pursuant to this Section 14
shall not be counted as demands for registration effected pursuant to Section 2.
The Holders agree that the maximum number of shares that they will sell using an
S-3 registration statement filed by the Company pursuant to this Section 14
during any three month period will not exceed the limit imposed by Rule
144(e)(1).
15. REMEDIES. Except as provided in Section 8 of this Agreement,
each Holder of Registrable Securities, in
13
<PAGE>
addition to being entitled to exercise all rights granted by law, including
recovery of damages, will be entitled to specific performance of its rights
under this Agreement. The Company agrees that monetary damages would not be
adequate compensation for any loss incurred by reason of a breach by it of the
provisions of this Agreement and hereby agrees to waive the defense in any
action for specific performance that a remedy of law would be adequate.
16. AMENDMENTS AND WAIVERS. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of Holders
of at least a majority of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof with respect to a matter which relates exclusively to the
rights of Holders of Registrable Securities whose securities are being sold
pursuant to a registration statement and which does not directly or indirectly
affect the rights of other holders of Registrable Securities may be given by the
holders of a majority of the Registrable Securities being sold; provided,
however, that the provisions of this sentence may not be amended, modified or
supplemented except in accordance with the provisions of the immediately
preceding sentence.
17. NOTICES. All notices, demands and requests required by this
Agreement shall be in writing and shall be deemed to have been given for all
purposes (a) upon personal delivery, (b) one day after being sent, when sent by
professional overnight courier service from and to locations within the
continental United States, (c) five days after posting when sent by registered
or certified mail, or (d) on the date of transmission when sent by telegram,
telegraph, telex or telecopier, addressed to the Company or an Investor at its
address set forth on the signature pages hereof. Any party hereto may from time
to time by notice in writing served upon the others as provided herein,
designate a different mailing address or a different person to which such
notices or demands are thereafter to be addressed or delivered.
18. SUCCESSORS AND ASSIGNS. Except as otherwise provided herein,
this Agreement shall inure to the benefit of and be binding upon the successors
and assigns of each of the parties, including, without limitation and without
the need for an express assignment, subsequent holders of Registrable Securities
to which the registration rights granted by this Agreement have been assigned as
permitted herein.
14
<PAGE>
19. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original, and when
executed, separately or together, shall constitute a single original instrument,
effective in the same manner as if the parties hereto had executed one and the
same instrument.
20. CAPTIONS. Captions are provided herein for convenience only and
they are not to serve as a basis for interpretation or construction of this
Agreement, nor as evidence of the intention of the parties hereto.
21. CROSS-REFERENCES. All cross-references in this Agreement, unless
specifically directed to another agreement or document, refer to provisions
within this Agreement.
22. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with, the laws of the State of Nevada, without reference to
conflicts of laws provisions.
23. SEVERABILITY. The provisions of this Agreement are severable.
The invalidity, in whole or in part, of any provision of this Agreement shall
not affect the validity or enforceability of any other of its provisions. If
one or more provisions hereof shall be declared invalid or unenforceable, the
remaining provisions shall remain in full force and effect and shall be
construed in the broadest possible manner to effectuate the purposes hereof.
The parties further agree to replace such void or unenforceable provisions of
this Agreement with valid and enforceable provisions which will achieve, to the
extent possible, the economic, business and other purposes of the void or
unenforceable provisions.
24. ENTIRE AGREEMENT. This Agreement is intended by the parties
hereto to be the final expression of their agreement and constitutes and
embodies the entire agreement and understanding between the parties hereto with
regard to the subject matter hereof and is a complete and exclusive statement of
the terms and conditions thereof, and shall supersede any and all prior oral and
written correspondence, conversations, negotiations, agreements and
understandings relating to the same subject matter.
15
<PAGE>
25. ATTORNEYS' FEES. In any action at law or in equity to enforce
any of the provisions or rights under this Agreement, the unsuccessful party to
such litigation, as determined by the court in a final judgement or decree,
shall pay the successful party all costs, expenses and reasonable attorney's
fees, as set by the court and not by a jury, incurred by the successful party
(including, without limitation, costs, expenses and fees on any appeal).
26. CONSIDERATION FOR APPROVALS OR WAIVERS. No consideration shall
be paid to any Holder to obtain such Holder's approval for or waiver of any
amendment of this Agreement or any matter requiring the approval or consent of
the Holders hereunder unless such consideration is also offered to all Holders,
pro rata based upon the number of Registrable Securities held by the Holders.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Registration
Rights Agreement with the intent and agreement that the same shall be effective
as of the day and year first above written.
THE COMPANY:
ACRES GAMING INCORPORATED,
a Nevada Corporation
815 N.W. Ninth Street
Corvallis, Oregon 97330
By:
----------------------------------
John F. Acres
THE INVESTOR:
IGT,
a Nevada Corporation
P.O. Box 10120
5270 Neil Road
Reno, Nevada 89502
By:
----------------------------------
<PAGE>
EXHIBIT 10.5
MASTER AGREEMENT
FOR
PRODUCT DEVELOPMENT, PURCHASE AND SALES
BETWEEN
ACRES GAMING INCORPORATED
AND
INTERNATIONAL GAMING TECHNOLOGY, INC.
DATED AS OF JANUARY 27, 1997
<PAGE>
CONTENTS
Section 1. Definitions...........................................1
Section 2. The R&D Work..........................................5
2.1 R&D Plans.............................................5
2.2 Prototypes............................................6
2.3 Documentation.........................................7
2.4 Regulatory Approvals, Etc.............................8
2.5 Schedule..............................................8
2.6 Performance of R&D Work...............................8
2.7 Funding...............................................9
2.8 Changes...............................................9
2.9 Contributions of Equipment...........................10
Section 3. Purchase of Products.................................10
3.1 Orders...............................................10
3.2 Price................................................10
3.3 Price Limitation.....................................10
3.4 Books and Records....................................11
3.5 Product Defect Notification..........................11
3.6 No Obligation to Purchase Products...................11
Section 4. Cooperative Marketing and Distribution...............11
4.1 M&D Plans............................................11
PAGE i
<PAGE>
Section 5. Joint Technology.....................................12
5.1 Ownership............................................12
5.2 Perfection of Interests..............................12
5.3 No Right to Accounting...............................13
5.4 No Right to Improvements.............................13
5.5 Infringement by Third Parties........................13
5.6 Infringement by Joint Technology.....................13
Section 6. IGT Technology.......................................14
6.1 Reservation..........................................14
6.2 License..............................................14
6.3 Royalty..............................................15
6.4 Infringement.........................................15
Section 7. Acres Technology.....................................16
7.1 Reservation..........................................16
7.2 License..............................................16
7.3 Royalty..............................................16
7.4 Infringement.........................................17
Section 8. Term.................................................17
Section 9. Arbitration..........................................17
9.1 Selection of Arbitrator..............................17
9.2 Location.............................................18
9.3 Jurisdiction.........................................18
9.4 Discovery............................................18
PAGE ii
<PAGE>
9.5 Decision.............................................18
9.6 Costs................................................19
9.7 Statute of Limitations...............................19
Section 10. Miscellaneous........................................19
10.1 No Right to Marks....................................19
10.2 Confidential Information.............................19
10.3 Compliance with Laws.................................20
10.4 Notices..............................................20
10.5 Nonwaiver............................................20
10.6 Successors and Assigns...............................21
10.7 Independent Contractor...............................21
10.8 No Partnership or Agency.............................21
10.9 Specific Performance.................................22
10.10 Applicable Law.......................................22
10.11 Entire Agreement.....................................22
PAGE iii
<PAGE>
__________________________________________
LIST OF EXHIBITS
EXHIBIT DESCRIPTION REFERENCE
_________ ____________________________________________________ _____________
PAGE iv
<PAGE>
MASTER AGREEMENT
FOR
PRODUCT DEVELOPMENT, PURCHASE AND SALES
This Agreement, dated as of January 27, 1997, is made and entered into by
and between: International Gaming Technology, Inc. ("IGT") and Acres Gaming,
Incorporated ("Acres"). IGT and Acres are sometimes referred to herein
collectively as the "Parties" and individually as a "Party".
RECITALS
A. Acres and IGT wish to jointly pursue business opportunities in the
gaming industry in a manner that emphasizes the strengths of each company;
B. The Parties intend that this Agreement shall be the exclusive method
of developing and marketing products for the Systems, Proprietary Games,
Enhancements to IGT Games, and Progressives and Displays (all as more fully
described on Exhibit A); and
C. In addition, the Parties wish to look to each other to develop new
games, projects, industry standards and other business opportunities.
The Parties agree as follows:
SECTION 1. DEFINITIONS
The following terms will have the following specified meanings whenever
used in this Agreement with initial letters capitalized:
1.1 "ACRES RIGHTS" means Proprietary Rights of Acres in the Acres
Technology.
1.2 "ACRES TECHNOLOGY" means any design, specification, know-how, computer
program, device, technique, algorithm, method, process, procedure, improvement,
discovery or invention, whether or not reduced to practice, that is protected or
protectable under any Proprietary Right, that is owned or controlled (e.g., by
license or otherwise) by Acres, that is furnished by Acres to IGT under this
Agreement and that is used or useful in the R&D Work or the Development, Making
or Use of Products or Tools; provided however, that Acres Technology does not
include any Joint Technology. Acres Technology may include, but is not limited
to, Acres' Confidential Information.
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1.3 "AFFILIATE" means, with respect to any Party, any Person that,
directly or indirectly (e.g., through any number of successive tiers),
controls, is controlled by or is under common control with such Party.
1.4 "CONFIDENTIAL INFORMATION" means any confidential or proprietary
information of either Party, whether of a technical, business or other nature
(including, but not necessarily limited to: trade secrets, know-how, and
information relating to the technology, customers, business plans, promotional
and marketing activities, finances and other business affairs of such Party).
Any information provided to a party hereunder shall be "Confidential
Information." IGT's Confidential Information may include, but is not limited
to, IGT Technology. Acres' Confidential Information may include, but is not
limited to, Acres Technology.
1.5 "DEVELOP" (or such conjugations thereof as the context may require)
means design, engineer, prepare, write, invent or develop (or such conjugations
thereof as the context may require).
1.6 "DISCLOSING PARTY" means the Party whose Confidential Information is
disclosed to the other Party pursuant to this Agreement.
1.7 "DISTRIBUTE" (or such conjugations thereof as the context may require)
means sell, lease, license, sublicense, grant of use rights, transfer or
distribute (or such conjugations thereof as the context may require).
1.8 "DOCUMENTATION" means the documentation described in paragraph 2.3.1
or otherwise delivered by a Party under this Agreement.
1.9 "IGT RIGHTS" means IGT's Proprietary Rights in the IGT Technology.
1.10 "IGT TECHNOLOGY" means any design, specification, know-how, computer
program, device, technique, algorithm, method, process, procedure, improvement,
discovery or invention, whether or not reduced to practice, that is protected or
protectable under any Proprietary Right, that is owned or controlled (e.g., by
license or otherwise) by IGT, that is furnished by IGT to Acres under this
Agreement and that is used or useful in the R&D Work or the Development, Making
or Use of Products; provided however, that IGT Technology does not include any
Joint Technology. IGT Technology may include, but is not limited to, IGT's
Confidential Information.
1.11 "IMPROVEMENT" means any correction, modification, alteration,
enhancement, improvement, update, revision or derivative of any Product other
than a correction, modification, alteration, enhancement or derivative made as
part of the R&D Work.
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1.12 "JOINT TECHNOLOGY" means any Product, any Tool, and any other product,
design, specification, know-how, computer program, device, technique,
algorithm, method, process, procedure, improvement, discovery or invention,
whether or not reduced to practice, that is protected or protectable under
any Proprietary Right and that is created, conceived, reduced to practice,
developed, discovered, invented, made or acquired in connection with the R&D
Work to the extent, but only to the extent, that the Parties agree that it
shall be Joint Technology.
1.13 "M&D PLAN" means a marketing and distribution plan agreed upon by the
Parties pursuant to paragraph 4.1, as the same may be amended by the Parties.
1.14 "MAKE" (or such conjugations thereof, as the context may require)
means manufacture, assemble, produce, reproduce, copy or make (or such
conjugations thereof, as the context may require).
1.15 "MANUFACTURING COST" of a Product means the sum of the following costs
reasonably incurred by a Party to Make such Product:
(a) amounts paid to Third Parties for parts, supplies, materials and
assembly incorporated in the Product;
(b) direct costs of labor to Make the Product; and
(c) an allowance for general, administrative and overhead costs equal
to fifty percent (50%) of the costs described in (b) of this paragraph.
1.16 "MARK" means any trade name, trademark, service mark or other name or
mark that is protected or protectable under the laws of the United States of
America, any state of the United States of America, any country other than the
United States of America, any political subdivision of any of the foregoing, or
any other governmental authority within the United States having jurisdiction.
1.17 "MONTH" means a calendar month.
1.18 "ORDER" means an order issued by a Party for the purchase of Products
from the other Party pursuant to Section 3 of this Agreement. All Orders will
be deemed to include and be subject to the Purchase T&Cs.
1.19 "PART" means any part, component or subassembly of any Product.
1.20 "PART SUPPLIER" means any manufacturer or other supplier of any Part.
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1.21 "PARTY'S PLANT" means any plant or facility at which any Development
Work is performed or any Product is designed, developed, Made, inspected or
tested by or for a Party.
1.22 "PERSON" means any individual, corporation, partnership, trust,
association, organization, governmental authority or other entity.
1.23 "PRODUCT" means any Product to be Developed pursuant to an R&D Plan.
1.24 "PROPRIETARY RIGHT" means any patent, copyright, mask work, trade
secret or other intellectual property right that is protected or protectable
under the laws of the United States of America, any state of the United States
of America, any political subdivision of any of the foregoing, or any other
governmental authority within the United States having jurisdiction. However,
Proprietary Rights do not include any Marks.
1.25 "PROTOTYPE" means a prototype of any Product Made or to be Made
pursuant to an R&D Plan.
1.26 "PURCHASE T&CS" means the terms and conditions set forth in the
attached Exhibit B. The Purchase T&Cs may be amended only by a written
amendment that specifically references this Agreement and that is signed by
both Parties.
1.27 "QUARTER" means a calendar quarter (i.e., any period of three
consecutive Months commencing with any of the Months of January, April, July,
or October).
1.28 "R&D PLAN" means a research and development plan agreed upon by the
Parties pursuant to subsection 2.1, as the same may be changed or amended by
the Parties pursuant to subsection 2.8.
1.29 "R&D WORK" means the research, development and other work performed or
to be performed by a Party pursuant to Section 2. The R&D Work includes, but
is not necessarily limited to:
(a) the design, engineering, development, manufacture, assembly,
production, inspection, testing and delivery of Prototypes pursuant to
paragraphs 2.2.1 and 2.2.2 and the R&D Plan;
(b) the preparation and assembly of Documentation pursuant to
paragraph 2.3.1 and the R&D Plan; and
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(c) obtaining the approvals, permits, licenses, certificates,
listings, registrations and other authorizations described in
paragraph 2.4.
1.30 "RECEIVING PARTY" means the Party to whom Confidential Information of
the other Party is disclosed pursuant to this Agreement.
1.31 "RELEASE DATE" means the date agreed upon by the Parties pursuant to
paragraph 2.2.3.
1.32 "RESPONSIBLE PARTY" means the Party responsible for a particular
project.
1.33 "SPECIFICATIONS" means the design, engineering, performance,
functional, operational and other criteria or specifications for any Product as
set forth in the R&D Plan or Documentation pertaining to such Product.
1.34 "THIRD PARTY" means any Person other than a Party.
1.35 "THIRD-PARTY RIGHT" means any Proprietary Right that is owned or
controlled (e.g. by license or otherwise) by any Third Party.
1.36 "TOOL" means any device, computer program or other tool that is used
in the R&D Work or the Development, Making, inspection or testing of any
Product and that is created, conceived, reduced to practice, developed,
discovered, invented, or made by or for a Party.
1.37 "USE" (or such conjugations thereof as the context may require) means
operate, maintain, test, repair, service or use (or such conjugations thereof
as the context may require).
SECTION 2. THE R&D WORK
2.1 R&D PLANS
2.1.1 The Parties will prepare and agree upon a written research and
development plan for each Product or Project. Each R&D Plan will include:
(a) a description of the Product subject to the R&D Plan;
(b) preliminary designs, specifications and drawings for the Product
subject to the R&D Plan;
(c) a budget for the R&D Work to be performed under the R&D Plan;
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(d) specification of the funding to be provided by each Party for the
R&D Work to be performed under the R&D Plan;
(e) schedules for performance of the R&D Work to be performed under
the R&D Plan;
(f) a description of the Prototypes to be Developed, Made and
delivered by a Party to the other Party pursuant to subsection 2.2;
(g) acceptance tests for such Prototypes;
(h) a description of the Documentation to be prepared or assembled by
a Party pursuant to paragraph 2.3.1 with respect to the Product subject to
the R&D Plan;
(i) specification of the IGT Technology to be furnished by IGT under
the R&D Plan;
(j) specification of the Acres Technology to be furnished by Acres
under the R&D Plan;
(k) specification of any royalties payable to either Party with
respect to the licenses granted under paragraphs 5.3, 6.2 or 7.2;
(l) agreement with respect to manufacturing rights and schedules;
(m) specification of any Third-Party Right that is required to
Develop, Make, Distribute or Use the Product subject to the R&D Plan and a
plan for the acquisition (e.g. by purchase, license or otherwise) of such
Third-Party Right by the Parties; and
(n) any other matter agreed upon by the Parties with respect to the
Product, subject to the R&D Plan.
2.2 PROTOTYPES
2.2.1 The Responsible Party will Develop, Make and deliver to the
other Party the Prototypes in accordance with and as otherwise specified in
the applicable R&D Plans. Prior to delivery, the Responsible Party will
conduct such inspections and tests of each Prototype as are necessary to
ensure that each Prototype complies with applicable Specifications. Without
limiting the generality of the foregoing, the Responsible Party will not
deliver any Prototype to the other Party unless and until such Prototype
passes the acceptance test set forth in the applicable
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R&D Plan or otherwise agreed upon by the Parties. The Responsible Party will
deliver a copy of the results of any such acceptance test with the applicable
Prototype.
2.2.2 Promptly after receipt of any Prototype, the other Party will
inspect and test each Prototype to determine whether or not it complies with
applicable Specifications. If the other Party determines that any Prototype
does not so comply, the other Party will give the Responsible party written
notice thereof, together with a copy of the results of the Responsible Party's
inspections and testing of the Prototype. The Responsible Party will use its
best efforts to promptly correct any noncompliance and resubmit the Prototype
for further inspection, testing and approval or disapproval by the other Party.
This procedure will be repeated until the other Party approves the Prototype.
2.2.3 Promptly after the other Party's approval of any Prototype, the
Parties will agree upon the date when Products corresponding to such Prototype
will be available for purchase by the other Party under Section 3 or other
distribution under Section 4.
2.3 DOCUMENTATION
2.3.1 The Responsible Party will prepare or assemble with respect to
each Product:
(a) detailed designs, specifications, drawings, test programs, mask
works, schematics, artwork, bills of materials, assembly procedures, lists
of all Parts, lists of all Part Suppliers and other documentation setting
forth in a complete and clear manner all of the requirements for the Making
of the Product and any related Tool;
(b) detailed source codes, files, listings and other documentation of
all programs used as part of or in conjunction with the Product;
(c) detailed procedures for the inspection and testing of the Product
to ensure quality and compliance with applicable Specifications; and
(d) detailed manuals or other instructions for the Use and servicing
of the Product.
2.3.2 Upon completion of the Development of any Product and
thereafter upon the other Party's request, the Responsible Party will deliver to
the other Party a complete master, reproducible copy of all Documentation
prepared or assembled by the Responsible Party with respect to such Product and
any related Tool.
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2.3.3 The Responsible Party warrants that the Documentation delivered
pursuant to paragraph 2.3.2 will conform to the applicable Specifications and
will be sufficient to permit the other Party to effectively Make and Use the
applicable Product and any related Tool.
2.4 REGULATORY APPROVALS, ETC.
Unless otherwise provided in the applicable R&D Plan, the Responsible Party
will obtain any and all approvals, permits, licenses, certificates, listings,
registrations and other authorizations of any governmental authority (e.g.,
state gaming regulatory authorities), independent testing organizations (e.g.,
Underwriters Laboratories or its successors) or other Third Parties specified in
the R&D Plan or required to Make, use, market, sell or distribute Products in
the United States of America.
2.5 SCHEDULE
2.5.1 The Responsible Party will use its best efforts to perform and
complete the R&D Work with respect to any Product in accordance with the
schedules set forth in the R&D Plan for such Product and any other schedules
that may be agreed upon from time to time by the Parties. The Responsible
Party will perform with reasonable diligence any R&D Work for which no
schedule is set forth in the applicable R&D Plan or otherwise agreed upon by
the Parties.
2.5.2 Neither Party will be liable for any delays in connection with
the R&D Work due to causes that are not reasonably foreseeable, that are beyond
such Party's reasonable control and that cannot be overcome by the exercise of
reasonable diligence; provided that such Party gives the other Party prompt
written notice of the circumstances causing the delay, the anticipated duration
of the delay and the action being taken to overcome or mitigate the delay. The
Parties will use their best efforts to eliminate or minimize any such delay. In
the event of any delay within the purview of this paragraph, the schedules for
performance of the R&D Work affected by such delay shall be equitably adjusted
to reflect the delay.
2.6 PERFORMANCE OF R&D WORK
2.6.1 The Responsible Party will perform the R&D Work in an orderly,
efficient, expeditious, skillful and workmanlike manner.
2.6.2 Upon the other Party's request, the Responsible Party will
cooperate with the other Party and coordinate the R&D Work with any related work
being performed by the Responsible Party or others. If any part of the R&D Work
depends on the results of work by the other Party or others, the Responsible
Party will immediately notify the other Party in writing of any actual or
apparent deficiencies or
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defects in such other work that render it unsuitable for performance of the
R&D Work in accordance with this Agreement. The Responsible Party's failure
to so notify the other Party will constitute the Responsible Party's
acknowledgment that such other work is suitable for performance of the R&D
Work in accordance with this Agreement, except as to latent defects which may
subsequently be discovered in such other work.
2.7 FUNDING
The Parties will fund the R&D Work to be performed under any R&D Plan as
provided for in such R&D Plan.
2.8 CHANGES
2.8.1 Either Party may from time to time request changes in the R&D
Work or any R&D Plan by giving the other Party written notice of such request.
Such requested changes may include, but are not limited to, changes in:
(a) the Prototypes to be delivered by the Responsible Part to the
other Party under this Agreement;
(b) the Specifications and Documentation; and
(c) the schedules for performance of any R&D Work.
No such changes will become effective unless and until they are agreed to in
writing by both Parties. Neither Party will unreasonably withhold its consent
to any change requested by the other Party.
2.8.2 If any change under paragraph 2.8.1 results in any increase or
decrease in the Parties' reasonable best estimate of the costs that will be
incurred to perform the R&D Work not then performed in accordance with this
Agreement, then the budget, funding and other applicable provisions of the
affected R&D Plan will be amended to reflect such increase or decrease.
2.8.3 If any change under paragraph 2.8.1 results in an increase or
decrease in the Parties' reasonable best estimate of the time required to
perform any R&D Work not then performed in accordance with this Agreement, then
the schedules and other applicable provisions of the affected R&D Plan will be
amended to reflect such increase or decrease.
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2.9 CONTRIBUTIONS OF EQUIPMENT
Each Party will contribute to any R&D Work a reasonable quantity of
hardware products it produces for use in the R&D Work at prices equal to
Manufacturing Cost. No such hardware may be resold except at the end of the
R&D Work and then only after first offering it back to the supplying Party.
SECTION 3. PURCHASE OF PRODUCTS
3.1 ORDERS
The Responsible Party will Make, sell and deliver to the other Party
such Products as the other Party may order from the Responsible Party under
this Agreement from time to time. Each Order will specify a description of
the Products ordered, the quantity and purchase price of the Products
ordered, the dates upon which the Products are to be shipped and delivered,
the destination to which the Products are to be shipped and any applicable
shipping instructions (e.g., as to carrier or means of shipment); provided,
however, that unless otherwise agreed by the Responsible Party, the other
Party will not specify a date for delivery of any Product less than sixty
(60) days after the date of the Order. Each Order will be deemed to include
and be subject to the Purchase T&Cs.
3.2 PRICE
The purchase price for each Product will be as agreed upon from time to
time by the Parties, subject to the limitation set forth in paragraph 3.3.
The Responsible Party's acceptance of any Order will constitute the
Responsible Party's acknowledgment that the purchase price specified in such
Order has been agreed to by the Responsible Party. The Responsible Party's
acceptance of any Order may be evidenced by the Responsible Party's written
acceptance of the Order, shipment of the Products subject to the Order, or
any other commercially recognized means of acceptance.
3.3 PRICE LIMITATION
The Responsible Party will offer to sell Products to the other
Party under this Agreement at a fair price that does not exceed
the lowest price at which the Responsible Party offers Products to
any Third Party, taking into consideration volume, payment terms, delivery
schedule and other pertinent factors.
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3.4 BOOKS AND RECORDS
The Responsible Party will keep complete and accurate books and records
of all Manufacturing Costs. Such books and records will be kept in
accordance with generally accepted accounting practices and principles,
consistently applied. Upon the other Party' request, the Responsible Party
will make such books and records available for examination, reproduction and
audit by an independent accounting firm designated by the other Party.
Unless otherwise agreed by the Parties, any such examination, reproduction
and audit will be conducted during the Responsible Party's normal business
hours and in such a manner so as not to unreasonably interfere with the
Responsible Party's business.
3.5 PRODUCT DEFECT NOTIFICATION
The Responsible Party will immediately notify the other Party of any
material or recurring defect, deficiency or nonconformity in any Product that
comes to the attention of the Responsible Party.
3.6 NO OBLIGATION TO PURCHASE PRODUCTS
Each Party acknowledges that no Party has made any commitment or
representation, express or implied, regarding any quantity of any Product to
be purchased by any Party under this Agreement.
Section 4. COOPERATIVE MARKETING AND DISTRIBUTION
4.1 M&D PLANS
The Parties will prepare and agree upon a written marketing and
distribution plan for each Product. Each M&D Plan will include:
(a) Marketing and Sales Plan for the
Product including distribution channels market forecasts;
(b) minimum volume commitments;
(c) price schedules; and
(d) forecasting and ordering process.
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SECTION 5. JOINT TECHNOLOGY
5.1 OWNERSHIP
Except as otherwise provided in the applicable R&D Plan or a separate
written agreement entered into by the Parties after the date of this
Agreement, each Party will have sole right, title and interest in all
Technology and related Proprietary Rights developed by such Party in
connection with Projects or Products for which such Party was the Responsible
Party. In the event that the Parties agree in an R&D Plan or other document
that there is Joint Technology, either Party may:
(a) Make, Use and Distribute Joint Technology in connection
with the Development, Making, Distribution or Use of Products and
Improvements;
(b) copy, modify, use, distribute and otherwise deal with
Documentation;
(c) authorize any Third Party to take any action described in
(a) or (b) above; and
(d) assign, encumber or otherwise, transfer all or part
of its rights, titles and interests in any Joint Technology.
5.2 PERFECTION OF INTERESTS
5.2.1 Each Party will take such action
(including, but not limited to, the execution, acknowledgment and delivery of
assignments, instruments of transfer and conveyance, and other documents) as
may be reasonably requested by the other Party to evidence, perfect or effect
such other Party's rights, titles and interests in any Joint Technology or
related Proprietary Rights.
5.2.2 If either Party makes any filing, application, registration
or other action with any governmental authority in order to evidence, perfect
or effect any Proprietary Right in any Joint Technology, such Party will give
the other Party the opportunity to participate in such filing, application,
registration or other action. Further, upon request of such other Party, the
Party making the filing, application, registration or action will assign or
otherwise transfer to such other Party a fifty percent (50%) undivided
interest in such filing, application, registration or action and any
Proprietary Rights evidenced, perfected or effected by the same.
5.2.3 Each Party will take appropriate steps and precautions for
the protection against any loss or diminishment of any Proprietary Rights
related to any Joint Technology. Without limiting the generality of the
foregoing, each Party will
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exercise at least the same degree of care against any unauthorized use or
disclosure of any trade secrets included in such Proprietary Rights as such
Party exercises with regard to its own trade secrets.
5.3 NO RIGHT TO ACCOUNTING
Except as otherwise provided in the applicable R&D Plan or a separate
written agreement entered into by the Parties after the date of this
Agreement, neither Party will have any right or interest in or to any
revenues, profits or other benefits derived by the other Party from such
other Party's commercial exploitation of any Joint Technology or related
Proprietary Rights.
5.4 NO RIGHT TO IMPROVEMENTS
Except as otherwise provided in the applicable R&D Plan or a separate
written agreement entered into by the Parties after the date of this
Agreement, neither Party will have any right or interest in or to any
Improvement made by the other Party.
5.5 INFRINGEMENT BY THIRD PARTIES
If either Party becomes aware of any infringement, wrongful use or
misappropriation of any Joint Technology or related Proprietary Right by any
Third Party, such Party will give the other Party notice thereof. Either
Party may commence and prosecute any legal action that it deems appropriate
on account of such infringement, wrongful use or misappropriation, and the
other Party will have the opportunity to participate in any such action. Any
recovery in such action will be applied first to reimbursement of the costs
and expenses (including, but not limited to, attorneys' fees) incurred in
connection with such action and then to the Parties in proportion to their
respective damages suffered on account of the infringement, wrongful use or
misappropriation.
5.6 INFRINGEMENT BY JOINT TECHNOLOGY
5.6.1 If any Joint Technology is held to infringe,
wrongfully use or misappropriate any Third-Party Right, the Responsible Party
will:
(a) procure for the other Party and its customers and
licensees the right to Use the item;
(b) replace the item with a substantially equal item that does
not infringe, wrongfully use or misappropriate any Third-Party Right; or
(c) modify the item so that it no longer infringes, wrongfully
uses or misappropriates any Third-Party Right.
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5.6.2 Each Party represents and warrants that the Joint Technology
developed by that Party as Responsible Party will not infringe or
misappropriate any Third-Party Right. Each Party will defend and indemnify
the other from and against any and all claims that any Joint Technology
developed by that Party as Responsible Party infringes or misappropriates any
Third-Party Right and any and all costs and expenses (including, but not
limited to, reasonable attorneys' fees) incurred in connection with the
defense, settlement or satisfaction of such claim (including, but not limited
to, any damages, liabilities or losses based upon any such claim); provided
that the other Party:
(a) gives the Responsible Party prompt written notice of
the claim;
(b) cooperates with the Responsible Party in connection
with the defense, settlement and satisfaction of the claim;
(c) permits the Responsible Party to control the defense,
settlement and satisfaction of the claim; and
(d) does not settle the claim without the prior written
consent of the Responsible Party, which consent will not be
unreasonably withheld.
5.6.3 The Parties' obligations under paragraphs 5.6.1 and 5.6.2
will not apply to the extent any Joint Technology infringes, wrongfully uses
or misappropriates any Third-Party Right solely as a result of a Responsible
Party's Use of any Technology of the other Party in accordance with the
license granted under paragraph 7.2.
SECTION 6. IGT TECHNOLOGY
6.1 RESERVATION
Except for the license granted under paragraph 6.2, IGT reserves all of
its right, title and interest in all IGT Technology and IGT Rights.
6.2 LICENSE
Unless otherwise provided in writing, the License granted hereunder is
solely for use in performance of duties under this Agreement during the term
of this Agreement. Subject to the foregoing limitations and any other
limitations set forth in the applicable R&D Plan or any separate written
agreement entered into by the Parties after the date of this Agreement, IGT
hereby grants to Acres a worldwide, nonexclusive license under the IGT Rights
to:
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(a) Develop, Make, Distribute and Use Products, Improvements
and Tools;
(b) Make, Use and Distribute the IGT Technology in connection
with the exercise of the rights granted under (a) and (c) of this
paragraph; and
(c) GRANT IRREVOCABLE, PERPETUAL sublicenses to any of the
rights granted under (a) and (b) of this paragraph to end users in
connection with the sale, lease or rental of Products or
Improvements DURING THE LIFE OF A PRODUCT OR IMPROVEMENT PROVIDED
IN ACCORDANCE WITH THIS AGREEMENT.
6.3 ROYALTY
Except as otherwise specifically provided for in an R&D Plan or a
separate written agreement entered into by the Parties after the date of this
Agreement, the license granted under paragraph 6.2 will be royalty-free and
IGT will not have any right or interest in any revenues, profits or other
benefits derived from the exercise of such license.
6.4 INFRINGEMENT
IGT represents and warrants that the IGT Technology does not infringe
or misappropriate any Third-Party Right. IGT will defend and indemnify Acres
from and against any and all claims that any IGT Technology infringes or
misappropriates any Third-Party Right and any and all costs and expenses
(including, but not limited to, reasonable attorneys' fees) incurred in
connection with the defense, settlement or satisfaction of such claim
(including, but not limited to, any damages, liabilities or losses based upon
any such claim); provided that Acres:
(a) gives IGT prompt written notice of the claim;
(b) cooperates with IGT in connection with the defense,
settlement and satisfaction of the claim;
(c) permits IGT to control the defense, settlement and satisfaction
of the claim; and
(d) does not settle the claim without the prior written consent of
IGT, which consent will not be unreasonably withheld.
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SECTION 7. ACRES TECHNOLOGY
7.1 RESERVATION
Except for the license granted under paragraph 7.2, Acres reserves all
of its right, title and interest in all Acres Technology and Acres Rights.
7.2 LICENSE
Unless otherwise provided in writing, the License granted hereunder is
solely for use in performance of duties under this Agreement during the term
of this Agreement. Subject to the foregoing limitations and any other
limitations set forth in the applicable R&D Plan or any separate written
agreement entered into by the Parties after the date of this Agreement, Acres
hereby grants to IGT a worldwide, nonexclusive license under the Acres Rights
to:
(a) Develop, Make, Distribute and Use Products, Improvements and
Tools;
(b) Make, Use and Distribute the Acres Technology in connection with
the exercise of the rights granted under (a) and (c) of this paragraph;
and
(c) GRANT IRREVOCABLE, PERPETUAL sublicenses to any of the rights
granted under (a) and (b) of this paragraph TO end users in connection
with the sale, lease or rental of Products or Improvements DURING THE
LIFE OF A PRODUCT OR IMPROVEMENT PROVIDED IN ACCORDANCE WITH THIS
AGREEMENT.
7.3 ROYALTY
Except as otherwise specifically provided for in an R&D Plan or a
separate written agreement entered into by the Parties after the date of this
Agreement, the license granted under paragraph 7.2 will be royalty-free and
Acres will not have any right or interest in any revenues, profits or other
benefits derived from the exercise of such license.
7.4 INFRINGEMENT
Acres represents and warrants that the Acres Technology does not
infringe or misappropriate any Third-Party Right. Acres will defend and
indemnify IGT from and against any and all claims that any Acres Technology
infringes or misappropriates any Third-Party Right and any and all costs and
expenses (including, but not limited to, reasonable attorneys' fees) incurred
in connection with the defense, settlement or
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satisfaction of such claim (including, but not limited to, any damages,
liabilities or losses based upon any such claim); provided that IGT:
(a) gives Acres prompt written notice of the claim;
(b) cooperates with Acres in connection with the defense, settlement
and satisfaction of the claim;
(c) permits Acres to control the defense, settlement and satisfaction
of the claim; and
(d) does not settle the claim without the prior written consent of
Acres, which consent will not be unreasonably withheld.
SECTION 8. TERM
The initial term of this Agreement shall be 5 years; provided, however,
that either Party may, after January 1, 1999, terminate this Agreement on 90
days' notice. Termination of this Agreement shall not terminate any other
agreement entered into hereunder, and shall not terminate any license granted
to third parties in connection with the sale, lease or rental of Products or
Improvements..
SECTION 9. ARBITRATION
9.1 SELECTION OF ARBITRATOR
Any controversies between the Parties arising out of or relating to
this Agreement will, upon demand of either Party, be resolved exclusively by
submission to an arbitrator or a panel of three arbitrators. If the Parties
cannot agree upon a single arbitrator, then each Party will designate one
arbitrator and the two arbitrators designated by them will designate a third
for the panel of three arbitrators. If the two arbitrators designated by the
Parties cannot agree upon the third arbitrator, then, upon request of any
party, the third arbitrator will be appointed by the Court as specified in
paragraph 9.3. No arbitrator will have any direct or indirect interest in
either Party or the matter submitted for determination.
9.2 LOCATION
The arbitration will be conducted in Portland, Oregon or such other
location as may be agreed upon by the Parties.
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9.3 JURISDICTION
The arbitration will be conducted pursuant to the Oregon Arbitration
Act, as the same may have been or may be amended, and will be subject to the
jurisdiction of the Circuit Court of the State of Oregon in and for the
County of Multnomah.
9.4 DISCOVERY
The arbitrators will grant discovery liberally. Without limiting the
generality of the foregoing, each Party will have:
(a) full access to the records of any other Party that pertain to
the subject matter of the controversy;
(b) the power to call for testimony of any director, officer,
employee, agent or representative of any other Party; and
(c) all other rights of discovery afforded to Parties in civil
actions under the then applicable Federal Rules of Civil Procedure
(or rules or laws applicable to federal court proceedings adopted in
lieu thereof).
A Party's failure to comply with reasonable discovery requests will be
sufficient cause for an adverse finding on an issue related to such discovery.
9.5 DECISION
The arbitrators will render a decision not later than thirty (30) days
after the matter has been submitted, and such decision will be final and
binding upon the Parties. The decision of a panel of three arbitrators will
require the concurrence of at least two arbitrators. The decision will be in
writing. The decision of the arbitrators may be entered as a final decree or
judgment in any court of competent jurisdiction or may be enforced against
the Parties and their assets wherever they are found. The arbitrators are
specifically authorized to grant injunctive relief, either as part of the
final decision or prior to the final decision. The Parties desire that the
courts promptly enforce all injunctive relief granted prior to final decision
as though it were part of a final decision, even though such enforcement may
be requested prior to final decision.
9.6 COSTS
Any costs incurred by any arbitration proceedings (such as compensation
to the arbitrators and reporter and the expense of hearing room facilities)
will be divided equally among the Parties, except that each Party will bear
its own attorneys' fees and costs of witnesses; provided, that, the
arbitrators will have the authority to require, as
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<PAGE>
part of the final decision, the Party against whom the arbitrators render a
decision to reimburse any or all costs, expenses and attorneys' fees incurred
by Acres in connection with the arbitration, and such final decision may be
entered as a final decree or judgment in any court of competent jurisdiction
or may be enforced against the Parties and their assets wherever they are
found.
9.7 STATUTE OF LIMITATIONS
The arbitration of any controversy under this section will be barred if
such arbitration is not demanded by a Party in accordance with paragraph 7.1
within the period of time permitted by the statute of limitations under the
laws of the State of Oregon which would be most applicable to an action
commenced in the courts of the State of Oregon based upon such controversy.
SECTION 10. MISCELLANEOUS
10.1 NO RIGHT TO MARKS
This Agreement will not be interpreted or construed as granting or
transferring to either Party any license, right, title or interest in or to
any Mark of Acres. Neither Party will use any Mark of the other Party
without the prior written consent of such other Party.
10.2 CONFIDENTIAL INFORMATION
In the performance of or otherwise in connection with this Agreement,
the Disclosing Party may disclose to the Receiving Party certain Confidential
Information of the Disclosing Party. The Receiving Party will treat such
Confidential Information as confidential and proprietary of the Disclosing
Party and will use such Confidential Information solely for the purposes for
which it is provided by the Disclosing Party. Without limiting the generality
of the foregoing, the Receiving Party will take reasonable precautions to
prevent any unauthorized use or disclosure of such Confidential Information
and will protect such Confidential Information from unauthorized use or
disclosure at least to the same extent that it protects its own Confidential
Information of a similar nature from unauthorized use or disclosure. The
obligations under this paragraph will not apply to any:
(a) use or disclosure of any information pursuant to the exercise
of the Disclosing Party's rights under this Agreement;
(b) information that is now or later becomes part of the public
domain through no fault of the Receiving Party;
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<PAGE>
(c) information that is obtained by the Receiving Party from a Third
Party (other than in connection with this Agreement) who was not under
any obligation of secrecy or confidentiality with respect to such
information;
(d) information that is independently developed by the Receiving Party
(e.g., without reference to any Confidential Information);
(e) any disclosure required by applicable law (e.g., pursuant to
applicable securities laws or legal process), provided that the Receiving
Party will use reasonable efforts to give advance notice to and cooperate
with the Disclosing Party in connection with any such disclosure; and
(f) any disclosure with the consent of the Disclosing Party.
10.3 COMPLIANCE WITH LAWS
In the performance of this Agreement, each Party will comply with all
applicable laws, regulations, rules, orders and other requirements, now or
hereafter in effect, of governmental authorities having jurisdiction.
Without limiting the generality of the foregoing, each Party will pay,
collect and remit such taxes as may be imposed with respect to any
compensation, royalties or transactions under this Agreement in accordance
with applicable laws, rules, regulations and orders of governmental
authorities having jurisdiction.
10.4 NOTICES
Any notice or other communication under this Agreement given by any
Party to any other Party will be in writing and will be delivered in person
or mailed, properly addressed and stamped with the required postage, to the
intended recipient at its address specified below its signature at the end of
this Agreement and to the attention of the individual who executed this
Agreement on behalf of such Party. Any Party may from time to time change
such address or individual by giving Acres notice of such change in
accordance with this paragraph.
10.5 NONWAIVER
The failure of either Party to insist upon or enforce
strict performance of any of the provisions of this Agreement or to exercise
any rights or remedies under this Agreement will not be construed as a waiver
or relinquishment to any extent of such Party's right to assert or rely upon
any such provision, right or remedy in that or any other instance; rather,
the same will remain in full force and effect.
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<PAGE>
10.6 SUCCESSORS AND ASSIGNS
Neither Party will assign this Agreement or any of its rights, title or
interest under this Agreement (voluntarily, involuntarily, by operation of
law or otherwise) without the prior written consent of the other Party. No
assignment by either Party, with or without the consent of the other Party,
will relieve or release the Party making the assignment from any of its
obligations under this Agreement. Subject to the foregoing, this Agreement
will be binding upon, inure to the benefit of and be enforceable by each of
the Parties and their respective successors and assigns.
10.7 INDEPENDENT CONTRACTOR
Each Party is engaged in an independent business and will perform its
obligations under this Agreement as an independent contractor and not as an
agent or representative of any other Party. Neither Party will have any
right or authority to create any obligation or make any representation or
warranty in the name or on behalf of the other Party.
10.8 NO PARTNERSHIP OR AGENCY
Each Party will furnish its own facilities, contractors and employees
to fully perform its obligations under this Agreement. No Party will, by
virtue of this Agreement, have any responsibility for the payment or
performance of any obligations of the other Party. Further, no Party will
have, by virtue of this Agreement, any right, power or authority to act as
the agent of, to enter into any contract, to make any representation or
warranty or to incur any obligation or liability of any other Party. This
Agreement will not be interpreted or construed to create an association,
joint venture or partnership between the Parties or to impose any partnership
obligation or liability upon any Party.
10.9 SPECIFIC PERFORMANCE
In the event of any breach of or default under Section 10.2 of this
Agreement by either Party, the other Party may suffer irreparable harm and
have no adequate remedy at law. Consequently, in the event of any such
breach or default, or any threat of such breach or default by either Party,
then the other Party will be entitled to temporary or permanent injunctive
relief, specific performance and such other equitable relief as may be
appropriate in the circumstances in order to restrain or enjoin the breach or
default. The rights and remedies under this paragraph are in addition to,
and not in lieu of, any other right or remedy afforded under any other
provision of this Agreement, by law or otherwise, including the right to seek
and obtain temporary or permanent injunctive relief, specific performance or
other
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<PAGE>
equitable relief as may be appropriate in the event of other actual or
threatened breaches or defaults under this Agreement.
10.10 APPLICABLE LAW
This Agreement will be interpreted, construed and enforced in all
respects in accordance with the laws of the State of Oregon, U.S.A., without
reference to its choice of law rules.
10.11 ENTIRE AGREEMENT
This Agreement constitutes the entire agreement, and supersedes any and
all prior agreements, between the Parties with regard to the subject matter
hereof. No amendment, modification or waiver of any of the provisions of this
Agreement will be valid unless set forth in a written instrument signed by
the Party to be bound thereby.
IGT:
----
INTERNATIONAL GAME TECHNOLOGY, INC.
By:______________________________________
Title:___________________________________
Address: ________________________________
________________________________
Acres:
------
ACRES GAMING, INC.
By:______________________________________
Title:___________________________________
PAGE 22
<PAGE>
Address:_________________________________
_________________________________
PAGE 23
<PAGE>
Exhibit
11.1
ACRES GAMING INCORPORATED
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
For Three Months Ended For Six Months Ended
December 31, December 31,
1996 1995 1996 1995
---------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income (Loss) $1,366,000 $(861,000) $2,855,000 ($1,578,000)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Weighted Average Number of Shares of
Common Stock and Common Stock
Equivalents Outstanding:
Weighted average number of
common shares outstanding 8,482,000 7,629,000 7,991,000 7,688,000
Dilutive effect of warrants and
employee stock options after
application of the treasury stock
method 735,000 * 812,000 *
---------- --------- ---------- ----------
Total shares used in per share
computation 9,217,000 7,629,000 8,803,000 7,688,000
---------- --------- ---------- ----------
---------- --------- ---------- ----------
---------- --------- ---------- ----------
---------- --------- ---------- ----------
Net Income (Loss) Per Share $0.15 $(0.11) $0.32 ($0.21)
---------- --------- ---------- ----------
---------- --------- ---------- ----------
* Effect of common stock equivalents is anti-dilutive and therefore not
included.
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACRES GAMING
INCORPORATED FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1996 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-END> DEC-31-1996
<CASH> 6,250,000
<SECURITIES> 0
<RECEIVABLES> 4,552,000
<ALLOWANCES> (132,000)
<INVENTORY> 4,309,000
<CURRENT-ASSETS> 15,205,000
<PP&E> 3,019,000
<DEPRECIATION> 1,627,000
<TOTAL-ASSETS> 16,987,000
<CURRENT-LIABILITIES> 2,079,000
<BONDS> 0
0
0
<COMMON> 19,366,000
<OTHER-SE> (4,458,000)
<TOTAL-LIABILITY-AND-EQUITY> 16,987,000
<SALES> 12,243,000
<TOTAL-REVENUES> 12,243,000
<CGS> 5,414,000
<TOTAL-COSTS> 4,093,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (119,000)
<INCOME-PRETAX> 2,855,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,855,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,855,000
<EPS-PRIMARY> .32
<EPS-DILUTED> .32
</TABLE>
