<PAGE> 1
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, 1999
[ ] 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)
<TABLE>
<CAPTION>
NEVADA 88-0206560
------------------------------- ---------------------------------
<S> <C>
(State or other jurisdiction of (IRS Employer Identification No.)
incorporation or organization)
</TABLE>
7115 AMIGO STREET, SUITE 150
LAS VEGAS, NV 89119
(Address of principal executive offices)
702-263-7588
(Registrant's telephone number)
Check whether the registrant (1) has 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, 2000 was 8,913,281.
<PAGE> 2
ACRES GAMING INCORPORATED
Table of Contents
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets at December 31, 1999 and June 30, 1999 1
Statements of Operations for the Three and Six Months Ended
December 31, 1999 and 1998 2
Statements of Cash Flows for the Six Months Ended
December 31, 1999 and 1998 3
Notes to Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
PART II -- OTHER INFORMATION 11
SIGNATURES 11
INDEX TO EXHIBITS 12
</TABLE>
<PAGE> 3
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ACRES GAMING INCORPORATED
BALANCE SHEETS
<TABLE>
<CAPTION>
ASSETS
DECEMBER 31, 1999 JUNE 30, 1999
(UNAUDITED)
----------------- -------------
(in thousands)
<S> <C> <C>
CURRENT ASSETS:
Cash and equivalents $ 3,362 $ 5,949
Receivables 2,922 1,576
Inventories 2,633 4,909
Prepaid expenses 91 265
-------- --------
Total current assets 9,008 12,699
-------- --------
PROPERTY AND EQUIPMENT:
Furniture and fixtures 826 743
Equipment 5,190 4,778
Leasehold improvements 434 954
Accumulated depreciation (4,340) (4,101)
-------- --------
Total property and equipment 2,110 2,374
OTHER ASSETS 1,061 1,024
-------- --------
$ 12,179 $ 16,097
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 2,189 $ 2,407
Accrued expenses 1,077 1,491
Customer deposits 52 4,152
-------- --------
Total current liabilities 3,318 8,050
-------- --------
REDEEMABLE CONVERTIBLE PREFERRED STOCK 4,948 4,948
STOCKHOLDERS' EQUITY:
Common Stock, $.01 par value, 50 million shares
authorized, 8.9 million shares issued and outstanding 89 89
Additional paid-in capital 19,904 19,904
Accumulated deficit (16,080) (16,894)
-------- --------
Total stockholders' equity 3,913 3,099
-------- --------
$ 12,179 $ 16,097
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
1
<PAGE> 4
ACRES GAMING INCORPORATED
STATEMENTS OF OPERATIONS
FOR THE THREE AND SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------- --------------------------
1999 1998 1999 1998
------ ------- ------- -------
(in thousands except per share data)
<S> <C> <C> <C> <C>
NET REVENUES $5,367 $ 3,059 $11,591 $ 6,347
COST OF REVENUES 2,506 2,060 5,570 3,390
------ ------- ------- -------
GROSS PROFIT 2,861 999 6,021 2,957
------ ------- ------- -------
OPERATING EXPENSES:
Research and development 1,261 1,786 2,532 3,204
Selling, general and administrative 1,210 1,423 2,727 2,928
------ ------- ------- -------
Total operating expenses 2,471 3,209 5,259 6,132
------ ------- ------- -------
INCOME (LOSS) FROM OPERATIONS 390 (2,210) 762 (3,175)
OTHER INCOME 30 70 52 189
------ ------- ------- -------
NET INCOME (LOSS) $ 420 $(2,140) $ 814 $(2,986)
====== ======= ======= =======
NET INCOME (LOSS) PER SHARE -- BASIC $ .05 $ (.24) $ .09 $ (0.34)
====== ======= ======= =======
NET INCOME (LOSS) PER SHARE -- DILUTED $ .04 $ (.24) $ .07 $ (0.34)
====== ======= ======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
2
<PAGE> 5
ACRES GAMING INCORPORATED
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED DECEMBER 31, 1999 AND 1998
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
DECEMBER 31,
------------------------
1999 1998
------- --------
(in thousands)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 814 $(2,986)
Adjustments to reconcile net income (loss) to net cash from
operating activities:
Depreciation and amortization 936 901
Changes in assets and liabilities:
Receivables (1,346) (1,883)
Inventories 2,276 (1,994)
Prepaid expenses 174 (121)
Accounts payable and accrued expenses (632) 1,242
Customer deposits (4,100) (498)
------- -------
Net cash from operating activities (1,878) (5,339)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (557) (1,419)
Capitalized software costs (184) (627)
Other, net 32 (1)
------- -------
Net cash from investing activities (709) (2,047)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net -- 350
Preferred stock dividends -- (75)
------- -------
Net cash from financing activities -- 275
------- -------
NET DECREASE IN CASH AND EQUIVALENTS (2,587) (7,111)
CASH AND EQUIVALENTS AT BEGINNING OF PERIOD 5,949 9,887
------- -------
CASH AND EQUIVALENTS AT END OF PERIOD $ 3,362 $ 2,776
======= =======
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 6
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, 1999 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 three- and six-month periods ended December 31, 1999 are not necessarily
indicative of the operating results for the full year or future periods.
2. Recent Accounting Pronouncements
The Financial Accounting Standards Board issued "Accounting for Derivative
Instruments and Hedging Activities" (SFAS 133) in June 1998. SFAS 133 requires
the Company to recognize all derivatives on the balance sheet at fair value. The
Company only enters into derivative instruments for hedging sales contracts and
receivables denominated in international currencies. Changes in the fair value
of the derivatives will be offset against the change in fair value of the
receivable. The change in the derivative's fair value related to the ineffective
portion of a hedge, if any, will be immediately recognized in earnings. The
Company expects to adopt this Standard as of the beginning of its fiscal year
2001. The effect of adopting this standard is not expected to have a material
effect on the Company's financial condition or results of operations.
3. Revenue Recognition
The Company sells certain of its products under contracts that generally
provide for a deposit to be paid before commencement of the project and for a
final payment to be made after completion of the project. Revenue is recognized
as individual units are installed or, in those instances where the contract does
not provide for the Company to install the equipment, upon shipment. Customer
deposits received under sales agreements are reflected as liabilities until the
related revenue is recognized.
The Company has entered into certain manufacturing royalty agreements where
revenue is recognized as the licensed manufacturer sells the related hardware
products.
For certain contracts requiring significant product customization, revenue
is recognized on the percentage-of-completion method. Labor costs incurred for
customization and installation are the basis for determining
percentage-of-completion, giving effect to the most recent estimates of such
total labor costs. The effect of changes to total estimated customization and
installation labor costs is recognized in the period in which such changes are
determined. The Company defers revenue subject to forfeiture, refund, or other
concession until such revenue meets the criteria for collectibility. Provisions
for estimated losses are made in the period in which the loss first becomes
apparent.
Included in accounts receivable are unbilled receivables. The Company had
unbilled receivables of $705,000 at December 31, 1999. At June 30, 1999 the
Company had $1.0 million in unbilled receivables. Unbilled receivables represent
revenues recognized in excess of billings on certain contracts accounted for
under the percentage of completion method. Unbilled receivables were not
billable at the balance sheet date but are recoverable as billings are made in
accordance with the contract terms.
4
<PAGE> 7
4. Inventories
Inventories consist of electronic components and other hardware, which are
recorded at the lower of cost (first-in, first-out) or market. Inventories
consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
1999 1999
----------- --------
(in thousands)
<S> <C> <C>
Raw Materials $ 954 $1,114
Work-in-progress 73 1,398
Finished Goods 1,606 2,397
------ ------
$2,633 $4,909
------ ------
</TABLE>
5. Capitalized Software
Software development costs for certain projects are capitalized from the
time technological feasibility is established, to the time the resulting
software product is commercially feasible. Capitalized software costs, net of
accumulated amortization, were $720,000 and $647,000 at December 31, 1999 and
June 30, 1999, respectively, and are included in other assets. Capitalized costs
are amortized on a straight-line basis over the estimated life of the product
beginning when the products become commercially feasible. All research and
development costs are expensed as incurred.
6. Income Taxes
At December 31, 1999, the Company had cumulative net operating losses of
approximately $14.7 million that are available to offset future taxable income
through 2019. 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. Deferred tax liabilities were insignificant as of
December 31, 1999 and June 30, 1999.
7. Contingencies
A class action lawsuit filed in the U.S. District Court alleges violation
of the federal securities laws by the Company and certain of its current and
former executive officers. The class consists of the purchasers of the Company's
stock during the period from March 26, 1997 to December 11, 1997. The Company
denies the allegations and intends to vigorously defend itself.
Two lawsuits have been filed regarding the Wheel of Gold(TM) technology
that is the subject of two patents (the "WOG Patents") that have been assigned
to Anchor Gaming ("Anchor"). In the first suit, now pending in U.S. District
Court for the District of Nevada, Anchor, Anchor Coin and Spin for Cash Wide
Area Progressive Joint Venture, Anchor's partnership with International Game
Technology ("IGT"), have brought patent infringement, breach of warranty and
breach of contract actions against the Company, based on the WOG Patents and the
Company's supply agreement with Anchor. The Company has denied the allegations
and filed a counterclaim in that proceeding for a declaration that the Company
is the sole or joint owner of the WOG Patents. The defense of this suit has been
tendered to and accepted by the Company's general liability insurance carrier.
In the second action, now pending in U.S. District Court for the District of
Oregon, the Company has filed suit alleging that Anchor wrongfully used the
Company's technology to obtain the WOG Patents, that the filing of the patent
applications was fraudulently concealed from the Company, that Anchor was
unjustly enriched by retaining the benefits of the Company's technology without
compensating the Company and that Anchor breached fiduciary duties owed to the
Company.
5
<PAGE> 8
Four related lawsuits have been filed in the U.S. District Court for the
District of Nevada resulting from the Company's efforts to enforce its patent
rights. Three of those suits have now been consolidated. The Company denies all
allegations asserted against it and intends to vigorously defend itself and its
intellectual property rights. In separate but related actions, the Company has
filed suits against its former and current general liability insurance carriers
for breach of insurance contract. The Company's suits are based on the insurers'
refusal to defend the Company against certain counterclaims brought against the
Company in certain of the four related patent lawsuits.
Unfavorable outcomes in one or more of these suits could have a material
adverse effect on the Company.
The Company from time to time is involved in other various legal
proceedings arising in the normal course of business.
8. Per Share Computation
The Company reports basic and diluted earnings per share. Only the weighted
average number of common shares issued and outstanding are used to compute basic
earnings per share. The computation of diluted earnings per share includes the
effect of stock options, warrants and redeemable convertible preferred stock, if
such effect is dilutive.
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
-------------------- --------------------
1999 1998 1999 1998
------- ------- ------- -------
(in thousands except per share data)
<S> <C> <C> <C> <C>
Net income (loss) $ 420 $(2,140) $ 814 $(2,986)
Preferred stock dividends -- -- -- (75)
------- ------- ------- -------
Net income (loss) allocable to common stockholders $ 420 $(2,140) $ 814 $(3,061)
======= ======= ======= =======
Weighted average number of shares of common stock
and common stock equivalents outstanding:
Weighted average number of common shares
outstanding for computing basic earnings per
share 8,913 8,913 8,913 8,880
Dilutive effect of warrants and employee stock
options after application of the treasury
stock method 12 -- 18 --
Dilutive effect of redeemable convertible
preferred stock after application of the
if-converted method 2,228 -- 2,228 --
Weighted average number of common shares
outstanding for computing diluted earnings
per share 11,153 8,913 11,159 8,880
======= ======= ======= =======
Earnings (loss) per share -- basic $ .05 $ (.24) $ .09 $ (.34)
======= ======= ======= =======
Earnings (loss) per share -- diluted $ .04 $ (.24) $ .07 $ (.34)
======= ======= ======= =======
</TABLE>
6
<PAGE> 9
The following common stock equivalents were excluded from the earnings
per share computations because their effect would have been anti-dilutive:
<TABLE>
<CAPTION>
FOR THE THREE MONTHS FOR THE SIX MONTHS
ENDED DECEMBER 31, ENDED DECEMBER 31,
-------------------- --------------------
1999 1998 1999 1998
------- ------- ------- -------
(in thousands)
<S> <C> <C> <C> <C>
Warrants and employee stock options 1,237 1,312 1,271 1,174
Redeemable convertible preferred stock, if
converted, assuming conversion at rates in
effect at December 31, 1998 -- 1,779 -- 1,779
</TABLE>
The Stock Purchase Agreement between IGT and the Company pursuant to which
IGT purchased 519,481 shares of Redeemable Convertible Preferred Stock (the
"Preferred Stock") restricts IGT's ownership of the Company's common stock.
Without the consent of the Company, IGT may not own more than 20% of the
outstanding common stock, including, for purposes of the calculation, the shares
of common stock into which the Preferred Stock owned by IGT is convertible. The
Company believes that this provision operates to limit IGT's right to convert
shares of Preferred Stock as well as limiting IGT's rights to purchase
additional shares of common stock. IGT has asserted that the agreement does not
limit the number of shares into which the Preferred Stock may be converted. If
there were no limit on IGT's right to convert shares of Preferred Stock into
common stock, as of December 31, 1999, the Preferred Stock could have been
converted into 4,812,324 shares of common stock, or 35.0% of the then
outstanding common stock, and diluted earnings per share would have been reduced
to $.03 per share and $.06 per share for the quarter and six-month period ended
December 31, 1999, respectively. IGT has not indicated it plans to convert any
shares of Preferred Stock into common stock.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Company develops, manufactures and markets electronic equipment and
software for the casino gaming industry. The Company's products are based on its
proprietary Acres Bonusing Technology(TM) and are designed to enhance casino
profitability by providing entertainment and incentives to players of gaming
machines. Acres Bonusing Technology improves the efficiency of bonus and
incentive programs currently offered by many casinos, and makes possible some
bonus and incentive programs that have not previously been offered.
Acres Bonusing Technology was conceived to provide the gaming industry with
a system to enable the design and delivery of bonuses and other promotions
directly to players at the point of play and at the time of play. The Company
currently offers bonusing products directly to casinos in the form of standard
and customized bonusing promotions that can be applied casino-wide or to a
limited number of gaming machines. In addition to bonusing products, the Company
also offers slot accounting, player tracking and visual analysis modules that
may be purchased and installed individually or as components of an integrated
system marketed as the Acres Advantage(TM).
RESULTS OF OPERATIONS
The Company's net revenues for the three months ended December 31, 1999
increased to $5.4 million from net revenues of $3.1 million during the three
months ended December 31, 1998. The Company's revenues can fluctuate
significantly based on the timing of the delivery of any large order. Second
quarter net revenues were primarily
7
<PAGE> 10
comprised of $1.4 million from the completion of the Acres Advantage slot system
at the MotorCity Casino in Detroit, Michigan and $3.5 million from continuing
progress on the Crown Casino Coinless Transit(TM) project in Melbourne,
Australia. In the prior year quarter, revenues were primarily comprised of $2.1
million of progress billings on the customization of the Acres Advantage slot
system for Mandalay Bay and $601,000 of hardware sales and hardware royalty
payments received from IGT.
For the six-month period ended December 31, 1999, net revenues increased to
$11.6 million from $6.3 million in the same period in the prior year. Net
revenues in the first half of the current fiscal year were primarily comprised
of $4.0 million from progress billings on the Crown Casino Coinless Transit
project, $3.7 million from hardware and software deliveries to MotorCity and
$3.1 million from software sales to Star City Casino in Sydney, Australia. In
the first half of the prior year, net revenues were primarily comprised of $2.6
million of hardware sales, software sales and hardware royalty payments from
IGT, $2.1 million of progress billings for the customization of the Acres
Advantage slot system for Mandalay Bay and $671,000 of custom bonus games and
displays delivered to Bellagio.
Gross profit margin increased to 53 percent in the current quarter from 33
percent in the prior year quarter. For the first half of fiscal 2000, gross
profit margin was 52 percent versus 47 percent in the same period in fiscal
1999. These increases in gross profit margin percentages are related to changes
in the mix of hardware and software products delivered during the respective
periods. Software sales, such as the recent sales to the MotorCity, Crown and
Star City casinos carry a higher gross profit margin than hardware sales.
Total operating expenses decreased to $2.5 million in the current quarter
from $3.2 million in the prior year quarter and decreased to $5.3 million for
the first half of fiscal 2000 from $6.1 million in the first half of the prior
year. Reductions in staffing generated $471,000 and $982,000 in operating
expense savings in the quarter and six-month periods ended December 31, 1999,
respectively, as compared to the same periods in the prior year. Additionally,
certain software customization costs amounting to $334,000 and $427,000 were
reallocated from operating expenses to cost of goods sold for the quarter and
six-month periods ended December 31, 1999, respectively. Reductions in amounts
capitalized as software development costs partially offset these operating
expense reductions by $115,000 and $444,000 in the quarter and six-month periods
ended December 31, 1999, respectively.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1999, the Company had cash and equivalents of $3.4
million, compared to $5.9 million as of June 30, 1999. The Company invests its
cash in highly liquid marketable securities with a maturity of three months or
less at the date of purchase.
At December 31, 1999 the Company had collected $52,000 of advance deposits
against its order backlog of approximately $2.2 million. Backlog, however, may
not be a meaningful indication of future sales. Sales are made pursuant to
purchase orders or sales agreements for specific installations. Products are
generally delivered within one to six months of receipt of an order depending on
the nature of the order and the products being delivered. The Company does not
have any material ongoing long-term sales contracts. The Company's revenues and
results of operations may be materially affected by the receipt or loss of any
one order.
The Company expects to complete the deliveries and installations comprising
its order backlog and expects that payments under those contracts will provide
sufficient operating cash flow for fiscal 2000. Failure to successfully deliver
the products comprising the order backlog or failure to subsequently collect the
resulting revenues could have a material adverse effect on the Company's
liquidity. The company does not have any debt outstanding at December 31, 1999
but intends to obtain a short-term line of credit. The Company may not be able
to obtain a line of credit. The Company has the ability to reduce operating
expenses by reducing staffing and other expenses.
8
<PAGE> 11
The Company's operations have historically used cash. During the first half
of fiscal 2000, operating activities used $1.9 million of cash. The cash
provided by the Company's net income, adjusted for non-cash items, was
completely offset by changes in accounts receivable, inventories and customer
deposits resulting from the first half's sales activities. During the six-month
period ended December 31, 1999, the Company made capital expenditures of
$557,000 and capitalized software development cost of $184,000.
The Company's principal sources of liquidity have been net proceeds of $7.2
million from its initial public offering in November 1993 and $7.6 million from
the exercise of warrants in October 1996. In addition, in January 1997, the
Company issued 519,481 shares of Series A Convertible Preferred Stock for net
proceeds of $4.9 million.
FOREIGN CURRENCY EXCHANGE RATE RISK
The Company only enters into derivative instruments to manage well-defined
foreign currency risks. The Company has entered into forward exchange contracts
to hedge the value of sales contracts and accounts receivable denominated in
Australian dollars. Foreign exchange contracts have gains and losses that are
recognized at the settlement date. The impact of changes in exchange rates on
the forward contracts will be substantially offset by the impact of such changes
on the value of the related sales contracts and accounts receivable. At December
31, 1999, the Company held a foreign exchange contract totaling $2.1 million and
maturing in February 2000. The counterparty to the foreign exchange contract is
a large, widely recognized bank resulting in minimal risk of credit loss due to
non-performance by the bank. The net effect of an immediate 10 percent change in
exchange rates on the forward exchange contracts and the underlying hedged
positions would not be material to the Company's financial condition or results
of operations.
YEAR 2000
The Year 2000 issue results from computer programs operating incorrectly
due to date-sensitive software incorrectly recognizing dates in the year 2000.
This could result in system failure or miscalculations and could cause
disruptions of operations, including, among other things, a temporary inability
to engage in normal business activities. The Company has not incurred any
material interruptions in its products or business activities related to the
Year 2000.
The Company has evaluated its technology and data, including imbedded
non-information technology, used in the creation and delivery of its previous
generations of products and services (the "Legacy" products) and in its internal
operations and has identified no significant Year 2000 issues. The Company's
core business systems are compliant. Compliant upgrades for the Company's Legacy
slot accounting and player tracking products have been developed and were made
available to customers prior to December 31, 1999. The Company has tested its
most recent generation of products and did not identify any material Year 2000
issues. The Company has not incurred material costs associated with addressing
the Year 2000 issue and believes that future costs will not have a material
effect on the Company's financial results.
Although the Company has inquired of certain of its significant vendors as
to the status of their Year 2000 compliance initiatives, no binding assurances
have been received. The Company believes that it is not overly reliant on any
single vendor because its component parts and services can be obtained from
multiple sources. Failure of telephone service providers or other monopolistic
utilities could have a significant detrimental effect on the Company's
operations. The Company does not know the status of its customers' Year 2000
compliance initiatives. Failure of the Company's customers to adequately address
such issues could negatively affect their ability to purchase bonusing products.
The Company has developed a contingency plan to address the most reasonably
likely "worst-case" scenario. Such contingency plan includes manually conducting
operations in the short-term, which would be less efficient, but would not be
expected to have a material adverse effect on the Company.
9
<PAGE> 12
FORWARD-LOOKING INFORMATION
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 that may cause actual results to differ
materially from those predicted in the forward-looking statements.
Forward-looking statements can be identified by their use of such verbs as
expects, anticipates, believes or similar verbs or conjugations of such verbs.
If any of the Company's assumptions on which the forward-looking statements are
based prove incorrect or should unanticipated circumstances arise, the Company's
actual results could differ materially from those anticipated by such
forward-looking statements. The differences could be caused by a number of
factors or combination of factors including, but not limited to, the 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, 1999.
Forward-looking statements contained in this Form 10-Q relate to the
Company's plans and expectations as to: sales backlog; adequacy of cash and
equivalents balances to fund the Company's operations; anticipated future sales;
revenue recognition; cash collections; scheduled product installation dates; new
product development and introduction; the availability of a line of credit;
patent protection; Year 2000 issues and litigation settlements.
The following factors, among others, could cause actual results to differ
from those indicated in the forward-looking statements: the possibility that
future sales may not occur or product offerings may not be developed as planned;
the possibility that future product installations may not be completed;
developments in the Company's relationship with IGT; the risk that patents may
not be issued; the expense and unpredictability of patent and other litigation;
the timing of development, regulatory approval and installation of products; the
timing of receipt and shipment of orders; the ability of the Company to obtain a
line of credit; competition; government regulation; market acceptance; customer
concentration; technological change; the effect of economic conditions on the
gaming industry generally; and the results of pending litigation.
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<PAGE> 13
PART II -- OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company's Annual Meeting of Shareholders was held on December 3, 1999.
The following actions were taken at the meeting:
Election of Directors. John F. Acres, Jo Ann Acres, Richard A. Carone,
Floyd W. Glisson and Donald J. Massaro were elected to serve as directors for a
term of one year with the holders of shares voting as follows:
<TABLE>
<CAPTION>
---------------------- ------------- ---------------
WITHHOLD
DIRECTOR VOTES FOR AUTHORITY
---------------------- ------------- ---------------
<S> <C> <C>
John F. Acres 8,144,871 84,215
---------------------- ------------- ---------------
JoAnn Acres 8,122,021 107,065
---------------------- ------------- ---------------
Richard A. Carone 8,139,196 89,890
---------------------- ------------- ---------------
Floyd W. Glisson 8,140,496 88,590
---------------------- ------------- ---------------
Donald J. Massaro 8,146,096 82,990
---------------------- ------------- ---------------
</TABLE>
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. The holders of 8,163,841 shares
voted FOR the ratification, holders of 48,450 shares voted AGAINST and holders
of 16,795 shares ABSTAINED.
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.
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 10, 2000 By /s/ Reed M. Alewel
------------------------------------
Reed M. Alewel
Vice President, Chief Financial
Officer, Treasurer and Secretary
(authorized officer and principal
financial and chief accounting
officer)
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INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -----------
<S> <C>
3.1 Articles of Incorporation of Acres Gaming Incorporated, as amended(1)
3.2 Bylaws of Acres Gaming Incorporated, as amended(2)
10.1 Amended Equipment Sale Agreement dated effective July 1, 1999 between
AGI Distribution, Inc. dba Acres Gaming and Detroit Entertainment,
L.L.C. dba MotorCity Casino
27.1 Financial Data Schedule
</TABLE>
(1) Incorporated by reference to the exhibits to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended December 31, 1996, previously
filed with the Commission.
(2) Incorporated by reference to the exhibits to the Company's Quarterly Report
on Form 10-Q for the quarterly period ended September 30, 1996, previously
filed with the Commission.
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EXHIBIT 10.1
CERTAIN PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED BASED UPON A REQUEST FOR
CONFIDENTIAL TREATMENT; SUCH PORTIONS HAVE BEEN FILED SEPARATELY WITH THE SEC
AMENDED EQUIPMENT SALE AGREEMENT
This Amended Equipment Sale Agreement (the "Amended Agreement"or the
"Agreement"), effective July 1, 1999, is entered into by and between AGI
Distribution , Inc., dba Acres Gaming, having a place of business at 7115 Amigo
Street, Suite 150, Las Vegas, Nevada 89119 ("Acres") and Detroit Entertainment,
L.L.C. dba MotorCity Casino having a place of business at 1922 Cass, Detroit, MI
48226 ("Customer").
Customer and Acres entered into an Equipment Sale Agreement with an
effective date of June 30, 1999 (the "Original Agreement") and now desire to
amend that Equipment Sale Agreement. Accordingly, Acres and Customer hereby
agree as follows:
0. BACKGROUND
Customer desires to engage Acres to provide a turn-key state of the art
networked gaming, bonusing, slot accounting, and player tracking system (the
"System") at the MotorCity Casino, located temporarily at 2901 Grand River,
Detroit, MI 48201 (the "Casino Location") and probably a permanent site to be
selected at a later date (the "Permanent Site") and to provide such professional
services as may be appropriate ancillary thereto. Acres agrees to provide
Customer with such a System at the Casino Location and to perform such ancillary
professional services exercising the utmost skill, care and diligence.
Accordingly, the parties agree as follows:
1. DEFINITIONS
- - "Customer Acceptance" shall mean that the System in its entirety has passed,
to Customer's reasonable satisfaction, the Final Acceptance Test and
generates all reports Customer requires (samples of each such report being
attached as Schedules A and B to Exhibit A).
- - "Final Acceptance Test" has the meaning as set forth in Section 6(b).
- - "Functional Requirements" has the meaning as set forth in Section 2(d).
- - "Game Hardware Kits" means the components necessary to integrate Games into
the System, namely, a player tracking card reader, a bonus button, a fluro
flasher, a keypad, a VFD display, a location identifier, harness cabling,
internal game electronics, and a sufficient number of bank controllers for
operation of the System.
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- - "Games" means the gaming machines, including, but not limited to, slot
machines and video poker machines, to be used by Customer at the Casino
Location.
- - "Initial Acceptance Test" has the meaning as set forth in Section 6(b).
- - "MGCB" means the Michigan Gaming Control Board.
- - "MCGB Acceptance" means acceptance by MGCB of the System as installed and
operational such that Customer may "go live" at the Casino Location,
utilizing all features of the System, including without limitation of the
foregoing, the Progressives/Lucky Coin(TM) software modules.
- - "Opening Day" means the date upon which the Casino Location is opened to the
public for gaming and other commercial activities, which Customer
anticipates will be December 14, 1999.
- - "Receipt" means the physical receipt of hardware or software by Customer or
Customer's agents or vendors, including manufacturers, to which Acres ships
Game Hardware Kits pursuant to Customer's request.
2. ACRES SUPPLIED PRODUCTS
(a) Hardware and Software. Acres, having already supplied the Game
Hardware Kits, will supply the additional hardware, the software, installation
and training set forth in Exhibit J. Acres will perform all work and supply any
needed databases, communication, protocols, information/data, etc. to Customer
and/or other vendors to enable the System to interface with the Mikohn Pit
Track, Info Genesis and Spintek systems selected by Customer for use at the
Casino Location.
(b) Functional Requirements. Attached hereto as Exhibit D is a System
functional requirement specification which generally describes functional and
operational performance criteria for the System, namely: (i) System structure
and configuration to assure real time processing; (ii) data storage schemes;
(iii) System parameters; (iv) accounting processes; (v) analysis functions and
reports; (vi) slot floor configuration management; (vii) bonusing configuration
and operation; (viii) player tracking interfaces and operation; (ix) interfaces
with Mikohn Pit Track, Info Genesis and Spintek Accusystem; (x) System related
slot floor operations; and (xi) conformity to UL requirements.
(c) Customer Hardware. Customer shall provide, install, and commission:
(i) an Ethernet datapoint connection for each bank controller, bonus server, and
configuration workstation location; (ii) all computers and terminals, except
those listed in (a) above, necessary for System operation; (iii) category 5
network cables from each bank of Games to each location of the
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corresponding bank controller, including furnishing hubs and terminations for
all such cables; (iv) report printer, slip printers, fill/jackpot terminals and
card readers, and radio paging system; and all hardware necessary to accommodate
the installation of Game Hardware Kits. All Customer hardware shall be as
specified in Exhibit E or as otherwise agreed to by Acres. Except as set forth
herein, Customer shall have no other obligation to provide any component of the
System.
3. PRICE AND PAYMENT TERMS
(a) Payment Schedule. Customer shall pay Acres a total sum of Four
Million Six Hundred Fifty Five Thousand Four Hundred Ninety Dollars ($4,655,490)
plus applicable taxes, according to the following schedule:
- - $3,350,700 plus applicable taxes, which Customer already paid Acres in
connection with the execution of the Original Agreement.
- - $674,070 plus applicable taxes, payable within ten (10) days following
MGCB Acceptance.
- - $630,720 plus applicable taxes payable within 10 days of Customer
Acceptance of the System, including, without limitation of the
foregoing, the Progressives/Lucky Coin(TM) software modules, and; (b)
confirmation of escrow of all applicable source code software,
documentation and compiling information.
(b) Taxes. Customer is responsible for all sales, gaming, and other
taxes or governmental fees associated with the purchase, installation, and
operation of the System.
(c) Travel. Customer shall reimburse Acres for all actual, reasonable
travel expenses outside the Las Vegas metro area required for the delivery,
installation, training, and testing of the System. Invoices for reimbursable
travel will be due within 10 days of Customer's receipt of the invoice.
(d) Shipping. All items shipped by Acres to Customer will be shipped FOB
Casino Location or other location designated by Customer.
4. ACRES RESPONSIBILITIES
(a) Acres will perform its obligations under this Agreement, including
without limitation of the foregoing, providing all the Acres-provided hardware
and software comprising the System and timely perform all functions necessary
for the delivery, installation, training, and testing of the System well in
advance of the Opening Day, so that the System can be effectively operated and
MGCB Acceptance can occur by Opening Day, provided that Customer has installed
the Games, provided access to the casino floor, and adequate electric power for
computer operation, for a reasonable period prior thereto.
(b) Acres will fully submit the System for MGCB Acceptance.
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(c) Acres will timely supply all Game manufacturers designated by
Customer on Exhibit F with all System information and Game Hardware Kits they
require to equip the Games to be compliant with System requirements.
5. CUSTOMER RESPONSIBILITIES
(a) Customer will use its best good faith efforts to support Acres
in interfacing and coordinating with the MGCB and Customer's
suppliers and contractors who may affect Acres' ability to
perform under this Agreement.
(b) Customer will require Game manufacturers to install Game
Hardware Kits provided by Acres or Customer will install such
kits.
(c) Customer will require Game manufacturers to provide Games which
are compliant with the SAS3 or SAS4 communication protocol for
accounting, security and player tracking and SAS4 communication
protocol for machines utilizing bonusing, such as Return
Play(TM), Point Play(TM), Xtra Credit(TM), Personal
Progressive(R), and Lucky Coin(TM).
6. INSTALLATION AND ACCEPTANCE TESTING
(a) Installation. Acres shall arrange for delivery of the System
components to the Casino Location or the Games manufacturers as necessary. At no
additional charge to Customer, Acres shall deliver, install and supervise
installation of the System in good working order, including testing and
verifying that all components of the System have been successfully installed.
Customer and Acres shall cooperate fully with each other with respect to such
delivery and installation.
(b) Acceptance Testing. Acceptance testing of the System will be performed
at the Casino Location. The System will be deemed accepted when MGCB Acceptance
has occurred and the System as a whole has successfully satisfied, to the
Customer's reasonable satisfaction, the acceptance criteria in accordance with
the procedures defined in the Initial Acceptance Test set forth in Exhibit A and
the Final Acceptance Test set forth in Exhibit B and the System as a whole is
otherwise of good and merchantable quality and fit for Customer's needs.
Acceptance testing will be performed utilizing the actual hardware and software
systems. Acres shall supply Customer and Customer shall be entitled to modify
the Acceptance Testing criteria. Acceptance Testing criteria is attached hereto
with Exhibits A and B.
7. ACRES INTELLECTUAL PROPERTY RIGHTS
Customer acknowledges that the computer programs, system protocols,
system documentation manuals, and trademarks supplied by Acres to Customer are
the property of Acres, and agrees to execute the software and trademark license
agreements (attached as Exhibits G & H). Acres agrees to license Customer to use
Acres-developed interfaces at other sites upon execution of an appropriate
software license and payment to Acres of the license fees set forth in Exhibit J
for each Customer location where such interface is applicable, provided,
however, that
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Customer need not pay any such fees or execute any other agreement in
connnection with Customer opening or operating the Permanent Site.
Acres represents and warrants that the license agreements attached as
Exhibits G & H license to Customer all programs, protocols, copyrights,
trademarks, software codes, trade secrets, and patents concerning the System and
except for those items set forth in those licensing agreements, Acres claims no
ownership in any other copyrights, patents, trademarks, software codes or trade
secrets for the System.
8. SOURCE CODE ESCROW
Not later than Customer Acceptance, Acres shall place the Acres Software
source code in escrow for Customer's use in accordance with the Source Code
Escrow Agreement attached as Exhibit C.
9. WARRANTY
ACRES WARRANTS THAT FOR A PERIOD OF TWELVE (12) MONTHS FOLLOWING "GO
LIVE", THE SYSTEM, INCLUDING WITHOUT LIMITATION OF THE FOREGOING, THE SOFTWARE
LICENSED AND HARDWARE PROVIDED UNDER THE ORIGINAL AGREEMENT AS MODIFIED BY THIS
AMENDED AGREEMENT WILL BE FREE FROM DEFECTS AND IN GOOD WORKING ORDER. IN THE
EVENT OF A DEFECT, ACRES EXPEDITIOUSLY WILL RESTORE THE HARDWARE OR SOFTWARE,
WHICHEVER APPLIES, TO GOOD WORKING CONDITION BY ADJUSTMENT, REPAIR OR
REPLACEMENT, AT ACRES' OPTION. EXCEPT AS SPECIFICALLY PROVIDED IN THIS
AGREEMENT, THERE ARE NO OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT
LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
NO AFFIRMATION OF FACT, INCLUDING BUT NOT LIMITED TO STATEMENTS REGARDING
SUITABILITY FOR USE OR PERFORMANCE OF THE SOFTWARE SHALL BE DEEMED TO BE A
WARRANTY OR GUARANTY OF LICENSOR FOR ANY PURPOSE. ANY UNAUTHORIZED MODIFICATION,
ALTERATION, OR REVISION OF ALL OR ANY PORTION OF THE SOFTWARE WHICH IS THE
SUBJECT OF THIS AGREEMENT SHALL CAUSE THE WARRANTY DESCRIBED IN THIS PARAGRAPH
TO BE NULL AND VOID.
(b) System Features. A condition of this Agreement shall be that the
System as installed by Acres will only display pre-programmed bonus amounts
which will range between the parameters established by Customer but not in
excess of $15,000 (except for the Lucky Coin bonus which is $1,000,000), unless
any increase above that limit is initiated and approved by two independent
departments, using assigned passwords and other security measures and no Bonus
will display outside of its Bonus group. The Bonus feature will not be designed
or installed in such a manner as to allow the display of bonus and/or pay-out
information while the System is malfunctioning or a Game to which it is
installed is exhibiting a coin-in or Jackpot/win signal malfunction. Acres
covenants that the only Game malfunctions which could affect the Bonus
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feature are the coin-in and Jackpot/win signals. The System will not be capable
of sending any data/information, etc. to a Game, whether the System is
functioning properly or malfunctioning, which will change the Game outcome or
display erroneous pay-out information.
10. SUPPLEMENTAL REMEDIES
In the event that any of Acres' hardware or software does not
substantially conform to specifications or representations set forth in this
Agreement, is not suitable for use at the Casino Location, not timely delivered,
installed or tested, or the occurrence of any other act or omission of Acres
which is likely to result in the System not being ready by Opening Day, in
addition to other rights and remedies available to Customer at law or equity,
Customer may elect to: (1) receive a refund of payments made provided Customer
returns all software and hardware to Acres; or (2) retain all hardware and
software supplied by Acres and have Acres procure and provide suitable
alternative hardware or software, including but not limited to, obtaining all
required approvals, consents, licenses, etc. to enable Customer to operate a
substantially functional System at the Casino Location.
11. LIMITATION OF LIABILITY
In no event shall Acres' liability for Customer's damages exceed the
total payment to be received by Acres pursuant to Section 3(a).
12. TITLE AND SECURITY INTEREST
Title to the System shall vest in Customer upon Customer Acceptance of
the System and components therefor at the Casino Location. Customer shall keep
the System in good order and repair until the purchase price has been paid in
full and shall promptly pay all taxes and assessments based upon the purchase or
use of the System excluding taxes on Acres' income. Acres shall retain a
security interest in the System until all monies due hereunder are paid in full.
Customer shall execute, upon request of Acres, financing statements deemed
necessary or desirable by Acres to perfect its security interest in the System,
but such security interests shall be subordinate to Customer's entitlement to
the software modules and hardware should Acres default. Customer authorizes
Acres to file a copy of this security agreement or a financing statement in
order to perfect Acres' security interest. A financing statement may be filed
without Customer's signature on the basis of this security agreement where
allowed by law.
13. INDEMNITY
(a) Acres at its own expense, with counsel acceptable to Customer, will
defend, indemnify and hold Customer harmless in any action brought against
Customer to the extent that it is based on a claim that all or part of the
System used within the scope of this Agreement infringes any patents,
copyrights, license or other property right, provided that Acres is promptly
notified in writing of such claim. Acres shall have the right to control the
defense of all such claims, lawsuits
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and other proceedings. In no event shall Customer settle any such claim, lawsuit
or proceeding without Acres' prior written approval.
(b) If, as a result of any claim of infringement against any patent,
copyright, license or other property right, Acres or Customer are enjoined from
using all or part of the System, or if Acres believes that all or part of the
System is likely to become the subject of a claim of infringement, Acres at its
option and expense may procure the right for Customer to continue to use the
System, or replace or modify the System with components of equal quality and
function so as to make it non-infringing. The foregoing Subsections (a) and (b)
state the entire liability of Acres with respect to infringement of any license,
property rights, copyrights or patents by the System or any parts thereof.
(c) Acres shall not be liable for any infringement or claim based upon
use of the System in combination with other equipment not contemplated by this
Agreement or with software not supplied by Acres or modifications made by
Customer and not authorized by Acres.
(d) Acres will defend (with counsel acceptable to Customer), indemnify
and hold Customer harmless from and against any claims, demands, liabilities or
judgments resulting from a malfunction of all or part of the System, hardware or
software because of design or manufacturing defects or otherwise attributable to
Acres' acts or omissions. Customer will defend, indemnify and hold Acres
harmless from and against any claims, demands, liabilities or judgments
resulting from Customer's breach of this Agreement, negligence in operation of
the System or otherwise attributable to Customer's acts or omissions.
14. GENERAL PROVISIONS
(a) Force Majeure. Neither party shall be responsible for any failure to
perform or delay in performing any of its obligations hereunder where and to the
extent that such failure or delay results from a force majeure event, meaning:
strike, boycott, lockout or other labor trouble; storm, fire, earthquake or
other Act of God; riot, civil disturbance, or any act of war or of the public
enemy; shortage, unavailability or disruption in the supply of electrical or
other utility service; or any other cause or contingency beyond the control of
the applicable party, but only during such time as such party is unable due to a
specified reason herein to perform its obligations hereunder. Licensing delays
shall not be considered a force majeure event.
(b) Attorneys' Fees. If either party brings any legal action or other
proceeding for breach of this Agreement, the prevailing party shall be entitled
to recover its reasonable attorneys' fees and costs.
(c) Divisibility. If any provision of this Agreement is found to be
prohibited by law and invalid, or for any other reason if any provision is held
to be unenforceable, in whole or in part, such provision shall be ineffective to
the extent of the prohibition or unenforceability without invalidating or having
any other adverse effect upon any other provision of this Agreement.
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(d) Licensing. Acres warrants that it holds all requisite licenses,
permits and/or approvals required for it to perform all of its obligations
hereunder and shall comply with all applicable codes, laws, ordinances,
approvals, rules and regulations. Acres understands and acknowledges that this
Agreement, at Customer's discretion, may be subject to Acres and its principals
to being found suitable by Customer's and/or Mandalay Resort Group's Compliance
Committee. Notwithstanding any other provision in this Agreement to the
contrary, Customer or Mandalay Resort Group, as applicable, may terminate this
Agreement without further obligation or liability to Acres if, in the judgment
of its Compliance Committee, the relationship with Acres or Acres' principals
could negatively impact its business or the business of any subsidiary. Attached
hereto and incorporated herein as Exhibit I is Standard Michigan Language.
(e) Entire Agreement. This Amended Agreement, including the documents
and the instruments referred to herein and the Original Agreement, together
constitute the entire agreement between the parties relating to the subject
matter of those agreements and supersede all prior or contemporaneous
negotiations or agreements, whether oral or written, relating to the subject
matter hereof. No extension, modification or amendment of this Amended Agreement
shall be binding upon a party unless such extension, modification or amendment
is set forth in a written instrument, which is executed and delivered on behalf
of such party.
(f) Counterparts/facsimile. The Amended Agreement may be executed in
counterparts, each of which shall be deemed an original and all of which
together shall constitute a single Agreement. Each party may rely upon the
facsimile signature of the other.
The parties hereto have duly executed this Agreement as of the date first
written above.
AGI DISTRIBUTION, INC. DETROIT ENTERTAINMENT, L.L.C.
By: _______________________________ By: _______________________________
Title:_____________________________ Title:_____________________________
Date:______________________________ Date:______________________________
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EXHIBIT A
INITIAL ACCEPTANCE TEST
The Initial Acceptance Test will confirm all slot system network operations and
connectivity to each gaming machine to be part of the opening configuration of
the casino as well as proper System accounting and reporting. Acres will
commence Initial Acceptance Testing on the first date that Customer's facilities
are suitable for testing.
Passing each test as set forth in the following testing program after the System
is installed in its entirety (exclusive of Game Hardware Kits for Games not yet
installed on the Casino Location floor) shall constitute satisfaction of the
Initial Acceptance Test.
Prerequisites for the Test are as follows:
a. At least 30% of the slot machines are installed and configured on the
Casino Location floor and are connected to the System.
b. At least 30% of the bank controllers are installed on the Casino
Location floor and connected to the System.
c. The slot system database server, translator, concentrator, configuration
work station and at least one bonus server is operating at the Casino
Location. Depending upon the availability and access to the computer
room this equipment may be installed at a temporary location.
d. At least 30% of the fill jackpot terminals are installed and operating
on the Casino Location floor. Depending upon the availability and access
to change booths this equipment may be installed in a temporary
location.
e. At least 10% of the overhead meters and displays are installed on the
Casino Location floor and connected to the System.
f. Compliance with all representations and requirements.
The tests to be conducted will cover operation aspects of the gaming machines
and System and will indicate the functional performance of the System. Testing
will be structured in such a way that proper operation of the System and its
components can be observed and verified, as follows:
1. Initial Game Connection Test
The purpose of these tests is to ensure that the System can communicate
with each game type and that accounting and event data is properly
transmitted through the System. The tests and expected results are as
follows:
a. On-line test
Each game type will be configured on the slot system and then
"brought on line". On-line status will be confirmed by displaying
the player tracking normal "attract" message.
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b. Event Test
A standard event sequence test will be performed at the slot
machine to confirm proper detection and reporting of the
following events:
- Unauthorized Main Door open/close
- Authorized Main Door open/close
- Unauthorized Drop Door open/close
- Authorized Drop Door open/close
- Unauthorized Bill Stacker Door open/close
- Authorized Bill Stacker Door open/close
- Power on/off
- Card in/out
c. Machine Accounting Data Test
A standard accounting meter test will be performed whereby coins
and/or bills are played in machines and verified against the
System collected meters. The test will include inserting coins
and/or bills, playing games, collecting money and the payment of
bonus prizes to the game.
Meter reconciliation will be performed for Coin In, Coin Out,
Games played, and Bonuses In.
2. Bonus Configuration and Operation
Once games have passed the initial connection tests the testing will
enter the Bonus Configuration and operation phase. Bonus configuration
will be set up to emulate the actual operational parameters and
controlled testing will confirm the proper operation of each game type
during bonusing, including:
- accurate pool incrementation
- receipt of bonus payments
- receipt of celebration payments
- handpay lock up conditions
Bonus configurations will also be changed during the test to simulate
actual operational circumstances such as adding machines, retiring
machines, changing pool increment rates, changing pool values.
The bonusing tests will also confirm proper operation of overhead
displays and sound systems associated with the bonus configurations.
3. Fill/Jackpot System Tests
Fill/Jackpots are an important element of the slot floor operation.
Testing will be conducted to confirm proper operation of the
fill/jackpot system including:
- fills
- handpay jackpots
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- cancel credits
- short pays
- supervisor overrides
- voids
- manual entry
The expected results of this testing phase are proper operation of the
fill/jackpot terminal, accurate fill/jackpot slips, reconciliation with
system held transactions and proper entry and auditability of manual
transactions.
4. System Accounting and Reporting
The System accounting and reporting tests will be conducted by
simulating a number of casino trading days and verifying proper and
accurate recording of transactions and reports.
The test will include:
- coin drop
- note drop
- meter reconciliations and adjustments
- report production
- variance reporting
- work order production and tracking
- machine moves-including retirement/addition/configuration changes
The System will generate accounting reports substantially of the form as
set forth in Schedule A.
5. System Player Tracking
The System player tracking tests will be conducted by simulating a
number of player sessions, enrollments and redemptions and verifying
proper and accurate recording of transactions and reports.
The test will include:
- enroll a player
- accumulate points from slot coin-in
- accumulate comp value from slot theoretical win
- accumulate points from table theoretical win
- track slot and table games play
- issue and account for complimentary items
- display play and expense information for player evaluation purposes
- query the database for players meeting user-specified criteria
including demographics, interests and gaming activity.
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The System will generate player tracking reports substantially of the
form as set forth in Exhibit 2.
The Initial Acceptance Test shall be completed by Opening Day.
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EXHIBIT A -- SCHEDULE A
WIZARD SLOT ACCOUNTING REPRESENTATIVE REPORTS
CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SEC
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EXHIBIT A -- SCHEDULE B
PROPHET PLAYER TRACKING REPRESENTATIVE REPORTS
CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SEC
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EXHIBIT B
FINAL ACCEPTANCE TEST
The System will be deemed to have completed the Final Acceptance Test when the
following conditions are met:
1. MGCB Acceptance has occurred.
2. The System, including without limitation of the foregoing, the
Progressive/Lucky Coin software modules and all interfaces, is fully
installed, of good and merchantable quality, fit for the Casino's needs and
operates as required by the MGCB and substantially in compliance with Acres'
representations and the operational and Functional Requirements.
3. The Casino Location staff are sufficiently proficient in using the System,
including functions such as:
-- end of day posting
-- accounting reports production
-- adjustments
-- graphical view system operation
-- machine movement and reconfiguration
-- configuration of bonus software parameters
-- daily reports
4. The System generates in a manner reasonably satisfactory to Customer all of
the reports elsewhere in this Agreement described.
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EXHIBIT C
SOURCE CODE ESCROW AGREEMENT
This Agreement is effective ________, 1999 among DSI Technology Escrow Services,
Inc. ("DSI"), AGI Distribution, Inc., dba Acres Gaming, having a place of
business at 7115 Amigo Street, Suite 150, Las Vegas, Nevada 891119 ("Acres") and
Detroit Entertainment, LLC, having a place of business at 1922 Cass, Detroit, MI
48226 ("Customer"), who collectively may be referred to in this Agreement as
"the parties."
A. Acres and Customer have entered or will enter into a license agreement,
development agreement, and/or other agreement regarding certain proprietary
technology of Acres (referred to in this Agreement as "the license agreement").
B. Acres desires to avoid disclosure of its proprietary technology except under
certain limited circumstances.
C. The availability of the proprietary technology of Acres is critical to
Customer in the conduct of its business and, therefore, Customer needs access to
the proprietary technology under certain limited circumstances.
D. Acres and Customer desire to establish an escrow with DSI to provide for the
retention, administration and controlled access of the proprietary technology
materials of Acres.
E. The parties desire this Agreement to be supplementary to the license
agreement pursuant to 11 United States [Bankruptcy] Code, Section 365(n).
ARTICLE 1 -- DEPOSITS
1.1 Obligation to Make Deposit. Within (5) business days of the acceptance of
this Agreement and five (5) business days following completion of the Initial
Acceptance Test and five (5) business days following final MGCB approval, Acres
shall deposit with DSI in CD ROM form the following: 1) a fully compatible copy
of the Source Code; 2) a fully compiled program; 3) name, version number and a
copy of software used to compile Source Code; and 4) a hardcopy listing of all
programs on the CD ROM. Such items shall be referred to in this escrow agreement
as the "Deposit Materials".
1.2 Identification of Tangible Media. Prior to the delivery of the Deposit
Materials to DSI, Acres shall conspicuously label for identification each
document, magnetic tape, disk, or other tangible media upon which the Deposit
Materials are written or stored. Additionally, Acres shall complete Attachment B
to this Agreement by listing each such tangible media by the item label
description, the type of media and the quantity. The Attachment B must be signed
by Acres and delivered to DSI with the Deposit Materials. Unless and until Acres
makes the initial deposit with DSI, DSI shall have no obligation with respect to
this Agreement, except the obligation to notify the parties regarding the status
of the deposit account as required in Section 2.2 below.
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1.3 Deposit Inspection. When DSI receives the Deposit Materials and the
Attachment B, DSI will conduct a deposit inspection by visually matching the
labeling of the tangible media containing the Deposit Materials to the item
descriptions and quantity listed on the Attachment B. In addition to the deposit
inspection, Customer may elect to cause a verification of the Deposit Materials
in accordance with Section 1.6 below.
1.4 Acceptance of Deposit. At completion of the deposit inspection, if DSI
determines that the labeling of the tangible media matches the item descriptions
and quantity on Attachment B, DSI will date and sign the Attachment B and mail a
copy thereof to Acres and Customer. If DSI determines that the labeling does not
match the item descriptions or quantity on the Attachment B, DSI will (a) note
the discrepancies in writing on the Attachment B; (b) date and sign the
Attachment B with the exceptions noted; and (c) provide a copy of the Attachment
B to Acres and Customer. DSI's acceptance of the deposit occurs upon the signing
of the Attachment B by DSI. Delivery of the signed Attachment B to Customer is
Customer's notice that the Deposit Materials have been received and accepted by
DSI.
1.5 Acres's Representations. Acres represents as follows:
a. Acres lawfully possesses all of the Deposit Materials deposited
with DSI;
b. With respect to all of the Deposit Materials, Acres has the right
and authority to grant to DSI and Customer the rights as provided
in this Agreement;
c. The Deposit Materials are not subject to any lien or other
encumbrance;
d. The Deposit Materials consist of the proprietary information and
other materials identified either in the license agreement or
Attachment B, as the case may be; and
e. The Deposit Materials are readable and useable in their current
form or, if the Deposit Materials are encrypted, the decryption
tools and decryption keys have also been deposited.
1.6 Verification. Customer shall have the right, at Customer's expense, to cause
a verification of any Deposit Materials. A verification determines, in different
levels of detail, the accuracy, completeness, sufficiency and quality of the
Deposit Materials. If a verification is elected after the Deposit Materials have
been delivered to DSI, then only DSI, or at DSI's election an independent person
or company selected and supervised by DSI, may perform the verification, and
Customer shall be permitted to observe that process.
1.7 Deposit Updates. Acres shall update the Deposit Materials within five (5)
business days of each release of a new version or modification of the product
which is installed at the MotorCity Casino. Such updates will be added to the
existing deposit. All deposit updates shall be listed on a new Attachment B and
the new Attachment B shall be signed by Acres. Each Attachment B will be held
and maintained separately within the escrow account. An independent record will
be created which will document the activity for each Attachment B. The
processing of all deposit updates shall be in accordance with Sections 1.2
through 1.6 above. All references in this Agreement to the Deposit Materials
shall include the initial Deposit Materials and any updates.
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<PAGE> 18
1.8 Removal of Deposit Materials. The Deposit Materials may be accessed, removed
and/or exchanged only on written instructions signed by Acres and Customer, or
as otherwise provided in this Agreement.
1.9 Location of Deposit Materials. The Deposit Materials will be vaulted by DSI
at ARCUS DATA SECURITY, 1685 South Palm Street, Las Vegas, Nevada 89104.
ARTICLE 2 -- CONFIDENTIALITY AND RECORD KEEPING
2.1 Confidentiality. DSI shall maintain the Deposit Materials in a secure,
environmentally safe, locked facility which is accessible only to authorized
representatives of DSI. DSI shall have the obligation to reasonably protect the
confidentiality of the Deposit Materials. Except as provided in this Agreement,
DSI shall not disclose, transfer, make available, or use the Deposit Materials.
DSI shall not disclose the content of this Agreement to any third party. If DSI
receives a subpoena or other order of a court or other judicial tribunal
pertaining to the disclosure or release of the Deposit Materials, DSI will
immediately notify the parties to this Agreement. It shall be the responsibility
of Acres and/or Customer to challenge any such order; provided, however, that
DSI does not waive its rights to present its position with respect to any such
order. DSI will not be required to disobey any court or other judicial tribunal
order. (See Section 7.5 below for notices of requested orders.)
2.2 Status Reports. DSI will issue to Acres and Customer a report profiling the
account history at least semi-annually. DSI may provide copies of the account
history pertaining to this Agreement upon the request of any party to this
Agreement.
2.3 Audit Rights. During the term of this Agreement, Acres and Customer shall
each have the right to inspect the written records of DSI pertaining to this
Agreement. Any inspection shall be held during normal business hours and
following reasonable prior notice.
ARTICLE 3 -- RELEASE OF DEPOSIT
3.1 Release Conditions. As used in this Agreement, "Release Conditions" shall
mean the following:
a. Acres has availed itself of, or been subjected by any third party
to a Chapter 7 or 11 proceeding in bankruptcy in which Acres is
the named debtor and such proceedings has not been terminated
without prejudice to Customer's rights or interest under the
Agreement within (30) days; or
b. Acres has ceased its on-going business operations or support of
the Acres Software; or
c. Acres has defaulted in any material obligation to Customer.
3.2 Release Condition Occurs. If Customer determines, in its sole discretion,
that a Release Condition has occurred, as described in Section 3.1, Customer may
demand delivery of the Deposit Materials. In the event Customer demands delivery
of the Deposit Materials, then Customer shall first notify DSI in writing
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<PAGE> 19
that a Release Condition has occurred and that Customer demands delivery of the
Deposit Materials. Customer shall contemporaneously send a copy of such notice
to Acres.
3.3 Form and Contents of Notice. Customer's notice and demand for access to the
Deposit Materials must be on Customer's letterhead, signed by an officer of the
Customer. The notice must include an affidavit, executed by a responsible
officer of Customer, which specifies the Release Condition and the basis for the
demand.
3.4 DSI Has No Discretion. Upon receipt of the notice from Customer DSI shall be
required only to verify that the notice is in the proper form; and that it
purports to have been executed and approved by Customer. DSI shall have no
obligation to determine independently whether a Release Condition has occurred.
DSI shall have no right to refuse to deliver the Deposit Materials to Customer
on the grounds that a Release Condition has not occurred.
3.5 Delivery to Customer. Unless otherwise prevented by a Court Order and after
five (5) business days of receipt of such release notice from Customer, DSI
shall deliver the Deposit Materials to an authorized Customer representative.
For purposes of this Agreement, an authorized Customer representative shall be
an individual who presents to DSI a letter on Customer's letterhead, approved in
writing by Customer's Legal Counsel, authorizing that individual to take
delivery of the Deposit Materials on behalf of Customer.
3.6 Right to Use Following Release. Customer shall have the unrestricted right
to use, modify, change, alter and exploit the Deposit Materials, which it is
permitted to access in accordance with this Agreement. All such rights to the
Deposit Materials are limited to use at MotorCity Casino.
ARTICLE 4 -- TERM AND TERMINATION
4.1 Term of Agreement. The initial term of this Agreement is for a period of
five (5) years, unless (a) Acres and Customer jointly instruct DSI in writing
that the Agreement is terminated; or (b) the Agreement is terminated by DSI for
nonpayment in accordance with Section 5.2.
4.2 Termination for Nonpayment. In the event of the nonpayment of fees owed to
DSI, DSI shall provide written notice of delinquency to all parties to this
Agreement. Any party to this Agreement shall have the right to make the payment
to DSI to cure the default. If the past due payment is not received in full by
DSI within one month of the date of such notice, then DSI shall have the right
to terminate this Agreement at any time thereafter by sending written notice of
termination to all parties. DSI shall have no obligation to take any action
under this Agreement so long as any payment due to DSI remains unpaid.
4.3 Disposition of Deposit Materials Upon Termination. Upon termination of this
Agreement, DSI shall destroy, return, or otherwise deliver the Deposit Materials
in accordance with instructions. If there are no instructions, DSI may, at its
sole discretion, destroy the Deposit Materials or return them to Acres.
4.4 Survival of Terms Following Termination. Upon termination of this Agreement,
the following provisions of this Agreement shall survive:
a. Acres's Representations (Section 1.5);
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b. The obligations of confidentiality with respect to the Deposit
Materials;
c. The rights granted in the section entitled Right to Use Following
Release (Section 3.6), if a release of the Deposit Materials has
occurred prior to termination;
d. Customer's obligation to pay DSI any fees and expenses due;
e. The provisions of Article 6; and
f. Any provisions in this Agreement which specifically state they
survive the termination or expiration of this Agreement.
ARTICLE 5 -- DSI'S FEES
5.1 Fee Schedule. Customer shall be responsible for any and all fees due and
payable to DSI for DSI's performance of duties under this Agreement. Fees for
the services provided hereunder are $3,200 for the first year and $1,650 for
each renewal year thereafter. DSI shall notify the party responsible for payment
of DSI's fees at least 90 days prior to any increase in fees. For any service
not listed on DSI's standard fee schedule, DSI will provide a quote prior to
rendering the service, if requested.
5.2 Payment Terms. DSI shall not be required to perform any service unless the
payment for such service and any outstanding balances owed to DSI are paid in
full. Fees are due upon receipt of a signed contract or receipt of the Deposit
Materials whichever is earliest. If invoiced fees are not paid, DSI may
terminate this Agreement in accordance with Section 4.2. Late fees on past due
amounts shall accrue interest at the rate of one and one-half percent per month
(18% per annum) from the date of the invoice.
ARTICLE 6 -- LIABILITY AND DISPUTES
6.1 Right to Rely on Instructions. DSI may act in reliance upon any instruction,
instrument, or signature reasonably believed by DSI to be genuine. DSI may
assume that any employee of a party to this Agreement who gives any written
notice, request, or instruction has the authority to do so. DSI shall not be
responsible for failure to act as a result of causes beyond the reasonable
control of DSI.
6.2 Indemnification. DSI shall be responsible to perform its obligations under
this Agreement and to act in a reasonable and prudent manner with regard to this
escrow arrangement. Provided DSI has acted in the manner stated in the preceding
sentence, Acres and Customer each agree to indemnify, defend and hold harmless
DSI from any and all claims, actions, damages, arbitration fees and expenses,
costs, attorney's fees and other liabilities incurred by DSI relating in any way
to this escrow arrangement.
6.3 Dispute Resolution. Any dispute relating to or arising from this Agreement
shall be resolved by arbitration under the Commercial Rules of the American
Arbitration Association. Unless otherwise agreed by Acres and Customer,
arbitration will take place in Las Vegas, Nevada, U.S.A. Any court having
jurisdiction over the matter may enter judgment on the award of the
arbitrator(s). Service of a petition to confirm the arbitration award may be
made by First Class mail or by commercial express mail, to the attorney for the
party or, if unrepresented, to the party at the last known business address.
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6.4 Controlling Law. This Agreement is to be governed and construed in
accordance with the laws of the State of Nevada, without regard to its conflict
of law provisions.
6.5 Notice of Requested Order. If any party intends to obtain an order from the
arbitrator or any court of competent jurisdiction which may direct DSI to take,
or refrain from taking any action, that party shall:
a. Give DSI at least two business days' prior notice of the hearing;
b. Include in any such order that, as a precondition to DSI's
obligation, DSI be paid in full for any past due fees and be paid
for the reasonable value of the services to be rendered pursuant
to such order; and
c. Ensure that DSI not be required to deliver the original (as
opposed to a copy) of the Deposit Materials if DSI may need to
retain the original in its possession to fulfill any of its other
duties.
ARTICLE 7 -- GENERAL PROVISIONS
7.1 Entire Agreement. This Agreement, which includes the Attachments described
herein, embodies the entire understanding among the parties with respect to its
subject matter and supersedes all previous communications, representations or
understandings, either oral or written. DSI is not a party to the license
agreement between Acres and Customer and has no knowledge of any of the terms or
provisions of any such license agreement. DSI's only obligations to Acres or
Customer are as set forth in this Agreement. No amendment or modification of
this Agreement shall be valid or binding unless signed by all the parties
hereto, except that Attachment B need not be signed by Customer and Attachment A
need not be signed.
7.2 Notices. All notices, invoices, payments, deposits and other documents and
communications shall be given to the parties at the addresses specified in the
attached Attachment A. It shall be the responsibility of the parties to notify
each other as provided in this Section in the event of a change of address. The
parties shall have the right to rely on the last known address of the other
parties. Unless otherwise provided in this Agreement, all documents and
communications shall be delivered by facsimile and confirmed by First Class
mail.
7.3 Severability. In the event any provision of this Agreement is found to be
invalid, voidable or unenforceable, the parties agree that unless it materially
affects the entire intent and purpose of this Agreement, such invalidity,
voidability or unenforceability shall affect neither the validity of this
Agreement nor the remaining provisions herein, and the provision in question
shall be deemed to be replaced with a valid and enforceable provision most
closely reflecting the intent and purpose of the original provision.
7.4 Successors. This Agreement shall be binding upon and shall inure to the
benefit of the successors and assigns of the parties. However, DSI shall have no
obligation in performing this Agreement to recognize any successor or assign of
Acres or Customer unless DSI receives clear, authoritative and conclusive
written evidence of the change of parties.
7.5 Regulations. Acres and Customer are responsible for and warrant compliance
with all applicable laws, rules and regulations, including but not limited to
customs laws, import, export, and re-export laws
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and government regulations of any country to which the Deposit Materials may be
delivered in accordance with the provisions of this Agreement.
Acres Customer
By: _______________________________ By: _______________________________
Name:______________________________ Name:______________________________
Title:_____________________________ Title:_____________________________
Date:______________________________ Date:______________________________
Data Securities International, Inc.
By:________________________________
Name:______________________________
Title:_____________________________
Date:______________________________
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EXHIBIT C -- ATTACHMENT A
DESIGNATED CONTACT
Account Number ______________________
<TABLE>
<S> <C>
- ---------------------------------------------------------------------------------------
Notices, deposit material returns and
communications to Acres Invoices to Acres should be
should be addressed to: addressed to:
- ---------------------------------------------------------------------------------------
Company Name: Acres Gaming Incorporated Acres Gaming, Inc.
ADDRESS: 7115 Amigo Street, Suite 150 Attn: Accounts Payable
Las Vegas, Nevada 89119 7115 Amigo Street, Suite 150
Las Vegas, Nevada 89119
Designated Contact: General Counsel
Telephone: (702) 914-5511 Contact: Controller
Facsimile: (702) 263-7595
P.O.#, IF REQUIRED: N/A
- ---------------------------------------------------------------------------------------
Notices and communications to Invoices to Customer
Customer should be addressed to: should be addressed to:
- ---------------------------------------------------------------------------------------
Company Name: Detroit Entertainment,L.L.C.
Address: 1922 Cass, Detroit, MI 48226
Designated Contact: Legal Counsel
Telephone: (313) 237-5295 Contact:
Facsimile: (313) 237-7721
P.O.#, IF REQUIRED:_____________________
Requests from Acres or Customer to change the designated contact should be given
in writing by the designated contact or an authorized employee of Acres or
Customer.
- ---------------------------------------------------------------------------------------
Contracts, Deposit Materials and notices to Invoice inquiries and fee remittances
DSI should be addressed to: to DSI should be addressed to:
- ---------------------------------------------------------------------------------------
DSI DSI
Contract Administration Accounts Receivable
Suite 200 Suite 1450
9555 Chesapeake Drive 425 California Street
San Diego, CA 92123 San Francisco, CA 94104
Telephone: (619) 694-1900 (415) 398-7900
Facsimile: (619) 694-1919 (415) 398-7914
Date:_________________________________
</TABLE>
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EXHIBIT C -- ATTACHMENT B
DESCRIPTION OF DEPOSIT MATERIALS
Company Name ___________________________________________________________________
Account Number _________________________________________________________________
Product Name_____________________________________________Version________________
(Product Name will appear on Account History report)
DEPOSIT MATERIAL DESCRIPTION:
Quantity Media Type & Size Label Description of Each
Separate Item
(Please use other side if additional
space is needed)
________ Disk 3.5" or ____
________ DAT tape ____mm
________ CD-ROM
________ Data cartridge tape ____
________ TK 70 or ____ tape
________ Magnetic tape ____
________ Documentation
________ Other ______________________
PRODUCT DESCRIPTION:
Operating System________________________________________________________________
Hardware Platform_______________________________________________________________
DEPOSIT COPYING INFORMATION:
Is the media encrypted? Yes / No If yes, please include any passwords and the
decryption tools.
Encryption tool name____________________________________ Version________________
Hardware required_______________________________________________________________
Software required_______________________________________________________________
I certify for ACRES that the above described
__________________________________DSI has inspected and accepted the above
Deposit Materials have been transmitted to DSI: materials (any exceptions are
noted above):
Signature__________________________ Signature__________________________
Print Name_________________________ Print Name_________________________
Date_______________________________ Date Accepted______________________
Attachment B#______________________
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Send materials to: DSI, 9555 Chesapeake Dr. #200, San Diego, CA 92123
(619) 694-1900
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EXHIBIT D
FUNCTIONAL REQUIREMENTS SPECIFICATION
CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SEC
1
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EXHIBIT E
CUSTOMER HARDWARE
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
STATION NAME EQUIPMENT MISC.
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
JP Fill Station IBM 4695
Power Supply
Mag Reader
Key Board (Qtronix Scorpius 83)
Cat5 Patch cable
Epson TMU200B
R232 cable 9 to
25
HP 2100NT (dual tray)
Parallel Printer Cable
Electronic A/B switch
2 ea. External floppy drives per Casino
Attendant Station IBM 4695
Power Supply
Mag Reader
Key Board (Qtronix Scorpius 83)
Cat5 Patch cable
Metrol Logic Scanner
RS232 cable 9 to
9 Str.
Neuron CT891 Card reader/encoder
RS 232 Cable 9 to 9 Null
Soft Count Station Dell
Primary Station
Cat5 Patch cable
Glory GFR
RS 232 Cable 9 to 25
Panasonic Dot Matrix Printer
Parrallel Printer Cable
Dolfin bar code scanner
RS232 cable 9 to
9 Str.
Accounting Work Dell For equipment and machine lables
Station
Cat5 Patch cable
Pressiza Bar Code Lable maker
RS 232 Cable 9 to 9 Null
</TABLE>
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<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------
STATION NAME EQUIPMENT MISC.
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C>
Hard Count Dell
Cat5 Patch cable
Toledo Coin Counter
R232 cable 9 to 25
Soft Count Secondary Dell
Station
Cat5 Patch cable
Hand Held Products Dolphin station
RS232 cable 9 to 9 Str.
Dolphins One per drop crew
- ----------------------------------------------------------------------------------------------------------
Club Work Station Dell
keyboards
Monitors
Mouse kit
Cat5 Patch cable
PS2 Extension Cables
Neuron Card Reader - FT-770-1R-0101
R232 cable 9 to 25
HP 2100NT (dual tray)
Boca Systems Ticket printer - TCC
Mag 41
Parallel Printer Cable
Card Embosser Connection (Jet Direct)
(As Required)
Event Monitor Dell
Cat5 Patch cable
OKI Data 321
Parallel Printer Cable
Merlin Work Station HP LC3 or Dell equivelant.
Cat5 Patch cable
Color printer and or plotter
Parallel Printer Cable
Paging System Dell
Cat5 Patch cable
Zetron Paging Encoder( #640)
GM300 Transmitter
Advisor Gold UHF Pagers
Power Supply
Cabinet
Antenna Design
- ----------------------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 29
EXHIBIT F
DESIGNATION OF GAME MANUFACTURERS
The Game manufacturers Customer designated below are to be supplied by Acres
with all information and equipment they require to equip their Game(s) to be
compliant with System requirements:
1. International Game Technology (IGT)
2. WMS Gaming, Inc.
3. Casino Data Systems (CDS)
4. Sigma Games
5. Silicon Gaming, Inc.
6. Atronic Game Technology
7. Mikohn Gaming Corp.
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EXHIBIT G
END-USER SOFTWARE LICENSE AGREEMENT
This End-User Software License Agreement ("Agreement") is made effective
on the date last signed below between AGI Distribution, Inc., dba Acres Gaming,
a Nevada corporation, having an office at 7115 Amigo Street, Suite 150, Las
Vegas, Nevada 89119 ("Licensor") and , Detroit Entertainment, L.L.C. having an
office at 1922 Cass, Detroit, MI 48226 ("Licensee").
1. LICENSE
(a) In accordance with the terms herein, Licensor grants to Licensee,
and Licensee accepts from Licensor, a perpetual non-exclusive and
non-transferable license to use Licensor's software and firmware as provided
under an Equipment Sale Agreement and/or Amended Equipment Sale Agreement. A
description of the software and firmware is attached as Schedule A (the
"Software").
(b) The Software shall be used only on equipment and at the temporary
location identified in Schedule B. Licensee shall have the right to make a one
time transfer of this license to a permanent site to be designated by Licensee.
Upon transfer of the license, Licensee's license at the temporary location shall
terminate. The Software shall be used only for Licensee's own business, which
includes operating gaming devices for the benefit of its customers and clients.
Licensee shall not: (1) permit any third party to use the Software, or (2) use
the Software for any purpose other than in connection with operating gaming
devices.
2. DESCRIPTION OF OTHER RIGHTS AND LIMITATIONS
(a) Licensee may not reverse engineer, decompile, or disassemble the
Software, except and only to the extent that such activity is expressly
permitted by applicable law notwithstanding this limitation.
(b) Licensee must maintain all copyright notices on all copies of the
Software.
(c) Licensee may not distribute copies of the Software to third parties.
3. NO ROYALTY
The license granted herein is granted by Licensor pursuant to the
Equipment Sale Agreement and/or Amended Equipment Sale Agreement between
Licensor and Licensee and is granted in consideration of such agreements. No
further license fee or royalty shall be payable to Licensor by Licensee.
4. TITLE TO SOFTWARE, CONFIDENTIALITY
The Software and all programs developed hereunder and all copies thereof
are proprietary to Licensor and title thereto remains in Licensor. All
applicable rights to patents, copyrights, trademarks and trade secrets in the
Software are and shall remain in Licensor. Licensee shall not sell, transfer,
publish, disclose, display or otherwise make available the Software or copies
thereof to others. Licensee agrees to secure and protect each module, software
product, documentation and copies thereof in a manner consistent with the
maintenance of Licensor's rights therein and to take appropriate action by
instruction or agreement with its employees or consultants who are permitted
access to the Software product to satisfy its obligations hereunder. All copies
made by
1
<PAGE> 31
the Licensee of the Software are the property of Licensor. Violation of any
material provision of this paragraph shall be the basis for immediate
termination of this License Agreement.
5. SOURCE CODE ESCROW
Pursuant to the Source Code Escrow Agreement (the "Escrow Agreement")
entered into by Licensor, Licensee and an escrow agent (Exhibit C of the Amended
Equipment Sale Agreement), Licensor has placed, or will place, certain Software
source code ("Source Code") in escrow. Should the Source Code be delivered to
Licensee as provided by the Escrow Agreement, Licensor will be deemed to have
granted Licensee a perpetual, non-exclusive license to possess and use the
Source Code solely for the purpose of supporting and maintaining the Software.
Licensee shall in all respects treat Source Code as licensed Software pursuant
to the terms of this End-User Software License Agreement.
6. TERMINATION
(a) Licensor shall have the right to terminate this Agreement and
license(s) granted herein: (i) Upon ten days' written notice in the event that
Licensee, its officers or employees violates any material provision of this
Agreement, and (ii) in the event Licensee (A) terminates its business; (B)
becomes subject to any bankruptcy or insolvency proceeding under Federal or
state statute or (C) becomes insolvent or becomes subject to direct control by a
trustee, receiver or similar authority.
(b) In the event of termination by reason of the Licensee's failure to
comply with any material part of this Agreement, or upon any act which shall
give rise to Licensor's right to terminate, Licensor shall have the right, at
any time, to terminate the license(s) and take immediate possession of the
Software and documentation and all copies wherever located, without demand or
notice. Within five (5) days after termination of the license(s), Licensee will
return to Licensor the Software in the form provided by Licensor or as modified
by the Licensee, or upon request by Licensor destroy the Software and all
copies, and certify in writing that they have been destroyed. Termination under
this paragraph shall not relieve Licensee of its obligations regarding
confidentiality of the Software.
(c) Without limiting any of the above provisions, in the event of
termination as a result of the Licensee's failure to comply with any of its
material obligations under this Agreement, the Licensee shall continue to be
obligated for any payments due. Termination of the license(s) shall be in
addition to and not in lieu of any equitable remedies available to Licensor.
7. LICENSED LOCATION(s)
Use of the Software by the Licensee at any location other than those
described above in Article 1 shall be the basis for immediate termination of
this Agreement. Termination of the Agreement shall be in addition to, and not in
lieu of, any equitable remedies available to Licensor.
2
<PAGE> 32
8. GENERAL PROVISIONS
(a) Notice. Any notice, request, demand, or other communication that is
required or permitted under this Agreement shall be deemed properly given if it
is deposited in the U.S. mail, certified, return, receipt requested, postage
prepaid, properly addressed to the respective addresses as set forth above.
(b) Attorneys' Fees. If either party brings any legal action or other
proceeding for breach of this Agreement, the prevailing party shall be entitled
to recover its reasonable attorneys' fees and costs.
(c) Divisibility. If any provision of this Agreement is found to be
prohibited by law and invalid, or for any other reason if any provision is held
to be unenforceable, in whole or in part, such provision shall be ineffective to
the extent of the prohibition or unenforecability without invalidating or having
any other adverse effect upon any other provision of this Agreement.
(d) Entire Agreement. This agreement, including the documents and the
instruments referred to herein, constitutes the entire agreement between the
parties relating to its subject matter and supersedes all prior or
contemporaneous negotiations or agreements, whether oral or written, relating to
the subject matter hereof. No extension, modification or amendment of this
agreement shall be binding upon a party unless such extension, modification or
amendment is set forth in a written instrument, which is executed and delivered
on behalf of such party.
(e) Assignment. Neither party may assign this Agreement except to a
successor company or as part of the sale of substantially all of its assets.
In Witness Whereof, the parties hereto have duly executed this
agreement, including the Exhibits attached hereto and incorporated herein by
reference, as of the date last signed below.
AGI DISTRIBUTION, INC. DETROIT ENTERTAINMENT, L.L.C.
By: ______________________________ By: ______________________________
Title: ___________________________ Title: ___________________________
Date: _____________________________ Date: ____________________________
3
<PAGE> 33
EXHIBIT G -- SCHEDULE A
DESCRIPTION OF SOFTWARE
Progressive/Lucky Coin(TM)
Accounting Database & Reports
Security & Exception Messaging
Mapping & Analysis
Player Tracking Software
Spintek Accusystem Interface
Mikohn Pit Track Interface
Info Genesis Interface
1
<PAGE> 34
EXHIBIT G -- SCHEDULE B
LICENSED LOCATIONS
MotorCity Casino
2901 Grand River
Detroit, Michigan 48201
1
<PAGE> 35
EXHIBIT H
END-USER TRADEMARK LICENSE AGREEMENT
THIS AGREEMENT, effective as of the date last written below, by and
between Acres Gaming Incorporated, a corporation organized under the laws of
Nevada and having an office at 7115 Amigo Street, Suite 150, Las Vegas, Nevada
89119 (hereinafter referred to as "Licensor"), and Detroit Entertainment, L.L.C.
and having at office at 1922 Cass, Detroit, MI 48226 (hereinafter referred to as
"Licensee").
Licensor has rights to the trademark, name, character, symbol, design,
likeness, and visual representations set forth in Schedule A which trademarks,
names, characters, symbols, designs, likenesses, and visual representations are
hereinafter referred to as the "Property." Licensee desires a license to utilize
the Property in connection with the operation of a casino. Accordingly, in
consideration of the mutual promises herein contained, it is mutually agreed as
follows:
1. LICENSE
(a) In accordance with the terms herein, Licensor grants to Licensee a
perpetual, non-exclusive and non-transferable license to utilize the Property,
only at the temporary location identified in Schedule B (the "Territory"), to
advertise and promote operation of a casino subject to Licensor's approval as
provided in subparagraphs 3(b) and 3(d) hereof. Licensee shall have the right to
make a one time transfer of this license to a permanent site to be designated by
Licensee. Upon transfer, Licensee's license at the temporary location shall
terminate.
(b) The license hereby granted extends only to operation of a casino.
Licensee shall not make, or authorize, any use, direct or indirect, of the
Property in connection with any other goods or services.
2. NO ROYALTIES
The license granted herein is granted by Licensor pursuant to the
Equipment Sale Agreement and/or Amended Equipment Sale Agreement between
Licensor and Licensee, executed in connection herewith, and is granted in
consideration of such agreements. No further license fee or royalty shall be
payable to Licensor by Licensee.
3. LICENSOR'S RIGHTS OF APPROVAL AND QUALITY CONTROL
(a) Licensee represents, warrants, covenants, and agrees that it will
use the Property in a manner designed to protect and enhance the reputation and
integrity of the Property and the good will associated therewith, and Licensor
reserves all rights of approval which are necessary to achieve this result.
(b) Licensee agrees to use only those tags, labels, imprints, and other
devices, and only the format or formats and design or designs of the Property
which Licensor shall first authorize and approve in writing. Licensor shall have
the right to restrict the use of a particular design or format of the Property
to a particular use, within the scope of this Agreement, and require that said
format or design of the Property be put to no other use.
(c) Licensee agrees to affix to any format, design, carton, container or
other packaging or wrapping, or advertising, promotion, or display material
which employs any of the Property such notice or notices of trademark or
copyright as are reasonably requested by
1
<PAGE> 36
Licensor. Such material shall not be included on the Player Tracking card or on
the lexan overlay on the slot machine.
(d) Licensee agrees that that the Property shall be used only on
displays and advertising and other promotional materials for the games, bonuses
and features implemented by Licensor's computer software running on a network
connected to gaming devices in Licensee's casinos.
4. PROTECTION OF LICENSOR'S RIGHTS
(a) Licensor may, in its discretion, file applications for trademark
registration or may take other action which it deems necessary to protect its
rights. Such action shall be taken at Licensor's sole expense, and Licensee
agrees to cooperate with and assist Licensor, at Licensor's expense, as required
to obtain such protection.
(b) Licensee agrees to assist Licensor to the extent necessary to
protect any of Licensor's rights in the Property, and Licensor, if it so
desires, may commence or prosecute any claims or suits in its own name or in the
name of Licensee or join Licensee as a party thereto. Licensee shall notify
Licensor in writing of any infringements of the Property which may come to
Licensee's attention, and Licensor shall have the sole right to determine
whether or not any action shall be taken on account of any such infringements or
imitations. Licensee shall not institute any suit or take any action on account
of any such infringements or imitations without first obtaining the written
consent of the Licensor to do so.
(c) Licensee shall not use the Property or any portion thereof with or
in connection with a name or trademark of any other party such as to create the
impression that any trademark or property rights of Licensor are related to any
such rights of a third party, including Licensee.
5. WARRANTY AND INDEMNIFICATION
(a) Licensor represents and warrants that it has the full power and
authority to enter into this Agreement and that the execution and delivery
thereof will not result in a violation of, or breach under, any agreement to
which Licensor is a party or by which Licensor may be bound. Licensor agrees to
indemnify and hold harmless Licensee, its members, employees, successors, and
assignes against any claims or suits arising out of a breach or alleged breach
of the foregoing warranty, provided that prompt notice is given to Licensor of
any such claim or suit and provided, further, that Licensor shall have the
option to undertake and conduct the defense of any such suit and no settlement
of any such claim or suit is made without the prior written consent of Licensor.
(b) Licensee represents and warrants that Licensee has the full power
and authority to enter into and perform this Agreement, that there is no
contract, agreement, or understanding with any other person, firm, or
corporation which would interfere with the obligations assumed by Licensee
hereunder. Licensee agrees to indemnify and hold harmless Licensor, its
employees, officers, directors, stockholders, licensees, successors, and
assigns, from and against any and all losses, damages, costs, and expenses,
including the legal fees and expenses incident thereto, arising from any suit,
claim or demand based upon any breach or alleged breach of the warranties
contained in this paragraph.
2
<PAGE> 37
6. SOLE AND EXCLUSIVE OWNERSHIP
Licensee acknowledges that is not acquiring any ownership rights in the
Property under this Agreement.
7. TERMINATION
(a) This Agreement shall be automatically and immediately terminated if
any one or more of the following events occur:
(i) the filing of a voluntary or involuntary petition in
Bankruptcy with respect to Licensee;
(ii) the execution by Licensee of an assignment for the benefit
of creditors or a composition with creditors;
(iii) the insolvency (as that term is defined under the Federal
Laws of Bankruptcy) of Licensee; or
(iv) the appointment of a receiver of Licensee or any of its
property.
(b) If Licensee breaches any of the material terms and conditions of
this Agreement, including but not limited to its obligations under paragraph 3,
then, in such event, Licensor may, at its option, terminate this Agreement on
thirty (30) days' prior written notice to Licensee. If Licensee, within that
time, shall have removed the cause or causes of termination to the reasonable
satisfaction of Licensor, Licensor shall rescind, in writing, its notice of
termination.
(c) The obligations assumed by Licensee in paragraphs 5 and 6 shall
survive any termination or cancellation of this Agreement.
8. PROMOTIONAL MATERIAL
In all cases where Licensee desires artwork involving operation of a
casino which is the subject of this Agreement to be executed, the cost of such
artwork and the time for the production thereof shall be borne by Licensee. All
artwork and designs involving the Property, or any reproduction thereof, shall,
notwithstanding their creation or use by Licensee, be and remain the property of
Licensor, and Licensor shall be entitled to use the same and to license the use
of the same by others.
9. EFFECT OF TERMINATION OR EXPIRATION
Upon and after the expiration or termination of this Agreement, all
rights granted to Licensee hereunder shall forthwith revert to Licensor, and
Licensor shall be free to license others to use the Property, or any of them, in
connection with the manufacture, sale, and distribution of the casino services
covered hereby and Licensee will refrain from further use of the Property.
10. GENERAL PROVISIONS
(a) Notice. Any notice, request, demand, or other communication that is
required or permitted under this Agreement shall be deemed properly given if it
is deposited in the U.S. mail, certified, return receipt requested, postage
prepaid, properly addressed to the respective addresses as set forth above.
3
<PAGE> 38
(b) Governing Law. This Agreement shall be governed by the and construed
in accordance with the substantive law of the state of Nevada, without giving
effect to any conflicts or choice of laws principles that otherwise might be
applicable.
(c) Forum Designation. Any suit brought by either party against the
other party for claims arising out of this Agreement shall be brought in the
United States Court for the District of Nevada, or in the event that that court
lacks jurisdiction to hear the claim, in any Nevada state court. Each party
hereto irrevocably waives, to the fullest extent permitted by applicable law,
any objection that it may now or hereafter have to the laying of the venue of
any such proceeding brought in such court and any claim that any such proceeding
brought in such court has been brought in an inconvenient forum.
(d) Attorneys' Fees. If either party brings any legal action or other
proceeding for breach of this Agreement, the prevailing party shall be entitled
to recover its reasonable attorneys' fees and costs.
(e) Divisibility. If any provision of this Agreement is found to be
prohibited by law and invalid, or for any other reason if any provision is held
to be unenforceable, in whole or in part, such provision shall be ineffective to
the extent of the prohibition or unenforecability without invalidating or having
any other adverse effect upon any other provision of this Agreement.
(f) Entire Agreement. This Agreement, including the documents and the
instruments referred to herein, constitutes the entire agreement between the
parties relating to its subject matter and supersedes all prior or
contemporaneous negotiations or agreements, whether oral or written, relating to
the subject matter hereof. No extension, modification or amendment of this
Agreement shall be binding upon a party unless such extension, modification or
amendment is set forth in a written instrument, which is executed and delivered
on behalf of such party.
In Witness Whereof, the parties hereto have duly executed this
Agreement, including the Exhibits attached hereto and incorporated herein by
reference, as of the date last signed below.
ACRES GAMING INCORPORATED DETROIT ENTERTAINMENT, L.L.C.
By: ______________________________ By: ______________________________
Title: ____________________________ Title: ____________________________
Date: _____________________________ Date: _____________________________
4
<PAGE> 39
EXHIBIT H -- SCHEDULE A
LICENSED PROPERTY
ACRES(TM)
ACRES(TM) and design
LUCKY COIN(TM)
1
<PAGE> 40
EXHIBIT H -- SCHEDULE B
LICENSED LOCATION
MotorCity Casino
2901 Grand River
Detroit, MI 48201
1
<PAGE> 41
EXHIBIT I
STANDARD MICHIGAN LANGUAGE
1. This Agreement is subject to review by the Michigan Gaming
Control Board ("Board") for compliance with the Michigan Gaming
Control and Revenue Act, MCL 432.201, et. seq., as amended,
supplemented, or construed, and the rules, regulations and orders
promulgated pursuant thereto, plus other such requirements, if
any, as are imposed by the Board (collectively, the "MGCB
Requirements"). Because the Board currently requires inclusion of
the following language in every contract that Detroit
Entertainment signs, the following language, to the extent
applicable, is made a part of the Agreement (with the term
"contract" referring to the Agreement, the terms "Applicant" and
"Licensee" referring to Detroit Entertainment, and the term
"Contractor" referring to Vendor):
(a) Upon execution of this contract and in accordance with the
Michigan Gaming Control and Revenue Act ("Act") MCL 432.201, et.
seq., and the rules promulgated pursuant thereto ("Rules", as
well as Michigan Gaming Control Board ("Board") orders and
regulations, the Contractor shall cooperate with the Applicant or
Licensee and its designees and provide information on an as
needed basis, directly or, if so directed by the Applicant or
Licensee, through the Applicant or Licensee to representatives of
the Board regarding this contract and its implementation. In
addition, the Contractor shall allow the Board or its
representatives on an as needed basis, to inspect the books and
records of the Contractor regarding this contract.
(b) The Contractor and any and all subcontractors shall adhere to
and comply with the following:
(i) The Act and the Rules, orders and regulations of the
Board issued and to be issued thereunder, as may hereafter
be amended, supplemented or construed. The Contractor
further acknowledges that the Act imposes and will
continue to impose requirements upon the Contractor, and
any and all subcontractors, and the Applicant or Licensee,
and may call for the submission and approval of this
contract by the Board or its designees.
(ii) Any and all requirements imposed upon each of them by
the Act and the Board, including, but not limited to, any
licensing, notification, disclosure, or registration
requirements imposed thereby. The Contractor and all
subcontractors shall assist the Applicant or Licensee in
complying with any requirements imposed on the Applicant
or Licensee by the Act or Board by reason of the project
or work contemplated hereunder.
(iii) All applicable federal, state, county, city, local
or other statues, ordinances, rules and regulations and
other laws including, but not limited to, the aforesaid
statutes and administrative rules and regulations.
(c) The Contractor shall supervise and oversee compliance with
the requirements of the Act by the Contractor and by each of the
Contractor's associates, employees, consultants and all persons,
contractors, subcontractors and any other consultants and
engineers retained by the Contractor in connection with the
Project (as defined below). The Contractor shall prepare such
reports as shall be required by the Board.
(d) The Contractor shall qualify to do business and obtain such
license, identification number, registration and other permits as
may be required for the performance of the services required to
be performed by the Contractor under this contract.
(e) This contract shall be subject to review by the Board for
compliance with the Act and Rules and is subject to termination
if so ordered by said Board. If the Board should disapprove of or
order termination of this contract by reason of finding that the
Contractor or any person associated with the Contractor, or any
of their affiliated companies, is unsuitable or is otherwise
Page 1
<PAGE> 42
prohibited from doing business with Applicants or Licensees,
neither the Applicant or Licensee, nor any of its members,
partners, shareholders, officers, directors, or employees, shall
be liable in any way to the Contractor by reason of such
disapproval or termination.
(f) If the Board should disapprove of or order termination of
this contract by reason of finding that the Applicant or Licensee
or any person associated with the Applicant or Licensee or any of
their affiliated companies, is unsuitable or is otherwise
prohibited from doing business with Applicants or Licensee, said
parties shall not be liable in any way for any consequences,
losses or damage suffered or incurred by the Contractor by reason
of such disapproval or termination.
(g) Detroit Entertainment is entitled to terminate this contract
if the Board determines that this contract does not comply with
the Act or the MGCB Requirements.
2. Detroit Entertainment is also required by agreement with the City
of Detroit to include in its contracts certain other provisions.
Accordingly, to the extent applicable, Vendor further agrees as
follows:
(a) Vendor agrees to use its best efforts in a manner consistent
with City of Detroit Executive Order 4 to purchase at least 30%
of goods, services and supplies purchased for this Project (as
defined below) from vendors who meet the definition of
"Detroit-Based Businesses", "Detroit Resident Businesses", "Small
Business Concerns", "Minority Owned Businesses" and "Women Owned
Businesses" at the time the contract is awarded. Further, Vendor
agrees to work to achieve higher participation, if possible.
Vendor agrees that it will maintain appropriate records and will
require each of its subcontractors to maintain appropriate
records to permit confirmation of compliance with the provisions
of this paragraph.
(b) Vendor and its subcontractors shall comply with all licensing
requirements established by the City of Detroit, the County of
Wayne and the State of Michigan including, but not limited to,
the licensing requirements established by the Act and the Rules.
In furtherance thereof, Vendor expressly acknowledges that the
ability of Vendor and its subcontractors to obtain licensure in
Michigan is contingent upon such parties' key persons (as those
terms are defined under applicable Michigan law, rules and
regulations) meeting applicable licensing standards and otherwise
complying with all applicable laws, rules, regulations and
restrictions. Vendor shall do all things necessary (including
complying with any licensing, notification, disclosure or
registration requirements) and shall cooperate in all respects to
allow compliance with the applicable laws, rules, regulations and
restrictions.
(c) Vendor agrees to perform its services in a manner which is
consistent with and in full compliance with the terms and
conditions of the March 12, 1998 Development Agreement entered
into by and among the City of Detroit, The Economic Development
Corporation of the City of Detroit and Detroit Entertainment, as
amended from time to time. In furtherance thereof, Vendor agrees
to include in all of its contracts relating to Detroit
Entertainment's business ("Project") a provision requiring its
subcontractors to perform services in a manner which is
consistent with and in full compliance with the terms and
conditions of the March 12, 1998 Development Agreement entered
into by and among the City of Detroit, The Economic Development
Corporation of the City of Detroit and Detroit Entertainment,
L.L.C., as amended from time to time.
(d) In the event that any provision of this Agreement is
determined to be inconsistent with the requirements of the March
12, 1998 Development Agreement entered into by and among the City
of Detroit, The Economic Development Corporation of the City of
Detroit and Detroit Entertainment, as amended from time to time,
the Act, the Rules and/or any other applicable law, rule or
regulation, then the provisions of the Development Agreement
and/or the applicable law, rule or regulation shall prevail and
this Agreement shall be interpreted and enforced accordingly.
Page 2
<PAGE> 43
(e) Vendor shall include the following in all of its contracts
regarding the Project: In the event that the Board does not
approve this contract, where approval is required, and/or
requests or requires that this contract be terminated, then this
contract shall immediately terminate.
(f) Vendor expressly acknowledges that this Project is subject to
comprehensive statutory, regulatory and contractual requirements.
The failure of Vendor and/or any of Vendor's subcontractors to
comply with said comprehensive statutory, regulatory and
contractual requirements, all of which are hereby expressly
incorporated herein as a part hereof as though fully set forth
herein, may result in a termination of this Agreement and Vendor
acknowledges and agrees to this condition and restriction. All of
Vendor's contracts on this Project shall contain a like contract
provision which is consistent with the provisions of this
paragraph.
(g) If this Agreement constitutes a construction contract, then
the following provisions are included to the extent applicable:
(1) Vendor agrees (a) that the rates, wages and fringe
benefits that Vendor and its subcontractors pay to each
class of employees on this Project shall not be less than
the wage and fringe benefit rates prevailing in the City
of Detroit as established by the most recent survey by the
Michigan Department of Labor for prevailing wages
determined under Act 166, P.A. 1965 (Act 166 P.A. 1965,
MCLA 408.551 et seq., MSA 17.256(a) et seq.) and (b) to
the extent applicable, to comply with the provisions of
the Davis-Bacon Act (40 U.S.C. 276a et seq. (1997). In
furtherance thereof, Vendor agrees to hire subcontractors
(including materials suppliers) who agree (a) to include
in their construction contracts an express term that the
rates, wages and fringe benefits that the subcontractor
and each of its subcontractors pay to each class of
employees on this Project shall not be less than the wage
and fringe benefit rates prevailing in the City of Detroit
as established by the most recent survey by the Michigan
Department of Labor for prevailing wages determined under
Act 166, P.A. 1965 (Act 166 P.A. 1965, MCLA 408.551 et
seq., MSA 17.256(a) et seq.) and, (b) to the extent
applicable, to comply with the provisions of the
Davis-Bacon Act, 40 U.S.C. 276a et seq. (1997).
(2) Vendor agrees to commit to the goal of maximizing, to
the greatest extent possible, the number of Detroit
resident apprentices who advance to journeyman status by
agreeing to, and by requiring Vendor's subcontractor(s) to
agree to utilize to the greatest extent possible unions
that do or will operate apprentice programs on the Project
that are open to all Detroit residents.
(3) Vendor agrees to implement an equal opportunity
employment plan which is a voluntary plan for the
employment, recruitment, training and upgrading of women
and minorities which conforms to all applicable laws and
which is consistent with Executive Order 22 of the City of
Detroit. Vendor agrees to require each of its
subcontractor(s) and their subcontractors to implement an
equal employment plan consistent with the provisions of
this paragraph.
3. Vendor represents and warrants that all goods furnished
hereunder, whether supplied by Vendor or by someone else, will
(1) be new and of first quality, (2) be free from defects in
materials and workmanship, (3) conform to the specifications
supplied by Detroit Entertainment, (4) be free from design and
specification defects, whether or not manufactured to Vendor's
specifications, (5) be fit for the purpose for which intended,
(6) be of merchantable quality and fit and safe for consumer use,
(7) be free and clear of all liens and encumbrances at the time
of shipment, (8) be "Y2K Compliant" as described below. For
purposes of this Addendum, a device (software application,
computer hardware, embedded chip, etc.) that is Year 2000
compliant ("Y2K Compliant") accurately processes date/time data
(including, but not limited to, calculating, comparing, and
sequencing) from, into, and between the 20th and 21st centuries,
and the years 1999 and 2000, and accurately performs leap year
calculations for the year 2000 and into the 21st century. In
addition:
Page 3
<PAGE> 44
- The device shall not end operation abnormally or provide invalid
or incorrect results as a result of processing date data.
- No acceptable value for current date shall cause interruptions in
normal operations of systems using the device.
- All manipulations of time-related data (dates, duration, days of
week, etc.) shall produce the desired results for all valid date
values within the operational date range specified for the
device.
- Date elements in interfaces and data storage for the device shall
permit specifying century to eliminate date ambiguity.
For any date element represented without a century value, the device
shall unambiguously determine the correct century for all
manipulations involving that element. In addition interface
documentation clearly describes how the correct century value is
determined.
The device shall accurately process date/time data with other Year 2000
compliant devices whenever such data is exchanged in accordance with the
device's documented interface specification.
Page 4
<PAGE> 45
EXHIBIT J
ACRES SUPPLIED PRODUCTS
<TABLE>
<CAPTION>
QUANTITY DESCRIPTION UNIT PRICE AMOUNT
<S> <C> <C> <C>
HARDWARE
1 Translator *
1 Concentrator *
3 Bonus Servers *
1 Configuration Work Station *
1 Accounting Data Base & Server *
1 Player Tracking Data Base & Server *
2 Libretto Diagnostic Computers *
SOFTWARE
2628 Progressives/Lucky Coin ** **
1 Accounting System & Server ** **
1 Player Tracking Software ** **
1 Security & Exception Messaging ** **
1 Mapping and Analysis ** **
1 Spintek Interface ** **
1 Mikohn Interface ** **
1 Installation and Training ** **
1 Info Genesis Interface ** **
TOTAL 1,304,790
</TABLE>
* Price of these components included in the Game Hardware Agreement
**CONFIDENTIAL PORTION OMITTED AND FILED SEPARATELY WITH THE SEC
Page 1
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ACRES GAMING
INCORPORATED FORM 10-Q FOR THE QUARTER ENDED DECEMBER 31, 1999 AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JUN-30-2000
<PERIOD-END> DEC-31-1999
<CASH> 3,362,000
<SECURITIES> 0
<RECEIVABLES> 2,937,000
<ALLOWANCES> (15,000)
<INVENTORY> 2,633,000
<CURRENT-ASSETS> 9,008,000
<PP&E> 6,450,000
<DEPRECIATION> 4,340,000
<TOTAL-ASSETS> 12,179,000
<CURRENT-LIABILITIES> 3,318,000
<BONDS> 0
0
4,948,000
<COMMON> 19,993,000
<OTHER-SE> (16,080,000)
<TOTAL-LIABILITY-AND-EQUITY> 12,179,000
<SALES> 11,591,000
<TOTAL-REVENUES> 11,591,000
<CGS> 5,570,000
<TOTAL-COSTS> 5,259,000
<OTHER-EXPENSES> 17,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> (69,000)
<INCOME-PRETAX> 814,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 814,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 814,000
<EPS-BASIC> .09<F1>
<EPS-DILUTED> .07<F1>
<FN>
<F1>This information has been prepared in accordance with SFAS No. 128. Basic
and diluted EPS have been entered in place of primary and fully diluted EPS,
respectively.
</FN>
</TABLE>
