-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MVgZldkjHN1iopNBNvEfIT1ncWBHeoXWVh2eR6FglAnP8abN2vHdbMVewS1C+0EV S2bqHe9JKg2mC8U4sraviw== 0000906477-99-000025.txt : 19990610 0000906477-99-000025.hdr.sgml : 19990610 ACCESSION NUMBER: 0000906477-99-000025 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19990528 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19990609 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CASINOVATIONS INC CENTRAL INDEX KEY: 0001004673 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-DURABLE GOODS, NEC [5099] IRS NUMBER: 911696010 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: SEC FILE NUMBER: 000-25855 FILM NUMBER: 99643327 BUSINESS ADDRESS: STREET 1: 6744 S SPENCER STREET CITY: LAS VEGAS STATE: NV ZIP: 89119 BUSINESS PHONE: 7027337195 MAIL ADDRESS: STREET 1: 6744 S SPENCER STREET CITY: LAS VEGAS STATE: NV ZIP: 89119 8-K 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 Date of Report (Date of earliest event reported) May 28, 1999 -------------- Casinovations Incorporated - ----------------------------------------------------------------- (Exact name of Registrant as specified in charter) Nevada - ----------------------------------------------------------------- (State or other jurisdiction of incorporation) 000-25855 91-1696010 - -------------------- ----------------------- (Commission File (IRS Employee Number) Identification No.) 6744 South Spencer Street, Las Vegas, Nevada 89119 - ----------------------------------------------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (702) 733-7195 -------------- Not Applicable - ----------------------------------------------------------------- (Former name or former address, if changed since last report) ITEM 5. OTHER EVENTS PURCHASE OF SHARES BY JAMES E. CRABBE On May 28, 1999, Casinovations Incorporated, a Nevada corporation (the "Company"), and James E. Crabbe, an individual and existing stockholder of the Company, entered into a subscription agreement (the "Subscription Agreement") whereby Mr. Crabbe will purchase 2,000,000 shares (the "Shares") of the Company's common stock, $.001 par value ("Common Stock") for $2.60 per share for an aggregate subscription amount of $5,200,000. Pursuant to the terms of the Subscription Agreement, Mr. Crabbe delivered $1,300,000 upon execution of the Subscription Agreement and agreed to pay the balance of $3,900,000, in no more than three equal installments of not less than $1,300,000, by July 10, 1999. Upon receipt of such payment or payments, the Company will immediately cause the correct number of the Shares (based upon $2.60 per share) to be issued to Mr. Crabbe. The Company granted to Mr. Crabbe piggy-back registration rights as part of this transaction. After the complete funding of the Subscription Agreement and issuance of 2,000,000 shares of Common Stock, Mr. Crabbe will be the beneficial owner of 2,278,570 shares of Common Stock, approximately 23.5% of the total shares outstanding as of May 31, 1999 (exclusive of 209,300 warrants and 442,307 shares issuable to Mr. Crabbe pursuant to certain convertible notes). Mr. Crabbe will thereby become the second largest stockholder of the Comapny and has filed a Schedule 13D with the Securities and Exchange Commission accordingly. The Company intends to use the proceeds from the issuance of the Shares to Mr. Crabbe for the acceleration of the Company's manufacturing capabilities to meet the increasing demand for its products, the international expansion of the Company's intellectual property rights, the continued development of the Company's SecureDrop Slot Accounting System, and general working capital purposes. CONVERSION OF PROMISSORY NOTE HELD BY RICHARD S. HUSON On May 28, 1999, the Company and Richard S. Huson, a director and controlling stockholder of the Company, entered into a subscription agreement (the "Huson Agreement") whereby Mr. Huson agreed to convert a certain portion of that certain Promissory Note dated December 31, 1998 in the original principal amount of $1,235,000 issued by the Company in favor of Mr. Huson (the "Note") for shares of Common Stock at a conversion rate of $2.60 per share. Pursuant to the terms of the Huson Agreement, Mr. Huson converted $999,999 of outstanding indebtedness under the Note in to 384,615 shares of Common Stock and received a replacement promissory note. As a result of Mr. Huson's partial conversion of the Note, Mr. Huson beneficially owns 3,268,838 shares of Common Stock, approximately 33.7% of the total shares of Common Stock outstanding as of May 31, 1999. APPOINTMENT OF TIMOTHY P. LEYBOLD AS CHIEF FINANCIAL OFFICER On May 28, 1999, the Company appointed Timothy P. Leybold as the Company's Chief Financial Officer. Prior to joining the Company and since 1995, Mr. Leybold served as Chief Financial Officer for RLC Industries, Inc., a building products manufacturing company with operations in Oregon and California and revenues in excess of $800 million. In 1995, Mr. Leybold served as Vice President - Financial Planning and Control for Collins Resources, Inc., a natural resources company located in Oregon. In 1994, Mr. Leybold served as interim Chief Financial Officer for Entek, Inc., a manufacturer of battery separator materials located in Oregon. From 1991 to 1994, Mr. Leybold was Treasurer and Principal Accounting Officer for Sprouse-Reitz Stores, Inc., a retail chain of general merchandise stores with over 200 locations in the western United States. From 1986 to 1991, Mr. Leybold was Chief Financial Officer of The Cutler Group, a holding company for various manufacturing companies located in the western United States. From 1978 to 1986, Mr. Leybold was a Manager at the Portland, Oregon office then Seattle, Washington office of Arthur Andersen LLP. Mr. Leybold received his B.B.A. with honors, maxima cum laude, from the University of Portland in 1978 and his M.B.A. in finance from the University of Oregon in 1996. Mr. Leybold is a member of the Financial Executives Institute, Association for Corporate Growth, and American Society of Certified Public Accountants. VOLUNTARY ACCELERATION OF CONVERSION DATE OF CERTAIN 9.5% CONVERTIBLE NOTES DUE 2004 AND EXERCISE OF CERTAIN CLASS E WARRANTS Pursuant to notices distributed by the Company to holders of the Company's 9.5% Convertible Notes Due 2004 (the "Convertible Notes"), the Company offered to provide a one-time two week window to expire on May 31, 1999 for the conversion of the Convertible Notes into shares of Common Stock at the stated conversion rate of $2.60 per share. Pursuant to its terms, the Convertible Notes may be converted beginning on the later of six (6) months from the date of issuance or September 1, 1999. Additionally, pursuant to notices distributed by the Company to holders of the Company's Class E Warrants, the Company issued a voluntary call of the Class E Warrants to expire on May 31, 1999 at the stated exercise price of $3.00 per share. In exchange for the conversion of the Convertible Notes and the exercise of the Class E Warrants, the Company offered to issue an additional set of warrants equal to the number of and on similar terms and conditions as the Class E Warrants exercised. As the expiration of the conversion window and call period, holders of the Convertible Notes converted $400,000 of Convertible Notes into 153,843 shares of Common Stock and exercised 72,800 Class E Warrants into 72,800 shares of Common Stock for an aggregate of 226,643 shares of Common Stock. In exchange for the conversion and exercise, the Company issued 72,800 warrants to the persons who converted their Convertible Notes and exercised their Class E Warrants. As a result, $1,500,000 of the Convertible Notes and 273,000 of the Class E Warrants issued to holders of the Convertible Notes remain outstanding. Through the conversion of the Convertible Notes and the exercise of the Class E Warrants, the Company converted $400,000 of indebtedness into Common Stock and received proceeds of $218,400. The Company intends to use such proceeds for general working capital purposes. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS (A) Financial Statements of Businesses Acquired. Not Applicable. (b) Pro Forma Financial Information. Not Applicable. (c) Exhibits. 10.1 Subscription Agreement dated May 28, 1999 by and between Casinovations Incorporated and James E. Crabbe. 10.2 Subscription Agreement dated May 28, 1999 by and between Casinovations Incorporated and Richard S. Huson. SIGNATURE Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. CASINOVATIONS INCORPORATED (Registrant) Date: June 4, 1999 By: /s/ Steven J. Blad ----------------------------- Steven J. Blad President and Chief Executive Officer EXHIBIT INDEX EXHIBIT DESCRIPTION PAGE NUMBER NUMBER - ------- ------- 10.1 Subscription Agreement dated May 28, 1999 by 7 and between Casinovations Incorporated and James E. Crabbe. 10.2 Subscription Agreement dated May 28, 1999 by 14 and between Casinovations Incorporated and Richard S. Huson. EX-10 2 SUBSCRIPTION AGREEMENT THIS SUBSCRIPTION AGREEMENT (this "Agreement") is made and entered into as of the 28th day of May 1999, between Casinovations Incorporated, a Nevada corporation (the "Company") and the James E. Crabbe Revocable Trust, an Oregon revocable living trust ("Purchaser"), and is delivered and executed in connection with the Company's sale of the Company's common stock, $0.001 par value (the "Common Stock"). 1. DESCRIPTION OF SHARES This Agreement sets forth the terms and conditions under which Purchaser will purchase Two Million (2,000,000) shares of the Company's Common Stock (the "Shares"). 2. PURCHASE AND SALE OF SHARES (a) Purchaser agrees to purchase and the Company agrees to issue to Purchaser the Shares for Five Million Two Hundred Thousand Dollars ($5,200,000) (based upon Two Dollars Sixty Cents ($2.60) per share) (the "Investment Amount"). Purchaser shall pay the Investment Amount as follows: Upon execution of this Agreement, Purchaser shall pay One Million Three Hundred Thousand Dollars ($1,300,000) and the Company shall cause to be issued Five Hundred Thousand (500,000) shares of the Shares. On or about July 10, 1999, Purchaser shall pay the balance of the Investment Amount, payable in no more than three equal installments of not less than One Million Three Hundred Thousand Dollars ($1,300,000) each and upon the receipt of the funds, the Company will immediately cause the correct number of the Shares (based upon $2.60 per share) to be issued to Purchaser. (b) All funds payable by Purchaser shall be in cash or by certified or cashiers check or wire transfer in same day funds. 3. RECEIPT OF DOCUMENTS Purchaser hereby acknowledges receipt of a copy of: (1) this Agreement; (2) the Company's Annual Report for the Year ended December 31, 1998 on Form 10-KSB; (3) the Company's Quarterly Report for the Quarter ended March 31, 1999 on Form 10- QSB; (4) The Company's Notice of Annual Meeting of Stockholders dated March 6, 1999 for the Meeting of Stockholders on March 29, 1999; (5) the Company's Current Report on Form 8-K dated March 29, 1999; and (6) the Company's Current Report on Form 8-K dated April 30, 1999 (collectively, the "Documents"). 4. USE OF PROCEEDS; NO REFUNDS The Investment Amount shall be used to for general working capital purposes. Upon execution and delivery of this Agreement, the Investment Amount shall not, under any circumstances, be refunded to Purchaser. 5. REPRESENTATIONS AND WARRANTIES OF PURCHASER Purchaser represents and warrants to the Company as follows: (a) The undersigned trustee is the duly authorized trustee and Purchaser has all necessary powers and authority to acquire the Shares under the laws of the state of its domicile and under the terms of the trust agreement, as amended, under which it was created. (b) Purchaser, either alone or through Purchaser's purchaser representative (as that term is defined under Rule 501(h) of Regulation D under the Securities Act of 1933, as amended (the "Securities Act") ("Purchaser's Representative," herein)), if any, has had an opportunity to ask questions of and receive answers from duly designated representatives of the Company concerning the terms and conditions of this Agreement and has been afforded an opportunity to examine such documents and other information which Purchaser or Purchaser's Representative, if any, has requested for the purpose of answering any question Purchaser or Purchaser's Representative, if any, may have concerning the business and affairs of the Company. (c) Purchaser's principal residence is located in the State of Oregon. Purchaser has received and reviewed this Agreement and the Documents and acknowledges the Company made available to Purchaser at a reasonable time prior to the execution of this Agreement the opportunity to ask questions and receive answers concerning the business and affairs of the Company and the terms and conditions of the sale of the Shares as contemplated by this Agreement and to obtain any additional information (which the Company possesses or can acquire without unreasonable effort or expense) as may be necessary to verify the accuracy of information furnished to Purchaser. Purchaser (i) is able to bear the loss of his entire investment without any material adverse effect on his economic stability, and (ii) has such knowledge and experience in financial and business matters that he is capable of evaluating the merits and risks of the investment to be made by him pursuant to this Agreement. (d) Purchaser and Purchaser's Representative, if any, understand that the Shares are being offered and sold only to "accredited investors" (as that term is defined under Rule 501(a) of Regulation D), and PURCHASER REPRESENTS THAT PURCHASER IS AN ACCREDITED INVESTOR. Purchaser understands the Company is relying on Purchaser with respect to the accuracy of this representation. (e) Purchaser and Purchaser's representative, if any, understand that this Agreement may not comply with the information requirements of Regulation D for offers and sales to non-accredited investors (see Regulation D, Rule 502(b)), and, consequently, Purchaser understands the significance of its representation to the Company that it is an accredited investor. Purchaser and Purchaser's representative, if any, acknowledge that they were encouraged by the Company to request all additional information which might be material or important in order for Purchaser to make an informed investment decision with respect to the Company. (f) The Shares are being purchased for investment purposes only for such Purchaser's own account and not with the view to, or for resale in connection with, any distribution or public offering thereof. Purchaser understands that the Shares have not been registered under the Securities Act or any state securities laws by reason of their contemplated issuance in transactions exempt from the registration requirements of the Securities Act and applicable state securities laws, and that the reliance of the Company and others upon these exemptions is predicated in part upon the representation by Purchaser. (g) Purchaser has taken the time to carefully read this Agreement, the Documents and any other information furnished to Purchaser by the Company in connection with this Agreement. (h) Purchaser was not solicited to purchase the Shares by any means of general solicitation, including but not limited to the following: (i) any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media, or broadcast over television or radio; (ii) any meeting where attendees were invited by any general solicitation or general advertising. -2- (i) Purchaser and Purchaser's Representative, if any, are aware that the Shares are and will be, when issued, "restricted securities" as that term is defined in Rule 144 (the "Rule") of the rules and regulations promulgated under the Securities Act. Purchaser and Purchaser's Representative, if any, are fully aware of the applicable limitations on the resale of the resulting shares. The Rule only permits sales of "restricted securities" held for not less than one year upon compliance with the requirements of such Rule. If the Rule is available to Purchaser, Purchaser may make only routine sales of the Shares in limited amounts in accordance with the terms and conditions of the Rule. Purchaser is fully aware that in any event, there is not likely to be any market for the Shares and that finding a purchaser for the Shares could be extremely difficult. (j) Purchaser and Purchaser's Representative, if any, understand that any and all certificates representing the resulting shares shall bear a legend substantially as follows, which legend Investor has read and understands: The Shares represented by this Certificate have not been registered under the Securities Act of 1933 (the "Act") or the securities laws of any state and are "restricted securities" as that term is defined in Rule 144 under the Act. Such Shares may not be offered for sale, sold or otherwise transferred except pursuant to an effective registration statement under the Act and the applicable state securities laws or pursuant to an exemption from registration thereunder, the availability of which is to be established to the satisfaction of counsel to the issuer. (k) Purchaser acknowledges that in making its investment decision Purchaser has relied upon its examination of the Company and its officers, directors and employees regarding the merits and risks involved. Investor has consulted its own attorney, business or tax advisor as to legal, business or tax advice. (l) Purchaser represents and warrants that Purchaser can bear the economic risk of loss of Purchaser's entire investment in the Company. Purchaser understands that an investment in the Company involves substantial risks, including, without limitation, the risk factors described in the Documents and the following: (i) NEED FOR ADDITIONAL FINANCING. The Company, at this time, has limited capital resources. To continue operations, the Company may require additional financing for working capital and general business purposes. No assurance can be given that the Company will obtain any additional outside financing on terms that are favorable to the Company or in amounts necessary to fund its cash requirements. (ii) DILUTION. If the Company obtains additional funds through private or public equity or debt financings, Purchaser may experience substantial dilution as a consequence of such future financings, including, without limitation, a reduction in his respective percentage ownership in the Company. (iii) COMPETITION. The gaming and gaming related products industry is characterized by intense competition. Many of the Company's competitors have far greater experience and financial resources than the Company. No assurance can be given that the Company will be able to compete effectively against its competitors. (iv) DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant extent on the performance of certain key personnel. The loss of such key personnel could materially and adversely affect the Company. The Company has not executed employment agreements with all such key personnel. -3- (v) LIMITATIONS ON TRANSFERABILITY. Transferability of the Shares sold pursuant to this Agreement will be restricted. Purchaser will be required to bear the economic risk of his investment in the Company for an indefinite period of time. (vi) ABSENCE OF MARKET FOR THE SHARES. The Shares are being offered exclusively to accredited investors for investment purposes only. There is presently no public market for the Shares. Although the Company intends to cause its common stock to begin trading, there is no assurance that this will occur or that if trading does occur, that there will be an active or liquid trading market for the Company's common stock. THE SHARES ARE ONLY SUITABLE FOR PERSONS WHO HAVE SUBSTANTIAL FINANCIAL RESOURCES, HAVE NO NEED FOR LIQUIDITY IN THEIR INVESTMENT IN THE COMPANY AND WHO ARE PREPARED TO LOSE THEIR INVESTMENT IN THE COMPANY IN ITS ENTIRETY. (vii) TAX RISKS. An investment in the Shares may involve material and substantial tax consequences to Purchaser. Purchaser is urged to consult with tax counsel and/or a tax accountant or Purchaser's own choice concerning the tax consequences particular to Purchaser which may arise from subscribing to, holding and/or disposing of the Shares. 6. REGISTRATION RIGHTS (a) Purchaser shall have the right at any time to include any and all of the Shares (together with other shares of Common Stock beneficially owned by Purchaser or James E. Crabbe, hereunder collectively, the "Shares") as part of any registration of securities filed by the Company (other than in connection with a transaction contemplated by Rule 145(a) promulgated under the Securities Act of 1933, as amended (the "Securities Act"), or pursuant to Form S-8 or any equivalent form); provided, however, that, (i) if such Shares are freely saleable without restriction under an exemption from the registration requirements of the Securities Act or if such Shares are already covered by an effective registration statement; or (ii) if, in the opinion of the Company's managing underwriter, underwriters, placement agent or placement agents, if any, for such offering, the inclusion of the Shares, when added to the shares of Common Stock being registered by the Company, will exceed the maximum amount of Common Stock that can be marketed (A) at a price reasonably related to their then current market value, or (B) without materially and adversely affecting the entire offering, the Company shall nevertheless register all or any portion of the Shares required to be so registered but such Shares shall not be sold by Purchase until the later of (Y) 90 days after the registration statement for such offering has become effective and (Z) 30 days after the offering of the Company's shares has been completed; and provided further that, if any shares of Common Stock are being registered for sale on behalf of other stockholders in such offering and such stockholders have not agreed to defer such sale until the expiration of such 90 day period, the number of securities to be sold by all stockholders in such public offering during such 90 day period shall be apportioned pro rata among all such selling stockholders, including Purchaser, according to the total amount of shares of Common Stock proposed to be sold by said selling stockholders, including Purchaser. (b) All expenses incurred in connection with any registration, qualification or compliance pursuant to the registrations pursuant to this Section 6 shall be borne by the Company, but Purchaser shall pay any and all commissions in connection with the sale of the Shares and shall be responsible for the costs of Purchaser's own counsel or other consultants in connection with such registration or the subsequent sale of Shares. Purchaser shall exercise the "piggy-back" registration rights provided for in this Section 6 by giving written notice within five (5) business days of the receipt of the Company's notice of its intention to file a registration statement. The Company shall cause any registration statement filed pursuant to the "piggy-back" registration rights to remain effective until all Shares registered thereunder are sold or are -4- otherwise freely saleable without restriction under an exemption from the registration requirements of the Securities Act. (c) In the case of each registration effected by the Company pursuant to this Section 6, the Company will keep Purchaser advised in writing as to the initiation of each registration statement and as to the completion thereof. At its expense, the Company will use its reasonable best efforts to: (i) Prepare and file with the Commission, and applicable state securities regulatory agencies, such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act, and applicable state securities laws, with respect to the disposition of all securities covered by such registration statement; (ii) Furnish such number of prospectuses and other documents incident thereto, including any amendment of or supplement to the prospectus, as Purchaser from time to time may reasonably request; (iii) Notify Purchaser, when a prospectus relating to the registration of the Shares is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing, and at the request of Purchaser, prepare and furnish to Purchaser a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Shares, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading or incomplete in the light of the circumstances then existing; and (iv) Cause all such Shares registered pursuant hereunder to be listed on each securities exchange or quotation medium on which similar securities issued by the Company are then listed or quoted, if any. (d) The "piggy-back" registration rights granted to Purchaser by the Company under this Section 6 may not be transferred or assigned to a transferee or assignee without the express written consent of the Company. (e) The Company shall have the right to include the Shares in any Registration Statement the Company should file under the Securities Act for the public offering of shares of the Company's Common Stock. In the event the Company should exercise its right under this section, the Company is bound by the registration procedures of Section 6. 7. INDEMNIFICATION BY PURCHASER Purchaser agrees that it shall indemnify and hold harmless the Company and its officers, directors, employees, agents and professional advisors from and against any and all loss, damage, liability, or expense, including costs and reasonable attorneys' fees, that the foregoing, or any of them, may incur by reason of, or in connection with, any misrepresentation, inaccurate statement or material omission made by -5- Purchaser herein, any breach of any of Purchaser's warranties, or any failure on Purchaser's part to fulfill any of Purchaser's covenants, agreements or obligations set forth herein. 8. AUTHORIZATION Purchaser hereby authorizes the Company and its officers, employees and agents to investigate Purchaser's personal and business background including, without limitation, communication with any employer, former employer, business associate, government agency, bank or other credit reference. Purchaser hereby authorizes any person, organization or entity that may have any knowledge or information Purchaser personal or business background to provide such information to the Company as the Company may request. 9. NO BROKERS OR FINDERS No person, firm or corporation has or will have, as a result of any act or omission by such Purchaser, any right, interest or valid claim against Purchaser or the Company for any commission, fee or other compensation as a finder or broker, or in any similar capacity, in connection with the transactions contemplated by this Agreement. 10. MISCELLANEOUS (a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of Nevada, disregarding any principles of conflicts of law that would otherwise provide for the application of the substantive law of another jurisdiction. The Company and Purchaser agree that any legal suit, action or proceeding arising out of or relating to this Agreement shall be instituted exclusively in Nevada State District Court or in the United States District Court for the District of Nevada, waive any objection to the venue of any such suit, action or proceeding and the right to assert that such forum is not a convenient forum, and consent to the jurisdiction of the Nevada State District Court or the United States District Court for the District of Nevada in any such suit, action or proceeding. (b) This Agreement contains the entire agreement between the Company and Purchaser with regard to the subject matter hereof and may not be modified or waived except in a writing signed by both the Company and Purchaser. (c) The headings of this Agreement are for convenience and reference only, and shall not limit or otherwise affect the interpretation of any term or provision hereof. (d) This Agreement and the rights, powers, and duties set forth herein shall, except as otherwise expressly provided herein, be binding upon and inure to the benefit of, the heirs, executors, administrators, legal representatives, successors, and assigns of the parties hereto. (e) Purchaser may not assign any of Purchaser's rights or interests in and under this Agreement without the prior written consent of the Company, and any attempted assignment without such consent shall be null and void and without any force or effect whatsoever. (f) If any legal action or any arbitration or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party or parties shall be entitled to recover reasonable -6- attorneys' fees and other costs incurred in that action or proceeding, in addition to any other relief to which it may be entitled. (g) This Agreement shall be construed in accordance with its intent and without regard to any presumption or any other rule requiring construction against the party causing the same to be drafted. (h) Each party to this Agreement agrees that this Agreement may be executed at different times and in multiple counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (i) If any provision of this Agreement, or any portion of any provision, shall be deemed invalid or unenforceable for any reason whatsoever, such invalidity or unenforceability shall not affect the enforceability and validity of the remaining provisions hereof. IN WITNESS WHEREOF, the undersigned has executed this Agreement as of the date first set forth above. "PURCHASER" CASINOVATIONS INCORPORATED /s/ James E. Crabbe By: /s/ Steven J. Blad - ------------------------------- ------------------------------- JAMES E. CRABBE, TRUSTEE STEVEN J. BLAD JAMES E. CRABBE REVOCABLE TRUST PRESIDENT AND CHIEF EXECUTIVE OFFICER -7- EX-10 3 SUBSCRIPTION AGREEMENT THIS SUBSCRIPTION AGREEMENT (this "Agreement") is made and entered into as of the 28th day of May 1999, between Casinovations Incorporated, a Nevada corporation (the "Company"), and Richard Huson, an individual ("Investor"), and is delivered and executed in connection with the Company's offer to sell shares of the Company's common stock, par value $.001 ("Common Stock"). 1. GENERAL This Agreement sets forth the terms and conditions under which Investor will purchase the Shares of the Company, which has been organized to research and develop, manufacture and market gaming and gaming related products in return for partial satisfaction of a certain promissory note in the original principal amount of $1,235,000 dated December 31, 1998 (the "Note"), by and between the Company and Investor, attached hereto as EXHIBIT A, and incorporated herein by this reference. Investor is a member of the Board of Directors ("Board") of the Company and possesses significant information about the Company. 2. SUBSCRIPTION OFFER (a) Investor, by signing this Agreement, hereby tenders this subscription and offers to purchase 384,615 shares of Common Stock (the "Shares") at the price of Two Dollars and Sixty Cents ($2.60) per share for a total subscription amount of Nine Hundred Ninety Nine Thousand Nine Hundred Ninety Nine Dollars ($999,999.00) (the "Subscription Amount"). (b) The Company shall have the right, at its sole and absolute discretion, to reject this subscription offer, or to accept such subscription offer. If the Company accepts Investor's subscription offer, the Company shall execute this Agreement and return a copy of the same to Investor. If the Company rejects Investor's subscription offer, the Company shall return to Investor this Agreement, together with any payment made by Investor to the Company, without interest or deduction. 3. SUBSCRIPTION AMOUNT AND PAYMENT Investor hereby subscribes for the number of Shares as stated above. In return for the Shares, the amount presently owed by the Company to Investor by virtue of that certain Note attached hereto as EXHIBIT A, shall be reduced in an amount equal to the Subscription Amount, and Investor accepts the Shares as payment in said amount of the Note. 4. RECEIPT OF DOCUMENTS Investor hereby acknowledges receipt of a copy of this Agreement. 5. USE OF PROCEEDS; NO REFUNDS The Subscription Amount shall be used to reduce the amount owing to Investor by the Company by virtue of the Note and acceptance of the Shares by Investor shall represent payment of the same. Upon execution and delivery of this Agreement, the Subscription Amount shall not, under any circumstances, be refunded to Investor. 6. REPRESENTATIONS AND WARRANTIES OF INVESTOR Investor represents and warrants to the Company as follows: (a) Investor, either alone or through Investor's purchaser representative (as that term is defined under Rule 501(h) of Regulation D under the Securities Act of 1933, as amended (the "Securities Act") ("Investor's Representative," herein)), if any, has had an opportunity to ask questions of and receive answers from duly designated representatives of the Company concerning the terms and conditions of this Agreement and has been afforded an opportunity to examine such documents and other information which Investor or Investor's Representative, if any, has requested for the purpose of answering any question Investor or Investor's Representative, if any, may have concerning the business and affairs of the Company. Investor is a member of the Board of the Company and possesses significant information about the Company and has access to the books, records and officers of the Company. (b) Investor's principal residence is located in the State of Oregon. Investor has received and reviewed this Agreement and the Exhibits attached hereto and acknowledges the Company made available to Investor at a reasonable time prior to the execution of this Agreement the opportunity to ask questions and receive answers concerning the business and affairs of the Company and the terms and conditions of the sale of the Shares as contemplated by this Agreement and to obtain any additional information (which the Company possesses or can acquire without unreasonable effort or expense) as may be necessary to verify the accuracy of information furnished to Investor. Investor (i) is able to bear the loss of its entire investment in the Shares without any material adverse effect on his economic stability, and (ii) has such knowledge and experience in financial and business matters that it is capable of evaluating the merits and risks of the investment to be made by him pursuant to this Agreement. (c) Investor and Investor's Representative, if any, understand that the Shares under this Agreement are being offered and sold only to "accredited investors" (as that term is defined under Rule 501(a) of Regulation D), and INVESTOR REPRESENTS THAT INVESTOR IS AN ACCREDITED INVESTOR. Investor understands the Company is relying on Investor with respect to the accuracy of this representation. (d) Investor and Investor's representative, if any, understand that this Agreement may not comply with the information requirements of Regulation D for offers and sales to non-accredited investors (see Regulation D, Rule 502(b)), and, consequently, Investor understands the significance of its representation to the Company that it is an accredited investor. Investor and Investor's representative, if any, acknowledge that they were encouraged by the Company to request all additional information which might be material or important in order for Investor to make an informed investment decision with respect to the Company. (e) The Shares being acquired by Investor are being purchased for investment for such Investor's own account and not with the view to, or for resale in connection with, any distribution or public offering thereof. Investor understands that the Shares have not been registered under the Securities Act or any state securities laws by reason of their contemplated issuance in transactions exempt from the registration requirements of the Securities and applicable state securities laws, and that the reliance of the Company and others upon these exemptions is predicated in part upon the representation by Investor. Investor understands that the Shares may not be transferred or resold without (i) registration under the Securities Act and any applicable state securities laws, or (ii) an exemption from the requirements of the Securities Act and applicable state securities laws. (f) Investor has taken the time to carefully read this Agreement and any other information furnished to Investor by the Company in connection with this Agreement. (g) Investor was not solicited to purchase the Shares by any means of general solicitation, including but not limited to the following: (i) any advertisement, article, notice or other communication published in any newspaper, magazine, or similar media, or broadcast over television or radio; (ii) any meeting where attendees were invited by any general solicitation or general advertising. -2- (h) Investor and Investor's Representative, if any, are aware that the Shares are and will be, when issued, "restricted securities" as that term is defined in Rule 144 (the "Rule") of the rules and regulations promulgated under the Act. Investor and Investor's Representative, if any, are fully aware of the applicable limitations on the resale of the Shares. The Rule only permits sales of "restricted securities" held for not less than one year upon compliance with the requirements of such Rule. If the Rule is available to Investor-and representatives of the Company hereby advise Investor that such availability is HIGHLY UNLIKELY-Investor may make only routine sales of the Shares in limited amounts in accordance with the terms and conditions of the Rule. Investor is fully aware that in any event, there is not likely to be any market for the Shares and that finding a purchaser for the Shares could be extremely difficult. (i) Investor and Investor's Representative, if any, understand that any and all certificates representing the Shares shall bear a legend substantially as follows, which legend Investor has read and understands: The Shares represented by this Certificate have not been registered under the Securities Act of 1933 ("Act") or the securities laws of any state and are "restricted securities" as that term is defined in Rule 144 under the Act. Such Shares may not be offered for sale, sold or otherwise transferred except pursuant to an effective registration statement under the Act and the applicable state securities laws or pursuant to an exemption from registration thereunder, the availability of which is to be established to the satisfaction of counsel to the issuer. (j) Investor acknowledges that in making its investment decision Investor has relied upon its examination of the Company and its officers, directors and employees regarding the merits and risks involved. Investor has consulted its own attorney, business or tax advisor as to legal, business or tax advice. (k) Investor represents and warrants that Investor can bear the economic risk of loss of Investor's entire investment in the Company. Investor understands that an investment in the Company involves substantial risks, including, without limitation, the following: (i) NEED FOR ADDITIONAL FINANCING. The Company, at this time, has limited capital resources. To continue operations, the Company may require additional financing for working capital and general business purposes. No assurance can be given that the Company will obtain any additional outside financing on terms that are favorable to the Company or in amounts necessary to fund its cash requirements. (ii) DILUTION. If the Company obtains additional funds through private or public equity or debt financings, Investor may experience substantial dilution as a consequence of such future financings, including, without limitation, a reduction in his respective percentage ownership in the Company. (iii) COMPETITION. The gaming and gaming related products industry is characterized by intense competition. Many of the Company's competitors have far greater experience and financial resources than the Company. No assurance can be given that the Company will be able to compete effectively against its competitors. (iv) DEPENDENCE ON KEY PERSONNEL. The Company's success depends to a significant extent on the performance of certain key personnel. The loss of such key personnel could materially and adversely affect the Company. The Company has not executed employment agreements with all such key personnel. (v) LIMITATIONS ON TRANSFERABILITY. Transferability of the Shares sold pursuant to this Agreement will be restricted by state and federal securities laws and the rules and regulations -3- promulgated thereunder. Investor will be required to bear the economic risk of his investment in the Company for an indefinite period of time. (vi) ABSENCE OF MARKET FOR THE SHARES. The Shares are being offered exclusively to accredited investors for investment purposes only. There will be no public market for the Shares, and the Company does not intend for the Shares sold pursuant to this Agreement to be publicly traded. Although the Company intends to cause the common stock of the Company to begin trading, there is no assurance that this will occur. The Company does not presently intend to list the Shares on any securities exchange or to seek approval for quotation thereof through any automated quotation system. Accordingly, the Shares are not a liquid investment. The Shares are only suitable for persons who have substantial financial resources, have no need for liquidity in their investment in the Company and who are prepared to lose their investment in the Company in its entirety. (vii) TAX RISKS. An investment in the Shares may involve material and substantial tax consequences to Investor. Investor is urged to consult with tax counsel and/or a tax accountant or Investor's own choice concerning the tax consequences particular to Investor which may arise from subscribing to, holding and/or disposing of the Shares. (viii) LIQUIDITY CONDITION. As a Director of the Company, Investor is fully aware of the Company's current liquidity condition and is aware that the Company may seek to increase the number of shares of stock currently being publicly offered. 7. INDEMNIFICATION BY INVESTOR Investor agrees that it shall indemnify and hold harmless the Company and its officers, directors, employees, agents and professional advisors from and against any and all loss, damage, liability, or expense, including costs and reasonable attorneys' fees, that the foregoing, or any of them, may incur by reason of, or in connection with, any misrepresentation, inaccurate statement or material omission made by Investor herein, any breach of any of Investor's warranties, or any failure on Investor's part to fulfill any of Investor's covenants, agreements or obligations set forth herein. 8. AUTHORIZATION Investor hereby authorizes the Company and its officers, employees and agents to investigate Investor's personal and business background including, without limitation, communication with any employer, former employer, business associate, government agency, bank or other credit reference. Investor hereby authorizes any person, organization or entity that may have any knowledge or information concerning Investor's personal or business background to provide such information to the Company as the Company may request. 9. NO BROKERS OR FINDERS No person, firm or corporation has or will have, as a result of any act or omission by such Investor, any right, interest or valid claim against Investor or the Company for any commission, fee or other compensation as a finder or broker, or in any similar capacity, in connection with the transactions contemplated by this Agreement. 10. MISCELLANEOUS (a) This Agreement shall be governed by, and construed in accordance with, the laws of the State of Nevada, disregarding any principles of conflicts of law that would otherwise provide for the application of the substantive law of another jurisdiction. The Company and Purchaser agree that any legal suit, action or -4- proceeding arising out of or relating to this Agreement shall be instituted exclusively in Nevada State District Court or in the United State District Court for the District of Nevada, waive any objection to the venue of any such suit, action or proceeding and the right to assert that such forum is not a convenient forum, and consent to the jurisdiction of the Nevada State District Court or the United State District Court for the District of Nevada in any such suit, action or proceeding. (b) This Agreement contains the entire agreement between the Company and Investor with regard to the subject matter hereof and may not be modified or waived except in a writing signed by both parties. (c) The headings of this Agreement are for convenience and reference only, and shall not limit or otherwise affect the interpretation of any term or provision hereof. (d) This Agreement and the rights, powers, and duties set forth herein shall, except as otherwise expressly provided herein, be binding upon and inure to the benefit of, the heirs, executors, administrators, legal representatives, successors, and assigns of the parties hereto. (e) Investor may not assign any of Investor's rights or interests in and under this Agreement without the prior written consent of the Company, and any attempted assignment without such consent shall be null and void and without any force or effect whatsoever. (f) If any legal action or any arbitration or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default, or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing party or parties shall be entitled to recover reasonable attorneys' fees and other costs incurred in that action or proceeding, in addition to any other relief to which it may be entitled. (g) This Agreement shall be construed in accordance with its intent and without regard to any presumption or any other rule requiring construction against the party causing the same to be drafted. (h) If any provision of this Agreement, or any portion of any provision, shall be deemed invalid or unenforceable for any reason whatsoever, such invalidity or unenforceability shall not affect the enforceability and validity of the remaining provisions hereof. In witness whereof, the undersigned has executed this Agreement as of the date first ascribed above. "INVESTOR" /s/ Richard Huson - ----------------------------------- RICHARD HUSON Address: 2480 N.W. Tower Rock Road Bend, Oregon 97701 (541) 383-2376 -5- ACCEPTANCE OF SUBSCRIPTION AGREEMENT On this _____ day of May 1999, Casinovations Incorporated, a Nevada corporation (the "Company"), hereby accepts subscription offer of Richard Huson, an individual, to purchase 384,615 shares, par value $.001, of the Company's common stock for a total subscription amount of $999,999.00. CASINOVATIONS INCOROPRATED By: /s/ Steven J. Blad -------------------------------- Steven J. Blad Its: President and Chief Executive Officer -6- -----END PRIVACY-ENHANCED MESSAGE-----