-----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, Clt3vIliCLT3fdEKYuS8ozBs95O7KzuYI4GnchCFq6bTWT38Kigcic+N3o4dzk+3 yNAAPGjJR0ITgCl5uWnK5w== 0001117768-08-000327.txt : 20081119 0001117768-08-000327.hdr.sgml : 20081119 20081119151304 ACCESSION NUMBER: 0001117768-08-000327 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 20080930 FILED AS OF DATE: 20081119 DATE AS OF CHANGE: 20081119 FILER: COMPANY DATA: COMPANY CONFORMED NAME: LAS VEGAS GAMING INC CENTRAL INDEX KEY: 0001103993 STANDARD INDUSTRIAL CLASSIFICATION: GAMES, TOYS & CHILDREN'S VEHICLES (NO DOLLS & BICYCLES) [3944] IRS NUMBER: 880392994 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-30375 FILM NUMBER: 081200796 BUSINESS ADDRESS: STREET 1: 4000 WEST ALI BABA LANE STREET 2: SUITE D CITY: LAS VEGAS STATE: NV ZIP: 89118 BUSINESS PHONE: 702-871-7111 MAIL ADDRESS: STREET 1: 4000 WEST ALI BABA LANE STREET 2: SUITE D CITY: LAS VEGAS STATE: NV ZIP: 89118 10-Q 1 mainbody.htm MAINBODY mainbody.htm
UNITED STATES 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:
September 30, 2008
OR
  o
TRANSITION REPORT PURSUANT SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 
For the transition period from:
  
to
  

Commission file number:
000-30375

Las Vegas Gaming, Inc.
(Exact name of small business issuer as specified in its charter)
     
Nevada
  
88-0392994
(State or other jurisdiction of incorporation or organization)
  
(I.R.S. Employer Identification No.)
 
4000 West Ali Baba Lane, Suite D, Las Vegas, Nevada 89118
(Address of principal executive offices)
 
(702) 871-7111
(Issuer’s telephone number)
 
 
(Former name, former address and former fiscal year, if changed since last report)
 
Check whether the issuer (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  o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large Accelerated Filer  o                                                                                                              Accelerated Filer   o
Non-accelerated filer  o    (do not check if smaller reporting company)                                  Smaller reporting company  x
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  o  No  x
 
APPLICABLE ONLY TO CORPORATE ISSUERS
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest
practicable date:
14,019,590 shares of Common Stock Series A, $.001 par value, as of September 30, 2008





 
LAS VEGAS GAMING, INC.
 
FORM 10-Q
 
 
 
 
 
Page
2
 
Item 1.
2
 
 
2
 
 
3
 
 
4
 
 
5
 
 
6
 
 
8
 
Item 2.
18
 
Item 3.
25
 
Item 4T.
25
 
27
 
Item 1.
27
 
Item 1A.
27
 
Item 2.
27
 
Item 3.
27
 
Item 4.
28
 
Item 5.
28
 
Item 6.
28
 
 
____________________________________

PlayerVision, RoutePromo, NumberVision, WagerVision, AdVision, Nevada Numbers, The Million Dollar Ticket, and Nevada Keno are our trademarks.  This report may contain trademarks and trade names of other parties, corporations, and organizations.
 

PART I – FINANCIAL INFORMATION
Item 1.   Financial Statements.
LAS VEGAS GAMING, INC. AND SUBSIDIARIES
   
December 31, 2007
    
September 30, 2008
  
ASSETS
        
(unaudited)
  
Current assets
            
Cash
   $ 489,262     $ 351,444  
Investment in marketable securities
     87,881       45,438  
Accounts receivable, net of allowance of $708 and $5,245
     567,186       538,397  
Inventories
     1,161,707       1,115,003  
Prepaid expenses, deposits and other
     149,596       563,296  
Jackpot reserve deposits
     276,012       1,574,652  
      2,731,644       4,188,230  
                 
Equipment and software, net of accumulated depreciation of $1,565,560 and $1,527,309
     1,033,349       904,839  
                 
Other assets
                
Goodwill
     955,277       955,277  
Trademarks, copyrights, patents and other identifiable intangibles, net of accumulated amortization of $1,098,867 and $1,460,890
     1,317,369       955,346  
Other
     884,350       115,776  
    $ 6,921,989     $ 7,119,468  
LIABILITIES AND STOCKHOLDERS' EQUITY
                
Current liabilities
                
Advances from stockholders
           $ 2,100,000  
Accounts payable and accrued expenses
   $ 1,453,525       2,455,296  
Current portion of long-term debt
     787,550       632,842  
Progressive jackpot liability
     375,508       936,426  
      2,616,583       6,124,564  
                 
Long-term debt
     5,940,925       7,088,956  
Conditionally redeemable equity
                
Series B convertible preferred stock, $.001 par, 130,350 and 52,000 shares issued  and outstanding
     651,750       260,000  
                 
Stockholders' equity
                
Convertible preferred stock, $.001 par, 10,000,000 shares authorized:
                
  Series A: 0 shares issued and outstanding
     -       -  
  Series C: 35,000 and 0 shares issued and outstanding
     35       -  
  Series D: 125,000 and 0 shares issued and outstanding
     125       -  
  Series E:  743,800 and 810,800 shares issued and outstanding
     744       811  
  Series F: 200,000 shares issued and outstanding
     -       200  
  Series G: 150,000 shares issued and outstanding
     -       150  
  Series H: 98,500 shares issued and outstanding
     -       99  
Common stock (including Series A): $.001 par, 90,000,000 shares authorized, 12,562,653 and 14,019,590 shares issued and outstanding
     12,563       14,020  
Additional paid-in capital
     26,497,097       30,393,359  
Less due from officers and stockholders
     (235,414 )     (182,826 )
Deficit
     (28,562,419 )     (36,579,865 )
      (2,287,269 )     (6,354,052 )
    $ 6,921,989     $ 7,119,468  
The accompanying notes are an integral part of these consolidated financial statements.
  


LAS VEGAS GAMING, INC. AND SUBSIDIARIES
THREE MONTHS ENDED SEPTEMBER 30, 2007 AND 2008 (UNAUDITED)

   
2007
    
2008
  
Revenues
            
    Casino games
   $ 439,954     $ 709,195  
    Product sales
     633,285       254,369  
    Other
     320,246       238,393  
      1,393,485       1,201,957  
                 
Costs and expenses
                
    Casino games
     (201,851 )     519,682  
    Product costs
     285,360       133,112  
    Other
     330,913       304,652  
      414,422       957,446  
                 
Gross operating income
     979,063       244,511  
                 
Other operating expenses
                
    Selling, general, and administrative
     1,497,636       1,502,973  
    Research and development
     209,713       371,517  
    Depreciation and amortization
     207,039       200,137  
      1,914,388       2,074,627  
                 
Operating loss
     (935,325 )     (1,830,116 )
                 
Other income (expense)
                
    Finance costs
     (323,607 )     (490,440 )
    Interest income and other
     28,505       2,233  
                 
Net loss
     (1,230,427 )     (2,318,323 )
Provision for cumulative preferred dividends
     -       (52,500 )
Net loss attributed to common stockholders
   $ (1,230,427 )   $ (2,370,823 )
                 
Net loss per share attributed to common stockholders
   $ (0.10 )   $ (0.17 )
                 
Weighted average shares outstanding
     11,929,403       13,689,403  
                 
                 
                 
The accompanying notes are an integral part of these consolidated financial statements.
  


LAS VEGAS GAMING, INC. AND SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2008 (UNAUDITED)

   
2007
    
2008
  
Revenues
            
    Casino games
   $ 1,303,129     $ 1,868,701  
    Product sales
     1,377,735       927,738  
    Other
     1,055,794       716,283  
      3,736,658       3,512,722  
                 
Costs and expenses
                
    Casino games
     385,699       1,840,511  
    Product costs
     779,941       451,310  
    Other
     999,390       888,378  
      2,165,030       3,180,199  
                 
Gross operating income
     1,571,628       332,523  
                 
Other operating expenses
                
    Selling, general, and administrative
     4,570,312       4,865,008  
    Research and development
     794,383       1,070,057  
    Depreciation and amortization
     639,084       628,846  
      6,003,779       6,563,911  
                 
Operating loss
     (4,432,151 )     (6,231,388 )
                 
Other income (expense)
                
    Finance costs
     (1,198,361 )     (1,612,902 )
    Interest income and other
     127,233       (89,156 )
                 
Net loss
     (5,503,279 )     (7,933,446 )
Provision for cumulative preferred dividends
     -       (84,000 )
Net loss attributed to common stockholders
   $ (5,503,279 )   $ (8,017,446 )
                 
Net loss per share attributed to common stockholders
   $ (0.49 )   $ (0.61 )
                 
Weighted average shares outstanding
     11,175,256       13,249,905  
                 
                 
                 
The accompanying notes are an integral part of these consolidated financial statements.
  


LAS VEGAS GAMING, INC. AND SUBSIDIARIES
NINE MONTHS ENDED SEPTEMBER 30, 2008 (UNAUDITED)

   
Series A Convertible
Preferred
Stock
    
Series C Convertible
Preferred
Stock
    
Series D Convertible
Preferred
Stock
    
Series E Convertible
Preferred
Stock
    
Series F Convertible
Preferred
Stock
    
Series G Convertible
Preferred
Stock
    
Series H Convertible
Preferred
Stock
    
Common
Stock
(Including
Series A)
    
Additional
Paid-In
Capital
    
Less Due From
Officers and
Stockholders
    
Deficit
  
Balances, December 31, 2007
     -     $ 35     $ 125     $ 744       -       -       -     $ 12,563     $ 26,497,097     $ (235,414 )   $ (28,562,419 )
Net loss
                                                                                     (7,933,446 )
Dividends payable Series F and Series G Convertible Preferred Stock
                                                                                     (84,000 )
Exercise of warrants and options
                                                             93       108,705       (8,412 )        
Issuance of warrants
                                                                     337,470                  
Other Stock based compensation
                                                             255       509,079       52,000          
Cash received from employees and stockholders
                                                                             9,000          
Conversion of Series B Convertible Preferred Stock to Common Stock Series A
                                                             254       253,996                  
Conversion of Series C Convertible Preferred Stock to Common Stock Series A
             (35 )                                             175       (140 )                
Conversion of Series D Convertible Preferred Stock to Common Stock Series A
                     (125 )                                     125                          
Sale of Series E Convertible Preferred Stock
                             67                                       334,933                  
Sale of Series F Convertible Preferred Stock
                                     200                               639,872                  
Sale of Series G Convertible Preferred Stock
                                             150                       479,904                  
Sale of Series H Convertible Preferred Stock
                                                     99               492,402                  
Sale of Common Stock Series A to Employees
                                                             55       110,667                  
Sale of Common Stock Series A
                                                             500       629,374                  
Balances, September 30, 2008
   $ -     $ -     $ -     $ 811     $ 200     $ 150     $ 99     $ 14,020     $ 30,393,359     $ (182,826 )   $ (36,579,865 )
                                                                                         
The accompanying notes are an integral part of these consolidated financial statements.

LAS VEGAS GAMING, INC. AND SUBSIDIARIES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2007 AND 2008 (UNAUDITED)

   
2007
    
2008
  
Operating activities
            
Net loss
   $ (5,503,279 )   $ (7,933,446 )
Marketable security received for licensing fee
     23,849       42,444  
Depreciation and amortization of equipment and software
     277,063       266,462  
Loss on disposal of assets
     -       72,040  
Amortization of debt issuance cost and intangibles
     1,101,051       1,653,545  
Fair value adjustment of debt derivative liability
     (142,544 )      (141,307 )
Stock-based compensation to employees and consultants
     483,994       689,113  
Other
     32,939       (1,724 )
Changes in operating assets and liabilities:
                
   Accounts receivable
     (39,130 )     28,789  
   Inventories
     (687,681 )      64,105  
   Prepaid expenses, deposits and other
     277,057       88,418  
   Accounts payable and accrued expenses
     23,241       1,266,471  
   Progressive jackpot liability
     (807,930 )      560,918  
Net cash (used in) operating activities
     (4,961,370 )     (3,344,172 )
                 
Investing activities
                
Purchase of property and equipment
     (251,315 )     (248,619 )
Proceeds from sale of equipment
     -       55,250  
Jackpot reserve deposits
     2,304,474       (1,298,640 )
Net cash provided by (used in) investing activities
     2,053,159       (1,492,009 )
                 
Financing activities
                
Proceeds from litigation settlements
     42,215       -  
Repayment of debt
     (8,081 )     (61,747 )
Sale of Series E Convertible Preferred Stock
     1,809,000       335,000  
Sale of Series F Convertible Preferred Stock
     -       640,072  
Sale of Series G Convertible Preferred Stock
     -       480,054  
Sale of Series H Convertible Preferred Stock
     -       492,501  
Redemption of Series B Convertible Preferred Stock
     (179,500 )     (137,500 )
Advances from stockholders
     -       2,100,000  
Exercise of warrants and options for common stock
     573,623       100,387  
Collection of stock subscription receivables
     -       9,000  
Sale of common stock
     -       740,596  
Net cash provided by financing activities
     2,237,257       4,698,363  
                 
Net decrease in cash and cash equivalents
     (670,954 )      (137,818 )
Cash and cash equivalents, beginning of period
     1,675,588       489,262  
Cash and cash equivalents, end of period
   $ 1,004,634     $ 351,444  
                 
 
 
 
 
Non-cash investing and financing activities
                
Conversion of Series B Convertible Preferred Stock to
     Common Stock Series A
   $ (879,450 )    $ 254,250  
Exercise of stock warrants and options increasing
     subscriptions receivable
     (366,000 )      8,412  
Conversion of Series C Convertible Preferred Stock to
     Common Stock Series A
     15       35  
Conversion of Series D Convertible Preferred Stock to
     Common Stock Series A
     -       125  
Exercise of warrants in settlement of accounts payable
     257,750          
Cost of warrants for debt modification
     255,273          
Equipment acquired directly with proceeds of new
    borrowing
             34,025  
Debt retired through issuance of Common Stock Series A
             107,500  
Prepayment of lease costs through issuance of Common
     Stock Series A
             106,000  
Accrued and prepaid interest added to face amount of note
    due to debt modification
             801,250  
Equipment and software transferred to inventories
             17,401  
Dividends payable Series F and Series G Convertible
    Preferred Stock
             84,000  
 
 
The accompanying notes are an integral part of these consolidated financial statements.
  
 
 

 

NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1.  Nature of Operations
 
Our current principal business is the delivery of new, linked-progressive, mega jackpot games to the worldwide gaming industry.  Our current offering of these types of games includes Nevada Numbers, Super Bonanza Bingo, Million Dollar Ticket and Gamblers Bonus Million Dollar Ticket.  During the second quarter of 2008, we launched Gamblers Bonus Million Dollar Ticket in cooperation with the largest slot route operation in Nevada.  Although we have recently focused our business on the development of our proprietary multimedia delivery system, known as PlayerVision, PlayerVision has not had a significant revenue effect on our financial statements to date.  We continue to provide equipment, supplies and casino games for use by our customers in the keno and bingo segments of the gaming industry.  However, we anticipate these revenues will continue to decline as we focus on our current principal business.
 
2.  Basis of Presentation
 
The accompanying consolidated financial statements have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission, or the SEC, relating to interim financial statements. Accordingly, certain information normally included in annual financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted. For further information, please refer to our annual financial statements and the related notes included within our Annual Report on Form 10-KSB for the year ended December 31, 2007, previously filed with the SEC, from which the information as of that date is derived.
 
The consolidated financial statements include the accounts of our wholly-owned subsidiaries and an inactive 85%-owned subsidiary. All significant intercompany transactions and balances have been eliminated in consolidation.
 
The unaudited interim consolidated financial statements included herein reflect all adjustments that are, in the opinion of management, necessary to present fairly the financial position and results of operations for the interim periods presented.  The results of operations for the three and nine months ended September 30, 2008, are not necessarily indicative of results to be expected for the year ending December 31, 2008.
 
3.  Jackpot Reserve Deposits
 
At December 31, 2007 and September 30, 2008, as required by gaming regulators, we had deposit cash amounts of $276,012 and $1,574,652, respectively, that are restricted for funding our various jackpot-oriented games.
 
4.  Equipment and Software
 
Equipment and software consist of the following:
 
   
December 31, 2007
    
September 30, 2008
(Unaudited)
  
Software                                                    
   $ 422,560     $ 425,145  
Production equipment                                                    
     1,669,461       1,413,522  
Equipment, furniture, and fixtures
     463,261       549,854  
Leasehold improvements                                                    
     43,627       43,627  
      2,598,909       2,432,148  
Less accumulated depreciation and   amortization
     1,565,560       1,527,309  
    $ 1,033,349     $ 904,839  


NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
5.  Other Intangible Assets

Trademarks, copyrights, patents and technology rights, and other intangible assets consist of the following:

   
December 31, 2007
    
September 30, 2008
(Unaudited)
  
PlayerVision technology patents
   $ 1,016,236     $ 1,016,236  
PlayerVision technology rights for “at home” wagering
     1,400,000       1,400,000  
      2,416,236       2,416,236  
Less accumulated amortization
     1,098,867       1,460,890  
    $ 1,317,369     $ 955,346  
 
The intangible assets are amortized over their useful lives, which are currently 5 years.  Implementing “at home” wagering is scheduled for 2009, subject to regulatory and third-party approval, following the product roll out of PlayerVision.  Total amortization for other intangible assets amounted to $362,026 for the nine months ended September 30, 2007 and 2008.  The estimated aggregate amortization for the fourth quarter of 2008 and the next five calendar years is as follows:
 
2008 (4th quarter)
   $ 120,676  
2009
     482,702  
2010
     303,307  
2011
     48,661  
2012
     -0-  
2013
     -0-  
    $ 955,346  
 
6.  Debt

On May 1, 2008, we amended our financing with CAMOFI Master LOC (CAMOFI) and entered into an Amended and Restated Senior Secured Convertible Note due January 1, 2010, or Note, and an Amended and Restated Registration Rights Agreement, or Registration Rights Agreement, with CAMOFI.  The commitment fees due under the original CAMOFI note on April 1, 2008, July 1, 2008, October 1, 2008, and January 1, 2009 of $131,250 and prior accrued commitment fees were added to the face amount of the Note which increased from $5,250,000 to $6,051,250.  We must also pay commitment fees of $403,417 on January 1, 2009, and $302,563 on July 1, 2009 and January 1, 2010.  The Registration Rights Agreement requires us to file a registration statement with the Securities and Exchange Commission on the earlier of the closing of a Qualified Financing, as defined in the Registration Rights Agreement or April 30, 2009 with the effectiveness date remaining 120 calendar days after the filing date.  The maturity date of the Note was changed from January 1, 2009 to January 1, 2010. We were in compliance with all loan covenants at September 30, 2008.  With respect to the issuance and sale of Series F, Series G and Series H Convertible Preferred Stock (see Note 7), CAMOFI verbally waived non-compliance of any provisions in its loan documents restricting us from effecting such transaction, including with respect to (a) the issuance of any securities (i) convertible into shares of common stock based upon trading prices at any time after the issuance of such securities, or (ii) that grant an investor the right to receive additional shares based upon future transactions on terms more favorable than those granted to such investor in such offering; and (b) the granting of a security interest in assets pledge to CAMOFI.  Although the agreement with CAMOFI provides that waivers must be in writing, the Company believes that, notwithstanding any issue as to whether such waiver is legally binding, the verbal waiver represents CAMOFI’s intent to allow the sale of the Series F, Series G and Series H Convertible Preferred Stock and not to take the position that the sale resulted in an Event of Default under the CAMOFI loan documents.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Long – term debt consists of:
 
   
December 31, 2007
    
September 30, 2008
  
Debt derivative liability                                                    
   $ 1,592,263     $ 1,450,956  
Bridge financing                                                    
     4,342,345       5,612,197  
Settlement due third parties                                                    
     614,027       614,027  
Other notes payable                                                    
     179,840       44,618  
    $ 6,728,475     $ 7,721,798  
Less amounts due within one year
     787,550       632,842  
    $ 5,940,925     $ 7,088,956  
 
Aggregate scheduled debt maturities are $632,842 in 2009, $7,072,414 in 2010, $7,208 in 2011, and $9,334 in 2012.  See Note 11 for subsequent payoff of CAMOFI note and accrued interest and prepayment penalty on October 24, 2008.
 
We have received all monies due from a settlement with a customer, and will distribute all monies due except for $107,500 which is due to the prior owners of Imagineering who converted their debt into Common Stock Series A at $2.00 per share or 53,750 shares in March 2008.  See Note 11 for disclosure of related subsequent event.
 
On September 28, 2008, we received an advance from a shareholder for $600,000.  This advance was paid back on October 24, 2008 (Note 11).  On July 27, 2008, we received a $1.5 million advance from IGT pursuant to settlement negotiations of our lawsuit and a possible investment in our Company.  This advance was converted to equity as part of IGT’s total investment in Series I Convertible Preferred Stock of $11.5 million on October 24, 2008 (see Note 11).
 
7.  Stockholders' Equity

From  time to time, we issue shares of common stock and preferred stock through transactions that are exempt from registration under the Securities Act of 1933 (Securities Act), either pursuant to Section 3(a)(9) of the Securities Act, Section 4(2) of the Securities Act and/or Rule 506 of Regulation D.  In March 2007, an officer and a board member were each awarded 50,000 shares of Common Stock Series A for their respective promotions.  For the nine months ended September 30, 2008, we issued 92,659 shares of Common Stock Series A as a result of the exercise of options and warrants.  Additionally, we issued 254,250 shares of Common Stock Series A pursuant to the conversion of 50,850 shares of Series B Convertible Preferred Stock.  During the nine months ended September 30, 2008, we also issued 307,996 shares of Common Stock Series A for salaries, bonuses, services, and board of director fees and 500,000 shares of Common Stock Series A as part of our sale of Series F and Series G Convertible Preferred Stock.
 
In February 2008, we received an advance from a shareholder of $250,000. This same shareholder purchased 200,000 shares of Series F Convertible Preferred Stock for $5 per share and 150,000 shares of Series G Convertible Preferred Stock for $5 per share on May 9, 2008 for an aggregate purchase price of $1,750,000.  Both Series F and Series G Convertible Preferred Stock are convertible into Common Stock Series A at the lower of $3.50 or 30% off the IPO price, where “IPO price” means the per share price to the public of any common shares offered by us that in the aggregate results in capital in excess of $10.0 million being raised and the shares of a class of our common stock being listed and traded on a national stock exchange.  The proceeds of the Series F Convertible Preferred Stock were used to fund the $1,000,000 jackpot bankroll for our Gamblers Bonus Million Dollar Ticket game which launched on April 14, 2008. The proceeds of Series G Convertible Preferred Stock were used for general operating purposes, and the advance of $250,000 was offset against the Series G purchase price. As an incentive to do these transactions, the same shareholder was issued 500,000 shares of Common Stock Series A.  Additionally, if our Common Stock Series A, as a result of a qualified financing, commences trading at less than $5 per share, the shareholder will receive additional shares of Common Stock Series A prorated for the percentage shortfall from $5 per share measured against the 500,000 shares, where a “qualified financing” is a capital raise of $10 million or more or a transaction at less than $5 per share resulting in a change in control of the Company.  In addition, the Series F Convertible Preferred Stock shareholder was granted a security interest and other additional rights in connection with our separate account (and related insurance policy), and $1 million is set aside  solely to satisfy our jackpot security requirements relating to the Gamblers Bonus Million Dollar Ticket game.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
In May, 2008, we began a private placement offering of 1,000,000 shares of Series H Convertible Preferred Stock.  We issued 98,500 shares and raised $492,500 when we closed the offering in June, 2008.  The shares are convertible into Common Stock Series A at the lower of $2.50 or 30% off the IPO price, where “IPO price” means the per share price to the public of any common shares offered by us that in the aggregate results in capital in excess of $10.0 million being raised and the shares of a class of our common stock being listed and traded on a national stock exchange.
 
Series A Convertible Preferred Stock.  On March 15, 2007, pursuant to the terms and conditions of our Series A Convertible Preferred Stock, we exercised our right to convert all shares of Series A Convertible Preferred Stock into shares of Common Stock Series A on a one-for-one basis.  Accordingly, all 536,400 remaining shares of Series A Convertible Preferred Stock were converted into 536,400 shares of Common Stock Series A.
 
Series B Convertible Preferred Stock.  Each share of Series B Convertible Preferred Stock is convertible at any time into Common Stock Series A at the election of the holders of the Series B Convertible Preferred Stock on a one-to-five basis.
 
A certain portion of the proceeds derived from the sale of Series B Convertible Preferred Stock provides jackpot security for two of our game products, Nevada Numbers and The Million Dollar Ticket. The terms of Series B Convertible Preferred Stock provide that if at any time we determine that these proceeds are no longer used by us to provide jackpot security for either our Nevada Numbers or Million Dollar Ticket game, then in each case, each holder of Series B Convertible Preferred Stock will have the option, for 90 calendar days from the date the holders of Series B Convertible Preferred Stock are noticed that such funds are no longer being so used, to put to us up to 50% of such holder's Series B Convertible Preferred Stock for $5.00 per share or convert on a one-to-five basis for Common Stock Series A.
 
On January 18, 2008, because Treasure Island had begun maintaining the required base jackpot bankroll our Million Dollar Ticket game, the holders of Series B Convertible Preferred Stock were again notified pursuant to the terms and conditions of our Series B Convertible Preferred Stock of their ability to exercise the above options. The holders of Series B Convertible Preferred Stock had until April 17, 2008, to make their decision.  As of September 30, 2008, holders of 27,500 shares of Series B Convertible Preferred Stock elected to have their shares redeemed at $5 per share for a total redemption of $137,500 for the nine months ended September 30, 2008.  As of September 30, 2008, there were 52,000 shares of Series B Convertible Preferred Stock still outstanding.
 
Series C Convertible Preferred Stock.  In January 2007, holders of our Series C Convertible Preferred Stock converted 3,000 shares of Series C Convertible Preferred Stock on a one-to-five basis for 15,000 shares of Common Stock Series A.  In August 2008, the remaining holders of 35,000 shares of Series C Convertible Preferred Stock converted their shares on a one-to-five basis into 175,000 shares of Common Stock Series A.  As of September 30, 2008, there were no shares of Series C Convertible Preferred Stock outstanding.
 
Series D Convertible Preferred Stock.  In November 2005, we issued 125,000 shares of Series D Convertible Preferred Stock at $2 per share.  In August 2008, the holder of 125,000 shares of Series D Convertible Preferred Stock converted his shares on a one-to-one basis into 125,000 shares of Common Stock Series A.  As of September 30, 2008, there were no shares of Series D Convertible Preferred Stock outstanding.
 
Series E Convertible Preferred Stock.  Holders of Series E Convertible Preferred Stock are entitled to receive $5 per share as a liquidation preference after payment of all existing and future indebtedness and the liquidation preference of Series B and Series F Convertible Preferred Stock. Series E and Series G Convertible Preferred Stock are pari passu in liquidation preference. During the nine months ended September 30, 2008, we issued 67,000 shares of our Series E Convertible Preferred Stock raising $335,000.  In February, 2008, we closed our Series E Convertible Preferred Stock offering with a total of 810,800 shares issued and $4,054,000 raised.
 
Series F Convertible Preferred Stock.   The holder of Series F Convertible Preferred Stock is entitled to receive $5 per share as a liquidation preference after payment of all existing and future indebtedness and before Series B, Series E, Series G and Series H  Convertible Preferred Stock as to the $1,000,000 jackpot bankroll reserve for our Gamblers Bonus Million Dollar Ticket game.  On May 9, 2008, we issued 200,000 shares of Series F Convertible Preferred Stock which carries a 12% dividend rate which is cumulative and payable fifteen days after the CAMOFI note is paid off.  Series F Convertible Preferred Stock is convertible into Common Stock Series A at the lower of $3.50 or 30% off of the IPO price, where “IPO price” means the per share price to the public of any common shares offered by us that in the aggregate results in capital in excess of $10.0 million being raised and the shares of a class of our common stock being listed and traded on a national stock exchange.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
Series G Convertible Preferred Stock.   The holder of Series G Convertible Preferred Stock is entitled to receive $5 per share as a liquidation preference pari passu with the liquidation preference of Series E Convertible Preferred Stock and after payment of all existing and future indebtedness and the liquidation preference of Series B and Series F Convertible Preferred Stock.  On May 9, 2008, we issued 150,000 shares of Series G Convertible Preferred Stock which carries a 12% dividend rate which is cumulative and payable fifteen days after the CAMOFI note is paid off.  Series G Convertible Preferred stock is convertible into Common Stock Series A at the lower of $3.50 or 30% off of the IPO price, where “IPO price” means the per share price to the public of any common shares offered by us that in the aggregate results in capital in excess of $10.0 million being raised and the shares of a class of our common stock being listed and traded on a national stock exchange.
 
Series H Convertible Preferred Stock.   The holders of Series H Convertible Preferred Stock are entitled to receive $5 per share as a liquidation preference after payment of all existing and future indebtedness and the liquidation preference of Series B, Series E, Series F and Series G Convertible Preferred Stock.  During the nine months ended September 30, 2008, we issued 98,500 shares of Series H Convertible Preferred Stock at a price of $5 per share for a total capital raise of $492,500.  The Series H Convertible Preferred offering closed June 21, 2008.  Series H Convertible Preferred stock is convertible into Common Stock Series A at the lower of $2.50 or 30% off of the IPO price, where “IPO price” means the per share price to the public of any common shares offered by us that in the aggregate results in capital in excess of $10.0 million being raised and the shares of a class of our common stock being listed and traded on a national stock exchange.
 
Stock Warrants and Options.  We have both a qualified and a non-qualified stock option plan. The Compensation and Stock Option Committee of our Board of Directors administers the plans.  As of September 30, 2008, there were 1,898,900 qualified and 625,000 non-qualified options outstanding. The exercise price of options issued pursuant to either plan cannot be less than the fair market value at the time of the grant and vesting is at the discretion of the Compensation and Stock Option Committee, though limited to ten years. Only employees and board members are qualified to receive options.  The stock subject to the qualified plan is limited to 2,500,000 shares of Common Stock Series A.
 
We have, from time to time, granted common stock, warrants and options to employees and others as employment incentives, or as an inducement to invest in our common or preferred securities, in return for other services, and in conjunction with the initial capitalization of our company and business acquisitions.  Options to purchase 310,000 shares of Common Stock Series A were issued to officers and directors during the nine months ended September 30, 2008. Total compensation cost recognized in operations from grants of options and warrants amounted to $483,994 and $689,113 for the nine months ended September 30, 2007 and September 30, 2008 respectively.  Unrecognized costs related to employee stock options and warrants outstanding at September 30, 2008 totaled $515,046 and are expected to be amortized over a weighted average period of three years.
 
During the nine months ended September 30, 2008, the Company issued 49,755 shares of Common Stock Series A to directors in lieu of board of director fees.
 
The weighted average exercise price of our outstanding options and warrants at September 30, 2008, was $2.48. The following table summarizes our stock option and warrant activity followed by the applicable weighted average prices during the nine months ended September 30, 2008:
 
Balance December 31, 2007
     6,174,862  
    $ 2.33  
Granted
     1,565,000  
    $ 2.99  
Exercised
     (92,659 )
    $ 1.17  
Forfeited
     (552,994 )
    $ 2.49  
Balance, September 30, 2008
     7,094,209  
    $ 2.48  
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
As of September 30, 2008, 1,427,683 options and warrants are outstanding, but have not vested. The aggregate intrinsic value of options and warrants at September 30, 2008, is $518,854.
 
         
Weighted
  
   
Non-vested
    
Average
  
   
Options
    
Price
  
             
Balance, December 31, 2007
     515,610     $ 5.00  
Granted
     969,000     $ 3.01  
Vested
     (184,010 )   $ 5.00  
Forfeited
     -       -  
Balance, September 30, 2008
     1,300,600     $ 3.52  
 
         
Weighted
  
   
Non-vested
    
Average
  
   
Warrants
    
Price
  
             
Balance, December 31, 2007
     270,333     $ 2.85  
Granted
     93,750     $ 2.50  
Vested
     (237,000 )   $ 2.98  
Forfeited
     -       -  
Balance, September 30, 2008
     127,083     $ 2.35  
 
The following table summarizes stock options and warrants outstanding at September 30, 2008, as to number exercisable and average remaining life in years:
 
               
Weighted Average
          
Weighted Average
  
   
Exercise
    
Number
    
Remaining
    
Number
    
Remaining
  
   
Price
    
Outstanding
    
Life in years
    
Exercisable
    
Life in years
  
Options
   $ 1.00       270,000       1.3       270,000       1.3  
    $ 2.00       460,000       4.5       158,500       4.5  
    $ 2.50       540,000       4.8       135,000       4.8  
    $ 3.00       100,900       1.4       100,900       1.4  
    $ 4.55       30,000       1.0       30,000       1.0  
    $ 5.00       1,123,000       4.0       523,620       3.9  
Warrants
   $ 1.00       377,500       1.5       367,500       1.4  
    $ 1.48       2,675,000       2.6       2,675,000       2.6  
    $ 1.50       30,000       4.6       30,000       4.6  
    $ 2.00       195,000       1.8       195,000       1.8  
    $ 2.10       23,809       2.1       23,809       2.1  
    $ 2.50       125,000       4.9       31,250       4.9  
    $ 3.00       854,000       2.3       854,000       2.3  
    $ 4.00       100,000       1.4       100,000       1.4  
    $ 4.55       40,000       0.1       40,000       0.1  
    $ 5.00       150,000       2.5       126,667       2.3  
              7,094,209       2.9       5,661,246       2.5  

There are 1,427,683 options and warrants that have been issued but have not vested.  Of these options and warrants 19,306 will vest in the last quarter of 2008, 597,057 in 2009, 553,070 in 2010 and 258,250 in 2011.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
8.  Concentration and Contingencies

Concentrations.  Historically, we have depended on relatively few suppliers for components and programming for certain of our games.  However, this dependence has been substantially mitigated as a result of acquisitions, mostly in 2003, and we believe that such other suppliers are sufficiently available so that any disruption of service would be brief and not have a material adverse effect on our business financial condition, or results of operations.
 
Uninsured Cash Deposits.  The Company frequently has cash on deposit substantially in excess of federally-insured limits, and the risk of losses related to such concentrations may be increasing as a result of recent economic developments.  However, the extent of loss, if any, to be sustained as a result of a bank failure is not subject to estimation at this time.
 
Gaming Regulations and Licensing. We are licensed with the state of Nevada as an operator of inter-casino-linked systems, supplier and distributor of keno and bingo products, parts, and service, and as a keno route operator.  From time to time, we seek licensure in other gaming jurisdictions so that we may similarly participate in the gaming revenue produced by customers for our products in those jurisdictions.  Failure to retain our Nevada licenses or to obtain and retain the necessary licenses in other jurisdictions would have a material adverse effect on us.
 
We purchase insurance to fund the base progressive jackpots for Nevada Numbers, Super Games Bingo (in some circumstances), and The Million Dollar Ticket. We fund any uninsured portion plus increases to the progressive jackpot through operations. We are ultimately liable for the entire jackpot. The following tables illustrate our liability for progressive jackpots at December 31, 2007 and September 30, 2008, and related assumptions:
 
   
December 31, 2007
  
Present value of Nevada Numbers $5.0 million base
   progressive jackpot, payable in 20 equal annual
   installments using a 7.25% discount rate, the prevailing
   prime rate
   $ 2,786,153  
Present value at 7.25% of the progressive jackpot meter
   for Nevada Numbers
     13,446  
Less portion insured through conventional insurers
     (2,900,000 )
Other games
     475,909  
    $ 375,508  
 
   
September 30, 2008
  
Present value of Nevada Numbers $5.0 million base
   progressive jackpot, payable in 20 equal annual
   installments using a 5.0% discount rate, the prevailing
   prime rate
   $ 3,271,330  
Present value at 5% of the Nevada Numbers increase to
   the progressive jackpot meter
     56,235  
Less portion insured through conventional insurers
     (2,900,000 )
Other games
     508,861  
    $ 936,426  

When the Nevada Numbers jackpot was hit and won on September 25, 2007, we changed the discount rate for the lump sum payment to the winner from the prevailing 20-year Treasury bond rate to the current prime rate.  Casino games costs and expenses for the quarter ended September 30, 2007 is reported net of a $780,000 credit arising from this change.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
Legal Matter.  On September 12, 2007, International Game Technology (IGT) filed a lawsuit against us alleging copyright infringement, trademark infringement, trade dress infringement and false designation of origin relating to the operation of our PlayerVision system on IGT’s Game King® gaming machines.  IGT was seeking injunctive and monetary relief in the case, including treble damages and profits, claiming that IGT would be irreparably harmed by LVGI if LVGI’s PlayerVision were deployed in the marketplace.  On June 12, 2008, IGT and LVGI jointly filed a “stay” of the lawsuit and began settlement negotiations.  On October 14, 2008, pursuant to the settlement, the case was dismissed with prejudice (see Note 11).
 
On September 15, 2008, a lawsuit was filed against LVGI and certain other defendants concerning their provisional patent for “slot lottery”.  We are unable to estimate minimum costs to be incurred by LVGI, if any, upon the ultimate disposition of this matter and, accordingly, no provision has been made, but we believe the case is without merit and will vigorously defend ourselves.
 
Noncompliance with Gaming Regulation.  Regulation 5.115 of the Nevada Gaming Commission (NGC), as amended on November 18, 1999, allows licensees to use the “reserve method” to fund periodic payments of any game, including a race book or sports pool, tournament, contest, or promotional activity provided licensees comply with certain financial monitoring and reporting requirements as follows:  1) current ratio of 2:1 and 2) interest coverage ratio of 3:1.  We have generally found it impossible, primarily due to the absence of earnings, to be in compliance with these requirements and in the past have been successful in presenting an alternative plan that was acceptable to satisfy the objectives of the Regulation if not cure the situation prospectively through expected future raises of capital.  In our ten-year history, all of our jackpot liabilities have been paid by us or through insurance coverage, and we have no reason to believe that it will not continue to be the case in the future.  Although the NGC has the right to demand that a one-year letter of credit be posted when a company is not in compliance with the foregoing financial ratios, it has not made any such demand to date.
 
The forgoing notwithstanding, in July, 2008, we received two “Orders to Show Cause” from the Nevada Gaming Control Board (NGCB).  One order dealt with deficiencies in meeting the financial requirements of Regulation 5.115 as to 1) resources in restricted accounts; 2) current ratio or working capital; 3) interest coverage ratios or debt to EBITDA ratio; and 4) bankroll.  The second order dealt with deficiencies in filing timely reports with the NGCB as to new hires and termination of personnel.  We have filed responses to these orders as to how these matters have been or will be cured.  We do not know and we are unable to estimate at the present time whether there will be any adverse consequences as a result of these actions and, accordingly, have made no provision therefor.
 
9.  Income Taxes

As of September 30, 2008, net operating loss carryovers for federal income tax reporting purposes total approximately $32.0 million and expire between 2013 and 2026. However, because we have not achieved a satisfactory level of operations, realization of any future income tax benefit of the net operating loss carryovers accumulated to date is not yet viewed by management at this time as more likely than not.  Therefore, the related deferred tax asset of $11.2 million has been effectively reduced by a 100% valuation allowance.  In addition, we may be limited in our ability to fully utilize our net operating loss carryforwards and realize any benefit therefrom in the event of any of certain ownership changes described in Internal Revenue Code Section 382.
 
In 2007, the Company adopted FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109, (FIN 48).  The adoption of FIN 48 did not have a material impact on the Company’s financial statements, its net operating loss carryovers or related deferred tax assets or valuation allowances.
 
10.  Segment Information
 
We conduct our operations in three primary business segments: “Casino Games,” “Products” and “Other.” The “Casino Games” segment generates income from three games in 25 casinos in Nevada and another 14 outside Nevada and from a fourth one launched on April 14, 2008, Gamblers Bonus Million Dollar Ticket, which is in approximately 110 bars and convenience stores in Nevada.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
Operating results, certain unallocated expenditures, and identifiable assets for these segments are set forth below.
 
   
Nine months ended September 30,
  
   
2007
    
2008
  
Revenue
            
Casino Games
   $ 1,303,129     $ 1,868,701  
Product Sales
     1,377,735       927,738  
Other
     1,055,794       716,283  
    $ 3,736,658     $ 3,512,722  
                 
Operating income (loss)
                
Casino Games
   $ 917,430     $ 28,190  
Product Sales
     597,794       476,428  
Other
     56,404       (172,095 )
Unallocated
     (6,003,779 )     (6,563,911 )
    $ (4,432,151 )   $ (6,231,388 )
                 
Identifiable assets
          
September 30, 2008
  
Casino Games
           $ 3,974,808  
Product Sales
             315,723  
Other
             398,492  
Unallocated
             2,430,445  
            $ 7,119,468  

Identifiable assets at September 30, 2008, includes recorded goodwill of $955,277 from prior years’ acquisitions that relates to the Product Sales segment.
 
   
Nine months ended September 30,
  
Capital expenditures
  
2007
    
2008
  
Casino Games
   $ 190,428     $ 118,535  
Product Sales
     1,509       0  
Other
     33,152       98,947  
Unallocated
     57,819       65,162  
    $ 282,908     $ 282,644  
 
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
 
11.  Subsequent Events

On October 1, 2008, IGT signed an investment agreement effective as of September 30, 2008, with LVGI for 4,693,878 shares of our Series I Convertible Preferred Stock at $2.45 per share, or a total investment of $11.5 million.  The transaction closed on October 24, 2008.  IGT had previously advanced $1.5 million of this total investment pursuant to an agreement dated July 17, 2008, as amended, so the net proceeds received by LVGI on October 24, 2008 was $10 million.  IGT also received 1.5 million warrants at an excise price of $2.45 per share, which are convertible one-for-one into shares of Common Stock Series A.  The warrants have a three-year term and are fully vested.  The shares of Series I Convertible Preferred Stock carry a dividend rate of 6.5% payable initially on January 1, 2010 and vote on an as converted basis on all matters submitted to LVGI’s stockholders.  Based on the fully diluted outstanding shares of LVGI, IGT is entitled to one seat on LVGI’s Board of Directors, which to date they have not chosen to activate.  In addition, IGT forgave a receivable from LVGI from a prior legal settlement for $614,027 (see Note 6).  Also on October 1, 2008, we signed three agreements with IGT, each dated September 30, 2008, which became part of the legal settlement: 1) the Retrofit License Agreement, 2) the License and Application Support Agreement and 3) the Intellectual Property Access Agreement.  On October 14, 2008, the legal case with IGT was dismissed by the Court with prejudice.

On October 1, 2008, we acquired the tangible and intangible assets of AdLine Network Holdings Inc. (AdLine), AdLine Media LLC, AdLine Network LLC and Freeview Network LLC for 750,000 shares of our Common Stock Series A.  The intent of the transaction was to reacquire and consolidate all of the rights associated with various technologies and intellectual property licenses held by AdLine, including the license previously granted to Adline.  The transaction was structured as an asset purchase to ensure the complete reacquisition of the licenses and technologies.  Any other assets acquired were immaterial and incidental. In addition, one of the owners of AdLine received a one-year consulting agreement with LVGI for $15,000 per month.

With the additional $10 million of funding from IGT on October 24, 2008, LVGI paid in full the CAMOFI note for $6,051,250, together with accrued interest and a prepayment penalty amounting to $1,567,272.  LVGI was released from any and all liens and claims that CAMOFI may have against us and the Registration Rights Agreement was terminated.  CAMOFI has 2,675,000 warrants, with “piggy-back” registration rights for its 300,000 shares of our common stock and underlying shares of common stock underlying its warrants, which registration rights are junior to the registration rights granted to IGT as part of the Series I Convertible Preferred Stock transaction.

In connection with the IGT transaction, we filed Amended and Restated Certificates of Designation with the Nevada Secretary of State with respect to our Series B, Series E, Series F, Series G and Series H Convertible Preferred Stock on October 22, 2008.  We also filed Certificates of Withdrawal of Certificate of Designation with the Nevada Secretary of State with respect to our Series A, Series C and Series D Convertible Preferred Stock on October 3, 2008, as no shares of such series were then issued or outstanding.

On October 24, 2008, we paid back a $600,000 shareholder advance, which was received on September 28, 2008.

 
Item 2.     Management’s Discussion and Analysis of Financial Condition and Results of Operations.

               You should read the following discussion and analysis together with our unaudited consolidated financial statements and the accompanying notes.  This discussion contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934, as amended, and the Private Securities Litigation Reform Act of 1995, including statements regarding our expected realization of more significant revenue from PlayerVision during the second quarter of 2009 and our expected financial position, business and financing plans. Some of the forward-looking statements can be identified by the use of forward-looking terms such as “believes,” “expects,” “may,” “will,” “should,” “could,” “seek,” “intends,” “plans,” “estimates,” “anticipates,” or other comparable terms. Forward-looking statements involve inherent risks and uncertainties which could cause actual results to differ materially from those in the forward looking statements, including any adverse judgment, ruling or order and additional risks discussed herein and elsewhere in our Form 10-KSB for the year ended December 31, 2007.  We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made.  These historical financial statements may not be indicative of our future performance.
 
Overview
 
Historically, we have been one of the leading suppliers of keno and bingo games, systems, and supplies, a relatively small market associated with nominal growth and smaller companies.  Our current principal business is the delivery of new, linked-progressive, mega jackpot games to the worldwide gaming industry.  However, to date, we have devoted a significant portion of our resources toward the development, regulatory approval, and marketing of our PlayerVision system.  In comparison to the keno and bingo market, the potential market for our PlayerVision system, i.e., the gaming machine market, is much larger and more dynamic.  While we continue to provide equipment, supplies and games for use by our customers in the keno and bingo segments of the gaming industry, we anticipate these revenues will continue to decline as we focus on our current principal business.  PlayerVision has not had a significant revenue effect on our financial statements to date.  Due to our focus on the development of our PlayerVision system, we have incurred expenses in excess of our revenue and have generated losses to date.
 
By the third quarter of 2007, we substantially completed the development of our PlayerVision system, including the first four modules to be offered through our PlayerVision system:  AdVision, PlayerVision TV, NumberVision and WagerVision.  In terms of the sales and marketing of our PlayerVision system, we introduced our PlayerVision system to the gaming industry at the Global Gaming Expo in Las Vegas, Nevada initially during the fourth quarter of 2006 and again in 2007.  We displayed our PlayerVision system at the International Casino Exhibition in London, England in January 2007 and 2008, the National Indian Gaming Association Convention in Phoenix, Arizona during the first quarter of 2007 and in April, 2008, and the Southern Gaming Show in Biloxi, Mississippi in May 2007 and 2008.  In terms of regulatory approvals, we have received approval from Nevada with respect to AdVision and PlayerVision TV, and we have received approval from Gaming Laboratories International, or GLI, with respect to AdVision, PlayerVision TV and NumberVision.  We hope to receive approval from Nevada for WagerVision and NumberVision by the end of the fourth quarter of 2008.  Following the Nevada approval of WagerVision and NumberVision, we expect to beta test these applications for 30 days at Treasure Island in Las Vegas. We expect to launch NumberVision applications in various casinos in Oregon and Arizona shortly.
 
On June 27, 2006, we entered into a binding memorandum of understanding with Computerized Bookmaking Systems, Inc. (CBS), a subsidiary of American Wagering, Inc., whereby both parties agreed that mutually beneficial synergies existed in utilizing our PlayerVision platform (then known as PortalVision) to expand the approved electronic devices upon which a customer having a CBS wagering account might use to (i) watch a live televised sports or horse race event, (ii) view live odds for such an event posted by a customer of CBS, and (iii) place a wager on such an event.  Pursuant to such binding memorandum, CBS developed, at no charge to us, a race and sports book interface for WagerVision on our PlayerVision system.  CBS owns all of the rights to this CBS race and sports book interface protocol including the software, source code and documentation. We own the WagerVision trademark and the platform on which the source code was written.   It was the intent of both companies to share equally in the net revenues generated from wagers on televised sports and horse race events and other CBS wagering opportunities offered through this WagerVision module.  Although the binding memorandum has expired, we intend to resume negotiating the terms of a definitive agreement with CBS.  We anticipate that the definitive agreement will clearly define the CBS protocol and protocol interface as the portion of the total system owned by and licensed from CBS and our PlayerVision code and modules running on the platform that are owned and maintained by us.  This will significantly enhance our ability to produce, deploy, and maintain this module and allow LVGI and CBS to quickly adapt to technological, regulatory and social changes. If these negotiations are unsuccessful, it would prevent or significantly delay regulatory approval and market introduction of the WagerVision module.
 
 
 
Based on the foregoing, and other than the insignificant revenue realized from our early adoption agreements, we anticipate beginning to realize more significant revenue from our PlayerVision system during the second quarter of 2009 that would mark a significant shift in the type of revenue recognized by us.  The anticipated revenue would be from the installation of AdVision, PlayerVision TV, WagerVision, and NumberVision at various casino locations in the United States and elsewhere.  We expect that any revenue derived from CBS wagering opportunities offered through the WagerVision module will be shared with CBS.
 
We expect to continue for the remainder of 2008 to incur expenses related to the development and regulatory approval for the remaining PlayerVision modules, and we expect to face competition from larger, more formidable competitors as we enter the gaming machine market.  Due to continuing expenses related to our PlayerVision system, we expect to continue to rely on funds from third party financing sources, in addition to funds from operations and the $11.5 million investment from IGT (of which $1.8 million remains after payment in full of the CAMOFI Note and other liabilities and expenses), to sustain our operations in 2008 and 2009.  See discussion in “Liquidity – Outlook” below.
 
Critical Accounting Policies and Estimates
 
The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, and expenses and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate our estimates. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. These estimates and assumptions provide a basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and these differences may be material.
 
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.
 
Revenue Recognition
 
PlayerVision. The revenue from PlayerVision will result from installation fees, activation fees, fees for services, and revenue sharing arrangements. We will recognize installation and activation fees for PlayerVision upon installation and recognize the costs associated with the installation (labor and supplies) at that time. We will recognize revenue from the revenue sharing arrangements as earned and recognize maintenance expenses as incurred against the corresponding revenue.  Manufacturing costs will be capitalized and depreciated over the life of the asset.
 
Casino Games. As wagers are made within our inter-linked systems, we recognize our share of each wager made as revenue. Based on the revenue proceeds, we purchase insurance to fund the base jackpot. We also estimate the cost for any uninsured base jackpot and the expense for any progressive jackpot and, accordingly, establish a liability on our balance sheet as a progressive jackpot liability. For our other casino games, we recognize our share of revenue upon the sale of each ticket. We have the discretion to purchase insurance to fund jackpots. We recognize costs associated with uninsured jackpots as each ticket is sold based on mathematical probabilities dictated by the odds of the game.
 
Products. We generally recognize sales of bingo and keno equipment when installed and sales of supplies when the products are shipped. Warranty costs and related liabilities associated with product sales have not been material. We recognize fees from equipment maintenance contracts sold separately (with no bundled deliverables) evenly over the term of the contract. Prior to shipment, we include equipment and supplies in inventories and stated at the lower of cost, as determined on a “first-in first-out’’ basis, or market.
 
Other. We include keno revenue from the operation of a keno route subject to multiple participation agreements in other revenue in an amount equal to the net win from such gaming activities, which is the difference between gaming handle and amounts paid to customers. We reflect amounts due to the owners of the facilities in which the keno games are conducted (effectively contingent rent) as an expense.
 
 
 
Goodwill and other Intangible Assets

We review goodwill and other intangible assets for impairment annually, and whenever events or circumstances indicate the carrying value may not be recoverable or warrant a revision to the estimated remaining useful life, in accordance with SFAS 144, Accounting for the Impairment or Disposal of Long-Lived Assets, and SFAS 142, Goodwill and Other Intangible Assets.
 
Our forecasted future cash flows used to test the recoverability or determine the fair value of intangibles are based on assumptions that are consistent with plans used to manage the underlying business.  Factors used in our evaluations of potential impairment and fair value require significant judgments about respective estimated useful lives, risk rates, forecasted growth rates, brand history, expected market growth, competitive environment, market share, future business prospects and success of our products.  Changes in these estimates and assumptions could materially affect the determination of recoverability or fair value. While we believe that our estimates of future revenues and cash flows are reasonable, different assumptions could materially affect our assessment of useful lives, recoverability and fair values.  Application of the goodwill impairment test requires judgment, including the identification of reporting units, allocation of related goodwill, assignment of corporate shared assets and liabilities to reporting units, and determination of the fair value of each reporting unit.  We determine the fair value of our reporting units using the discounted cash flow method, and compare the implied valuation multiples to a group of guideline public companies under the Market approach to test the reasonableness of the discounted cash flow results.
 
 Our intangible assets consist of key patents and technology rights with a five year life related to PlayerVision which went to market for the first time during the fourth quarter of 2007.  We recorded no goodwill impairment charges during the nine months ended September 30, 2008 and 2007.
 
Income Taxes
 
We have provided a full valuation allowance for the tax effects of our net operating losses at September 30, 2008 and 2007.  We have effectively recorded a 100% valuation allowance to offset the deferred tax asset that might otherwise have been recognized as a result of operating losses in the current period and prior periods since, because of our history of operating losses, management is unable to conclude at this time that realization of such benefit is currently more likely than not.  Although Financial Accounting Standards Board (FASB) Interpretation No. 48 (FIN 48), Accounting for Uncertainty in Income Taxes - An Interpretation of FASB Statement No. 109, became effective for 2007, based on its evaluation, management determined that FIN 48 did not have a material effect on our financial statements or either our net operating loss carryovers or the related deferred tax assets or valuation allowance.
 
Recent Accounting Pronouncements
 
In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements, which defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements.  In February 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and Financial Liabilities-Including an Amendment of SFAS No. 115, which will permit the option of choosing to measure certain eligible items at fair value at specified election dates and report unrealized gains and losses in earnings.  SFAS No. 157 is effective now for financial assets and liabilities, if any, carried at fair value, and SFAS No. 159 now provides an option to carry other assets and liabilities at fair value for us beginning with financial statements issued for 2008.  SFAS No. 157 becomes effective for us for nonfinancial assets and liabilities carried at fair value, if any, beginning in 2009.  However, since we do not have, nor do we plan for the foreseeable future, to carry any assets or liabilities at fair value, we do not currently expect any effects of adopting SFAS Nos. 157 and 159 on our future financial position, results of operations and operating cash flows.
 
In December 2007, the FASB issued SFAS 141R, Business Combinations, which will significantly change the accounting for business combinations and certain other transactions.  SFAS 141R will apply prospectively to business combinations and certain other transactions for which the acquisition date is on or after the start of the first annual reporting period beginning on or after December 15, 2008, and early adoption  is prohibited.  Because we are not now contemplating any covered transactions after its effective date, we currently expect that SFAS 141R will not have an impact on our future financial position, results of operations, and operating cash flows.
 
 
 
In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements-An Amendment of ARB No. 51, which establishes new accounting for the noncontrolling interest in a subsidiary, including a consolidated variable interest entity, and requires that a parent recognize a gain or loss when a subsidiary is deconsolidated and measured using the fair value of the noncontrolling equity investment on the deconsolidation date.  SFAS 160 will be effective for 2009, and earlier adoption is prohibited.  Since we do not now have and do not contemplate acquiring any interests in subsidiaries with noncontrolling interest (other than on inactive and immaterial subsidiary), we currently expect that SFAS 160 will not have an effect on our future financial position, results of operations and operating cash flows.
 
In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activities – an Amendment of SFAS 133.  SFAS 161, which will require enhanced disclosures regarding the impact on financial position, financial performance, and cash flows, will be effective for us beginning on January 1, 2009, and the effect on our financial statements will be limited to requiring certain additional limited disclosures, if any.
 
Results of Operations
 
Three Months Ended September 30, 2008 Compared with Three Months Ended September 30, 2007
 
Revenue.  Casino games revenue for the three months ended September 30, 2008, increased $269,000 or 61.2%, to $709,000 from $440,000 for the three months ended September 30, 2007.  The higher casino games revenue principally resulted from higher revenue from Super Coverall Bingo of $140,000.  In addition we launched our Gamblers Bonus Million Dollar Ticket in April, 2008 which generated $132,000 of new revenue.
 
Product sales for the three months ended September 30, 2008, decreased by $379,000 to $254,000 or 59.8% from $633,000 for the three months ended September 30, 2007. Keno equipment sales amounted to $8,000 for the three months ended September 30, 2008 compared to $366,000 during the three months ended September 30, 2007.  This decrease in Keno equipment sales was due to a delay by customers to buy new Keno systems due to the state of economy.  PlayerVision sales amounted to $11,000 for the three months ended September 30, 2008 compared to $0 in the prior year.
 
Other revenue for the three months ended September 30, 2008, declined by $82,000 or 25.6%, to $238,000 from $320,000 for the three months ended September 30, 2007.  Revenue from Keno route and participation agreements decreased from $121,000 for the three months ended September 30, 2007 to $30,000 for the three months ended September 30, 2008, as we closed our Keno route business on February 29, 2008 due to renovation at one of our key customer locations. We reopened the Keno route operations in September at two locations.
 
Costs and Expenses.  Cost and expenses of casino games for the three months ended September 30, 2008, increased by $722,000 or 357.7%, to $520,000 from ($202,000) for the three months ended September 30, 2007. The increase resulted primarily from the $862,000 decrease in jackpot expense during the three months ended September 30, 2007, as discussed in Note 8, the Nevada Numbers jackpot was won for the first time in the history of the game, and we were able to discount the jackpot payout at the prime rate rather than the 20-year Treasury bond rate as had previously been applied in calculating our progressive jackpot liability.  Accordingly, the decrease includes a $780,000 credit for this change.
 
Product costs and expenses for the three months ended September 30, 2008, decreased $152,000 or 53.4% to $133,000 from $285,000 for the three months ended September 30, 2007 consistent with decline in Keno equipment sales
 
Other cost and expenses for the three months ended September 30, 2008, decreased $26,000 or 7.9% to $305,000 from $331,000 for the three months ended September 30, 2007 consistent with the decline in other revenue.
 
Other Operating Expenses. Selling, general and administrative expenses for the three months ended September 30, 2008 increased $5,000 or .4% to $1,503,000 from $1,498,000 for the three months ended September 30, 2007. We have decreased our administrative infrastructure through salary reductions of $128,000 during the three months ended September 30, 2008 compared to September 30, 2007.  Professional fees have increased by $105,000, during the three months ended September 30, 2008 compared to the same period in 2007. The increase in professional fees is primarily related to legal fees incurred in negotiating the settlement of the IGT lawsuit.
 
 
 
Research and development costs for the three months ended September 30, 2008 have increased by $162,000 or 77.2% to $372,000 from $210,000 for the three months ended September 30, 2007 due to the addition of three engineers to our staff.
 
Depreciation and amortization for the three months ended September 30, 2008, decreased $7,000 or 3.3%, to $200,000 from $207,000 for the three months ended September 30, 2007, as a result of comparable capital expenditures during the three months ended September 30, 2008 compared to the same period in the prior year.
 
 Finance Costs. Finance costs for the three months ended September 30, 2008, increased $166,000 or 51.6% to $490,000 from $324,000 for the three months ended September 30, 2007. The increased finance costs related to the recording of the fair value of the derivative liability and the increased finance cost from the debt modifications to the CAMOFI note in 2007 and May 2008.
 
 Interest and Other Income. Interest and other income for the three months ended September 30, 2008 decreased by $27,000 or 92.2%, to $2,000 from $29,000 for the three months ended September 30, 2007. The decrease was a result of lower cash balances outstanding and a loss in fair value incurred on our marketable securities.
 
Nine Months Ended September 30, 2008 Compared with Nine Months Ended September 30, 2007
 
Revenue.  Casino games revenue for the nine months ended September 30, 2008, increased $566,000 or 43.4%, to $1,869,000 from $1,303,000 for the nine months ended September 30, 2007.  The higher casino games revenue principally resulted from higher revenue from Super Coverall Bingo of $335,000 offset by a decline in Nevada Numbers of $31,000 and a decline in Million Dollar Ticket revenue of $8,000.  In addition we launched our Gamblers Bonus Million Dollar Ticket in April, 2008 which generated $255,000 of new revenue.
 
Product sales for the nine months ended September 30, 2008, decreased by $450,000 to $928,000 or 32.7% from $1,378,000 for the nine months ended September 30, 2007. Keno equipment sales amounted to $190,000 for the nine months ended September 30, 2008 compared to $460,000 during the nine months ended September 30, 2007 as new system purchases are being deferred into 2009.  Bingo equipment and supplies also decreased by $211,000 from $569,000 during the nine months ended September 30, 2007 to $358,000 during the nine months ended September 30, 2008 as we continue to lose market share due to the loss of our bingo electronics business in February, 2007.
 
Other revenue for the nine months ended September 30, 2008, declined by $340,000 or 32.1%, to $716,000 from $1,056,000 for the nine months ended September 30, 2007.  Bingo electronics revenue decreased from $70,000 for the nine months ended September 30, 2007 to $0 for the nine months ended September 30, 2008, as we lost our bingo electronics distributor agreement early in 2007.  Revenue from Keno route and participation agreements decreased from $355,000 for the nine months ended September 30, 2007 to $82,000 for the nine months ended September 30, 2008, as we closed our Keno route business on February 29, 2008 due to renovation at one of our key customer locations and reopened at two locations in September, 2008.
 
Costs and Expenses.  Cost and expenses of casino games for the nine months ended September 30, 2008, increased by $1,455,000 or 377.2%, to $1,841,000 from $386,000 for the nine months ended September 30, 2007. The increase resulted primarily from the decrease in jackpot expense during the nine month period ended September 30, 2007, as discussed in Note 8, the Nevada Numbers jackpot was won for the first time in the history of the game, and we were able to discount the jackpot payment at the prime rate rather than the 20-year Treasury bond rate as had previously been applied in calculating our progressive jackpot liability.  Accordingly, the decrease includes a $780,000 credit for this change.
 
In addition, games salaries increased by $106,000 for the nine months ended September 30, 2008 compared to September 30, 2007 as we hired a business unit leader for bingo in February, 2008.  Our jackpot expense for Super Coverall Bingo increased by $164,000 for the nine months ended September 30, 2008 compared to the same period in 2007 consistent with our increase in this games revenue.
 
Product costs and expenses for the nine months ended September 30, 2008, decreased $329,000 or 42.2% to $451,000 from $780,000 for the nine months ended September 30, 2007 consistent with the decrease in product sales.  Gross margin increased to 51.4% for the nine months ended September 30, 2008 compared to 43.4% for the nine months ended September 30, 2007 as we had higher margin Keno Optima system sales than normal.
 
Other cost and expenses for the nine months ended September 30, 2008, decreased $111,000 or 11.1% to $888,000 from $999,000 for the nine months ended September 30, 2007 consistent with the decline in other revenues.  Gross margin also decreased to (24.0%) for the nine months ended September 30, 2008 compared to 5.3% for the nine months ended September 30, 2007 due to lost profits from the bingo electronics distribution agreement being canceled, and additional salaries of $19,000.
 
 
Other Operating Expenses. Selling, general and administrative expenses for the nine months ended September 30, 2008 increased $295,000 or 6.5% to $4,865,000 from $4,570,000 for the nine months ended September 30, 2007. We have decreased our administrative infrastructure through salary reductions of $469,000 during the nine months ended September 30, 2008 compared to September 30, 2007.  In addition, consulting and professional fees have increased by $695,000, during the nine months ended September 30, 2008 compared to the same period in 2007. The increase in consulting and professional fees is primarily related to consulting costs for money raising and legal fees incurred in defending and negotiating the settlement of the IGT lawsuit.  Advertising and promotion has decreased by $169,000 as we reduced advertising costs to promote PlayerVision during the nine months ended September 30, 2008 compared to the same period in the prior year.
 
Research and development costs for the nine months ended September 30, 2008 have increased by $276,000 or 34.7% to $1,070,000 from $794,000 for the nine months ended September 30, 2007 due to the addition of three engineers to our staff.
 
Depreciation and amortization for the nine months ended September 30, 2008, decreased $10,000 or 1.6%, to $629,000 from $639,000 for the nine months ended September 30, 2007, as a result of minimal growth in capital expenditures during the nine months ended September 30, 2008.
 
 Finance Costs. Finance costs for the nine months ended September 30, 2008, increased $415,000 or 34.6% to $1,613,000 from $1,198,000 for the nine months ended September 30, 2007. The increased finance costs related to the recording of the fair value of the derivative liability and the increased finance cost from the debt modifications to the CAMOFI note in 2007 and May 2008.
 
 Interest and Other Income. Interest and other income for the nine months ended September 30, 2008 decreased by $216,000 or 170.7%, to $(89,000) from $127,000 for the nine months ended September 30, 2007. The decrease was a result of lower cash balances outstanding and loss in fair value incurred on our marketable securities.
 
Liquidity and Capital Resources
 
Cash Flows
 
Cash used in operating activities decreased by $1.6 million for the nine months ended September 30, 2008 primarily because of the foregoing revenue decreases and expense increases.  Investing activities consisted principally of cash outflows in connection with $249,000 of capital expenditures and $1,300,000 increase in jackpot reserve deposits, $1,000,000 of which covered our new Gamblers Bonus Million Dollar Ticket game bankroll and $300,000 of which covered a bankroll shortfall from June 30, 2008.  Our cash flows from financing activities in the nine months ended September 30, 2008 consisted principally of inflows of $335,000 of new capital from the sale of Series E Convertible Preferred Stock, $105,000 for exercise of options and warrants to purchase shares of Common Stock Series A, $110,000 for the sale of Common Stock Series A to employees, $1,500,000 from the sale of Series F and G Convertible Preferred Stock, and $492,500 from the sale of Series H Convertible Preferred Stock offset by a cash outflow of $137,500 to redeem our Series B Preferred Stock.

Capital Expenditures
 
Capital expenditures decreased by $3,000 for the nine months ended September 30, 2008 compared to the same period in the prior year due to our present cost reduction program.  For 2009, other than our obligation to pay any jackpots that may be won, we anticipate that our most significant capital resource requirement will relate to the purchase of approximately $15 million of PlayerVision Control Units for the rollout of our PlayerVision System.
 
We believe that we will be able to pay for these capital expenditures from our existing cash balances, from funds invested by IGT in our Series I Convertible Preferred Stock (of which $1.8 million remains after the payment in full of the CAMOFI Note and other liabilities and expenses), from funds generated by third-party financings, from funds generated from future operations, and/or from funds generated by additional third-party financings, including the establishment of a master equipment lease agreement with financing sources that we have used in the past.  No assurance can be given, however, that we will be able to secure any third-party financing or that such financing will be available to us on acceptable terms.
 
 
 
Sources of Capital
 
We have traditionally relied on various forms of third-party financing in order to sustain our operations.  In 2008, we have raised $335,000 from the private placement of Series E Convertible Preferred Stock which closed in late February 2008. We have raised $215,000 through the sale of Common Stock Series A to employees and through the exercise of options and warrants. In February 2008 we received a noninterest bearing advance from a shareholder of $250,000.  On May 7, 2008, we entered into a subscription agreement with this same shareholder pursuant to which the shareholder purchased 200,000 shares of Series F Convertible Preferred Stock for $5 per share and 150,000 of Series G Convertible Preferred Stock for $5 per share for an aggregate purchase price of $1,750,000.  The proceeds of the Series F Convertible Preferred Stock were used to fund the $1,000,000 jackpot bankroll for the Gamblers Bonus Million Dollar Ticket which launched on April 14, 2008.  The proceeds of the Series G Convertible Preferred Stock were used for general operating purposes, and the advance of $250,000 was offset against the Series G purchase price.  As an incentive to enter into these transactions, the Company issued the shareholder 500,000 shares of Common Stock Series A with the right to receive additional shares if the Company’s common stock, as a result of a qualified financing, commences trading at less than $5 per share, in which case the shareholder will receive additional shares of Common Stock Series A prorated for the percentage shortfall from $5 per share measured against the 500,000 shares, where a “qualified financing” is a capital raise of $10 million or more or a transaction at less than $5 per share resulting in a change in control of the Company.  In addition, the shareholder was granted a security interest and other additional rights in connection with our separate account (and related insurance policy) in which $1 million is reserved solely to satisfy our jackpot security requirements relating to the Gamblers Bonus Million Dollar Ticket game.
 
In May and June 2008, we raised $492,500 from the private placement of 98,500 shares of Series H Convertible Preferred Stock for $5 per share.  The offering was closed in late June 2008.
 
On May 1, 2008, we further amended our financing with CAMOFI Master LDC, or CAMOFI, whereby we entered into an Amended and Restated Senior Secured Convertible Note due January 1, 2010, or Note, and an Amended and Restated Registration Rights Agreement, or Registration Rights Agreement, with CAMOFI.
 
On October 1, 2008, IGT signed an Investment Agreement with the Company for 4,693,878 shares of our Series I Convertible Preferred Stock at $2.45 per share or a total investment of $11.5 million.  IGT had previously advanced $1.5 of this total investment so the net proceeds received by the Company on October 24, 2008, was $10 million.  In connection with the Investment Agreement with IGT, the Note was fully paid and the Registration Rights Agreement was terminated and CAMOFI received registration rights relating to its shares of our common stock and shares underlying its warrants.  On September 28, 2008, we received an advance from a shareholder for $600,000 which was repaid on October 24, 2008.  See Note 11 to Unaudited Consolidated Financial Statements.
 
Outlook
 
We expect to continue for at least the calendar year 2008 to incur expenses related to the development and regulatory approval for the remaining PlayerVision modules and additional modules presently in development.  We also expect to continue to rely on funds from third-party financing sources, the $11.5 million investment in our Series I Convertible Preferred Stock from IGT (of which $1.8 million remains after payment in full of the CAMOFI Note and other liabilities and expenses) in addition to funds from operations, to sustain our operations into 2009.  We believe that this cash, together with additional third-party financing and future cash generated from the PlayerVision product rollout, will be sufficient to fund our anticipated working capital requirements and our business expansion plans for at least the next year.  If the PlayerVision product rollout is delayed, we fail to complete or obtain additional third-party financing, or we are unable to establish a master equipment lease agreement, this would have a material adverse effect on our cash flow, results of operations and financial condition. No assurance can be given, however, that we will be able to secure any third party financing or that such financing will be available to us on acceptable terms. Given the current financial market disruptions, credit crisis and state of the economy, including the current downturn in the gaming industry, it may be particularly difficult at this time to obtain any third-party financing on acceptable terms, whether public or private equity or debt, strategic relationships, capital leases or other arrangements.  In addition, we have significant restrictive covenants under our recent financing with IGT that may prohibit us in certain circumstances from obtaining third party financing without IGT’s prior written consent.  Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants.  Strategic arrangements, if necessary to raise additional funds, may require that we relinquish rights to certain of our technologies or products or agree to other material obligations and covenants.
 
The United States has been experiencing a severe economic downturn that has curtailed casino gaming development, activity and profitability, both nationwide and particularly in our local market, and has resulted in highly reduced availability of credit and capital financing.  The effects and duration of these developments and related uncertainties on the Company’s future operations and cash flows cannot be estimated at this time but may likely be significant. Although casino gaming development, activity and profitability for 2008 are down and expected to be down for 2009, we believe that our PlayerVision system will provide casinos with an additional revenue source or cost
 
 
 
reduction with minimal, if any, upfront capital expenditure.  Other than the insignificant revenue realized from our early adoption agreements, we do not expect to begin to realize revenue from our PlayerVision system until the second quarter of 2009.  We cannot provide assurance that the market will accept our PlayerVision system.  Any failure by us to obtain approval of NumberVision and/or WagerVision, or to install our PlayerVision system within our expected schedule or on terms acceptable to us will likely have a material adverse impact on our cash flow, results of operations and financial condition.  In addition, we expect to face competition from larger, more formidable competitors as we enter the gaming machine market.  An unexpected lack of market acceptance of our PlayerVision system, failure to obtain additional financing, or unforeseen adverse competitive, economic, or other factors may adversely impact our cash position, and thereby materially adversely affect our financial condition and business operations.
 
We presently do not use any derivative financial instruments to hedge our exposure to adverse fluctuations in interest rates, foreign exchange rates, fluctuations in commodity prices, or other market risks, nor do we invest in speculative financial instruments.
 
Off Balance Sheet Financing Arrangements
 
We have operating leases totaling $809,771 that have the following payment schedule by calendar year: $98,936 in 2008, $183,921 in 2009, $179,115 in 2010, $158,068 in 2011, $141,986 in 2012, and $47,745 in 2013.
 
Item 3.    Quantitative and Qualitative Disclosures About Market Risk.
 
Not required.
 
Item 4T.  Controls And Procedures.
 
Evaluation of Disclosure Controls and Procedures
 
The Company’s management, including the Chief Executive Officer and Chief Financial Officer, has conducted an evaluation of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rules 13a-15(e) and 15d-15(e) as of September 30, 2008.  As a part of its evaluation, management took into account the material weaknesses (discussed below) in the Company’s disclosure controls and procedures identified by management for the year ended December 31, 2007.  The Company’s Chief Executive Officer and the Chief Financial Officer have concluded that, as of September 30, 2008, the end of the period covered by this report, the Company’s disclosure controls and procedures were still not effective due to the material weaknesses discussed below,  a late Form 8-K filed on January 24, 2008, which should have been filed in December 2007, a late Form 10-KSB filed on April 16, 2008, which should have been filed by April 15, 2008, a late Form 8-K filed on May 13, 2008, which should have been filed by May 8, 2008 a late Form 8-K filed on May 14, 2008, which should have been filed by May 13, 2008, a late Form 8-K filed on July 28, 2008, which should have been filed on July 23, 2008, and our failure to timely file reports with Nevada Gaming Regulators as to new hires and termination of personnel.
 
As disclosed in the Company’s December 31, 2007, Form 10-KSB, the errors that occurred in our financial reporting and in our accounting for certain complex accounting transactions in 2005, 2006 and 2007 were the result of material weaknesses in our accounting controls.  In the past, we have not completed an SEC and GAAP disclosure checklist as part of our internal control procedures, and we have had insufficient oversight of the chief financial officer.  In addition, our equity shares in our financial records for 2007 were not reconciled with our transfer agent’s share ledger on a timely basis.
 
Management believes that we have addressed or are addressing these material weaknesses in internal control over financial reporting with respect to the current and future periods (1) by hiring Bruce Shepard, a former audit partner with PricewaterhouseCoopers LLP, as our chief financial officer on August 1, 2006, (2) by requiring the completion of a detailed SEC and GAAP (i.e., generally accepted accounting principles) disclosure checklist in connection with our financial closing process at the end of each interim quarterly and annual report, (3) by holding an audit committee meeting prior to each annual and quarterly report being filed with the SEC, (4) by having a detailed cold review of our financial statements and notes thereto performed by another independent accounting firm prior to filing each annual and quarterly report with the SEC and reporting the results of that cold review to the audit committee, (5) by subscribing to an online accounting reference library service, and  (6) by assigning responsibility for regular reconciliation of our equity shares to the transfer agent ledger to a full-time accounting staff person.  All of the above procedures were implemented prior to the filing of this report, except that we have not yet assigned the responsibility of reconciling our equity shares with the transfer agent ledger to a full-time accounting staff person due to limited accounting resources and we did not hold audit committee meetings for the second and third quarter of 2008.  With respect to disclosure controls and procedures relating to timely filing of Form 8-Ks, management plans to hire a controller and assign him or her the responsibility of, identifying the events requiring Form 8-K reports, and develop procedures for communications on a timely basis between him or her and the person in management who has sufficient knowledge and information necessary to make these disclosure determinations.
 
 
Changes in Internal Control Over Financial Reporting

The Company is in the process of implementing the remediation plans not yet implemented as described above to address our material weaknesses.  Other than as described above, there have not been any other changes in the Company’s internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) during the fiscal quarter ended September 30, 2008, that have materially affected, or are reasonably likely to materially affect, the Company’s internal controls over financial reporting.



 
Item 1.   Legal Proceedings.
 
On September 12, 2007, IGT filed a lawsuit against us in the United States District Court of Nevada captioned IGT v. Las Vegas Gaming, Inc., case no. 3:07-cv-00415-BES-VPC alleging copyright infringement, trademark infringement, trade dress infringement and false designation of origin relating to the operation of our PlayerVision system on IGT’s Game King® gaming machines.  IGT was seeking injunctive and monetary relief in the case, including treble damages and profits, claiming that IGT would be irreparably harmed by LVGI if LVGI’s PlayerVision were deployed in the marketplace.  On June 12, 2008, IGT and LVGI jointly filed a “stay” of the lawsuit and began settlement negotiations.  On October 14, 2008, pursuant to the settlement, the case was dismissed with prejudice.  See Note 11 to Unaudited Consolidated Financial Statements.
 
On September 15, 2008, Steven Brandstetter and J & S Gaming filed a lawsuit against us, among other defendants, in Department 11 of the Nevada Eighth Judicial District Court captioned Brandstetter, et al. v. Bally Gaming, Inc., et al., case no. 08-A-571641-C alleging against us claims of breach of contract, misrepresentation, breach of fiduciary duty and unjust enrichment regarding a non-disclosure agreement executed in May 2002 pertaining to the plaintiffs’ gaming concepts.  The plaintiffs are seeking monetary damages, including attorney’s fees and costs.
 
Item 1A.   Risk Factors.
 
Not required.

Item 2.   Unregistered Sales of Equity Securities.
 
During the quarter ended September 30, 2008, we issued 123,750 shares of Common Stock Series A pursuant to the conversion, on a one-to-five basis, by the holders of 24,750 shares of Series B Convertible Preferred Stock.  Our Series C Convertible Preferred Stock shareholders converted their remaining 35,000 shares on a one-to-five basis for 175,000 shares of Common Stock Series A.  Our Series D Convertible Preferred Stock shareholder converted his 125,000 shares on a one-to-one basis into 125,000 shares of Common Stock Series A.  These issuances were deemed to be exempt from registration under the Securities Act in reliance on Section 3(a)(9) of the Securities Act.
 
During the quarter ended September 30, 2008, we issued options to purchase a total of 540,000 shares of Common Stock Series A to four employees, all with an exercise price of $2.50 per share, a three-year vesting schedule and a five-year life.  We also issued 125,000 warrants with an exercise price of $2.50 per share, to an employee with a four year vesting schedule and a five year life.  We also issued 16,500 shares of Common Stock Series A for board of director fees.  These issuances were deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act in that the issuance did not involve a public offering.
 
In October 2008, we issued 4,693,878 shares of Series I Convertible Preferred Stock to IGT for $2.45 per share as a $11.5 million strategic investment in our company.  This issuance was deemed to be exempt from registration under the Securities Act in reliance on Section 4(2) of the Securities Act in that the issuance did not involve a public offering.
 
In October 2008, we acquired the tangible and intangible assets of AdLine Network, Inc., AdLine Media LLC, AdLine Network LLC, and Freeview Network LLC for 750,000 shares of Common Stock Series A.

Item 3.  Defaults Upon Senior Securities.
 
See Note 6 to Unaudited Consolidated Financial Statements.  The CAMOFI Note, together with all accrued interest and prepayment penalty, were paid in full on October 24, 2008.  See Note 11 to Unaudited Consolidated Financial Statements.
 
 
 
Item 4.   Submission of Matters to a Vote of Security Holders.
 
Not applicable.
 
Item 5.   Other Information.
 
None.
 
Item 6.    Exhibits
 
         
10.1
  
Agreement dated July 17, 2008 between registrant and IGT, incorporated by reference to registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 19, 2008
 
    
10.2
  
First Amendment to Agreement dated August 15, 2008 between registrant and IGT, incorporated by reference to registrant’s Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on August 19, 2008
 
    
10.3
  
Second Amendment to Agreement executed August 21, 2008 (to be effective as of August 15, 2008) between registrant and IGT, incorporated by reference to registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on August 27, 2008
 
    
10.4
  
Third Amendment to Agreement dated August 29, 2008 between registrant and IGT, incorporated by reference to registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 5, 2008
 
    
10.5
  
Fourth Amendment to Agreement dated September 11, 2008 between registrant and IGT, incorporated by reference to registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 17, 2008
 
    
10.6
  
Fifth Amendment to Agreement dated September 18, 2008 between registrant and IGT, incorporated by reference to registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 23, 2008
 
    
10.7
  
Sixth Amendment to Agreement dated September 24, 2008 between registrant and IGT, incorporated by reference to registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on September 30, 2008
 
    
10.8
  
Asset Acquisition Agreement executed on October 1, 2008, and dated as of September 29, 2008 between registrant, Las Vegas Gaming Acquisition Corp., Adline Network Holdings, Inc., Adline Media, LLC, Adline Network, LLC, Freeview Network, LLC, Sam Johnson and Larry L. Enterline, incorporated by reference to registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 3, 2008
 
    
10.9
  
Investment Agreement executed on October 1, 2008 and dated as of  September 30, 2008 between registrant and IGT, incorporated by reference to registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 7, 2008
 
    
10.10
  
Form of Warrant to purchase Common Stock and Common Stock Series A issuable to IGT, incorporated by reference to registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 7, 2008
 
    
10.11
  
 
    
10.12*
  
 
    
 
 
 
 
10.13*
  
 
    
10.14
  
Satisfaction and Termination Agreement dated as of October 24, 2008 between registrant, Imagineering Gaming, Inc., Las Vegas Keno, Inc. and CAMOFI MASTER LDC, incorporated by reference to registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 28, 2008
 
    
10.15
  
First Amendment to Warrants dated as of October 24, 2008 between registrant and CAMOFI MASTER LDC, incorporated by reference to registrant’s Current Report on Form 8-K filed with the Securities and Exchange Commission on October 28, 2008
 
    
31.1
  
 
    
31.2
  
 
    
32.1
  
 
    
   
 
 
    
*Confidential treatment has been requested for portions of this exhibit.  These portions have been omitted from the exhibit filed with this Quarterly Report on Form 10-Q and have been filed separately with the Securities and Exchange Commission.

 


 
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
   
Las Vegas Gaming, Inc.
   
(Registrant)
         
Date:
November 19, 2008
By:
/s/ Jon D. Berkley
  
     
Jon D. Berkley
  
   
Its:
President and Chief Executive Officer
  
     
(Principal Executive Officer)
  
         
Date:
November 19, 2008
By:
/s/ Bruce A. Shepard
  
     
Bruce A. Shepard
  
   
Its:
Chief Financial Officer
  
     
(Principal Financial Officer)
  


 


EXHIBIT INDEX
 

Exhibit
  
Document Description
10.11
  
 
10.12*
  
 
10.13*
  
 
31.1
  
 
31.2
  
 
32.1
  
 
 
*Confidential treatment has been requested for portions of this exhibit.  These portions have been omitted from the exhibit filed with this Quarterly Report on Form 10-Q and have been filed separately with the Securities and Exchange Commission.
     

 


- 30 - -


 EX-10.11 2 ex1011.htm EX1011 ex1011.htm
Exhibit 10.11
 
INTELLECTUAL PROPERTY ACCESS AGREEMENT
 
This Intellectual Property Access Agreement (the “IPAA”) is made and entered into as of this September 30, 2008 (the “Effective Date”), by and between Las Vegas Gaming, Inc., (LVGI), a Nevada corporation, with a primary business address of 4000 West Ali Baba Lane, Las Vegas, Nevada 89118, and IGT (IGT), a Nevada corporation with a primary business address of 9295 Prototype Drive, Reno, NV 89521 (each a “Party” and collectively the “Parties”).
 
 
WITNESSETH
 
WHEREAS, IGT owns or has rights to various Intellectual Property (defined below);
 
WHEREAS, LVGI owns or has rights to various Intellectual Property; and
 
WHEREAS, LVGI and IGT desire an avenue by which either Party may come to the other with nonbinding offers to license such Intellectual Property.
 
THEREFORE, in consideration of the foregoing (which is incorporated by reference in this IPAA), the mutual covenants contained in this IPAA, and other good and valuable consideration, the receipt and sufficiency of which the parties hereby acknowledge, the parties agree as follows:
 
ARTICLE 1 
Definitions and Construction
 
The following terms with initial capital letters shall have the following meanings:
 
1.01 Definitions
 
“Affiliate” of a specified Person (defined below) is any other Person that controls, is controlled by, or is under common control with, the specified Person, where control means the power or ability to affect the management or policies of a Person, whether by contract, ownership of securities, or otherwise.  Notwithstanding the foregoing, IGT will not be deemed an Affiliate of LVGI.
 
“BAFO” means LVGI’s best and final offer of Definitive Documentation (defined below) with respect to a Development (defined below) or Intellectual Property Rights Agreement contemplated by LVGI.  The BAFO will not have any terms or conditions that make it any more onerous on IGT than any other Person.  A BAFO presented to any Person other than IGT may not contain any items of Intellectual Property or other property or assets unless such items are in the LVGI Portfolio (defined below).
 

 
- 1 - -
 


 
“Commercially Reasonable” means “reasonable commercial standards for fair dealing” within the meaning of the Uniform Commercial Code for the State of Delaware as in effect on the Effective Date.
 
“Competitor” means any manufacturer, supplier, or distributor of gambling Products with which IGT reasonably considers itself to compete for business.
 
“Definitive Documentation” means agreements, licenses, and instruments in customary commercial form constituting an offer such that, if duly executed and delivered by the proposing Party, such agreements, licenses, and instruments would comprise a binding integrated agreement with respect to the proposed Development.
 
“Development” means developing, designing, building, testing, evaluating, marketing, publicizing, using, implementing, modifying, enhancing, creating derivative works, manufacturing, offering for sale or license, licensing, selling, or exploiting, for commercial purposes or otherwise.
 
“End User” means the licensed operator (e.g. a casino operator) of an Electronic Gaming Machine.
 
“Functionality” means the retrofit hardware which is substantially similar to the functionality being provided as of July 17th, 2008.
 
“IGT Portfolio” means all Intellectual Property now or hereafter owned, held, or controlled by IGT, including patents within the Walker-Digital portfolio to which IGT has rights.
 
“Intellectual Property” means all intellectual property rights including all past, present and future rights in patents, industrial property rights, copyrights, trademarks, and trade secrets.
 
“LVGI Portfolio” means all Intellectual Property now or hereafter owned, held, or controlled by LVGI.
 
“Material Deviation” means any difference or differences between a third party Rights Agreement and the related BAFO upon which such third party Rights Agreement is based that, considered with all other such differences, may, in the context of IGT’s business activities, have been useful, or did have, or may, in the context of IGT’s business activities, have had, actual significance in the deliberations of IGT, in determining whether to accept such BAFO in the first instance.
 
“Opportunity Area” means a reasonably specific and detailed explanation of the intended field of use, market, and operation of any particular intended Product(s) (defined below).
 
“Person” will be broadly construed to include any individual; any public or private entity, including any corporation, partnership, limited partnership, limited liability company, trust, or business enterprise or any governmental agency or instrumentality; and any “group” within the meaning of §13(d)(3) of the Securities and Exchange Act of 1934, as amended.
 

 
- 2 - -
 

“PlayerVision Device(s)” or “PVD(s)” means the hardware, software, firmware connections, enclosures, and housings that are only capable of providing the Functionality.
 
“Product” means any product or service.
 
“Rights Agreement” means any proposed or executed agreement, arrangement, or understanding relating in any way to any rights in any use of the LVGI Portfolio, except with respect to the sale, rental, lease, or placement of Products with End Users.  Such Rights Agreement includes, by way of example, any covenant, agreement, arrangement, or understanding not to sue on or limit on the ability to assert or enforce any rights with respect to any use of any Intellectual Property within the LVGI Portfolio.
 
“Subordinate” of a specified Person means any director or officer or similar functionary of; employee, representative, or agent of; independent contractor to; or any other Person acting for or on behalf of, the specified Person.
 
1.02 Rules of Construction.  Unless the context otherwise clearly requires:
 
the word “or” will not be exclusive;
 
inclusion of items in a list will not be deemed to exclude other terms of similar import;
 
all parties will be considered to have drafted this IPAA together, with the benefit of counsel, and no provision will be strictly construed against any Person by reason of having drafted such provision;
 
the word “include” and its derivations means to include without limitation;
 
use of terms that imply gender will include all genders;
 
defined terms will have their meanings in the plural and singular case;
 
references to Sections, Articles, and Exhibits are to the Sections, Articles, and Exhibits to this IPAA;
 
financial terms that are not otherwise defined have the meanings ascribed to them under United States generally accepted accounting principles as of the date of this IPAA;
 
no example included in this IPAA will be deemed to create any ambiguity or vagueness in the interpretation of any provision of this IPAA; to the extent that any example included in this IPAA is construed as being in clear conflict with any other provision of this IPAA, such example will be deemed superseded by the provisions of this IPAA; and inclusion of any example in this IPAA will not be deemed to exclude any other example or to create any inference that any other example not included was intended to be excluded from the coverage of any provision of this IPAA; and
 

 
- 3 - -
 

the use of “will” as an auxiliary will not be deemed to be a mere prediction of future occurrences.
 
ARTICLE 2 
Right of First Access
 
2.01 Rights of First Refusal.
 
(a) 1st Right of First Refusal. If LVGI determines to license or otherwise dispose of any rights or interest in any or all patents owned or controlled by LVGI that have one or more claims covering LVGI’s PVD, LVGI must first undertake good faith negotiations with IGT for an exclusive license on commercially reasonable terms for such rights and/or interest.  If IGT and LVGI are unable to come to mutually agreeable terms within a commercially reasonable period of time, LVGI shall provide a BAFO to IGT with regard to the exclusive license rights and/or interest (an “Exclusivity BAFO”). IGT will either accept or reject the Exclusivity BAFO within a commercially reasonable time frame and, if accepted, shall be deemed to have contractually bound itself to the terms and conditions set forth in said Exclusivity BAFO.  The Parties agree to negotiate, in good faith, any other terms and conditions which are not included in said Exclusivity BAFO. If IGT rejects the Exclusivity BAFO in writing or a rejection is deemed based on IGT’s failure to provide its acceptance of said Exclusivity BAFO in writing within a commercially reasonable time frame,  LVGI may enter into an exclusive license to such rights or interest with any other Person; provided that the Development of the Product and its deployment and/or use do not implicate any IGT Intellectual Property and that the terms and conditions of such exclusive license with the other Person does not have any Material Deviations from the Exclusivity BAFO that was rejected by IGT and that such licensing is not to the detriment of IGT, which approval IGT shall not unreasonably withhold or delay.  If LVGI does not exclusively license the rights and/or interest offered in said Exclusivity BAFO within six months from an affirmative or deemed refusal, those rights offered in said Exclusivity BAFO will again become subject to IGT’s 1st Right of First Refusal in accordance with this Section 2.01(a) and (b).)
 
(b) 2nd Right of First Refusal.  If LVGI and IGT do not enter into an exclusive license pursuant to the 1st Right of First Refusal, LVGI may negotiate a non-exclusive license to such rights and/or interest (a “Non-Exclusivity BAFO”) with IGT or any other Person.  If LVGI negotiates a Non-Exclusivity BAFO with any other Person, LVGI must first, prior to closing with said other Person, offer IGT to enter into a non-exclusive license to such rights and/or interest on terms at least as good as or better than those provided in said Non-Exclusivity BAFO negotiated with said other Person.  IGT will either accept or reject the Non-Exclusivity BAFO within a commercially reasonable time frame and, if accepted, shall be deemed to have contractually bound itself to terms and conditions at least as good as or better than the terms and conditions set forth in said Non-Exclusivity BAFO.  Thereafter, LVGI may enter into other non-exclusive licenses with any and all other Persons; provided that such other non-exclusive licenses have no Material Deviations from said Non-Exclusivity BAFO and that such licensing is not to the detriment of IGT, which
 

 
- 4 - -
 

approval IGT shall not unreasonably withhold or delay.  If IGT rejects the Non-Exclusivity BAFO in writing or a rejection is deemed based on IGT’s failure to provide its acceptance of said Non-Exclusivity BAFO in writing within a commercially reasonable time frame, LVGI may enter into other non-exclusive licenses to the rights and/or interest with any and all other Persons; provided that such other non-exclusive licenses have no Material Deviations from said Non-Exclusivity BAFO
 
2.02 LVGI Initiated Project. Subject to Section 2.05, in the event that LVGI desires to pursue the Development of a Product requiring patents in the IGT Portfolio, IGT agrees that it will consider such a request on the terms set forth in this Section 2.02.  LVGI will make such request by providing to IGT a written good faith request (the “LVGI Negotiation Notice”) which must include an Opportunity Area with sufficient plans and details so that IGT can perform a business, marketing, engineering, and Intellectual Property evaluation, as applicable, of the proposed Development.  The LVGI Negotiation Notice and Opportunity Area may include, as applicable, and by way of example: i) a list of the IGT Intellectual Property implicated, ii) a detailed description of the Product (including Product description, engineering specifications, math models, etc. as applicable), iii) marketing plans, iv) proposed cost and pricing analysis; v) identification of relevant markets; and vi) other engineering, design, and business information that would be helpful and relevant to IGT’s feasibility analysis.  The scope of such LVGI Negotiation Notice will not be broader than necessary to permit Development of such Product.  Upon receipt of the LVGI Negotiation Notice, IGT will consider the proposal contained in the LVGI Negotiation Notice.  IGT will have a commercially reasonable time frame in which to evaluate and discuss with LVGI whether to enter into negotiations, which election to enter into such negotiations is at IGT’s sole discretion, to pursue the Development covered by the LVGI Negotiation Notice. 
 
(a)     If IGT timely gives notice of its intention to negotiate, each of IGT and LVGI covenants and agrees that it will negotiate in a Commercially Reasonable manner to reach agreement on the terms of the Definitive Documentation to permit the Development of the Product.  Only those patents designated in the LVGI Negotiation Notice by LVGI that IGT approves for licensing, in IGT’s sole discretion, will be included in the final negotiated license.  IGT and LVGI agree that IGT will have the exclusive right to pursue such negotiations with LVGI regarding the Opportunity Area and the Development of such Product for a commercially reasonable time frame after delivery of LVGI Negotiation Notice.
 
(b)   he Intellectual Property licenses provided by LVGI to IGT under this Agreement will provide for enforcement rights to IGT, but not necessarily an obligation, for any of LVGI’s Intellectual Property licensed to IGT.  IGT will agree to exercise such enforcement rights at its sole option and election and to the extent that such rights would not force IGT to bring suit against a direct customer of IGT or if such rights would not be commercially reasonable to enforce.
 
2.03 IGT Initiated Project.  In the event that IGT desires a license for Development to any patents in the LVGI Portfolio, IGT will have the right to negotiate with LVGI an exclusive or non-exclusive world-wide license, at IGT’s option, on the terms set forth in this Section 2.03.  IGT will initiate its negotiation right pursuant to this Section 2.03 by providing to LVGI a
 

 
- 5 - -
 

written notice (the “IGT Negotiation Notice”), stating the list of patents in the LVGI Portfolio that IGT is interested in licensing and an Opportunity Area in which IGT is interested for Development.  Each of IGT and LVGI covenants and agrees that it will negotiate in a Commercially Reasonable manner to reach agreement on the terms of such exclusive or non-exclusive world-wide license.  The Parties agree that the Definitive Documentation will include such other terms and conditions as the parties agree as a result of such negotiations and as applicable to the Development.  IGT and LVGI agree that IGT will have the exclusive right to pursue such negotiations for a commercially reasonable time frame (the “IGT Exclusivity Period”).  In the event that the Parties fail to reach an agreement during the IGT Exclusivity Period, there will not be any implied right of LVGI to exploit, in any manner, the rights that were the subject of the IGT Negotiation Notice without first complying with the provisions of this Article 2 granting IGT a right of first negotiation.
 
2.04 Exclusivity.  LVGI covenants and agrees that it will not, and will cause its Affiliates and Subordinates not to, directly or indirectly, enter into any Rights Agreement, except as explicitly permitted by this Article 2.
 
2.05 Limits on Obligations to Negotiate.  Notwithstanding the provisions of this IPAA, IGT will only be required to negotiate one independent agreement pursuant to this IPAA that is not IGT initiated at any one given time; provided that if LVGI in good faith believes that IGT or any of its Affiliates is infringing on any item of Intellectual Property in the LVGI Portfolio, then the submission of an LVGI Negotiation Notice and any subsequent negotiations with respect to the scope of such alleged infringement will not be prohibited by the foregoing.  If more than one such negotiation would otherwise be required pursuant to any of provision of this Article 2, IGT may defer the start of related negotiations until after the pending negotiating period has expired, such that IGT is engaged in no more than one negotiation that is not IGT-initiated.
 
2.06 Mechanism for Resolving Potential Patent Infringement Between the Parties.  If either Party believes it has a claim, including the right to file a declaratory judgment action, against the other Party for patent infringement, it shall notify the other Party of its contention in writing (“Notification Letter”).
 
(a)     Each of the Parties covenants, for itself and for its Affiliates, that, for the term of this Agreement, it shall not institute, file or aid in the filing (including being named as a plaintiff or being voluntarily joined in an action brought by a licensee of such Party or by any other person) of any claim, demand or cause of action regarding patent infringement against the other Party without first bringing its contention to the attention of the other Party by means of a Notification Letter and engaging in a 60-day negotiation period with such other Party.  Such Notification Letter shall include (i) an identification of the claims of the patent allegedly infringed and (ii) an identification of the accused device or method.
 
(b)     During said 60-day negotiation period, the Parties shall negotiate in good-faith toward a resolution of the patent dispute.  All negotiations during such 60-day negotiation period shall be treated as confidential information and as offers to
 

 
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compromise a claim, and thus inadmissible in litigation pursuant to Federal Rule of Evidence 408.
 
(c)    If the Parties are unable to amicably resolve the patent dispute within the 60-day negotiation period, then the Party that sent the Notification Letter (“Objecting Party”) may file a complaint regarding the patent matter.  The 60-day negotiation period shall not be detrimental to the Objecting Party in terms of laches, estoppel, waiver, damage limitations, statute of limitations, or in any other similar way.  Rather, the complaint shall be treated as if it were filed when Notification Letter was sent to the other Party.  The other Party (i.e., the Party to whom the Notification Letter was sent), however, may not file an action relating to the patent contention until 30-days after the 60-day negotiation period.
 
(d)    The Parties hereby agree that any applicable statute of limitations relating to any potential claim, demand, and/or cause of action with regard to alleged patent infringement shall be tolled during the 60-day negotiation period.
 
(e)    The Parties acknowledge that the mechanism provided in this Section 2.06 benefits both Parties in avoiding unnecessary litigation.  ACCORDINGLY, IF THE PARTIES ARE UNABLE TO AMICABLY RESOLVE THE PATENT DISPUTE WITHIN THE 60-DAY NEGOTIATION PERIOD, THE PARTIES HEREBY WAIVE THE RIGHT TO BRING, AS A DEFENSE OR AFFIRMATIVE DEFENSE TO ANY SUCH COMPLAINT OR APPLICATION FOR EMERGENCY RELIEF (EMERGENCY RELIEF INCLUDING, BUT NOT LIMITED TO, A TEMPORARY RESTRAINING ORDER, PRELIMINARY INJUNCTION, OR THE LIKE), THE ARGUMENT OR CONTENTION THAT ANY SUCH DELAY ATTRIBUTABLE TO SECTION 2.06 ELIMINATES OR REDUCES THE NEED OR ENTITLEMENT TO SUCH RELIEF.
 
2.07 Mechanism for Resolving Potential Non-Patent Infringement Between the Parties.  If either Party believes it has a claim, including the right to file a declaratory judgment action, against the other Party for infringement of Intellectual Property rights other than patents, the Parties agree to attempt to resolve such claim in good faith prior to filing a law suit.  The Parties agree, however, that such good faith attempt provided for in this Section 2.07 shall not require the process outlined in the above Sections 2.06.
 
ARTICLE 3 
Covenants and Conditions
 
3.01 Record Keeping.  LVGI covenants and agrees to maintain records in sufficient detail and in manner as will properly reflect all work done with respect to all LVGI Rights Agreements, and such other document and records as are necessary for IGT to determine LVGI’s compliance with each of the terms and conditions of this Agreement.  LVGI will allow IGT and its designated representatives to inspect such records during normal business hours, and will provide copies of all requested records, to the extent reasonably required  by IGT.
 

 
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3.02 Prosecution Collaboration.  IGT and LVGI agree to collaborate with respect to the prosecution of patents or applications having one or more claims covering LVGI’s PVD.  To wit, LVGI shall provide IGT with copies of proposed responses to any substantive action of any intellectual property office at least 30 days prior to the original filing deadlines (prior to any extension) for such responses and IGT shall have the right to propose changes to such responses, which LVGI will not unreasonably deny.  Should LVGI discontinue any patents owned or controlled by LVGI that have one or more claims covering LVGI’s PVD (by, for example, refusing to pay a maintenance fee or tax or allowing a patent application to go abandoned), LVGI shall notify IGT of its decision in this regard and IGT shall have the option to take over responsibility for maintaining, prosecuting, or otherwise perfecting such discontinued patents – and LVGI shall assign such to IGT at no cost except that IGT shall pay LVGI’s reasonable costs associated with such assignment.
 
ARTICLE 4 
Confidentiality
 
4.01 Confidentiality Obligation.  Each Party will, and will cause each of its Representatives to (a) hold all information relating to the business of the other Party disclosed to it by reason of this IPAA confidential; (b) not use any such information except as necessary to perform its obligations and exercise its rights under this IPAA; and (c) not disclose any of such information to any third party unless required by law or otherwise legally compelled to disclose such information; provided, however, that to the extent that either Party may become so legally compelled, such Party may disclose such information only if it will first have used reasonable efforts to obtain, and, if practicable, will have afforded the other Party the opportunity to obtain, an appropriate protective order or other satisfactory assurance of confidential treatment for the information required to be so disclosed.
 
4.02 Exceptions to Confidentiality.  The Party who received such confidential information will not be required to keep confidential any information that (a) was, at the time of disclosure to it, in the public domain; (b) after disclosure to it, is published or otherwise becomes part of the public domain through no fault of the receiving Party; (c) was received after disclosure to it from a third Party who had a lawful right to disclose such information or materials to it; (d) was required by law to be disclosed to any regulatory body having jurisdiction over the receiving Party or any of its respective affiliates, sublicensees or customers; (e) that disclosure is necessary by reason of applicable legal, accounting or regulatory requirements beyond the reasonable control of the receiving Party; or (f) is subsequently developed by the receiving Party independently of the information received from the disclosing Party, as evidenced by written documentation.
 
4.03 Certain Disclosures.  In the case of any disclosure pursuant to Section 4.02(d) or Section 4.02(e), to the extent practical, the receiving Party will notify the disclosing Party in advance of the required disclosure and will use commercially reasonable efforts to assist the disclosing Party in obtaining a protective order, if available, covering such disclosure.  If such a protective order is obtained, such information and materials will continue to be deemed to be confidential information.  In no event shall the information disclosed pursuant to Section 4.02(d) or Section 4.02(e) of this IPAA exceed that which is required by such legal, accounting or regulatory requirement, as applicable.
 

 
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4.04 Terms of Agreement.  LVGI agrees that this IPAA and its provisions will remain confidential, protected as confidential information as per the above provisions of this Article 4, and will only be distributed to those persons within LVGI that have a need to know, subject to any disclosure required by law or regulation to the Securities and Exchange Commission (“SEC”), Department of Justice or any court or tribunal of competent jurisdiction.  Notwithstanding the foregoing, LVGI will have the right to disclose the terms of this IPAA to its attorneys, accountants, actual and potential sources of financing, and potential acquirers, under appropriate non-disclosure agreements or duties.
 
ARTICLE 5 
Term and Termination
 
5.01 Term.  The term of this IPAA will commence on the date of this IPAA and will continue in force for a period of five (5) years unless terminated earlier as set forth in this Article 5.  This IPAA shall be automatically renewed after the initial 5 year period for successive terms of three (3) years, unless terminated by either Party at least 60 days prior to the end of the initial term or any renewal term.
 
5.02 Termination for Material Breach.  If either Party breaches any material term of this IPAA, the non-breaching Party may terminate this IPAA upon 60 days’ written notice to the defaulting Party specifying such breach.  The breaching Party shall then have said 60 days from receipt of the default notice in which to cure the specified breach.  Should the breaching Party not cure the specified breach within said 60 days, this IPAA shall immediately terminate.
 
5.03 Effect of Termination.  Termination of this IPAA will not affect the right of any party to pursue any remedy for breach of this IPAA or any other agreement.
 
5.04 Survival.  The provisions of the following sections and Articles will survive termination of this IPAA: Sections 5.03 and 5.04 and Articles 1, 3, 4, 5, 6, and 7.
 
ARTICLE 6 
Disclaimer of Warranties
 
6.01 NO PARTY TO THIS IPAA MAKES ANY IMPLIED WARRANTIES.  IMPLIED WARRANTIES DISCLAIMED INCLUDE, IMPLIED WARRANTIES OF REASONABLENESS, FAIR DEALING, OR GOOD FAITH; IMPLIED WARRANTIES OF DESIGN, MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, OR ARISING FROM A COURSE OF DEALING, USAGE, OR TRADE PRACTICE. NO REPRESENTATION OR STATEMENT NOT EXPRESSLY CONTAINED IN THIS IPAA WILL BE BINDING UPON EITHER PARTY AS A WARRANTY.
 
ARTICLE 7 
Miscellaneous
 
7.01 Notices.  Whenever this IPAA provides that any notice, demand, request, consent, approval, declaration, or other communication be given to or served upon any of the parties by another, such notice, demand, request, consent, approval, declaration, or other communication shall be in writing and shall be deemed to have been validly served, given, or delivered (and “the
 

 
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date of such notice” or words of similar effect will mean the date) five days after deposit in the United States mails, certified mail, return receipt requested, with proper postage prepaid, or upon confirmed receipt thereof (whether by noncertified mail, telecopy, express delivery, or otherwise), whichever is earlier, and addressed to the party to be notified as follows:
 
If to IGT, at:
IGT
9295 Prototype Drive
Reno, Nevada  89521
Attention:                      Richard Pennington
Fax:                                 775.448.1488
   
with copies to:
Fulbright & Jaworski L.L.P.
2200 Ross Avenue
Suite 2800
Dallas, Texas 75201
 
Attention:                        Glen J. Hettinger
Fax:                                    214.855.8200
   
If to LVGI, at:
LVGI
4000 West Ali Baba Lane
Las Vegas, Nevada 89118
 
Attn:     Jon Berkley
Fax:       702.733.4907
With copies to Legal@LVGI.com
   
with copies to:
Weide & Miller, Ltd.
7251 W. Lake Mead Blvd., Suite 530
Las Vegas, NV 89128
 
Attention:  R. Scott Weide
Fax:             702-382-4805
 
or to such other address as each party may designate for itself by like notice.  No notice, demand, request, consent, approval, declaration, or other communication shall be deemed to have been given or received unless and until it sets forth all items of information required to be set forth therein pursuant to the terms of this IPAA.
 

 
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7.02 Choice of Law.  This IPAA will be governed by and construed in accordance with the laws of the State of Nevada, without regard to any conflicts of laws.  IN THE EVENT OF A DISPUTE BETWEEN THE PARTIES RELATING TO THIS IPAA, EACH OF THE PARTIES HERETO SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEVADA COUNTY OF WASHOE AND DOES HEREBY WAIVE ANY CLAIM THAT SUCH FORUM IS INCONVENIENT.
 
7.03 Integration; Amendments; Waivers.  This IPAA constitutes the entire agreement among the Parties with respect to the subject matter hereof and supersedes all previous written, and all previous or contemporaneous oral, negotiations, understandings, arrangements, understandings, or agreements with the exception of the License and Application Support Agreement, Retrofit License, and LVGI Investment Agreement to be executed simultaneously with this IPAA.  This IPAA may not be amended, modified, or supplemented, or any provision of this IPAA waived, except by a writing signed by all the parties to this IPAA.  No custom, practice, course of dealing, or similar conduct will be deemed to amend, modify, or supplement any term of this IPAA.  The failure of any Party to enforce any right or remedy under this IPAA, or to enforce any such right or remedy promptly, will not constitute a waiver thereof, nor give rise to any estoppel against such Party, nor excuse any other Party from its obligations under this IPAA.  Any waiver of any such right or remedy by any Party must be in writing and signed by the Party against which such waiver is sought to be enforced.  No waiver will be deemed a continuing waiver or a waiver of any right beyond the specific right waived in such waiver.
 
7.04 Further Assurances.  Each Party to this IPAA shall, without the necessity of any further consideration, execute and deliver any and all such further documents and take any and all such other actions as may be reasonably necessary or appropriate to carry out the intent and purposes of this IPAA and to consummate the transactions contemplated hereby.
 
7.05 Force Majeure.  No Party will be deemed in default if delayed or prevented from performing its obligations under this IPAA, in whole or in part, due to an act of God, fire, flood, explosion, civil disorder, strike, lockout or other labor trouble, material shortages of utilities, equipment, materials or facilities, delay in transportation, breakdown or accident, riot, war, terrorist attack or other cause beyond its reasonable control (a “Force Majeure Event”); provided that such party will resume full performance of this IPAA as soon as practicable following the conclusion of the Force Majeure Event; and provided further, that any adverse event resulting directly or indirectly from conditions generally affecting any industry or industry sector in which a Party operates or competes which does not have a materially disproportionate impact on the Party relative to other industry participants shall not be considered a Force Majeure Event under this IPAA.
 
7.06 Headings.  The headings in this IPAA are for convenience of reference only and are not part of the substance of this IPAA.
 
7.07 Severability.  It is not the intention of the Parties to this IPAA expressly to violate any public policy, statutory or common law rules, regulations, or decisions of any governmental or regulatory body.  If any provision of this IPAA are interpreted or construed as being in violation of any such policy, rule, regulation, or decision, the provision, section, sentence, word, clause, or combination thereof causing such violation shall be rendered inoperative to the minimum extent necessary in order to not be violative as set forth above (and in lieu thereof the Parties jointly request the court to insert such provision, sentence, word, clause, or combination
 

 
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thereof that is as favorable as possible to the Party the rights of which were made inoperative as may be valid and consistent with the intent of the parties under this IPAA) and the remainder of this IPAA, as amended, shall remain binding upon the Parties to this IPAA, unless the inoperative provision would cause enforcement of the remainder of this IPAA to be inequitable under the circumstances.
 
7.08 Assignment.  Neither this IPAA nor any rights hereunder may be transferred or assigned, nor any duties under this IPAA delegated, by operation of law or otherwise, without the written consent of all parties to this IPAA, except that IGT may assign this IPAA and all rights hereunder and delegate all of its obligations hereunder to an affiliate of IGT and except that LVGI may assign this IPAA and all rights hereunder and delegate all of its obligations hereunder to a person or entity that is a non-Competitor of IGT that acquires all or substantially all of the assets of LVGI in a single transaction or series or related transactions. For the purposes of the foregoing, a Change of Control of LVGI will be deemed an attempted assignment of this IPAA and the rights hereunder and a delegation of all duties hereunder.  Any attempted assignment, transfer or delegation that is that is not in conformance with this agreement is void.
 
“Change of Control” means the occurrence of any of the following events:
 
(a)   LVGI becomes aware of the acquisition by any “person” or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any successor provision), including any group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act) in a single transaction or in a related series of transactions, by way of merger, consolidation or other business combination or purchase of “beneficial ownership” (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision) of 20% or more of the total voting power of the Voting Stock of LVGI;
 
(b)    (i)  there shall be consummated any share exchange, consolidation or merger of LVGI pursuant to which LVGI’s common stock would be converted into cash, securities or other property, other than pursuant to a share exchange, consolidation or merger of LVGI in which the holders of LVGI’s common stock immediately prior to the share exchange, consolidation or merger have, directly or indirectly, at least a majority of the total voting power of the voting stock of the continuing or surviving corporation immediately after the share exchange, consolidation or merger, or (ii) LVGI sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of the assets of LVGI and its Restricted Subsidiaries to another Person and any “person” (as defined in clause (a) above) is or becomes the “beneficial owner” (as defined in clause (a) above), directly or indirectly, of 20% or more of the total voting power of the voting stock of the transferee entity in such disposition of assets;
 
(c)    during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of LVGI was approved by a vote of a majority of the directors of
 

 
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(d)   the adoption of a plan relating to the liquidation or dissolution of LVGI; or
 
(e)    the occurrence of any other event that would constitute a change in control of LVGI within the meaning of Item 5.01 (or successor item) of Forms 8-K (or successor form) under the Exchange Act.
 
7.09 No Partnership.  This IPAA forms a contractual arrangement only and does not constitute the parties as a partnership.
 
7.10 Business Day.  Should the terms of this IPAA require the performance of any obligation or the fulfillment of any condition on a day other than a business day, such obligation or fulfillment may be delayed until midnight on the next day that is a business day for the party to perform.
 
7.11 Counterparts.  This IPAA may be executed in any number of counterparts, by means of facsimile or portable document format (pdf), which shall individually and collectively constitute one agreement.
 
7.12 Specific Performance.  It is agreed that a violation by any party of the terms of this IPAA cannot be adequately measured or compensated in money damages, and that any breach or threatened breach of this IPAA by a party to this IPAA would do irreparable injury to the non-defaulting party.  It is, therefore, agreed that in the event of any breach or threatened breach by a party to this IPAA of the terms and conditions set forth in this IPAA, the non-defaulting party will be entitled, in addition to any and all other rights and remedies that it may have in law or in equity, to apply for and obtain injunctive relief requiring the defaulting party to be restrained from any such breach, or threatened breach or to refrain from a continuation of any actual breach.
 
7.13 Publicity.  Neither Party shall issue any press release or make any other public announcement with respect to this IPAA or the transactions contemplated hereby without obtaining the prior written approval of the other Party (which will not be unreasonably withheld or delayed).  Where disclosure of information regarding this IPAA or the transactions contemplated hereby may be required by law or the regulations of any securities exchange, the Party complying with applicable law or regulations shall provide sufficient time for the other Party to comment on those portions of such disclosures that pertain to this IPAA before such disclosures are made.
 
7.14 Termination for Regulatory Compliance.  Each Party and its affiliates conduct business in a highly regulated industry under privileged licenses issued by gaming regulatory authorities both domestic and international.  Each Party maintains a compliance program that has been established to protect and preserve the name, reputation, integrity, and good will of such Party and its affiliates and to monitor compliance with the requirements established by gaming regulatory authorities in various jurisdictions around the world.  Each Party agrees to cooperate
 

 
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with requests, inquiries, or investigations of gaming regulatory authorities or law enforcement agencies in connection with the performance of this IPAA.  Each Party agrees to fully cooperate with the other Party in the completion of any necessary due diligence background investigation.  If either Party receives a written or oral opinion, recommendation or indication from a gaming regulatory authority (including a representative thereof) or if either Party determines, based upon facts and evidence that would reasonably be accepted by gaming regulatory authorities or other licensed gaming entities, that continuation of this IPAA would jeopardize the gaming licenses, permits or status of such Party or any of its affiliates with any gaming regulatory authority or similar law enforcement authority (“Regulatory Trigger”), then: (a) such Party will give notice to the other Party of the Regulatory Trigger, including details of the opinion, recommendation, indication or asserted facts (to the extent known by the receiving Party), and provided such Party is given a time period to address the basis for said Regulatory Trigger, that Party will provide the other Party a reasonable time frame within such Party's reasonably allotted time period to comment upon and take action to remove such basis; and (b) if such Regulatory Trigger is not cured to that Party's reasonable satisfaction, such that a reasonable risk remains that jeopardizes the status of such Party with any gaming regulatory authority, that Party may terminate such portion of this IPAA which would cure the Regulatory Trigger (leaving the remainder of this IPAA in force and effect), and if such cannot be effected, such Party may terminate this entire IPAA immediately.
 

 
[Signature Page Follows]
 

 
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IN WITNESS WHEREOF, the parties have caused this IPAA to be executed and delivered as of the date first above written.
 

 
 
LVGI

 
 
By:  /s/ Jon D. Berkley                                            
Name:   Jon D. Berkley                                            
Title:     President & CEO                                        
 
 
IGT

 
 
By: /s/ Richard Pennigton                                       
Name:  Richard Pennington                                     
Title:    Exec. VP – Corporate Strategy                   
 

 


 
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EX-10.12 3 ex1012.htm EX1012 ex1012.htm
Exhibit 10.12
 
***Text Omitted and Filed Separately
with the Securities and Exchange Commission.
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4)
and 240.24b-2.

 
LICENSE AND APPLICATION SUPPORT AGREEMENT
 
This License and Application Support Agreement (the “LASA”) is made and entered into as of this September 30, 2008 (the “Effective Date”), by and between Las Vegas Gaming, Inc., (LVGI), a Nevada corporation, with a primary business address of 4000 West Ali Baba Lane, Las Vegas, Nevada 89118, and IGT (IGT), a Nevada corporation with a primary business address of 9295 Prototype Drive, Reno, NV 89521 (each a “Party” and collectively the “Parties”).
 
WITNESSETH
 
WHEREAS, IGT owns rights to various proprietary application programming interfaces (APIs) and protocols, trademarks, and copyrights related to Gambling (defined below) and Electronic Gaming Machines (defined below);
 
WHEREAS, LVGI desires to license selected ones of IGT’s trademarks and copyrights related to Electronic Gaming Machines and selected ones of IGT’s proprietary APIs and protocols for the purpose of designing, developing, and implementing software applications for delivery through PlayerVision Devices (defined below) and IGT sb Systems; and
 
WHEREAS, LVGI desires support from IGT with regard to the selected ones of IGT’s proprietary APIs and protocols in the design, development and implementation of such software applications.
 
NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants contained herein, the Parties agree as follows:
 
ARTICLE 1 
Definitions
 
The following terms with initial capital letters shall have the following meanings:
 
“Application Support Services” means technical support and assistance for the purpose of assisting LVGI establish compatibility between software applications developed by LVGI for delivery on IGT sb Systems (defined below).
 
“Competitor” – means any manufacturer, supplier, or distributor of Gambling Products with which IGT reasonably considers itself to compete for business.
 

 
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“Earned Revenue” means revenues earned by LVGI, less the actual cost of jackpot insurance (such as for the top award of Nevada Numbers), if applicable.
 
“Electronic Gaming Machine” or “EGM” means the entire electronic or electro-mechanical device including the peripheral components housed in its enclosure that is primarily designed and used for Gambling, and that has all of the following characteristics: (a) is used by the player to input the wager amount and otherwise initiate game play; (b) displays the amount wagered, the outcome of the wager, and the credit amount available to the player; (c) displays the outcome of the Gambling event to the player within five minutes of initiating the wager; and (d) is provided to the player by the EGM operator.  The definition of an EGM is limited to the device in close proximity to the player and does not include supporting software and servers remote from the device.  For the avoidance of doubt, and by way of example, personal computers, televisions, personal digital assistants (PDAs), and cellular and other mobile telephones are not primarily designed for Gambling and are not EGMs for the purposes of this defined term.
 
“End User” means the licensed operator (e.g. the casino operator) of an Electronic Gaming Machine.
 
“Gambling” means playing or exposing for play any activity or event involving a wager or a placing at risk a sum of money or other representative of value, whether or not redeemable for cash, on an occurrence the outcome of which is uncertain, including events that include some element of skill (e.g., sports, card games, and racing).  The award corresponding to the outcome of such event or activity can be cash or any other prize.
 
“IGT sb System” or “ISBS” means IGT’s server-based network systems, which utilize the following IGT user interfaces: sbNexGen™, Service Window™, and other interfaces to IGT systems as may be necessary, subject to final approval by IGT.  For the sake of clarity, this excludes the non-sb NexGen, Advantage Systems, and TITO systems.
 
“IGT Systems” means all IGT sb Systems, Advantage® systems, including, but not limited to, TITO systems, and any other computer system and/or operational network licensed, sold, or Placed by IGT or its distributors and related to or associated with Gambling.
 
“Intellectual Property” means all intellectual property rights including all past, present and future rights in patents, industrial property rights, copyrights, trademarks, and trade secrets.
 
“Licensed APIs and Protocols” means (1) Slot Accounting System (SAS™) protocol, including Ticket In, Ticket Out protocols (TITO);  (2) NetPlex protocol; (3) Casino Terminal Network (CTN) Kiosk protocol; and (4) subject to the written approval of IGT, Media Manager protocols and Media Manager APIs.
 
“LVGI Developed Applications” means software applications that are all of the following: 1) developed by LVGI; 2) utilize the Licensed APIs and Protocols under this Agreement or the IGT Licensed IP pursuant to the Retrofit License Agreement; and 3) are deployed on the casino floor through an IGT sb System or PlayerVision Device (defined below).
 

 
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“Place,” “Placed” or “Placement” shall mean the sale, lease, or any other supplying of Products (defined below) including on a participation basis or any other revenue generating basis.
 
“PlayerVision Device(s)” or “PVD(s)” means the hardware, software, firmware, connections, enclosures, and housings that are all of the following: i) made and placed by LVGI; ii) installed within an EGM; iii) only capable of providing PlayerVision® functionality to an EGM; and iv) that is substantially similar in functionality to the hardware, being provided by PlayerVision® as of July 17, 2008.
 
“Product(s)” means any product or service.
 
ARTICLE 2 
License
 
2.1 License Grant.  IGT hereby grants LVGI a limited, non-exclusive, non-transferable, non-assignable (except as provided in Section 13.9), non-sub-licensable, world-wide license to use the Licensed APIs and Protocols in association with the IGT Systems for the limited purpose of facilitating design, development and implementation of LVGI Developed Applications but only to the extent that any of the individual APIs and protocols of the Licensed APIs and Protocols are applicable and necessary to the LVGI Developed Application and provided that such LVGI Developed Applications are designed and developed for delivery only through PlayerVision® Devices or IGT sb Systems.  The “implementation” aspect of this license grant includes the right for LVGI to provide End Users with “use rights” (i.e. the right to use LVGI Developed Applications) in connection with the rights granted hereunder.  For the avoidance of doubt, this license does not include any rights to IGT Licensed API’s or Protocols for use through any third party server based media manager delivery system that is designed for the management or delivery of media content to the main game screen.  For the avoidance of doubt, the rights provided under this Agreement do not include any license or covenant not to sue with respect to any IGT patents or any patents to which IGT may have rights .
 
2.2 Exclusions and Restrictions.  The license to the Licensed APIs and Protocols does not include the right to sub-license the Licensed APIs and Protocols, except as permitted to End Users pursuant to Section 2.1. However, LVGI may install LVGI Developed Applications onto any non-IGT EGM which is already licensed to operate with respect to the Licensed APIs and Protocols within an IGT sb System and/or use the Licensed APIs and Protocols either through a license between the EGM manufacturer and IGT or the operator of the EGM and IGT.  LVGI agrees to verify in advance with IGT that proper licensing of any required APIs or protocols of the Licensed APIs and Protocols is in place for any installation of LVGI Developed Applications on non-IGT EGMs.
 
ARTICLE 3 
Consideration/Royalty
 
3.1 Royalty.  In consideration for the license and Application Support Services provided for in this LASA, LVGI shall pay a royalty to IGT equal to […***…] of the Earned Revenues for any LVGI Developed Application that is delivered through or connected to any IGT Systems.
 
***Confidential Treatment Requested
 

 
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3.2 Royalty Payments.  LVGI shall furnish to IGT, within 45 days of the end of each calendar quarter (even if there were no applicable Earned Revenues in such quarter), a detailed royalty statement showing the Earned Revenues allocable to the LVGI Developed Applications for the immediately preceding quarter, separated into Earned Revenue for each country in which sales, or leases, or profit participations occur; and, where the revenues are earned in a currency other than U.S. dollars, showing the amount to be expressed in U.S. dollars to be computed by applying the average exchange rate between the dollar and that currency by using, to compute the average, the exchange rate quoted in the U.S. edition of the Wall Street Journal on the last business day of each month of that calendar quarter.  LVGI may, on prior notice to IGT, employ another method to handle currency conversion that is consistent or more compatible with its own internal accounting systems provided that such method is not to the detriment of IGT.  The royalty payment shall accompany the royalty statement.  Royalties on U.S. Earned Revenues shall be made without any tax withholding.
 
3.3 Failure to Pay.  Any amounts not paid when due will accrue interest at the rate of 1.5% per month. For the avoidance of doubt, any failure to pay is an event of default and is subject to the notice, cure, and termination provision explained at the end of Section 11.5. 
 
ARTICLE 4 
Records and Audits
 
4.1 Records.  LVGI shall maintain at its principal office for the term of this LASA and for 7 years thereafter accurate books and records in sufficient detail to enable IGT to verify the basis for and the accuracy of the royalty statements required to be submitted to IGT pursuant to Section 3.2 and LVGI’s compliance with each and every term and condition of this LASA.
 
4.2 Audit and Inspection Rights.  IGT shall have the right, exercisable not more than once in any calendar year during the period outlined in Section 4.1, to audit, through its own financial employees or through independent accountants (together the “Auditor”), the books and records (both electronic and hard copy) contemplated at Section 4.1.  IGT shall provide LVGI with no less than 2 weeks written notice of its intent to audit LVGI’s books and records as provided under this LASA and LVGI shall be ready for such audit – meaning that LVGI shall have all records required hereunder ready for inspection upon the arrival of the Auditor and LVGI shall also promptly provide additional documentation as may be required.  Such notice shall indicate the period to be audited, the identity of the auditor and the scope of the audit.  LVGI shall immediately pay any shortfall together with interest as provided in the next sentence.  Should an audit reveal a discrepancy of royalty payment in relation to royalty actually earned greater than 5% during any given year, LVGI shall pay any shortfall together with interest on any outstanding balance at the lesser of 1.5% monthly or the maximum amount permitted by law, and shall reimburse IGT for the reasonable cost of the audit.  If audits of LVGI reveal a shortfall in royalty payment of greater than 5% in any fiscal year, and the findings support that the withholding of such royalty payments was done intentionally or in bad faith, IGT shall have the right to terminate this LASA.  In all events, IGT’s right to terminate shall be subject to the provisions of Article 11.
 

 
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ARTICLE 5 
Support
 
5.1 Support Services.  IGT will provide a total of […***…] hours of Application Support Services to assist LVGI in utilizing the Licensed APIs and Protocols to establish compatibility with the LVGI Developed Applications that are deployed on IGT sb Systems.  IGT will have no obligation to modify any of its products, services, any of the Licensed APIs and Protocols, or any other IGT System to assist LVGI in attaining such compatibility.  No license to any Intellectual Property that is owned or controlled by IGT is granted or implied by virtue of IGT’s provision of any support services under this Agreement.
 
5.2 Excess Support Services.  The costs of the initial […***…] hours of Application Support Services are included in the contemplated royalty payments made by LVGI.  Any Application Support Services provided in excess of these […***…] hours will be provided to LVGI by IGT at IGT’s then-published engineering rates less […***…].
 
5.3 Bonus Support Services.  Each calendar year that the royalty payments made by LVGI to IGT under Section 3.1 exceed a total of […***…], IGT will credit LVGI with a bonus of […***…] hours of Application Support Services (Bonus Support Services) for use in the following calendar year.  Any Bonus Support Service hours that have not been used by the end of the calendar year during which the Bonus Support Service hours are available will lapse and will not be carried over in any form to the next calendar year.
 
5.4 Support Material and Equipment.  To the extent that such non-confidential material and equipment exists and are available for IGT to provide, IGT will provide the following material and equipment to LVGI in order for LVGI to create LVGI Developed Applications for deployment on IGT sb Systems:
 
[…***…].
 
[…***…].
 
[…***…].
 
IGT will grant LVGI access to IGT’s interoperability lab in Reno, Nevada, at IGT’s then-published standard rates and as can be accommodated in the ordinary course of business by the interoperability lab.
 
5.5 Material- and Equipment-Related Services.  (a) The Parties will work together to build a productive development environment for LVGI, which may potentially include a system simulator and a virtual private network (VPN).  (b) IGT will also provide access necessary to make LVGI Developed Applications demonstrable at trade shows.  (c) Any support services provided by IGT to LVGI in relation to subsections 5.4 and 5.5 will be subtracted from the Application Support Service hours allotted with regard to subsections 5.1, 5.2, and 5.3.
 
***Confidential Treatment Requested
 

 
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5.6 Application Support Service Limitations.  It is acknowledged that the support services described in 5.1, 5.2, and 5.3 are specifically for helping LVGI to create Products that are compatible with Licensed APIs and Protocols and delivered through IGT sb Systems.  IGT shall not be required to provide support services for any LVGI Developed Applications that are designed to replace functionality embodied in Products being engineered or deployed by IGT at the time of the request for such support services.  To the extent that IGT has a reasonable basis to believe that certain LVGI Developed Applications infringe on IGT Intellectual Property and LVGI and IGT are unable to come to terms for licensing such, then IGT support obligations with respect to such applications shall be terminated.
 
ARTICLE 6 
Distribution
 
6.1 Distribution Opportunity.  At IGT’s election, LVGI will grant to IGT distribution rights to the LVGI Developed Applications at a distribution fee rate of […***…] of the Earned Revenue for such LVGI Developed Applications, based upon the pricing of such LVGI Developed Application as set by LVGI.  IGT will, in good faith, conduct a trial using such products and evaluate the product using its own business judgment. Should IGT elect to accept distribution rights, the terms and conditions of such a possible distributor’s agreement will be negotiated by the Parties as necessary, with respect to IGT’s distribution efforts the agreement will be that IGT shall use commercially reasonable efforts.
 
6.2 Maintaining Minimum Requirements for Exclusive Rights.  If IGT elects and negotiates to take exclusive distribution rights, IGT will be required to meet minimum placement requirements in order to maintain such exclusive rights.  These minimum placement requirements will be negotiated and memorialized in each specific agreement for such exclusive rights.  If IGT fails to meet these stated minimum placement requirements, IGT will have the right to advance any shortfalls, else IGT’s distribution rights will revert to non-exclusive distribution rights.
 
6.3 Nevada Numbers.  LVGI will, in good faith, offer IGT the opportunity to finance the NevadaNumbers game.  This financing opportunity will allow IGT to gain approximately […***…] per ticket in revenue on every NevadaNumbers ticket sold.
 
6.4 Additional.  LVGI will, in good faith, offer IGT the opportunity to bankroll their The Million Dollar Ticket® games.  These banking opportunities will allow IGT to earn a […***…] mark-up on the true odds for each ticket sold.
 
ARTICLE 7 
LVGI Obligations
 
7.1 Software Development. LVGI will undertake commercially reasonable efforts to design, develop, and build LVGI Developed Applications for delivery on IGT sb Systems.
 

 
***Confidential Treatment Requested
 

 
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7.2 Compatibility Commitment. LVGI will undertake commercially reasonable efforts to make any LVGI Developed Applications available to the IGT sb Systems and any EGMs compatible with the IGT sb Systems first before such LVGI Developed Applications are available to non-IGT sb Systems or non-IGT-compatible EGMs.
 
7.3 For purposes of this Section 7, the standard of “commercially reasonable efforts” is only intended to refer to the level of efforts necessary to create the interface with the IGT sb Systems, or to the EGMs compatible with the IGT sb Systems, as applicable – such that if it is commercially reasonable to create said interface, then LVGI will continue with the further obligations of Sections 7.1 and 7.2.
 
ARTICLE 8 
Representations and Warranties
 
8.1 General Representations and Warranties.  Each Party represents and warrants to the other as follows: (a) it is a valid and existing corporation and in good standing under the laws of the state of its incorporation; (b) it has the power and authority required to carry on its activities as they are now conducted; (c) it has the has full legal right and corporate power, without the consent of any other person to execute, deliver and to perform its obligations under this LASA; (d) all corporate and other actions required to be taken by it to authorize the execution, delivery and performance of this LASA and all transactions contemplated hereby have been duly and properly taken; (e) no consent, approval, authorization or filing of any certificate, notice application, report or other document with any governmental authority is required on the part of such Party in connection with the valid execution and delivery of this LASA or the performance by such Party of any of its obligations hereunder; (f) the execution, delivery and performance of this LASA do not violate or conflict with any law applicable to it, any provision of its charter or bylaws, any order or judgment of any court or other agency of government applicable to it or any of its assets, or any contractual restriction binding on or affecting it or any of its assets; and (g) the execution, delivery and performance of this LASA has been duly and validly authorized by each Party, and upon execution and delivery, this LASA constitutes the valid and binding agreement of each Party enforceable against it in accordance with its terms.
 
8.2 No Third Party Assistance.  LVGI represents and warrants that it will not assist any third party to design, develop, or implement any software applications that utilize the Licensed APIs and Protocols under this Agreement or the IGT Licensed IP pursuant to the Retrofit License Agreement that are deployed on a casino floor through an IGT sb System or PlayerVision Device.  For sake of clarity, this provision shall not preclude LVGI from utilizing subcontractors to assist LVGI in designing, developing or implementing any LVGI Developed Applications in accordance with LVGI’s exercise of the rights granted it under this LASA.  This provision also does not prohibit an End User from using its own technical personnel to assist LVGI in designing, developing or implementing any LVGI Developed Applications in accordance with LVGI’s exercise of the rights granted it under this LASA.
 

 
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ARTICLE 9 
Confidentiality
 
9.1 Confidentiality Obligation.  Each Party will, and will cause each of its Representatives to (a) hold all information relating to the business of the other Party disclosed to it by reason of this LASA confidential; (b) not use any such information except as necessary to perform its obligations and exercise its rights under this LASA; and (c) not disclose any of such information to any third party unless required by law or otherwise legally compelled to disclose such information; provided, however, that to the extent that either Party may become so legally compelled, such Party may disclose such information only if it will first have used reasonable efforts to obtain, and, if practicable, will have afforded the other Party the opportunity to obtain, an appropriate protective order or other satisfactory assurance of confidential treatment for the information required to be so disclosed.
 
9.2 Exceptions to Confidentiality.  The Party who received such confidential information will not be required to keep confidential any information that (a) was, at the time of disclosure to it, in the public domain; (b) after disclosure to it, is published or otherwise becomes part of the public domain through no fault of the receiving Party; (c) was received after disclosure to it from a third Party who had a lawful right to disclose such information or materials to it; (d) was required by law to be disclosed to any regulatory body having jurisdiction over the receiving Party or any of its respective affiliates, customers; (e) that disclosure is necessary by reason of applicable legal, accounting or regulatory requirements beyond the reasonable control of the receiving Party; or (f) is subsequently developed by the receiving Party independently of the information received from the disclosing Party, as evidenced by written documentation.
 
9.3 Certain Disclosures.  In the case of any disclosure pursuant to Section 9.2(d) or (e), to the extent practical, the receiving Party will notify the disclosing Party in advance of the required disclosure and will use commercially reasonable efforts to assist the disclosing Party in obtaining a protective order, if available, covering such disclosure.  If such a protective order is obtained, such information and materials will continue to be deemed to be confidential information.  In no event shall the information disclosed pursuant to Section 9.2(d) or (e) of this LASA exceed that which is required by such legal, accounting or regulatory requirement, as applicable.
 
9.4 Terms of Agreement.  LVGI agrees that this LASA and its provisions will remain confidential, protected as confidential information as per the above provisions of this Article 9, and will only be distributed to those persons within LVGI that have a need to know, subject to any disclosure required by law or regulation to the Securities and Exchange Commission (“SEC”), Department of Justice or any court or tribunal of competent jurisdiction.  Notwithstanding the foregoing, LVGI will have the right to disclose the terms of this LASA to its attorneys, accountants, actual and potential sources of financing, and potential acquirers, under appropriate non-disclosure agreements or duties.
 

 
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ARTICLE 10 
Indemnification
 
10.1 Indemnification Obligations.  Each Party (the “Indemnifying Party”) will indemnify, defend and hold the other Party and its officers, directors, employees and agents (the “Indemnified Party”) harmless from any and all damages, costs and expenses arising from any third party claims, threats, proceedings or suits (“Third Party Claims”) to the extent such Third Party Claims arise from or relate to the Indemnifying Party’s breach of any representation, warranty or covenant hereunder.
 
10.2 Indemnification Procedures. Upon receiving notice of any Third Party Claim covered by Section 10.1, the Indemnified Party will notify the Indemnifying Party promptly; provided, however, that the right of indemnification hereunder will not be adversely affected by a failure to give such notice, unless and only to the extent that the Indemnifying Party is materially prejudiced thereby.  The Indemnifying Party may assume control of the defense of any such claim, if (a) the Indemnifying Party acknowledges its obligation to indemnify the Indemnified Party for any losses resulting from such claim, and (b) the claim does not seek to impose any liability on the Indemnified Party other than money damages; provided, however, that the Indemnified Party may, at its own cost and expense, participate through its attorneys or otherwise, in such investigation, trial and defense of such claim and any appeal arising therefrom.  The Indemnifying Party will not settle any such claim without the Indemnified Party’s prior written consent (which consent will not be unreasonably withheld or delayed), unless such settlement is solely for monetary damages for which the Indemnified Party is fully indemnified under this Agreement.  If the Indemnifying Party does not assume full control over the defense of a claim pursuant to this Section 10.2, then the Indemnifying Party may participate in such investigation, defense or trial, solely at its cost and expense, and the Indemnified Party will have the right to defend or settle such claim in such manner as the Indemnified Party deems appropriate, solely at the cost and expense of the Indemnifying Party.
 
10.3 Indemnification of IGT against Claims Arising from LVGI Installations.  LVGI will defend, indemnify and hold harmless IGT and its officers, directors, employees and agents from any and all damages, costs, and expenses arising from any claim relating to or arising from any uses or installations of the LVGI Developed Applications.
 
ARTICLE 11 
Term and Termination
 
11.1 Term.  The term of this LASA will commence on the Effective Date and will continue in force until terminated by mutual written consent of all parties to this LASA unless terminated earlier as set forth in this Article 11. However, the support obligations of Section 5 shall conclude at the earlier of eight (8) years from the Effective Date or the date on which this Agreement is terminated per its terms.
 

 
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11.2 Termination for Regulatory Compliance.  Each Party and its affiliates conduct business in a highly regulated industry under privileged licenses issued by gaming regulatory authorities both domestic and international.  Each Party maintains a compliance program that has been established to protect and preserve the name, reputation, integrity, and good will of such Party and its affiliates and to monitor compliance with the requirements established by gaming regulatory authorities in various jurisdictions around the world.  Each Party agrees to cooperate with requests, inquiries, or investigations of gaming regulatory authorities or law enforcement agencies in connection with the performance of this LASA.  Each Party agrees to fully cooperate with the other Party in the completion of any necessary due diligence background investigation.  If either Party receives a written or oral opinion, recommendation or indication from a gaming regulatory authority (including a representative thereof) or if either Party determines, based upon facts and evidence that would reasonably be accepted by gaming regulatory authorities or other licensed gaming entities, that continuation of this LASA would jeopardize the gaming licenses, permits or status of such Party or any of its affiliates with any gaming regulatory authority or similar law enforcement authority (“Regulatory Trigger”), then: (a) such Party will give notice to the other Party of the Regulatory Trigger, including details of the opinion, recommendation, indication or asserted facts (to the extent known by the receiving Party), and provided such Party is given a time period to address the basis for said Regulatory Trigger, that Party will provide the other Party a reasonable time frame within such Party's reasonably allotted time period to comment upon and take action to remove such basis; and (b) if such Regulatory Trigger is not cured to that Party's reasonable satisfaction, such that a reasonable risk remains that jeopardizes the status of such Party with any gaming regulatory authority, that Party may terminate such portion of this LASA which would cure the Regulatory Trigger (leaving the remainder of this LASA in force and effect), and if such cannot be effected, such Party may terminate this entire LASA immediately.
 
11.3 Consequences of Termination.  In the event that this LASA or any portion hereof is terminated pursuant to Section 11.1, any payments made or payment obligations that exist pursuant to this LASA at the time of such termination shall be non-refundable or remain due and payable (as the case may be); provided that such Regulatory Trigger does not mandate otherwise.  In addition, the rights intended to be unaffected according to the express provisions of this LASA and Articles 4, 8-11, and 13 will survive any such termination.  All other provisions of this LASA will be terminated.
 
11.4 Dispute Resolution.  Prior to any termination of this LASA for breach, or the commencement of any litigation by one Party (the first Party) against the other arising out of an alleged breach of this LASA, the matter must first be referred to a senior executive of each Party by the first Party sending to the other Party a written notice that sets out the particulars of the dispute and the alleged breach of this LASA.  The senior executives of each Party will then arrange to meet at the next most convenient time, but no later than 30 days from receipt of the dispute notice, and will use commercially reasonable efforts to resolve the dispute in good faith.  Should the senior executives fail to resolve the dispute within seven days of the date of their meeting, then either Party may initiate non-binding mediation to resolve such dispute, with costs to be shared equally by the Parties.  If such mediation fails to resolve such dispute within 10 days of the mediation, each Party is free to seek any remedies available to it to resolve such dispute, including litigation.
 

 
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11.5 Termination for Failure to Pay.  Notwithstanding Section 11.4 above, any failure to pay monies due under this Agreement when due, including any royalties due under Article 3, shall constitute a material breach, and the non-breaching party may immediately terminate this Agreement for non-payment when the defaulting party fails to cure such non-payment within 30 days of written notice specifying such non-payment.
 
ARTICLE 12 
Certified Application Developer
 
12.1 Certified Application Developer.  IGT will grant LVGI status as a Certified Application Developer (to be further defined) for the IGT sb System.  The granting of this status will require that LVGI demonstrate, to IGT’s satisfaction, the ability to meet specifications and customer expectations, as to be determined.
 
ARTICLE 13 
Miscellaneous
 
13.1 Notices.  Whenever this LASA provides that any notice, demand, request, consent, approval, declaration, or other communication be given to or served upon any of the parties by another, such notice, demand, request, consent, approval, declaration, or other communication shall be in writing and shall be deemed to have been validly served, given, or delivered (and “the date of such notice” or words of similar effect will mean the date) five days after deposit in the United States mails, certified mail, return receipt requested, with proper postage prepaid, or upon confirmed receipt thereof (whether by noncertified mail, telecopy, express delivery, or otherwise), whichever is earlier, and addressed to the party to be notified as follows:
 

 
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If to IGT, at:
IGT
9295 Prototype Drive
Reno, Nevada  89521
 
Attention:           Richard Pennington
Fax:                      775.448.1488
   
with copies to:
Fulbright & Jaworski L.L.P.
2200 Ross Avenue
Suite 2800
Dallas, Texas 75201
 
Attention:           Glen J. Hettinger
Fax:                      214.855.8200
   
If to LVGI, at:
LVGI
4000 West Ali Baba Lane
Las Vegas, Nevada 89118
 
Attn:      Jon Berkley
Fax:        702.733.4907
With copies to Legal@LVGI.com
   
with copies to:
Weide & Miller, Ltd.
7251 W. Lake Mead Blvd., Suite 530
Las Vegas, NV 89128
 
Attention:  R. Scott Weide
Fax:            702-382-4805
 
or to such other address as each party may designate for itself by like notice.  No notice, demand, request, consent, approval, declaration, or other communication shall be deemed to have been given or received unless and until it sets forth all items of information required to be set forth therein pursuant to the terms of this LASA.
 
13.2 Choice of Law.  This LASA will be governed by and construed in accordance with the laws of the State of Nevada, without regard to any conflicts of laws.  IN THE EVENT OF A DISPUTE BETWEEN THE PARTIES RELATING TO THIS LASA, EACH OF THE PARTIES HERETO SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEVADA COUNTY OF WASHOE AND DOES HEREBY WAIVE ANY CLAIM THAT SUCH FORUM IS INCONVENIENT.
 

 
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13.3 Integration Amendments; Waivers.  This LASA constitutes the entire agreement among the Parties with respect to the subject matter hereof and supersedes all previous written, and all previous or contemporaneous oral, negotiations, understandings, arrangements, understandings, or agreements.  This LASA may not be amended, modified, or supplemented, or any provision of this LASA waived, except by a writing signed by all the parties to this LASA.  No custom, practice, course of dealing, or similar conduct will be deemed to amend, modify, or supplement any term of this LASA.  The failure of any Party to enforce any right or remedy under this LASA, or to enforce any such right or remedy promptly, will not constitute a waiver thereof, nor give rise to any estoppel against such Party, nor excuse any other Party from its obligations under this LASA.  Any waiver of any such right or remedy by any Party must be in writing and signed by the Party against which such waiver is sought to be enforced.  No waiver will be deemed a continuing waiver or a waiver of any right beyond the specific right waived in such waiver.
 
13.4 Further Assurances.  Each Party to this LASA shall, without the necessity of any further consideration, execute and deliver any and all such further documents and take any and all such other actions as may be reasonably necessary or appropriate to carry out the intent and purposes of this LASA and to consummate the transactions contemplated hereby.
 
13.5 Force Majeure.  No Party will be deemed in default if delayed or prevented from performing its obligations under this LASA, in whole or in part, due to an act of God, fire, flood, explosion, civil disorder, strike, lockout or other labor trouble, material shortages of utilities, equipment, materials or facilities, delay in transportation, breakdown or accident, riot, war, terrorist attack or other cause beyond its reasonable control (a “Force Majeure Event”); provided that such party will resume full performance of this Agreement as soon as practicable following the conclusion of the Force Majeure Event; and provided further, that any adverse event resulting directly or indirectly from conditions generally affecting any industry or industry sector in which a Party operates or competes which does not have a materially disproportionate impact on the Party relative to other industry participants shall not be considered a Force Majeure Event under this LASA.
 
13.6 Headings.  The headings in this LASA are for convenience of reference only and are not part of the substance of this LASA.
 
13.7 Severability.  It is not the intention of the Parties to this LASA expressly to violate any public policy, statutory or common law rules, regulations, or decisions of any governmental or regulatory body.  If any provision of this LASA are interpreted or construed as being in violation of any such policy, rule, regulation, or decision, the provision, section, sentence, word, clause, or combination thereof causing such violation shall be rendered inoperative to the minimum extent necessary in order to not be violative as set forth above (and in lieu thereof the Parties jointly request the court to insert such provision, sentence, word, clause, or combination thereof that is as favorable as possible to the Party the rights of which were made inoperative as may be valid and consistent with the intent of the parties under this LASA) and the remainder of this LASA, as amended, shall remain binding upon the Parties to this LASA, unless the inoperative provision would cause enforcement of the remainder of this LASA to be inequitable under the circumstances.
 

 
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13.8 Time.  Time shall be of the essence with respect to this LASA.
 
13.9 Assignment. Neither this LASA nor any rights hereunder may be transferred or assigned, nor any duties under this LASA delegated, by operation of law or otherwise, without the written consent of all parties to this LASA, except that IGT may assign this LASA and all rights hereunder and delegate all of its obligations hereunder to an affiliate of IGT and except that LVGI may assign this LASA and all rights hereunder and delegate all of its obligations hereunder to a person or entity that is a non-Competitor of IGT that acquires all or substantially all of the assets of LVGI in a single transaction or series or related transactions. For the purposes of the foregoing, a Change of Control of LVGI will be deemed an attempted assignment of this LASA and the rights hereunder and a delegation of all duties hereunder. Any attempted assignment, transfer or delegation that is that is not in conformance with this agreement is void.
 
“Change of Control” means the occurrence of any of the following events:
 
a  
LVGI becomes aware of the acquisition by any “person” or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any successor provision), including any group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act) in a single transaction or in a related series of transactions, by way of merger, consolidation or other business combination or purchase of “beneficial ownership” (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision) of 20% or more of the total voting power of the Voting Stock of LVGI;
 
b  
(i) there shall be consummated any share exchange, consolidation or merger of LVGI pursuant to which LVGI’s common stock would be converted into cash, securities or other property, other than pursuant to a share exchange, consolidation or merger of LVGI in which the holders of LVGI’s common stock immediately prior to the share exchange, consolidation or merger have, directly or indirectly, at least a majority of the total voting power of the voting stock of the continuing or surviving corporation immediately after the share exchange, consolidation or merger, or (ii) LVGI sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of the assets of LVGI and its Restricted Subsidiaries to another Person and any “person” (as defined in clause (a) above) is or becomes the “beneficial owner” (as defined in clause (a) above), directly or indirectly, of 20% or more of the total voting power of the voting stock of the transferee entity in such disposition of assets;
 
c  
during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of LVGI was approved by a vote of a majority of the directors of LVGI then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office;
 

 
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d  
the adoption of a plan relating to the liquidation or dissolution of LVGI; or
 
e  
the occurrence of any other event that would constitute a change in control of LVGI within the meaning of Item 5.01 (or successor item) of Forms 8-K (or successor form) under the Exchange Act.
 
13.10 No Partnership.  This LASA forms a contractual arrangement only and does not constitute the parties as a partnership or affiliated party.
 
13.11 Business Day.  Should the terms of this LASA require the performance of any obligation or the fulfillment of any condition on a day other than a business day, such obligation or fulfillment may be delayed until midnight on the next day that is a business day for the party to perform.
 
13.12 Counterparts.  This LASA may be executed in any number of counterparts, by means of facsimile or portable document format (pdf), which shall individually and collectively constitute one agreement.
 
13.13 Publicity.  Neither Party shall issue any press release or make any other public announcement with respect to this LASA or the transactions contemplated hereby without obtaining the prior written approval of the other Party (which will not be unreasonably withheld or delayed).  Where disclosure of information regarding this LASA or the transactions contemplated hereby may be required by law or the regulations of any securities exchange, the Party complying with applicable law or regulations shall provide sufficient time for the other Party to comment on those portions of such disclosures that pertain to this LASA before such disclosures are made.
 
 
EXECUTION
 
Each party has caused this LASA to be executed by a duly authorized officer and delivered as of the Effective Date, whereupon it enters into full force and effect in accordance with its terms.
 
[Signature Page Follows]
 

 
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IN WITNESS WHEREOF, the parties have caused this LASA to be executed and delivered as of the date first above written.
 

 
 
LVGI

 
 
By:  /s/ Jon D. Berkley                                        
Name:  Jon D. Berkley                                         
Title:  President & CEO                                      
 
 
IGT
 
 
By:  /s/ Richard Pennington                               
Name:  Richard Pennington                                
Title:  Exec. VP – Corporate Strategy                
 


 
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EX-10.13 4 ex1013.htm EX1013 ex1013.htm
Exhibit 10.13
 
***Text Omitted and Filed Separately
with the Securities and Exchange Commission.
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4)
and 240.24b-2
 
RETROFIT LICENSE AGREEMENT
 
This Retrofit License Agreement (the “Agreement”) is made and entered into as of this September 30, 2008 (the “Effective Date”), by and between Las Vegas Gaming, Inc., (LVGI), a Nevada corporation, with a primary business address of 4000 West Ali Baba Lane, Las Vegas, Nevada 89118, and IGT (IGT), a Nevada corporation with a primary business address of 9295 Prototype Drive, Reno, NV 89521 (each a “Party” and collectively the “Parties”).
 
 
WITNESSETH
 
WHEREAS, IGT owns a number of design patents, trademarks, and copyrights in addition to trade dress related to Gambling (defined below) and Electronic Gaming Machines (defined below);
 
WHEREAS, IGT has asserted that LVGI has infringed certain of IGT’s trademarks and copyrights through retrofitting and/or modifying Electronic Gaming Machines manufactured by IGT to provide users access to LVGI’s PlayerVision® system;
 
WHEREAS, the Parties wish to amicably resolve all claims that have been asserted or could be asserted by and between IGT and LVGI; and
 
WHEREAS, in order to resolve the claims, LVGI desires to license certain of IGT’s design patents, trademarks, copyrights, and trade dress related to Electronic Gaming Machines for the purpose of retrofitting or modifying existing Electronic Gaming Machines;
 
NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants contained herein, the Parties agree as follows:
 
ARTICLE 1 
Definitions
 
The following terms with initial capital letters shall have the following meanings:
 
 “Competitor” means any manufacturer, supplier, or distributor of Gambling Products with which IGT reasonably considers itself to compete for business.
 
“Electronic Gaming Machine” or “EGM” means electronic or electro-mechanical device including the peripheral components housed in its enclosure that is primarily designed and used for Gambling, and that has all of the following characteristics: (a) is used by the player to input
 

 
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the wager amount and otherwise initiate game play; (b) displays the amount wagered, the outcome of the wager, and the credit amount available to the player; (c) displays the outcome of the Gambling event to the player within five minutes of initiating the wager; and (d) is provided to the player by the EGM operator.  The definition of an EGM is limited to the device in close proximity to the player and does not include supporting software and servers remote from the device.  For the avoidance of doubt, and by way of example, personal computers, televisions, personal digital assistants (PDAs), and cellular and other mobile telephones are not primarily designed for Gambling and are not EGMs for the purposes of this defined term.
 
“End User” means the licensed operator (e.g., the casino operator) of an Electronic Gaming Machine.
 
“Functionality” means the PVD hardware which is substantially similar to the functionality being provided as of July 17th, 2008.
 
“Gambling” means playing or exposing for play any activity or event involving a wager or a placing at risk a sum of money or other representative of value, whether or not redeemable for cash, on an occurrence the outcome of which is uncertain, including events that include some element of skill (e.g., sports, card games, and racing).  The award corresponding to the outcome of such event or activity can be cash or any other prize.
 
 “IGT Licensed IP” means those IGT-owned copyrights, trademarks, trade dress, and design patents, but only to the extent that such are necessary for modifying an IGT Machine (defined below) with a PVD (defined below).  For the sake of clarity, IGT Licensed IP does not include any utility patents owned by IGT or any non-IGT intellectual property to which IGT has an interest.
 
“IGT Machine” means an EGM manufactured by IGT which is placed in the market for sale, lease, rental, or placement under a trade name owned or controlled by IGT.  The definition of IGT Machine excludes IGT’s recurring revenue or participation devices – which include the IGT megajackpot systems.
 
“IGT sb System” or “ISBS” means IGT’s server-based network systems which utilize the following IGT user interfaces: sbNexGen™, Service Window™, and other interfaces to IGT systems as may be necessary, subject to final approval by IGT.  For the sake of clarity, this excludes the non-sb NexGen, Advantage Systems, and TITO systems.  
 
“IGT Systems” means all IGT sb Systems, Advantage® systems, including, but not limited to, TITO systems, and any other computer system and/or operational network licensed, sold, or placed by IGT or its distributors and related to Gambling.
 
“Intellectual Property” means all intellectual property rights including all past, present and future rights in patents, industrial property rights, copyrights, trademarks, and trade secrets.
 
“Place,” “Placed” or “Placement” shall mean the sale, lease, or any other provision of Products (defined below) including, without limitation, on a participation or any other revenue generating basis.
 

 
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“PlayerVision Device(s)” or “PVD(s)” means the hardware, software, firmware connections, enclosures, and housings that are only capable of providing the Functionality.
 
“Product” means any product or service.
 
“Retrofit” (or “Retrofitting”) means putting a PVD into an IGT Machine.
 
“Retrofitted IGT Machine(s)” means an IGT Machine that has had a PVD installed into it..
 
ARTICLE 2 
License
 
2.1 License Grant. Subject to the terms and conditions of this section and of this Agreement, IGT hereby grants LVGI a limited, non-exclusive, non-transferable (except as provided in Section 10.9), non-sub-licensable, world-wide license to the IGT Licensed IP for the sole purpose of Retrofitting.  This grant does not provide any license to trademarks, trade dress, and design patents for use outside the IGT Machine.  Also, this grant does not provide any license to incorporate IGT Licensed IP into LVGI content.  However, with respect to the copyrights, the license is limited to the display of the content on the EGM video screen so long as it does not utilize alpha compositing or digital compositing technology.  Any Retrofitting shall be made with an End User license restriction for the IGT Licensed IP to be used in the same IGT Machine and in the same casino property as initially installed.  For example, and without expanding the scope of the grant above, an End User that purchases a PVD to Retrofit a specific IGT Machine may properly use the IGT Licensed IP along with that Retrofitted IGT Machine but only for as long as that PVD remains in the same IGT Machine and in the same casino.  In the event that an End User moves the PVD to a new EGM or moves the Retrofitted IGT Machine to a different casino, the existing license to use the IGT Licensed IP associated with that PVD on that Retrofitted IGT Machine will be void.  For the avoidance of doubt, the rights provided under this Agreement do not include any license or covenant not to sue with respect to any IGT utility patents or any utility patents to which IGT may have rights.
 
2.2 License Limitations Under […***…] or Before […***…].  The license to the IGT Licensed IP granted in Section 2.1 is limited to a maximum of […***…] IGT Machines that are Placed into operation worldwide as of […***…], and for which the Retrofitting is performed by that date.  These Placements shall be licensed at no cost to LVGI for the life of those Placements, so long as:
 
1.  
such Retrofitted IGT Machines remain in the same casino property as they were originally placed prior to […***…];
2.  
such PVD has not been changed to add any new Functionality to that which was originally installed prior to […***…]; and
3.  
any hardware or firmware installed as a part of the PVD remains in the same IGT Machine as it was originally Retrofitted or modified prior to […***…].
 
It is further agreed that the repair or replacement of an existing Placement of a PVD shall not comprise a new Placement, to the extent such repair or replacement does not change existing functionality in a way that can be perceived by the player.
***Confidential Treatment Requested
 

 
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2.3 License Limitations Over […***…] or After […***…].  After the earlier of the Placement of the […***…] Retrofitted IGT Machine or […***…], and subject to the limitations and restrictions of Section 2, IGT will further license LVGI to use the IGT Licensed IP for the purpose of Retrofitting up to a maximum of […***…] of the floor of IGT Machines in any individual gaming facility or casino that is operating an IGT ISBS.  For example, after […***…], if a single casino property has a total floor of […***…] EGMs with […***…] of the […***…] total EGMs being IGT Machines, LVGI will be licensed to Retrofit […***…] IGT Machines in this single casino property, but only if the single casino property also operates an IGT ISBS.  The royalty rate for these […***…] Retrofitted IGT Machines (i.e., […***…] of the total floor of IGT Machines […***…]) in the casino property is calculated as provided in Section 3.2.  After the earlier of the Placement of the […***…] Retrofitted IGT Machine or […***…], LVGI shall not, without the express written consent of IGT, modify any IGT Machines in locations that are not operating an IGT sb System.
 
ARTICLE 3 
Consideration/Royalty
 
3.1 Royalty-Free Placements.  Retrofitted IGT Machines that are licensed pursuant to Section 2.2, and which continue in conformance with the requirements of Section 2.2, will be licensed for use of the IGT Licensed IP to LVGI without a license fee for the life of those Placements at their original locations.
 
3.2 Royalty-Bearing Placements.  After the earlier of the Placement of the […***…] Retrofitted IGT Machine or […***…], LVGI will pay a royalty to IGT of […***…] per Retrofitted IGT Machine for each additionally Placed, moved, or modified Retrofitted IGT Machine placed up to a maximum of […***…] of the floor of IGT Machines in any individual gaming facility or casino that is operating an IGT ISBS.  After […***…], the royalty shall increase to […***…] per Retrofitted IGT Machine for those Retrofitted IGT Machines Placed up to a maximum of […***…] of the floor of IGT Machines in any individual gaming facility or casino that is operating an IGT ISBS.
 
3.3 Royalty Payments.  LVGI shall furnish to IGT, within 45 days of the end of each calendar quarter in which LVGI has installed a PVD into an IGT Machine that has been Placed, a detailed royalty statement showing the number of IGT Machines modified with a PVD and Placed into operation during the immediately preceding quarter, separated into Placements for each country in which sales, or leases, or profit participations occur.  The royalty payment shall accompany the royalty statement.  Royalties on Placed Retrofitted IGT Machines shall be made without any tax withholding.
 
3.4 Failure to Pay.  Any amounts not paid when due will accrue interest at the rate of 1.5% per month.  For the avoidance of doubt, any failure to pay is an event of default and is subject to the notice, cure, and termination provision as provided in Section 10.5.
 
***Confidential Treatment Requested
 

 
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ARTICLE 4 
Records and Audits
 
4.1 Records.  LVGI shall maintain at its principal office for the term of this Agreement and for 7 years thereafter accurate books and records in sufficient detail to enable IGT to verify the basis for and the accuracy of the royalty statements required to be submitted to IGT pursuant to Section 3.3 and LVGI’s compliance with each and every term and condition of this Agreement.
 
4.2 Audit and Inspection Rights.  IGT shall have the right, exercisable not more than once in any calendar year during the period outlined in Section 4.1, to audit, through its own financial employees or through independent accountants (together the “Auditor”), the books and records (both electronic and hard copy) contemplated at Section 4.1.  IGT shall provide LVGI with no less than 2 weeks written notice of its intent to audit LVGI’s books and records as provided under this Agreement and LVGI shall be ready for such audit – meaning that LVGI shall have all records required hereunder ready for inspection upon the arrival of the Auditor and LVGI shall also promptly provide additional documentation as may be required.  Such notice shall indicate the period to be audited, the identity of the auditor and the scope of the audit.  LVGI shall immediately pay any shortfall together with interest as provided in the next sentence.  Should an audit reveal a discrepancy of royalty payment in relation to royalty actually earned greater than 5% annually, LVGI shall pay any shortfall together with interest on any outstanding balance at the lesser of 1.5% monthly or the maximum amount permitted by law, and shall reimburse IGT for the reasonable cost of the audit.  If audits of LVGI reveal a shortfall in royalty payment of greater than 5% in any fiscal year, and the findings support that the withholding of such royalty payments was done intentionally or in bad faith, IGT shall have the right to terminate this Agreement.  In all events, IGT’s right to terminate shall be subject to the provisions of Article 10.
 
ARTICLE 5 
LVGI Obligations
 
5.1 Technical Specifications.  As a condition precedent to the execution and closing of this Agreement, LVGI must attach hereto as Appendix A, all detailed technical specifications for the PVD currently pending before the Nevada Gaming Control Board (NGCB) and/or Game Labs, Inc. (GLI), as of July 17th, 2008.
 
5.2 Dismissal of the Lawsuit Between the Parties.  The Parties are currently engaged in a lawsuit in the United States District Court for the District of Nevada,  which is captioned IGT vs. Las Vegas Gaming, Inc., Case No. 3:07-cv-415-BES(VPC) (“the Pending Lawsuit”).  In the Pending Lawsuit, IGT has alleged that LVGI has infringed certain copyrights, trademarks and trade dress owned by IGT.  Both Parties agree to instruct their litigation counsel handling the Pending Lawsuit to present to the court in the Pending Lawsuit the “Order Granting Stipulated Motion for Dismissal” as contained in attached Appendix B and the “Stipulated Motion for Dismissal” as contained in attached Appendix C.  The Parties hereby stipulate to entry of a final judgment with prejudice in the Pending Litigation in the form of the “Order Granting Stipulated Motion for Dismissal” as contained in attached Appendix B.
 
5.3 IGT Release of LVGI.  IGT does hereby fully and forever release LVGI and its subsidiary Imagineering Gaming, Inc., and their officers, directors, shareholders, employees and attorneys and customers from any and all claims, known and unknown, that arise out of the subject matter of the Pending Litigation or, with the exception of any claims based on utility patents, that were or could have been asserted in the Pending Litigation or relating to any financial obligations of LVGI or its subsidiary Imagineering Gaming, Inc. to IGT as of September 11, 2008.  For the sake of clarity such released financial obligations do not include any financial obligations of LVGI or its subsidiary Imagineering Gaming, Inc. to IGT arising from or relating to this Agreement, the License and Application Support Agreement, the Intellectual Property Access Agreement, and/or the LVGI Investment Agreement.
 
5.4 LVGI Release of IGT.  LVGI does hereby fully and forever release IGT and its officers, directors, shareholders, employees and attorneys  and customers from any and all claims, known and unknown, that arise out of the subject matter of the Pending Lawsuit or, with the exception of any claims based on utility patents, that were or could have been asserted in the Pending Lawsuit or relating to any financial obligations that IGT may be liable to LVGI as of September 11, 2008.  For the sake of clarity such released financial obligations do not include any financial obligations of IGT to LVGI arising from or relating to this Agreement, the License and Application Support Agreement, the Intellectual Property Access Agreement, and/or the LVGI Investment Agreement.

 
 
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ARTICLE 6 
Representations and Warranties
 
6.1 General Representations and Warranties.  Each Party represents and warrants to the other as follows: (a) it is a valid and existing corporation and in good standing under the laws of the state of its incorporation; (b) it has the power and authority required to carry on its activities as they are now conducted; (c) it has the has full legal right and corporate power, without the consent of any other person to execute, deliver and to perform its obligations under this Agreement; (d) all corporate and other actions required to be taken by it to authorize the execution, delivery and performance of this Agreement and all transactions contemplated hereby have been duly and properly taken; (e) no consent, approval, authorization or filing of any certificate, notice application, report or other document with any governmental authority is required on the part of such Party in connection with the valid execution and delivery of this Agreement or the performance by such Party of any of its obligations hereunder; (f) the execution, delivery and performance of this Agreement do not violate or conflict with any law applicable to it, any provision of its charter or bylaws, any order or judgment of any court or other agency of government applicable to it or any of its assets, or any contractual restriction binding on or affecting it or any of its assets; and (g) the execution, delivery and performance of this Agreement has been duly and validly authorized by each Party, and upon execution and delivery, this Agreement constitutes the valid and binding agreement of each Party enforceable against it in accordance with its terms.
 
6.2 No Third Party Assistance.  LVGI represents and warrants that it will not assist any third party to modify any IGT Machine in any manner. For sake of clarity, this provision shall not preclude LVGI from utilizing subcontractors to assist LVGI in modifying an IGT machine in accordance with LVGI’s exercise of the rights granted it under this Agreement.  This provision also does not prohibit an End User from using its own technicians to assist LVGI in modifying an IGT machine in accordance with LVGI’s exercise of the rights granted it under this Agreement. LVGI further agrees not to assist in development or license any third parties for development or deployment of any technology for EGMs or for Functionalities that may be similar to subject matter described by the LVGI PVT Patents, but LVGI may use distributors of its choice for distribution of its own Products, subject to IGT’s rights under the IPAA.  For sake of clarity, this provision shall not preclude LVGI from utilizing sub-contractors to assist LVGI in Developing or deploying LVGI’s technology.
 
6.3 Authorized Modifications Only.  LVGI represents and warrants that it will not modify any IGT Machine in any manner other than as expressly licensed herein or in any manner that is inconsistent with the rights licensed herein.
 
6.4 No Intention for Suit. IGT represents and warrants that it is not IGT’s current intention to bring a patent infringement law suit against LVGI.  LVGI acknowledges that this representation and warranty may not be construed to be a license or a covenant not to sue with respect to any IGT patents.  In the event that either Party contemplates a potential law suit against the other Party with respect to Intellectual Property rights, the Parties will exercise the procedure as specified in section 2.06 (Mechanism for Resolving Potential Patent Infringement Between the Parties) or section 2.07 (Mechanism for Resolving Potential Non-Patent Infringement Between the Parties) of the Intellectual Property Access Agreement between the Parties.
 
6.5 Quality.  LVGI agrees that its use of the IGT owned trademarks shall be at all times of a high quality and conform to high standards consistent with IGT’s products and services and LVGI shall provide to IGT, pursuant to IGT’s reasonable request, the right to inspect Retrofits and LVGI shall otherwise reasonably cooperate with IGT to facilitate IGT’s quality control.
 
6.6 Ownership. LVGI acknowledges and agrees that IGT is the owner of all right, title and interest in and to the IGT owned trademarks, including all associated registrations, pending applications and statutory and common law rights.  LVGI agrees that all use of the IGT owned trademarks shall inure to the benefit of IGT and LVGI shall not acquire any rights by virtue of any use of the IGT owned trademarks.
 
6.7 Use.  LVGI shall not use the IGT owned trademarks other than as licensed in this Agreement and in connection with sale, offering for sale or Placement of Retrofitted IGT Machines.
 
6.8 Goodwill.  LVGI recognizes the high value of the goodwill associated with the IGT owned trademarks and acknowledges that all rights therein and the goodwill pertaining thereto belong exclusively to IGT and LVGI assigns any existing or potential interest or rights it may have therein to IGT.
 

 
- 6 - -
 
 
 
ARTICLE 7 
Confidentiality
 
7.1 Confidentiality Obligation.  Each Party will, and will cause each of its Representatives to (a) hold all information relating to the business of the other Party disclosed to it by reason of this Agreement confidential; (b) not use any such information except as necessary to perform its obligations and exercise its rights under this Agreement; and (c) not disclose any of such information to any third party unless required by law or otherwise legally compelled to disclose such information; provided, however, that to the extent that either Party may become so legally compelled, such Party may disclose such information only if it will first have used reasonable efforts to obtain, and, if practicable, will have afforded the other Party the opportunity to obtain, an appropriate protective order or other satisfactory assurance of confidential treatment for the information required to be so disclosed.
 
7.2 Exceptions to Confidentiality.  The Party who received such confidential information will not be required to keep confidential any information that (a) was, at the time of disclosure to it, in the public domain; (b) after disclosure to it, is published or otherwise becomes part of the public domain through no fault of the receiving Party; (c) was received after disclosure to it from a third Party who had a lawful right to disclose such information or materials to it; (d) was required by law to be disclosed to any regulatory body having jurisdiction over the receiving Party or any of its respective affiliates, customers; (e) that disclosure is necessary by reason of applicable legal, accounting or regulatory requirements beyond the reasonable control of the receiving Party; or (f) is subsequently developed by the receiving Party independently of the information received from the disclosing Party, as evidenced by written documentation.
 
7.3 Certain Disclosures.  In the case of any disclosure pursuant to Section 7.2(d) or (e), to the extent practical, the receiving Party will notify the disclosing Party in advance of the required disclosure and will use commercially reasonable efforts to assist the disclosing Party in obtaining a protective order, if available, covering such disclosure.  If such a protective order is obtained, such information and materials will continue to be deemed to be confidential information.  In no event shall the information disclosed pursuant to Section 7.2(d) or (e) of this Agreement exceed that which is required by such legal, accounting or regulatory requirement, as applicable.
 
7.4 Terms of Agreement.  LVGI agrees that this Agreement and its provisions will remain confidential, protected as confidential information as per the above provisions of this Article 7, and will only be distributed to those persons within LVGI that have a need to know, subject to any disclosure required by law or regulation to the Securities and Exchange Commission (“SEC”), Department of Justice or any court or tribunal of competent jurisdiction.  Notwithstanding the foregoing, LVGI will have the right to disclose the terms of this Agreement to its attorneys, accountants, actual and potential sources of financing, and potential acquirers, under appropriate non-disclosure agreements or duties.
 

 
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ARTICLE 8 
Indemnification
 
8.1 Indemnification Obligations.  Each Party (the “Indemnifying Party”) will indemnify, defend and hold the other Party and its officers, directors, employees and agents (the “Indemnified Party”) harmless from any and all damages, costs and expenses arising from any third party claims, threats, proceedings or suits (“Third Party Claims”) to the extent such Third Party Claims arise from or relate to the Indemnifying Party’s breach of any representation, warranty or covenant hereunder.
 
8.2 Indemnification Procedures. Upon receiving notice of any Third Party Claim covered by Section 8.1, the Indemnified Party will notify the Indemnifying Party promptly; provided, however, that the right of indemnification hereunder will not be adversely affected by a failure to give such notice, unless and only to the extent that the Indemnifying Party is materially prejudiced thereby.  The Indemnifying Party may assume control of the defense of any such claim, if (a) the Indemnifying Party acknowledges its obligation to indemnify the Indemnified Party for any losses resulting from such claim, and (b) the claim does not seek to impose any liability on the Indemnified Party other than money damages; provided, however, that the Indemnified Party may, at its own cost and expense, participate through its attorneys or otherwise, in such investigation, trial and defense of such claim and any appeal arising therefrom.  The Indemnifying Party will not settle any such claim without the Indemnified Party’s prior written consent (which consent will not be unreasonably withheld or delayed), unless such settlement is solely for monetary damages for which the Indemnified Party is fully indemnified under this Agreement.  If the Indemnifying Party does not assume full control over the defense of a claim pursuant to this Section 8.2, then the Indemnifying Party may participate in such investigation, defense or trial, solely at its cost and expense, and the Indemnified Party will have the right to defend or settle such claim in such manner as the Indemnified Party deems appropriate, solely at the cost and expense of the Indemnifying Party.
 
8.3 Indemnification of IGT Against Claims Arising from LVGI PVDs.  LVGI will defend, indemnify and hold harmless IGT and its officers, directors, employees and agents from any and all damages, costs, and expenses arising from any claim relating to or arising from any uses or installations of the PVDs, regardless of whether the PVDs was installed in an IGT Machine or a non-IGT EGM.
 
ARTICLE 9 
Term and Termination
 
9.1 Term.  The term of this Agreement will commence on the Effective Date and will continue in force until terminated by mutual written consent of all parties to this Agreement unless terminated earlier as set forth in this Article 9.
 

 
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9.2 Termination for Regulatory Compliance.  Each Party and its affiliates conduct business in a highly regulated industry under privileged licenses issued by gaming regulatory authorities both domestic and international.  Each Party maintains a compliance program that has been established to protect and preserve the name, reputation, integrity, and good will of such Party and its affiliates and to monitor compliance with the requirements established by gaming regulatory authorities in various jurisdictions around the world.  Each Party agrees to cooperate with requests, inquiries, or investigations of gaming regulatory authorities or law enforcement agencies in connection with the performance of this Agreement.  Each Party agrees to fully cooperate with the other Party in the completion of any necessary due diligence background investigation.  If either Party receives a written or oral opinion, recommendation or indication from a gaming regulatory authority (including a representative thereof) or if either Party determines, based upon facts and evidence that would reasonably be accepted by gaming regulatory authorities or other licensed gaming entities, that continuation of this Agreement would jeopardize the gaming licenses, permits or status of such Party or any of its affiliates with any gaming regulatory authority or similar law enforcement authority (“Regulatory Trigger”), then: (a) such Party will give notice to the other Party of the Regulatory Trigger, including details of the opinion, recommendation, indication or asserted facts (to the extent known by the receiving Party), and provided such Party is given a time period to address the basis for said Regulatory Trigger, that Party will provide the other Party a reasonable time frame within such Party's reasonably allotted time period to comment upon and take action to remove such basis; and (b) if such Regulatory Trigger is not cured to that Party's reasonable satisfaction, such that a reasonable risk remains that jeopardizes the status of such Party with any gaming regulatory authority, that Party may terminate such portion of this Agreement which would cure the Regulatory Trigger (leaving the remainder of this Agreement in force and effect), and if such cannot be effected, such Party may terminate this entire Agreement immediately.
 
9.3 Consequences of Termination.  In the event that this Agreement or any portion hereof is terminated pursuant to Article 9, any payments made or payment obligations that exist pursuant to this Agreement at the time of such termination shall be non-refundable or remain due and payable (as the case may be); provided that such Regulatory Trigger does not mandate otherwise.  In addition, the rights intended to be unaffected according to the express provisions of this Agreement and Articles 4 and 7-10 will survive any such termination.  All other provisions of this Agreement will be terminated.
 
9.4 Dispute Resolution.  Prior to any termination of this Agreement for breach, or the commencement of any litigation by one Party (the first Party) against the other arising out of an alleged breach of this Agreement, the matter must first be referred to a senior executive of each Party by the first Party sending to the other Party a written notice that sets out the particulars of the dispute and the alleged breach of this Agreement.  The senior executives of each Party will then arrange to meet at the next most convenient time, but no later than 30 days from receipt of the dispute notice, and will use commercially reasonable efforts to resolve the dispute in good faith.  Should the senior executives fail to resolve the dispute within seven days of the date of their meeting, then either Party may initiate non-binding mediation to resolve such dispute, with costs to be shared equally by the Parties.  If such mediation fails to resolve such dispute within 10 days of the mediation, each Party is free to seek any remedies available to it to resolve such dispute, including litigation.
 
9.5 Termination for Failure to Pay. Notwithstanding Section 9.4 above, any failure to pay monies due under this Agreement when due, including any royalties due under Article 3, shall constitute a material breach, and the non-breaching party may immediately terminate this Agreement for non-payment when the defaulting party fails to cure such non-payment within 30 days of written notice specifying such non-payment.
 

 
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ARTICLE 10 
Miscellaneous
 
10.1 Notices.  Whenever this Agreement provides that any notice, demand, request, consent, approval, declaration, or other communication be given to or served upon any of the parties by another, such notice, demand, request, consent, approval, declaration, or other communication shall be in writing and shall be deemed to have been validly served, given, or delivered (and “the date of such notice” or words of similar effect will mean the date) five days after deposit in the United States mails, certified mail, return receipt requested, with proper postage prepaid, or upon confirmed receipt thereof (whether by noncertified mail, telecopy, express delivery, or otherwise), whichever is earlier, and addressed to the party to be notified as follows:
 
If to IGT, at:
IGT
9295 Prototype Drive
Reno, Nevada  89521
 
Attention:           Richard Pennington
Fax:                      775.448.1488
   
with copies to:
Fulbright & Jaworski L.L.P.
2200 Ross Avenue
Suite 2800
Dallas, Texas 75201
 
Attention:           Glen J. Hettinger
Fax:                      214.855.8200
   
If to LVGI, at:
LVGI
4000 West Ali Baba Lane
Las Vegas, Nevada 89118
 
Attn:     Jon Berkley
Fax:       702.733.4907
with copies to: Legal@LVGI.com
   
with copies to:
Weide & Miller, Ltd.
7251 W. Lake Mead Blvd., Suite 530
Las Vegas, NV 89128
Attention:  R. Scott Weide
Fax:            702-382-4805

 

 
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or to such other address as each party may designate for itself by like notice.  No notice, demand, request, consent, approval, declaration, or other communication shall be deemed to have been given or received unless and until it sets forth all items of information required to be set forth therein pursuant to the terms of this Agreement.
 
10.2 Choice of Law.  This Agreement will be governed by and construed in accordance with the laws of the State of Nevada, without regard to any conflicts of laws.  IN THE EVENT OF A DISPUTE BETWEEN THE PARTIES RELATING TO THIS AGREEMENT, EACH OF THE PARTIES HERETO SUBMITS TO THE EXCLUSIVE JURISDICTION OF THE COURTS OF THE STATE OF NEVADA COUNTY OF WASHOE AND DOES HEREBY WAIVE ANY CLAIM THAT SUCH FORUM IS INCONVENIENT.
 
10.3 Integration; Amendments; Waivers.  This Agreement constitutes the entire agreement among the Parties with respect to the subject matter hereof and supersedes all previous written, and all previous or contemporaneous oral, negotiations, understandings, arrangements, understandings, or agreements.  This Agreement may not be amended, modified, or supplemented, or any provision of this Agreement waived, except by a writing signed by all the parties to this Agreement.  No custom, practice, course of dealing, or similar conduct will be deemed to amend, modify, or supplement any term of this Agreement.  The failure of any Party to enforce any right or remedy under this Agreement, or to enforce any such right or remedy promptly, will not constitute a waiver thereof, nor give rise to any estoppel against such Party, nor excuse any other Party from its obligations under this Agreement.  Any waiver of any such right or remedy by any Party must be in writing and signed by the Party against which such waiver is sought to be enforced.  No waiver will be deemed a continuing waiver or a waiver of any right beyond the specific right waived in such waiver.
 
10.4 Further Assurances.  Each Party to this Agreement shall, without the necessity of any further consideration, execute and deliver any and all such further documents and take any and all such other actions as may be reasonably necessary or appropriate to carry out the intent and purposes of this Agreement and to consummate the transactions contemplated hereby.
 
10.5 Force Majeure.  No Party will be deemed in default if delayed or prevented from performing its obligations under this Agreement, in whole or in part, due to an act of God, fire, flood, explosion, civil disorder, strike, lockout or other labor trouble, material shortages of utilities, equipment, materials or facilities, delay in transportation, breakdown or accident, riot, war, terrorist attack or other cause beyond its reasonable control (a “Force Majeure Event”); provided that such party will resume full performance of this Agreement as soon as practicable following the conclusion of the Force Majeure Event; and provided further, that any adverse event resulting directly or indirectly from conditions generally affecting any industry or industry sector in which a Party operates or competes which does not have a materially disproportionate impact on the Party relative to other industry participants shall not be considered a Force Majeure Event under this Agreement.
 
10.6 Headings.  The headings in this Agreement are for convenience of reference only and are not part of the substance of this Agreement.
 

 
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10.7 Severability.  It is not the intention of the Parties to this Agreement expressly to violate any public policy, statutory or common law rules, regulations, or decisions of any governmental or regulatory body.  If any provision of this Agreement are interpreted or construed as being in violation of any such policy, rule, regulation, or decision, the provision, section, sentence, word, clause, or combination thereof causing such violation shall be rendered inoperative to the minimum extent necessary in order to not be violative as set forth above (and in lieu thereof the Parties jointly request the court to insert such provision, sentence, word, clause, or combination thereof that is as favorable as possible to the Party the rights of which were made inoperative as may be valid and consistent with the intent of the parties under this Agreement) and the remainder of this Agreement, as amended, shall remain binding upon the Parties to this Agreement, unless the inoperative provision would cause enforcement of the remainder of this Agreement to be inequitable under the circumstances.
 
10.8 Time.  Time shall be of the essence with respect to this Agreement.
 
10.9 Assignment.  Neither this Agreement nor any rights hereunder may be transferred or assigned, nor any duties under this Agreement delegated, by operation of law or otherwise, without the written consent of all parties to this Agreement, except that IGT may assign this Agreement and all rights hereunder and delegate all of its obligations hereunder to an affiliate of IGT and except that LVGI may assign this Agreement and all rights hereunder and delegate all of its obligations hereunder to a person or entity that is a non-Competitor of IGT that acquires all or substantially all of the assets of LVGI in a single transaction or series or related transactions. For the purposes of the foregoing, a Change of Control of LVGI will be deemed an attempted assignment of this Agreement and the rights hereunder and a delegation of all duties hereunder.  Any attempted assignment, transfer or delegation that is that is not in conformance with this agreement is void.
 
“Change of Control” means the occurrence of any of the following events:
 
(a)  
LVGI becomes aware of the acquisition by any “person” or group (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or any successor provision), including any group acting for the purpose of acquiring, holding or disposing of securities (within the meaning of Rule 13d-5(b)(1) under the Exchange Act) in a single transaction or in a related series of transactions, by way of merger, consolidation or other business combination or purchase of “beneficial ownership” (within the meaning of Rule 13d-3 under the Exchange Act, or any successor provision) of 20% or more of the total voting power of the Voting Stock of LVGI;
 
(b)  
(i) there shall be consummated any share exchange, consolidation or merger of LVGI pursuant to which LVGI’s common stock would be converted into cash, securities or other property, other than pursuant to a share exchange, consolidation or merger of LVGI in which the holders of LVGI’s common stock immediately prior to the share exchange, consolidation or merger have, directly or indirectly, at least a majority of the total voting power of the voting stock of the continuing or surviving corporation
 

 
- 12 - -
 

immediately after the share exchange, consolidation or merger, or (ii) LVGI sells, assigns, conveys, transfers, leases or otherwise disposes of all or substantially all of the assets of LVGI and its Restricted Subsidiaries to another Person and any “person” (as defined in clause (a) above) is or becomes the “beneficial owner” (as defined in clause (a) above), directly or indirectly, of 20% or more of the total voting power of the voting stock of the transferee entity in such disposition of assets;
 
(c)  
during any period of two consecutive years, individuals who at the beginning of such period constituted the Board of Directors (together with any new directors whose election by such Board of Directors or whose nomination for election by the stockholders of LVGI was approved by a vote of a majority of the directors of LVGI then still in office who were either directors at the beginning of such period or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the Board of Directors then in office;
 
(d)  
the adoption of a plan relating to the liquidation or dissolution of LVGI; or
 
(e)  
the occurrence of any other event that would constitute a change in control of LVGI within the meaning of Item 5.01 (or successor item) of Forms 8-K (or successor form) under the Exchange Act.
 
10.10 No Partnership.  This Agreement forms a contractual arrangement only and does not constitute the parties as a partnership.
 
10.11 Business Day. Should the terms of this Agreement require the performance of any obligation or the fulfillment of any condition on a day other than a business day, such obligation or fulfillment may be delayed until midnight on the next day that is a business day for the party to perform.
 
10.12 Counterparts.  This Agreement may be executed in any number of counterparts, by means of facsimile or portable document format (pdf), which shall individually and collectively constitute one agreement.
 
10.13 Publicity.  Neither Party shall issue any press release or make any other public announcement with respect to this Agreement or the transactions contemplated hereby without obtaining the prior written approval of the other Party (which will not be unreasonably withheld or delayed).  Where disclosure of information regarding this Agreement or the transactions contemplated hereby may be required by law or the regulations of any securities exchange, the Party complying with applicable law or regulations shall provide sufficient time for the other Party to comment on those portions of such disclosures that pertain to this Agreement before such disclosures are made.
 
EXECUTION
 
Each party has caused this Agreement to be executed by a duly authorized officer and delivered as of the Effective Date, whereupon it enters into full force and effect in accordance with its terms.
 
[Signature Page Follows]
 

 
- 13 - -
 

IN WITNESS WHEREOF, the parties have caused this Agreement to be executed and delivered as of the date first above written.
 

 
 
LVGI
 
 
By:  /s/ Jon D. Berkley                                        
Name:  Jon D. Berkley                                         
Title:    President & CEO                                     
 
 
IGT
 
 
By:  /s/ Richard Pennington                                
Name:  Richard Pennington                                 
Title:    Exec. VP – Corporate Strategy               
 


 
- 14 - -
 

EX-31.1 5 ex311.htm EX311 ex311.htm
EXHIBIT 31.1
CERTIFICATIONS

I, Jon D. Berkley, certify that:
 
1.  
I have reviewed this Quarterly Report on Form 10-Q of Las Vegas Gaming, Inc.;
 
2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.  
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.  
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a.  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b.  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:  November 19, 2008
  
By:
/s/ Jon D. Berkley
     
Jon D. Berkley, President and Chief Executive Officer
(Principal Executive Officer)

EX-31.2 6 ex312.htm EX312 ex312.htm
EXHIBIT 31.2
CERTIFICATIONS

I, Bruce A. Shepard, certify that:
 
1.  
I have reviewed this Quarterly Report on Form 10-Q of Las Vegas Gaming, Inc;
 
2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4.  
The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in  Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
 
a.
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
 
b.
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
 
c.
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
 
d.
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5.  
The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a.  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b.  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date:  November 19, 2008
  
By:
/s/ Bruce A. Shepard
     
Bruce A. Shepard, Chief Financial Officer
(Principal Financial Officer)


EX-32.1 7 ex321.htm EX321 ex321.htm
EXHIBIT 32.1

CERTIFICATIONS PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Las Vegas Gaming, Inc. (the “Company”) on Form 10-Q for the quarterly period ended August 14, 2008, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), we, Jon D. Berkley, Chief Executive Officer, and Bruce A. Shepard, Chief Financial Officer, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
 
1.  
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
2.  
The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.
 
By:
/s/ Jon D. Berkley
Dated:   
November 19, 2008
 
Jon D. Berkley
    
Title:
President and Chief Executive Officer
(Principal Executive Officer)
    
       
       
By:
/s/ Bruce A. Shepard
Dated:   
November 19, 2008
 
Bruce A. Shepard
    
Title:
Chief Financial Officer
(Principal Financial Officer)
    

 


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