EXHIBIT 10.18
May 28, 1998
Xxxxxx X. Xxxxx
Xxxxxx Xxxxx
000 Xxxxxxxxx Xxxxxx
Xxxxxxxxx, Xxxxxx 00000
RE: BINDING LETTER AGREEMENT
Dear Xx. Xxxxx:
This correspondence constitutes a binding letter agreement
(the "Letter Agreement") by and between Casinovations,
Incorporated, a Washington corporation, on the one hand (the
"Company"), and Xxxxxx X. and Xxxxxx Xxxxx, individuals, on the
other hand ("Sellers" and, collectively with the Company, the
"Parties"), in connection with a transaction involving, INTER
ALIA, the severance of the business relationship between the
Company and Sellers and the purchase by the Company of all of the
shares of common stock of the Company ("Common Stock") held by
Sellers. The various elements of the aforementioned transaction
are collectively referred to herein as the "Transaction."
This Letter Agreement is based upon the following terms and
provisions:
1. BINDING INTENT; LIMITATION. Subject to the approval of
the Transaction by the Nevada State Gaming Control Board (the
"Board"), the Parties hereby intend and agree that upon the
execution of this Letter Agreement, all of the terms and
provisions set forth herein shall be binding upon the Parties
hereto.
2. TERMINATION OF LETTER AGREEMENT DATED APRIL 9, 1998.
Whereas the Parties entered into a letter agreement dated April
9, 1998 for, INTER ALIA, the partial repurchase of Sellers equity
interest in the Company, the Parties hereby acknowledge and
understand that said letter agreement is null and void due to the
failure of the Board to provide its approval of the terms and
conditions provided therein.
3. FINAL AGREEMENT. Within forty-five (45) calendar days
after the date of the approval of the Transaction by the Board,
counsel for the Company shall have prepared and the Parties shall
have executed the documents necessary to consummate the
Transaction (the "Documents"). The Documents shall incorporate
all of the terms and provisions of this Letter Agreement
pertaining to the Transaction; provided, however, that the
Company and Sellers hereby understand and agree that
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May 28, 1998
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the Documents may more particularly and/or specifically delineate
and/or describe the various terms and provisions thereto than as
such terms and provisions are set out in this Letter Agreement.
4. TERMINATION OF EMPLOYMENT AND NON-COMPETE AGREEMENT.
The employment and non-compete agreement by and between the
Company and Sellers dated March 15, 1996, and as amended June 15,
1996, will be terminated as of the effective date of the
Documents. Accordingly, the aforementioned employment and non-
compete agreement will be null and void as of the effective date
of the Documents. The relationship between the Company and
Sellers after the termination of the employment and non-compete
agreement shall be on a project-by-project basis. Sellers shall
have the option to develop products from the new products list
only if the Company fails to develop such products within a
twelve-month period from the effective date of the Documents.
5. ROYALTY AGREEMENT. Sellers, through his ownership of a
fifty percent interest in the Xxxxx-Xxxxx Partnership, is
entitled to a specified royalty on sales of the Random Ejection
Shuffler and Fantasy 21 table game (the "Royalty"). The Company
hereby agrees to purchase and Sellers hereby agrees to completely
assign, sell, convey and otherwise transfer the Royalty for the
price of Two Hundred Thousand and no/100ths Dollars
($200,000.00). Irrespective of whether the Xxxxx-Xxxxx
Partnership has been dissolved as of the effective date of the
Documents, Sellers hereby agree to completely assign, sell,
convey and otherwise transfer his right to the Royalty as of the
effective date of the Documents.
6. PURCHASE OF OPTION. Sellers are the owner of an option
to purchase 20,000 shares of Common Stock (the "Option").
Subject to the dissolution of the Xxxxx-Xxxxx Partnership, the
Company agrees to purchase and Sellers agree to sell the Option
at the price of $1.50 per underlying share, I.E. Thirty Thousand
and no/100ths Dollars ($30,000.00).
7. PURCHASE OF THE SHARES. Sellers are the owner of
930,682 shares of Common Stock. Subject to the dissolution of
the Xxxxx-Xxxxx Partnership, the Company agrees to purchase and
Sellers agree to sell 848,682 shares of Common Stock (the
"Shares") at the price of $2.50 per share, I.E. Two Million One
Hundred Twenty One Thousand Seven Hundred Five and no/100ths
Dollars ($2,121,705.00). Of the remaining 82,000 shares of
Common Stock, Sellers hereby agree to gift said 82,000 shares to
individuals and/or entities to be determined by Sellers at a time
no later than the effective date of the Documents.
8. PAYMENT FOR THE ROYALTY, THE OPTION PURCHASE AND THE
STOCK PURCHASE. As payment for the Royalty, the Option and the
Shares, the Company shall pay to Sellers Two Million Three
Hundred Fifty-One Thousand Seven Hundred Five and no/100ths
Dollars ($2,351,705.00 U.S.) in the form of a promissory note
(the "Promissory Note").
a. DATE. The Promissory Note shall be dated and
interest shall begin to accrue on even date with the
approval of the sale of the Random Ejection Shuffler by the
Board.
b. INTEREST AND TERM. The Promissory Note shall bear
an interest rate of six and one-half percent (6.5%) during
the first year and eight percent (8%) thereafter.
The Promissory Note shall be amortized over a ten
(10) year period with payments of interest
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May 28, 1998
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only during the first year of the note, payable on the six
month and one year anniversary of the note, and payments of
principal and interest thereafter, payable on a monthly
basis. On the fifth anniversary of the Promissory Note, a
balloon payment of the remaining unpaid principal and
interest will be due and payable.
c. SECURITY. The Promissory Note shall be secured
(i) by the Shares and (ii) by a first security interest in
the patents for the Random Ejection Shuffler and Fantasy 21
table game (the "Patents"). The grant of the security
interest, as contemplated by this subsection, shall occur
upon the effective date of the Documents. In the event that
the Company requires the use of the Patents as security for
future financing, Sellers agree to release his first
security interest in the Patents (the "Release") in exchange
for (y) a reduction of fifty percent (50%) in the
outstanding principal of the Promissory Note and (z) a due-
on-sale amendment to the Promissory Note whereby the
remaining balance of the Promissory Note will be due and
owing upon a change of control of the Company.
d. DISCOUNT OF THE PROMISSORY NOTE. If the
Promissory Note is repaid by the Company within 180 days of
the date of the Promissory Note, the Company will be
entitled to a five percent (5%) discount on the outstanding
principal and interest at the time of repayment (the
"Discount").
e. NON-TRANSFERABILITY. The right of the Company to
the Discount and the Release are non-transferable and are
available to the Company only to the extent that there is no
change of control of the Company.
9. PRINCIPAL REDUCTION. In the event that the Company
completes its offering of 1,500,000 shares of Common Stock
presently pending pursuant to that certain U.S. Securities and
Exchange Commission Form SB-2 or SB-2/A (Commission File No. 333-
31373) (the "Offering"), the Company shall, pursuant to the
payment schedule in subsection (a) of this Section 10, reduce the
outstanding principal of the Promissory Note by the amount of
Seven Hundred Fifty Thousand and no/100ths Dollars ($750,000.00).
a. PAYMENT SCHEDULE. The Company will reduce the
outstanding principal of the Promissory Note as follows:
(i) upon the sale of 500,000 shares of Common Stock for
cash, the Company will reduce the outstanding principal of
the Promissory Note in the amount of Two Hundred Fifty
Thousand and no/100ths Dollars ($250,000.00) within fifteen
(15) calendar days after the receipt by the Company of the
proceeds from such sale; and (ii) upon completion of the
Offering, the Company will pay the remaining Five Hundred
Thousand and no/100ths Dollars ($500,000.00) within forty-
five (45) calendar days after the close of the Offering.
b. PRO RATA PRINCIPAL REDUCTION. In the event that
the Company fails to complete the Offering, but sells at
least 500,000 shares of Common Stock for cash, the Company
shall reduce the outstanding principal of the Promissory
Note as follows:
Principal Reduction = $750,000.00 x NUMBER OF SHARES OF
COMMON STOCK SOLD FOR CASH
-----------------------------------
1,500,000 Shares of Common Stock
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May 28, 1998
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The pro rata reduction in principal shall be paid in
accordance with subsection (a) of this Section 10, I.E. with
an initial principal reduction of Two Hundred Fifty Thousand
and no/100ths Dollars ($250,000.00) within fifteen (15)
calendar days after the receipt by the Company of the
proceeds from the sale of 500,000 shares of Common Stock for
cash and a subsequent principal reduction of the balance
within forty-five (45) calendar days after the close of the
Offering.
10. SUBSEQUENT STOCK OFFERINGS. In the event that the
Company issues and sells shares of Common Stock in a registered
public offering of shares subsequent to the Offering (a
"Subsequent Offering"), the Company will agree to additional
principal reductions of the Promissory Note pursuant to the
following three alternative principal reduction schedules.
First, if the Company receives net cash proceeds, excluding those
proceeds received by selling stockholders, from a Subsequent
Offering less than or equal to $3,000,000, the Company shall
reduce the then outstanding principal of the Promissory Note by
25%. Second, if the Company receives net cash proceeds,
excluding those proceeds received by selling stockholders, from a
Subsequent Offering of greater than $3,000,000 and less than or
equal to $10,000,000, the Company shall reduce the then
outstanding principal of the Promissory Note by 50%. Third, if
the Company receives net cash proceeds, excluding those proceeds
received by selling stockholders, from a Subsequent Offering of
greater than $10,000,000, the Company shall reduce the then
outstanding principal of the Promissory Note by 100%.
a. RESTRICTION. The obligation of the Company to
reduce the outstanding principal of the Promissory Note upon
the sale of shares in a Subsequent Offering does not arise
in the event that the Company registers shares of Common
Stock with the Securities and Exchange Commission on a (i)
Form S-8 or other applicable form with respect to employee
benefit plans, or (ii) Form S-4 or other applicable form in
conjunction with a reincorporation or reorganization of the
Company.
11. CASINOVATIONS NOTE. On October 1, 1996, the Company
executed a promissory note to Sellers (the "Casinovations Note").
Notwithstanding the terms and conditions of this Letter
Agreement, the Company shall continue to pay $10,000.00 (U.S.)
per month pursuant to the terms of the Casinovations Note. As of
February 28, 1998, the outstanding balance of the Casinovations
Note was $133,386.47.
12. OPTION TO PURCHASE 175,000 SHARES. Sellers hold the
option to purchase 175,000 shares of common stock of the Company
from Xxxxxxx Xxxxx. Due to the existing contractual relationship
between Sellers and Xx. Xxxxx, the Parties agree that the Company
will not purchase this option.
13. COOPERATION. The Parties agree to cooperate fully
with one another in order to achieve the purposes of this Letter
Agreement and to take all actions and execute and deliver all
documents. whether or not specifically described herein, that may
be required to carry out the purposes and intent of this Letter
Agreement. This Letter Agreement shall be governed by and
construed in accordance with the laws of the State of Nevada.
Xxxxxx X. Xxxxx
May 28, 1998
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14. NOTIFICATION OF THE BOARD. Upon execution of this
Letter Agreement by the Parties, the Company shall, to the extent
it has not already, provide the Board notice of the Transaction
and/or file this Letter Agreement with the Board no later than
three (3) business days after the execution of the Letter
Agreement by the Parties.
Please execute and date this Letter Agreement to confirm the
mutual understandings and agreements of the Parties as set forth
herein.
Sincerely,
CASINOVATIONS INCORPORATED,
a Washington corporation
By:___________________________
Xxxxxx X. Xxxx
Its: President
ACKNOWLEDGEMENT AND ACCEPTANCE
Xxxxxx X. Xxxxx, an individual, and Xxxxxx Xxxxx, an
individual, hereby acknowledge and agree to the terms and
conditions of this Letter Agreement on this 28th day of May 1998.
By:____________________________
Xxxxxx X. Xxxxx
By:____________________________
Xxxxxx Xxxxx
