UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) December 8, 2004
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Gaming & Entertainment Group, Inc.
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(Exact name of Registrant as specified in charter)
Utah
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(State or other jurisdiction of incorporation)
000-28399 59-1643698
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(Commission File Number) (IRS Employee Identification No.)
6757 Spencer St., Las Vegas, NV 89119
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (702) 407-2471
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(Former name or former address, if changed since last report)
ITEM 1.01 ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On December 8, 2004, Gaming & Entertainment Group, Inc., a Utah
corporation (the "Company"), entered into a Loan Facility and Investment
Agreement (the "Investment Agreement") with Cantor G&W (Nevada) L.P., a Nevada
limited partnership ("Cantor"), pursuant to which, as more fully described
below, Cantor has agreed to provide up to an additional One Million Two Hundred
and Fifty Thousand ($1,250,000) Dollars (the "Additional Amount") in senior
secured debt financing to the Company, in exchange for, among other things, the
right to acquire control of the Company upon the conversion and exercise of
various securities that Cantor received from the Company and certain
stockholders upon entering into the Investment Agreement. An affiliate of
Cantor, GEG Holdings, LLC ("GEG"), previously loaned the Company an aggregate of
Seven Hundred and Fifty Thousand ($750,000) Dollars pursuant to a senior secured
bridge financing facility established in August 2004 (the "Bridge Financing").
Immediately prior to the execution and delivery of the Investment Agreement, GEG
assigned to Cantor, and Cantor assumed from GEG, all of GEG's rights and
obligations with respect to the Bridge Financing pursuant to an assignment and
assumption agreement executed by Cantor and GEG (the "Assignment and Assumption
Agreement"). Consequently, the Investment Agreement relates to an aggregate of
up to Two Million ($2,000,000) Dollars (the "Loan Amount") of senior secured
financing.
Pursuant to the Investment Agreement, Cantor has agreed to loan the
Additional Amount to the Company in four (4) installments, subject in each
instance to the satisfaction of customary closing conditions: (i) $250,000 upon
the execution of the Investment Agreement; (ii) $500,000 on December 31, 2004;
(iii) $250,000 on March 31, 2005; and (iv) $250,000 on June 30, 2005. The Loan
Amount is evidenced by a five (5) year senior secured promissory note (the
"Note") which bears interest at the federal funds rate of interest in effect
from time to time, plus six percent (6%) per annum. Interest accrues
semi-annually, in arrears, on December 1 and June 1 of each year during the term
of the Note (each, an "Interest Payment Date"). The Note does not require the
Company to make cash interest payments until maturity, and the Loan Amount is
secured by a perfected, first priority security interest in all of the
intellectual property assets of the Company. Cantor's first priority security
interest in the intellectual property is evidenced by a security agreement that
was executed and delivered upon the entering into of the Bridge Financing (the
"Security Agreement") and which was assigned to Cantor pursuant to the
Assignment and Assumption Agreement.
During the term of the Investment Agreement, which extends for as long as
Cantor holds any debt or equity securities that it acquired from the Company
pursuant to the Investment Agreement, Cantor has various rights with respect to
the Company. Specifically, during the term of the Investment Agreement, among
other things: (i) Cantor has the right to board representation in the form of
two (2) board seats or two (2) board observers (or a combination of the two);
(ii) Cantor has the right to receive periodically and upon request various
financial and other information from the Company; (iii) Cantor has pre-emptive
rights with respect to the issuance of any additional equity securities; (iv)
Cantor has so-called "demand" and "piggyback" registration rights with respect
to the equity securities of the Company owned by Cantor, however acquired,
either pursuant to the Investment Agreement or otherwise; and (v) without the
affirmative prior written consent of Cantor, the Company may not, among other
things, (a) issue any additional equity securities, (b) incur any additional
indebtedness, (c) effect a change in control, (d) amend or modify the Company's
by-laws or articles of incorporation, (e) modify or enter into new employment
agreements with any executive officer of the Company, or (f) license any of its
intellectual property. In addition, Cantor has the right to cause the Company to
reincorporate in the State of Delaware (the "Reincorporation").
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As noted above, in connection with entering into the Investment Agreement,
Cantor received the right to acquire control of the Company pursuant to various
equity instruments that it received from the Company and certain stockholders
simultaneously with the entering into of the Investment Agreement. Specifically,
the Company issued to Cantor a five (5) year stock purchase warrant (the "Equity
Warrant"), immediately exercisable in whole or in part for up to at least eight
million (8,000,000) shares of the Company's common stock, par value $.01 per
share (the "Common Stock"), at an initial per share exercise price of $0.60,
subject to adjustment. The Equity Warrant also has anti-dilution protection that
provides that Cantor shall always be entitled to acquire a fixed percentage of
the Company's issued and outstanding Common Stock on a fully diluted basis
exclusive of the Equity Warrant and "Debt Warrant" (as defined below) issued to
Cantor. In addition, in the event that the Company effects the Reincorporation,
the Equity Warrant is exercisable into shares of convertible preferred stock
that the Company will have available for issuance upon such Reincorporation.
Cantor also received a stock purchase warrant relative to the Loan Amount
(the "Debt Warrant"), which is immediately exercisable in whole or in part by
Cantor, at its election, either for cash, or by converting all or a portion of
the then outstanding principal amount of the Note into shares of Common Stock.
The initial per share exercise price of the Debt Warrant, subject to adjustment,
is equal to the lesser of (i) the average of the closing market price of the
Common Stock for the thirty (30) days prior to the applicable exercise date, but
in no event less than $0.40 per share, and (ii) $0.54 per share. The Debt
Warrant has also has anti-dilution protection such that at all times it is
exercisable into no less than a fixed percentage of the Company's issued and
outstanding Common Stock on a fully diluted basis exclusive of the Equity
Warrant and the Debt Warrant issued to Cantor. In the event and to the extent
Cantor exercises the Debt Warrant with cash, rather than converting the then
outstanding principal amount of the Note, the Loan Amount evidenced by the Note
will remain a continuing liability of the Company. As is the case with the
Equity Warrant, in the event that the Company effects the Reincorporation, the
Debt Warrant is exercisable for shares of convertible preferred stock that the
Company will have available for issuance upon such Reincorporation.
As noted above, interest on the Note is payable in cash only at maturity.
Prior to the maturity, however, Cantor has the right to convert the accrued
interest on the Note into shares of Common Stock pursuant to one or more
interest warrants (each an "Interest Warrant") at a price per share equal to the
lesser of (a) the average of the closing market price of the Common Stock for
the thirty (30) days prior to the applicable Interest Payment Date, but in any
event not less than $0.40 per share, and (b) $0.54 per share, rounded up to the
nearest share. As is the case with the Equity Warrant and the Debt Warrant, in
the event of a Reincorporation of the Company, the Interest Warrant will be
exercisable for shares of convertible preferred stock of the Company that the
Company will have available for issuance upon such Reincorporation.
Upon a Reincorporation, it is presently anticipated that the convertible
preferred stock that will be available for issuance upon the exercise of the
Equity Warrant, the Debt Warrant and the Interest Warrant would have the
following rights, preferences and privilege, among others: (i) a liquidation
preference of $0.60 per share; (ii) be convertible into shares of Common Stock
on a one-to-one basis; (iii) rank senior to all other series of preferred stock
outstanding; (iv) full ratchet anti-dilution protection; (v) a right of first
refusal with respect to any equity or convertible securities issued by the
Company; (vi) four immediate demand registration rights and unlimited customary
piggy back registrantion rights; and (vii) various protective voting rights.
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Simultaneously upon entering into the Investment Agreement, Cantor also
entered into an Option Agreement and Irrevocable Proxy (the "Option Agreement")
with various parties, including the executive officers and directors of the
Company (all such parties, collectively, the "Optionors"). Under the terms of
the Option Agreement, Cantor has an irrevocable option (the "Option") to
purchase up to 7,500,000 shares of common stock (the "Option Shares")
beneficially owned by the Optionors on the following terms: (A) upon the
execution of the Option Agreement until December 31, 2005, up to 7,500,000
Option Shares, at an exercise price of $0.60 per share; (B) from January 1, 2006
until December 31, 2006, the balance of the 7,500,000 Option Shares not
purchased prior to this period, not to exceed 5,000,000 Option Shares, at an
exercise price of $0.80 per share; and (C) from January 1, 2007 until December
31, 2007, the balance of the 7,500,000 Option Shares not purchased prior to this
period, not to exceed 2,500,000 Option Shares, at an exercise price of $1.00 per
share; provided, however, that Cantor shall not be able to exercise the Option
to acquire more than 54% of the Common Stock. The Optionors also granted Cantor
a right of first refusal with respect to any proposed sale by an Optionor of
their Option Shares. Upon the execution of the Option Agreement, the Optionors
agreed to vote all of their shares of Common Stock, including but not limited to
their Option Shares, in favor of any Cantor nominee to the Board of Directors.
Finally, the Optionors have granted Cantor an irrevocable proxy with respect to
all of their shares of Common Stock, including their Option Shares, which shall
only be effective upon Cantor's acquisition of beneficial ownership of at least
11,700,000 shares of the Company's Common Stock (or in the event of the
Reincorporation, acquisition of convertible preferred stock that is convertible
into 11,700,000 shares of Common Stock).
Simultaneously upon the entering into of the Investment Agreement, Cantor
and the Company, and the Company's wholly owned subsidiary, Gaming &
Entertainment Technology Pty Ltd. ("GET"), also entered into an Amended and
Restated Software Development and License Agreement (the "Software Agreement")
which amends and supercedes that certain Software Development and License
Agreement that the Company and GET entered into with GEG in connection with the
Bridge Financing, and which was assumed by and assigned to Cantor pursuant to
the Assignment and Assumption Agreement. The Software Agreement provides for
royalties and development revenues to be paid by Cantor to the Company, and
requires that the Company develop for and license to Cantor, on an exclusive
basis throughout the world (subject only to a pre-existing license previously
granted by the Company and GET to a third party), the Company's proprietary
gaming software for use in connection with the Internet and/or any other
technology, whether now existing or hereafter devised using a computer or
similar device. The Company is presently engaged in software development for
Cantor pursuant to the Software Agreement.
The Company's proprietary software which is the subject of the Software
Agreement has been delivered into escrow with an unaffiliated third party
pursuant to an escrow agreement. (the "Escrow Agreement") and Cantor has access
to such escrowed software under various circumstances.
The foregoing is only intended to be a summary of the terms of the
Investment Agreement, the Note, the Option Agreement, the Equity Warrant, the
Debt Warrant, the Interest Warrant, the Security Agreement, the Software
Agreement, and the Escrow Agreement, and is not intended to be a complete
discussion of any of such documents. Accordingly, the foregoing is qualified in
its entirety by reference to the full text of each of such documents, all of
which are annexed as Exhibits to this Current Report on Form 8-K.
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ITEM 9.01 FINANCIAL STATEMENTS AND EXHIBITS.
(c) The following are filed as Exhibits to this Current Report on Form
8-K.
1. Loan Facility and Investment Agreement by and between Gaming &
Entertainment Group, Inc. and Cantor G&W (Nevada), L.P. dated
December 8, 2004
2. Senior Secured Note by and between Gaming & Entertainment
Group, Inc. and Cantor G&W (Nevada), L.P. dated December 8,
2004
3. Equity Warrant issued in favor of Cantor G&W (Nevada), L.P.
dated December 8, 2004
4. Debt Warrant issued in favor of Cantor G&W (Nevada), L.P.
dated December 8, 2004
5. Form of Interest Warrant to be issued in favor of Cantor G&W
(Nevada), L.P.
6. Option Agreement and Irrevocable Proxy by and between Cantor
G&W (Nevada), L.P., on the one hand, and Tibor N. Vertes, the
Vertes Family Trust, Gregory L. Hrncir, the Hrncir Family
Trust, Kevin J. Burman, Sheldon Harkness, Zen Investments Pty
Ltd, Andrew Sorensen, and Gaming & Entertainment Group, Ltd.,
on the other hand, dated December 8, 2004
7. Amended and Restated Software Development and License
Agreement by and between Cantor G&W (Nevada), L.P., on the one
hand, and Gaming & Entertainment Group, Inc. and Gaming &
Entertainment Technology Pty Ltd, on the other hand, dated
December 8, 2004
8. Amended and Restated Source Code Escrow Agreement by and
between Gaming & Entertainment Group, Inc., Gaming and
Entertainment Technology, Pty Ltd, Cantor G&W (Nevada), L.P.,
ldings, LLC, a Delaware limited liability company having an
address at 135 East 57th Street, New York, New York 10022
("Licensee"), Zukerman Gore & Brandeis, LLP, located at 875
Third Avenue, New York, New York 10022 ("ZGB") and BMM
International Pty Limited of Level 3, 37-41 Prospect Street,
Box Hill, Victoria 3128, Australia ("BMM"), dated December 8,
2004
9. Press Release issued by the Company on December 8, 2004
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
Gaming & Entertainment Group, Inc. has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
Dated: December 8, 2004 Gaming & Entertainment Group, Inc.
By: /s/ Gregory L. Hrncir
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Gregory L. Hrncir, President
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