t has also renegotiated the DEQ Royalty agreement to align the royalty amounts with the current market economics for DEQ's patents and products for the remaining seven years of its agreement with DEK.
The exclusive distribution license was repurchased for a total amount of us$ 12,000,000. The payment of this amount was divided into three parts. An amount of us$ 3,850,000 was paid in cash at closing, us$ 5,500,000 was paid by the transfer to DEK of the balance owed from advances due to DEQ by Severn as previously disclosed in the Severn Loan Agreements of 2005 and 2006.
A final amount of us$ 2,650,000 will be paid over three years in three yearly payments subject to a ratchet clause that will proportionally reduce the balance of payment if the number of tables used for the calculation of the royalty amounts is less than 450 tables at anytime during the first three years of the agreement.
The transfer of the Severn Agreement loan balance to DEK does not affect in any way the 10 year Royalty Agreement between DEQ and Severn and DEQ will continue to collect the previously disclosed royalty amounts for the next nine years.
As part of its agreement with DEQ, DEK will pay royalties at rates comparable to other existing DEQ distribution agreements. Currently, DEK pays an average of $960 per year per table in royalties to DEQ for 450 tables. These amounts were negotiated at a time when the respective markets such as Asia markets were less regulated and patent defence was more difficult.
DEK will now pay readjusted royalties of us$ 4200 per year per table for the first three years, us$ 3600 per table for the fourth year and the standard LTE (Leased Table Equivalent) amount of us$ 3000 per year per table for the remaining three years of the agreement.
Based on the 450 tables that are currently being operated by DEK, The total projected royalty increase would be approximately of us$ 8,316,000 from the current royalty amounts for the next seven years of us$ 3,024,000 for the new projected total of us$ 11,340,000. DEK will retain non exclusive distribution rights in their respective markets on the similar terms and conditions as all other DEQ distributors.
“We are very excited about this opportunity to open up these markets including Asia, Europe and Africa to all of our current and potential distributors,” stated Earle G. Hall, President and CEO of DEQ. “We have been working with numerous distribution opportunities in Asia and this agreement will give us the flexibility and freedom to choose the best partner for the right project. The significant increase in the royalty streams from DEK will, in our opinion, have a positive effect on our financial position and reinforce the value for our products and patents in these emerging markets.”
In 2000, DEQ Systems signed an exclusive distribution license with DEK through its exporting agent, Amusements Extra for territories that were outside the United States, Canada and Australia. DEQ's business plan at the time was focused on North America given these markets represented the majority of regulated gaming operations.
Since then, the American expansion into Asia and Europe as well as the legalization of gaming operations has resulted in DEQ re-evaluating this strategy and entering into this agreement with DEK because of the increased interest of USA casinos in Asian and European markets.