U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-SB/A
AMENDMENT NO. 1
---------------------------
GENERAL FORM FOR REGISTRATION OF SECURITIES OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(B) OR (G) OF THE SECURITIES EXCHANGE ACT OF 1934
---------------------------
GAMECOM, INC.
(Name of Small Business Issuer in Its Charter)
TEXAS 93-1207631
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
440 NORTH CENTER
ARLINGTON, TEXAS 76011
(Address of Principal Executive Offices) (Zip Code)
(817) 265-0440
(Registrant's Telephone Number, Including Area Code)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: (None)
SECURITIES TO BE REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, par value $.005 per share
(Title of Class)
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TABLE OF CONTENTS
PART I
Item 1 Description of Business.
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Item 3 Description of Property.
Item 4 Security Ownership of Certain Beneficial Owners and Management.
Item 5 Directors, Executive Officers, Promoters and Control Persons.
Item 6 Executive Compensation.
Item 7 Certain Relationships and Related Transactions.
Item 8 Description of Securities.
PART II
Item 1 Market Price of and Dividends on the Registrant's Common Equity and Other
Shareholder Matters.
Item 2 Legal Proceedings.
Item 3 Changes In and Disagreements With Accountants.
Item 4 Recent Sales of Unregistered Securities.
Item 5 Indemnification of Directors and Officers.
PART F/S
Financial Statements.
PART III
Item 1 Index to Exhibits.
Item 2 Description of Exhibits.
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PART I
ITEM I DESCRIPTION OF BUSINESS
BUSINESS OVERVIEW
GameCom, Inc. (the "Company") was organized in 1996 to operate theme concept
microbrewery restaurants. In 1997, the Company acquired First Brewery of Dallas,
Inc., which operated the former Hubcap Brewery & Kitchen of Dallas, Texas (later
renamed The Schooner BreweryTM brewpub). As a result of several factors,
including relatively strict laws that apply to craft brewers in Texas, GameCom
found it difficult to develop this initial business, and closed down its
microbrewery operations in early 1999.
In December of 1997, GameCom acquired all rights to `Net GameLinkTM, an
interactive entertainment system designed to allow a number of players to
compete with one another in a game via an intranet or the Internet. Since
closing its microbrewery operations GameCom has been devoting substantially all
of its efforts to implementing the `Net GameLinkTM product.
In February, 2000, the Company changed its jurisdiction of incorporation from
Nevada to Texas.
The Company maintains its principal office at 440 North Center, Arlington, Texas
76011, and its telephone number is (817) 265-0440.
CLOSED MICROBREWERY OPERATIONS
From 1997 to 1999, the Company operated a brewpub restaurant in Dallas, Texas
under the name The Schooner Brewery (TM). The Company received a number of
awards for the quality of its beer at national and regional competitions. The
Company's plan was to build upon the favorable publicity resulting from these
awards to develop and expand a craft brewing concept that would both serve its
award-winning beer on-premises and sell the beer for off-premises consumption.
The Texas laws governing craft brewing operations are highly restrictive. Under
those laws an operator of a "brewpub" (manufacturer of beer for on-premises sale
and consumption) was prohibited from operating a "microbrewery" (manufacturer of
beer for off-premises distribution and consumption). As a result, the Company
was unable to carry out its plan. In addition, the Dallas West End Historical
District where the Company's restaurant was located was undergoing an economic
decline at the time. The restaurant continued to accumulate net losses, and
management of the Company closed its brewpub operations in early 1999 in favor
of full-time exploitation of the 'Net GameLink(TM) concept. Since that time the
Company's operations have been limited to development, construction and
beta-testing of the initial 'Net GameLink(TM) prototype system at J. Gilligan's
Bar and Grill in Arlington, Texas and the Company is not expected to have
revenues from its Internet gaming business until some time in the first quarter
of 2000.
INDUSTRY OVERVIEW
The electronic gaming industry has experienced dramatic changes over the last
several years. Beginning with games played by a single user on his or her own
computer, electronic games have progressed from (i) play by two or more users on
a single computer, to (ii) play by many users over an intranet, to (iii)
simultaneous play by even more users from locations spread throughout
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the world via the Internet. These changes have brought about a rapid increase in
the number of interactive electronic gamers.
Initial efforts to capitalize on the interactive Internet electronic games
market were based on the assumption that players would be willing to pay
directly to participate in these games. Pogo.com began with this business model
but was unable to generate a sufficiently large group of paying customers to
make the model profitable. Recent efforts in this area have instead been based
on the media model, in which users do not pay for the service, but the site
operator sells access to the users to advertisers.
Despite the success of Internet gaming companies, an element has been lost in
the process of moving from the parlor to the individual user's screen -- the
element of direct social interaction. The Company believes that people like to
talk to each other while they play, and a computer screen is no substitute for
face-to-face communication. It has not carried out any marketing studies to
confirm this belief, but both its observations of players during beta-testing of
its system and articles in magazines such as Forbes and USA Today have confirmed
this belief. Virtually all of the Internet gaming providers have created some
means for the players to "chat" as they are playing by typing messages back and
forth. But this is an inadequate substitute for the immediate presence of a live
human being. Typing simply doesn't convey the excitement or nuances of meaning
communicated by the human voice.
In response to the desire of players for direct interaction, at least one
company has constructed several large electronic gaming centers, and has
announced its intention to build many others. Like the arcades frequently seen
in suburban malls, these centers are intended to attract the hard-core
electronic gamer who is seeking to play in a social environment. The Company's
product is targeted at a market similar to that of the large electronic gaming
centers, but is designed for smaller-scale and more widespread use in a
neighborhood setting. The experience of the large electronic gaming centers has
demonstrated that players are willing to pay to access electronic games in the
company of others.
'NET GAMELINK(TM) SYSTEM
In December, 1997, the Company acquired from Adams Bragg & Company, Inc. , a
firm which had been performing public relations services for the Company, all
proprietary rights in the `Net GameLink(TM) system in exchange for 425,000
shares of the Company's common stock. For financial reporting purposes, these
proprietary rights were valued by the Board of Directors at $2,125. At the time
of acquisition, the system was essentially little more than an idea. Over the
next two years, the Company worked in cooperation with Connect Computer Group, a
Texas electronics firm, to develop the hardware and communications configuration
to implement this concept. The services of Connect Computer Group were performed
without any out-of-pocket cash cost to the Company other than the costs of
certain hardware on the basis of an unwritten understanding that if the system
were successfully marketed Connect Computer would receive a significant equity
position in the Company.
The Company's `Net GameLinkTM system is designed for installation at a
relatively modest cost in neighborhood arcade-like gaming centers and social
bars. It consists of computers, a networking system, and specially-designed
networked kiosks that allow the Company's patrons to play interactive 3D games
with either other users at the same location or users at a remote location. The
gamestations feature X86 (Intel central processing unit) compatible 3D-game
hardware and
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software. Customers pay for their use of the system through a plastic debit
card. Each card is prepaid and is credited with a certain amount of playing
time.
Design Goals:
In designing kiosks for its system, the Company's objectives were to
remove the computer look and feel from the game play experience, use
state-of-the-art sound and video systems to further enhance game play, provide
for connection to other kiosks at the same location through an intranet and
connection to kiosks at other locations through the Internet, and provide a
system that would be easy to change and update. In addition, the system had to
be able to run most games on the market, permit easy access to the games by the
user, and prevent the user from obtaining access to the computer's operating
system. Selection of components for the system was based on performance,
reliability, and price, in that order.
Enclosure:
The physical enclosure itself is 3 foot by 3 foot square and over six feet
tall with full length windows on each closed side. The kiosk enclosure is open
on one side and the windows allow the works of the systems to be seen. To
further enhance the open look of the kiosk all enclosures are removed from the
power supply and monitor. Each kiosk has three bays which are arranged
vertically. All computer equipment is mounted in the upper bay. The mid bay is
dedicated to the lighting controller/source and the lower bay holds a sub-woofer
speaker, A/C wiring and un-interruptible power source. The kiosk is made from
high grade particle board and all corners are machined and rounded. Game
controls are mounted on two shelves in the front of the enclosure. The lower
shelf is made of the same board has the enclosure and the top is made of clear
plastic. Two handles provide support for the upper shelf and act as a light for
the lower shelf.
Computer:
The computer system is based on an AMD Athlon(TM) 700 MHz processor. This
is mounted on a Epox mother board with 128 megabytes of RAM (random access
memory). It uses the IDE interface (one of several methods of connecting disk
drives and other components to the computer's mother board) and a 4.5-gigabyte
hard drive. The network connection is supplied by a 3-Com 905b 100baseT card
(the faster of the two types of networking components in common use on IBM PCs).
A Creative Labs 16-megabyte accelerated video card connected to a 21 inch 27 dot
pitch (a measure of resolution) monitor supplies video. A Creative Labs Sound
Blaster Alive sound card is used. The speakers are made by Altec Lansing and
have two small high and mid range enclosures and a bass and sub-bass enclosure.
Lighting:
Lighting is supplied from a 150 watt light generator and distributed
through a fiber optic light pipe array. The light generator has an integral
dichromatic (2-color) filter that causes the light color to shift a few times
each minute. The mounting plates for the motherboard, magnetic card reader, and
joystick are made of a plastic material that allow light to be injected that
creates a glow around the edge. Edge light fiber optic cables are used to light
the inside of the kiosk and also the motherboard mounting plate. Light pipes are
also run to the handles on each side of the lower front shelf.
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User interface:
In its usual configuration, the kiosk provides for input through a
keyboard, a mouse, and a joystick. The keyboard is a standard 101 key Keytronic
black keyboard that is mounted on the lower shelf. The mouse is also black and
is made by Keytronic. The joystick is a force feed back type manufactured by
Microsoft. The joystick connections are external to the enclosure. This allows
the joystick to be changed out for other types of game input devices. A magnetic
card reader authenticates users and deducts the appropriate amount for the
user's playing time. All input devices other than the magnetic card reader are
not hard mounted for the convenience of the user.
System Software:
The operating system software is Microsoft Windows 98. The standard TCP/IP
(a networking protocol) stack is used for network connectivity. The interface
software is written in Micromedia Director, and the user database is written
under MySql (a database programming language) running under Redhat 6.0 LINUX (an
operating system). The games themselves are stored on a LINUX server running
with SAMBA (software for integrating LINUX and Windows computers) supplying the
connectivity to the Windows environment.
Operation:
Each kiosk is a network client of the LINUX server where all games are
stored. When a user swipes his or her card through the card reader, the software
on the kiosk makes a request of the database stored on the server. This database
maintains a record of the amount of time the user has bought and how much he or
she has used. Once the user has been authenticated and the system has verified
his remaining time, the server starts the timing clock for the kiosk and allows
the user to select a game. When the user's time expires the kiosk shuts down the
game. Each kiosk has a full-time connection to the Internet and to the local
network.
Interactivity:
The Company's system provides for interactive play among gamers at a
single location via an intranet or at widely dispersed locations via the
Internet. Because the Company's system is intended to reach players wishing to
play in a social setting, the Company expects that at least initially the
system's capability to allow play among gamers at a single physical location
through an intranet will be more significant than its ability to enable play on
a worldwide basis. However, it seems likely that in the future games will be
developed that permit teams of players at one location to compete against teams
located elsewhere, and the system's Internet connection will permit such play
without any modification to the system.
Installed Games:
Each location will provide access to the user's choice of approximately 10 games
at any time. The games to be offered on the Company's kiosks will not
necessarily be different from those that an electronic gamer could purchase at
his or her local computer store. Many gaming manufacturers are now offering
their games in an interactive format. To a serious gamer, the appeal of the
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Company's system is likely to be the fact that the hardware components will be
faster, bigger, louder, etc. than those he would have available in a home
setting. For the novice, the physical attributes of the system, the stylistic
kiosks, the fiber optic lighting, and the social atmosphere of playing
interactive games on a physically interactive basis through an intranet is
expected to be what he or she finds appealing.
All locations will be accessible through the Company's computer and its home
office, so that a constant evaluation of the popularity of the games available
at a particular location can be continuously monitored. The games installed at
each location will vary to some extent depending upon the amount of playing each
receives as reported by the Company's centralized database. However, there will
be a substantial overlap, since this is required in order to allow interactive
play between widely dispersed locations. The games for the Company's initial
system were selected after discussions with its games software supplier, GT
Interactive Software, a leading games manufacturer/distributor. The Company has
no commitments to that supplier beyond its obligations to pay required royalties
on the games it uses. Present arrangements call for payment of an annual royalty
of $540 per game, and royalties have been paid through mid-July, when the
existing licensing agreements expire. The Company believes that as it becomes
established in multiple locations it will be in a position to achieve a
strategic alliance with one of the leading games manufacturers/distributors
under which the Company would receive payment from the manufacturers/distributor
in exchange for being the exclusive supplier of games to the Company.
The Company's first `Net GameLink(TM) entertainment system was made available
for public play at Who's on First? in New York City on July 16, 1999. On
November 2, 1999, the Company moved this system to J. Gilligan's in Arlington,
Texas to bring it closer to the Company's principal offices. Operations are
presently limited to the initial five-kiosk prototype system at J. Gilligan's.
This system was installed without charge to J. Gilligan's and is expected to
begin generating revenue during the first quarter of 2000 when the Company will
begin charging patrons for play on the system. The Company anticipates delivery
of the first system to be sold to a third party will occur near the end of the
first quarter. Initially, the Company contemplates building the systems to order
with delivery of the completed systems to occur approximately four weeks after
the order. The Company intends to maintain the initial system at J. Gilligan's
as a "test bed" for continued upgrading and improvements to its system.
Hardware and Software Availability:
The Company's kiosks are manufactured to the Company's design and are purchased
from time to time as required. They are presently purchased from a single
supplier, but no specialized equipment or knowledge beyond normal
furniture-manufacturing techniques is required for their construction, and the
Company does not anticipate any difficulty in acquiring these items. The
computer hardware and software used in the system are standard off-the-shelf
items. The computer processors are being furnished to the Company without any
out-of-pocket cost by Advanced Micro Devices, Inc. in exchange for the Company's
publicizing that company as its supplier.
Sources of Revenue:
The Company intends to provide its interactive electronic gaming service through
a combination of Company-owned centers and through third parties such as social
bars, which will purchase the system on the basis of a fixed initial fee and a
continuing royalty. In addition, the Company
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expects revenue to be generated through the sale of advertising to companies who
wish to reach the Company's demographic market. The Company anticipates that the
cost of a system to third parties will be in the range of $5,500 to $6,500 per
kiosk, including the server for each location. The Company anticipates a royalty
based on the amount spent by patrons to actually play on the system equal to 40%
of revenues and a royalty on the advertising generated by the system at each
location equal to 50% of the advertising revenue paid to the operator.
COMPETITION
Competition in this industry is based primarily on the ability to deliver an
exciting and realistic gaming experience beyond what the gamer would experience
on his or her home computer through such items as 3-D imaging, sound and sense
of motion. At the present time, price is less of a factor because of the limited
number of competitors in the field. Accessibility is also a factor. The Company
believes that its primary competition will be the large gaming centers being
established by companies such as GameWorks. GameWorks was established by Sega
Enterprises, Universal Studios, Inc. and DreamWorks SKG and was designed under
the guidance of Steven Spielberg. GameWorks has far greater financial and
technical resources than the Company and has created an entire establishment
devoted to various forms of gaming, including virtual reality games. So far as
the Company is aware, GameWorks is the only such competitor at the present time.
The Company will not be able to compete with GameWorks in technology or size of
facility. Instead it intends to compete by providing more but smaller facilities
that will be readily accessible in the gamer's immediate neighborhood, with the
companionship of the gamer's neighbors, rather than requiring substantial travel
to game among strangers. Whereas GameWorks' facilities are designed to serve as
a destination in and of themselves, the Company's systems will be located in
third-party social establishments where the system may or may not be the main
attraction for the establishment's particular patrons. In that respect, the
systems will be somewhat like the games systems one sometimes sees installed in
theater lobbies, where the use is incidental to the patron's primary reason for
coming to the establishment.
MARKETING
Until such time as the Company is in a position to raise significant amounts of
additional capital, its capacity for producing `NetGamelink(TM) systems will be
severely limited, and its marketing efforts will be consistent with its
production capacity. Initial marketing efforts are expected to consist of
follow-ups by the Company's Director of Sales directed toward a limited number
of individual and chain casual restaurant/bars, some of which have learned of
the Company's system by observing it when it was installed at Who's on First in
New York or later at J. Gilligan's Bar & Grill in Arlington, Texas. The Company
is in the process of producing a promotional video of the system for
distribution to potential customers, and also promotes the system by means of
live streaming video on the Company's web site, showing actual real-time use of
the Company's system by patrons at J. Gilligan's. Longer range plans include,
subject to the availability of the necessary funds, an advertising campaign in
leading restaurant/food industry publications. The Company intends to add
additional marketing staff as required.
EMPLOYEES
At September 30, 1999 the Company employed 4 persons. The Company considers
relations with its employees to be satisfactory.
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TRADEMARKS
The Company has filed for federal registration of its "'Net GameLink(TM)"
trademark, and a patent application is pending for its network-enabled gaming
kiosk. There can be no assurance that a patent will issue on this application,
or that if the patent is issued it will be sufficiently broad to provide
meaningful protection. The time required to obtain a patent depends upon a
number of factors, including the extent to which the Company is required to
negotiate with the patent office as to the breadth of the patent ultimately to
be issued. The Company anticipates that if the patent does issue it will not
issue until some time in 2001.
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion contains certain forward-looking statements that are
subject to business and economic risks and uncertainties, and the Company's
actual results could differ materially from those forward-looking statements.
The following discussion regarding the financial statements of the Company
should be read in conjunction with the financial statements and notes thereto.
Overview. The Company was capitalized in 1996 to develop, own, and operate theme
brewpub/microbrewery restaurants. Until March of 1997 when the Company acquired,
and July 1, 1997 when the Company began operating, the former Hubcap Brewery &
Kitchen in Dallas, Texas, the Company had no operations or revenues and its
activities were devoted solely to development. However, since the acquisition
was accounted for as a pooling of interests, the results of operations of Hubcap
Brewery & Kitchen were carried forward into the Company's financial statements
and accordingly the 1997 financial statements reflect a full year of operations
of that business.
In January, 1999, the Company terminated its brewpub/microbrewery restaurant
operations. Future revenues and profits will depend upon various factors,
including market acceptance of `Net GameLinkTM, and general economic conditions.
The Company's present sole source of revenue is the future sale of `Net
GameLink(TM) systems and from associated royalties. The Company has not received
any revenue to date from either royalties from operations of systems it owns or
the sale of its systems to others. It expects to receive the first revenue from
operations of its own system during the first quarter of 2000, and to receive
the first revenue from a sale of the system to a third party near the end of the
first quarter of 2000.
There can be no assurances that the Company will successfully implement its
expansion plans, including the `Net GameLinkTM entertainment concept. The
Company also faces all of the risks, expenses, and difficulties frequently
encountered in connection with the expansion and development of a new business.
These include limited working capital and the need to devote a substantial
amount of management's time to raising capital rather than development of the
business, difficulties in maintaining delivery schedules if and when volume
increases, the need to develop support arrangements for systems at widely
dispersed physical locations, the need to
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control operating and general and administrative expenses and the need to spend
substantial amounts on initial advertising to develop an awareness of the
Company and its products. In addition, the Company's Chief Executive Officer is
a practicing attorney with no training or prior experience in managing or
overseeing a public company.
Results of Operations.
Fiscal year ended December 31, 1998 compared to fiscal year ended December 31,
1997.
The Company had no revenues from the date of inception through July 1, 1997,
when it began operating the former Hubcap Brewery & Kitchen, through its
wholly-owned Texas subsidiary corporation, First Brewery of Dallas, Inc.
However, as noted above, results for the year reflect operations of the acquired
Company prior to the acquisition. Prior to July 1, 1997, the Company had
received $391,351.00 in paid-in capital, and had incurred $237,478.54 in
start-up, consulting, and legal expenses associated with the formation of the
Company and its development activities.
For the 12 months ended December 31, 1998, the Company, through its wholly-owned
subsidiary, First Brewery of Dallas, Inc., had a net loss of $1,127,018,
compared to a loss of $576,520 for the 12 months ended December 31, 1997. First
Brewery of Dallas, Inc. ceased operations on January 10, 1999. Increases in
revenues and the related increases in costs of sales from the 1997 to the 1998
fiscal years generally reflect the Company's moderate degree of success in
expanding its restaurant operations. However, as the 1998 fiscal year drew to a
close revenues were declining due, at least in part, to an overall economic
decline in the geographic area where the restaurant operations were located. In
addition, it became clear to the Company's management that Texas's liquor
control laws were such that the Company would not be able to obtain approval for
the microbrewery operations which it regarded as the key to achieving profitable
operations. Probably the most significant items in the Statement of Operations
for the two years are the increase in interest expense from $12,776 in fiscal
1997 to $39,026 in fiscal 1998, reflecting an increased level of borrowing,
primarily from shareholders, the $132,545 provision taken in fiscal 1998 for
losses from discontinued operations, reflecting the determination to shut down
the brewpub/microbrewery activities, and the increase in general and
administrative expenses from $604,579 in 1997 to $902,192 in 1998. Out of the
approximately $300,000 increase, $200,000 was attributable to consulting
services in connection with development of the Company's `NetGameLink(TM)
product, for which payment was made in the Company's Common. Interest expense is
expected to be substantially lower for the immediate future as a result of the
forgiveness of certain debt in connection with termination of the Company's
brewpub/microbrewery operations in January, 1999 as described below, and the
one-time issuance of stock in lieu of future interest as described under
"Certain Transactions."
Nine months ended September 30, 1999 compared to nine months ended September 30,
1998.
These two periods are in no way comparable, since the nine months ended
September 30, 1998 reflect the Company's unsuccessful efforts to develop its
brewpub/microbrewery business, whereas the corresponding nine months of 1999
reflect a redirection of the Company's efforts from the discontinued business to
the development of the Company's `Net GameLinkTM System. For the first nine
months of 1999, the Company had essentially no revenues. Administrative costs of
$272,130 for the nine months ended September 30, 1999 compared to $612,508 for
the nine months ended September 30, 1998 reflect the decision in January, 1999
to terminate the brewpub/microbrewery operations. The Company recorded a $67,849
gain on the sale of
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equipment for the nine months ended September 30, 1999. This
gain reflects the fact that, as described below, the guarantors of the Company's
bank debt secured by that equipment forgave approximately $65,000 in
indebtedness when they acquired the bank's security interest in that equipment
upon payment of that indebtedness, and later disposed of the equipment to
reimburse themselves for a portion of these payments. The $21,333 reduction in
interest charges for the nine months ended September 30, 1999 reflects an
agreement by holders of that indebtedness to accept a one-time issuance of
common stock in lieu of accrued and future interest.
Connect Computer Group, Inc., the firm which has been largely responsible for
development of the Company's kiosk and computer systems ("Connect Computer"),
has performed its development work on the basis of an oral understanding or
"gentleman's agreement" with the Company's Chief Executive Officer that if the
Company is successful in marketing the product Connect Computer will be issued a
significant equity position in the Company, the amount of which is yet to be
determined. The parties have not explicitly agreed upon any method for
determining whether marketing of the product has been successful. Because all
the uncertainty as to the number of shares which may ultimately be issued for
these services, the Company has not taken any charge to earnings for such
services to date. However, the Company is proceeding on the assumption that it
will be obligated to honor this oral commitment and expects that it will be able
to reach agreement with Connect Computer through negotiations as to both whether
marketing the product has been successful and the appropriate amount of equity
to be issued to Connect Computer for its assistance. At that time an appropriate
charge to earnings will be made.
Liquidity and Capital Resources. As of September 30, 1999 the Company's
liquidity position was extremely precarious. The Company had current liabilities
of $908,780, including $524,111 in trade payables, most of which were overdue,
short-term notes payable of $360,500, all of which were either demand
indebtedness or were payable at an earlier date and were in default, and related
accrued interest on the notes. Current assets available to meet those
liabilities were only $4,709.
To date the Company and First Brewery of Dallas I, Ltd., the predecessor to
First Brewery of Dallas, Inc., the Company's wholly-owned Texas subsidiary
corporation, met their capital requirements through capital contributions, loans
from principal shareholders and officers, bank borrowings, and certain private
placement offerings. For the nine months ended September 30, 1999, the net loss
was $197,687, of which only $3,038 was accounted for by non-cash adjustments for
depreciation and amortization. In addition, the Company was required to repay
bank and other borrowings in the amount of $189,860, resulting in total cash
requirements for the nine months of approximately $384,509. To cover most of
these cash requirements, the Company allowed accounts payable and accrued
expenses to increase by $135,497, disposed of assets relating to the closed-down
brewpub operation for $127,374, issued additional shares of its common stock to
investors for approximately $110,000, and accepted a capital contribution of the
value of certain employees' services for $18,750.
At the time the operations of First Brewery of Dallas, Inc. were terminated, all
of that subsidiary's assets were pledged to secure indebtedness to SecurityBank
of Arlington, Texas. That indebtedness had been personally guaranteed by the
Company's directors and by another individual. Upon termination of the
brewpub/microbrewery operations the guarantors were
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required to repay that indebtedness to the bank, and upon such payment the bank
assigned the Company's notes and the related security to the guarantors. The
guarantors accepted the security in full satisfaction of the debt and
subsequently disposed of the assets securing the indebtedness to third parties
at a loss. The effect of these transactions is included in the $143,781 gain
from discontinued operations for the 9 months ended September 30, 1999.
In December, 1999, the Company borrowed $20,000 on an unsecured basis from a
bank. This loan was guaranteed by the Company's Chief Executive Officer and
matures on March 16, 2000.
It is anticipated that the Company will place First Brewery of Dallas, Inc. into
voluntary liquidation under Chapter 7 on the Bankruptcy Act. Upon the
anticipated conclusion of that proceeding, the Company's consolidated balance
sheet will be improved by the elimination of $431,111 in trade payables, as
those amounts are owed solely by the subsidiary. It would not affect the
Company's debt service requirements, as all interest-bearing debt is owed by the
parent company, and not the subsidiary.
Even with the expected elimination of the First Brewery indebtedness, the
Company will be unable to continue its operations or to commercially exploit its
`Net GameLinkTM product in the absence of substantial additional financing.
Based on the interest-bearing indebtedness presently outstanding, the Company's
annual debt service requirements without taking into account any payments of
principal are approximately $16,700. The Company is registering its outstanding
common stock under the Securities Exchange Act of 1934 with a view toward making
its equity securities more attractive to potential investors, and present plans
call for the Company to seek additional financing through a private offering in
the first or second quarter of 2000. The Company intends to pay approximately
one-half of its interest-bearing debt pro rata in mid-spring. This would reduce
the Company's annual debt service requirements by one-half. At the present time
it has not completed any arrangements to obtain additional financing and there
can be no assurance that it will be able to raise the necessary funds. In that
connection, the Company intends to place its First Brewery of Dallas, Inc.
subsidiary into voluntary bankruptcy. The Company is unable to predict the
effect of the anticipated bankruptcy on its ability to raise additional funds to
develop its gaming operations, but efforts to raise these funds could be
adversely affected by the bankruptcy. If the Company is unable to raise
additional funds, holders of its debt (all of whom are stockholders except for a
bank lender of $20,000) would be in a position to shut down the Company's
operations.
Plan of Operations
Until such time as the Company is able to obtain additional financing, it plans
to limit its operations by conducting marketing efforts primarily on the basis
of person-to-person contact with those who have previously expressed an interest
in its system and limiting expansion of its operations to delivery of systems as
permitted by internally-generated cash flow. This may require that the Company
accept orders for new systems only on the basis of a down payment sufficient to
cover the costs of manufacture of the system, which may in turn make it
difficult to market additional systems. As indicated above, the Company expects
to begin receiving revenues from operation of its present system at J.
Gilligan's during the first quarter of 2000. However, these revenues are not
expected to be sufficient to carry out any substantial advertising and
marketing. The Company intends to seek financing through a private offering as
promptly as practicable after its registration becomes effective, and if it is
successful to apply a substantial portion of the proceeds toward marketing its
systems. The Company will attempt to raise $500,000 to $1 million
<PAGE>
in that offering, which, together with anticipated revenues, should be
sufficient for operations for the next 12 months. The Company will need to hire
a qualified chief operating officer, and there is no assurance that it will be
able to obtain one. It does not intend to hire any other employees during the
next 12 months. At the present time, all officers and employees of the Company
are serving without compensation except for Mr. Olivares, and the Company
expects that this will continue to be the case until it has raised additional
financing. If the Company is not able to raise the necessary funds to expand
sales beyond those that may be generated by person-to-person contact, it will be
forced to terminate its operations entirely.
ITEM 3 - DESCRIPTION OF PROPERTY
The Company's executive offices are located in Arlington, Texas, at the offices
of Jones & Cannon, P.C. See "Certain Relationships and Related Transactions."
Although the Company has not been charged rent for its office space, there is no
assurance that these offices will remain sufficient for the Company's use, or
that the gratis nature of this relationship will continue.
ITEM 4 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth, as of February 3, 2000, certain information with
respect to the Company's equity securities believed by the Company to be owned
of record or beneficially by (i) each Director of the Company; (ii) each person
who owns beneficially more than 5% of each class of the Company's outstanding
equity securities; and (iii) all Directors and Executive Officers as a group.
Shareholders' Name and Address Number of Shares Owned Percent
L. Kelly Jones 1,866,980 (1) 15.6
440 North Center
Arlington, Texas 76011
Jim Poynter 737,260 (2) 6.2
City Center Tower II
301 Commerce Street
Suite 1205
Fort Worth, Texas 76102
<PAGE>
Kimberly Biggs 42,460 (3) 0.4
2414 Green Willow Court
Arlington, Texas 76001
John Aleckner 347,400 (4) 2.9
1901 Rockcliff Court
Arlington, Texas 76012
All Officers and Directors
As a Group (4 Persons) 2,994,100 (1)(2)(3)(4) 25.1
- ----------------------------------------------
(1) Excludes incentive conditional options to purchase 833,000 shares of
Common Stock for $4,165.00, which are not exercisable within 60 days.
(2) Excludes incentive conditional option to purchase 333,000 shares of Common
Stock for $1,665.00 which is not exercisable within 60 days. The Company
is obligated to redeem 287,531 of these shares for a nominal amount, which
would reduce Mr. Poynter's ownership to 3.9%.
(3) The Company is obligated to redeem 16,559 of these shares for a nominal
amount, which would reduce Ms. Biggs's ownership to 0.22%.
(4) Excludes incentive conditional option to purchase 333,000 shares of
restricted Common Stock for $1665.00 which is not exercisable within 60
days.
The beneficial owners of securities listed above have sole investment and voting
power with respect to such shares. Beneficial ownership is determined in
accordance with the rules of the Commission and generally includes voting or
investment power with respect to securities. Shares of stock subject to options
or warrants currently exercisable, or exercisable within 60 days, are deemed
outstanding for purposes of computing the percentage of the person holding such
options or warrants, but are not deemed outstanding for purposes of computing
the percentage of any other person.
In addition to the shareholders listed above, Connect Computer Group, Inc., the
firm which has been largely responsible for development of the Company's kiosk
and computer systems ("Connect Computer"), has performed its development work on
the basis of an oral understanding or "gentleman's agreement" with the Company's
president that if the Company is successful in marketing the product Connect
Computer will be issued a significant equity position in the Company, the amount
of which is yet to be determined. The parties have not explicitly agreed upon
any method for determining whether marketing of the product has been successful,
and the agreement may not be sufficiently definite to be an enforceable
contract. However, the Company
<PAGE>
is proceeding on the assumption that it will be obligated to honor this oral
commitment and expects that it will be able to reach agreement with Connect
Computer through negotiations as to both whether marketing the product has been
successful and the appropriate amount of equity to be issued to Connect Computer
for its assistance.
ITEM 5 - DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The following table sets forth the names and ages of the current directors and
executive officers of the Company, the principal offices and positions with the
Company held by each person, and the date such person became a director or
executive officer of the Company.
<TABLE>
<CAPTION>
Date became director or
Name Age Positions executive officer
- ---- --- --------- -----------------------
<S> <C> <C> <C>
L. Kelly Jones 46 Chief Executive Officer and Chairman of
the Board of Directors March 26, 1997
John F. Aleckner, Jr. 54 President and Director March 26, 1997
W. James Poynter 44 Vice-President and Director March 26, 1997
Kimberly Biggs 33 Secretary and Treasurer March 26, 1997
</TABLE>
The members of the Company's board of directors are elected annually and hold
office until their successors are elected and qualified. The Company's officers
are chosen by and serve at the pleasure of its board of directors. Each of the
officers and directors have positions of responsibility with businesses other
than the Company and will devote only such time as they believe necessary on the
business of the Company.
There are no family relationships between any of the directors and executive
officers. There was no arrangement or understanding between any executive
officer and any other person pursuant to which any person was selected as an
executive officer.
L. Kelly Jones has since 1980 been a member of the law firm Jones & Cannon, a
firm which he founded and which provides legal services to the Company. Mr.
Jones is certified in the area of commercial real estate law by the Texas Board
of Legal Specialization and is the author of an article, "Texas Mechanics' and
Materialmen's Lien Laws: A Guide Through the Maze," which appeared in the Texas
Bar Journal in March of 1985. Mr. Jones' areas of practice include corporate,
construction, real estate, municipal law, and commercial litigation. Mr. Jones
served from 1985 through 1989 on the Arlington City Council, and on the Stephen
F. Austin State University Board of Regents from 1987 through 1993, where he was
chairman from 1991 through 1993. He holds a J.D. from the University of Texas
and a B.A. in Political Science from Stephen F. Austin State University
<PAGE>
John F. Aleckner, Jr. is a private investor. He was elected President of the
Company as of December 14, 1999. From 1983 to 1989 Mr. Aleckner was
vice-president and a shareholder of Research Polymers International Corporation,
a compounder of specialty plastic materials which was acquired by another
Company in 1987. From 1984 to 1998, he was vice-president of marketing and sales
and a principal shareholder in UVTEC, Inc., a marketer of specialty plastic
compounds which was, prior to the sale of Research Polymers, affiliated through
common stock ownership with Research Polymers, and which acted as a broker in
connection with purchases by Research Polymers and other companies. From 1971 to
1983 he was employed by Ciba-Geigy Corporation in various sales capacities. He
holds a B.S. in chemistry from Case Institute of Technology
W. James Poynter has been engaged in the real estate brokerage and construction
business since 1979. He is the president of Tenant Realty Advisors, Inc., a
subsidiary of the Poynter Scifres Company group. Tenant Realty Advisors, Inc. is
a national tenant representation firm, representing office tenants in securing
new office locations throughout the United States. He holds a B.A. from the
University of Pennsylvania's Wharton School of Business
Kimberly Biggs has for the last 10 years been legal administrator of the
Arlington law firm of Jones & Cannon (which provides legal services for the
Company) as legal administrator, a position which she holds to this date.
SIGNIFICANT EMPLOYEES
In addition to the officers and directors identified above, the following
employees play a significant role in the Company's operations.
Rey Cardino, age 39, serves as Director of Sales for the Company. Mr. Cardino
was employed by the Hubcap Brewery & Kitchen from prior to its opening until the
operation was closed in early 1999, at which time he was the general manager of
its restaurant. Prior to that time he was employed by TGI Friday.
Jose Olivares, age 32, serves as Director of Technical Support for the Company.
Prior to taking the position he was the principal brewer of the Company's
microbrewery operations.
ITEM 6 EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The Summary Compensation Table shows certain compensation information for
services rendered in all capacities during each of the prior three (3) fiscal
years. No bonuses or stock options were granted and no additional compensation
was paid or deferred.
<PAGE>
<TABLE>
<CAPTION>
Securities
Other Under-lying
Annual Restricted Options/
Compen- Stock
Name and Principal Position Year Salary Bonus sation Awards SARs
- --------------------------- ---- ------ ----- ------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
L. Kelly Jones, Chief 1998 - - - - 833,000 (1)
Executive Officer and
Chairman of the Board of
Directors
1997 - - - - -
1996 - - - - -
John F. Aleckner, Jr., 1998 333,000 (2)
President and Director
1997 -
1996 -
W. James Poynter, Vice- 1998 - - - - 333,000 (2)
President and Director
1997 - - - - -
1996 - - - - -
Kimberly Biggs, Secretary and 1998 - - - - -
Treasurer
1997 - - - - -
1996 - - - - -
</TABLE>
(1) These options, incentive in nature, provide that Mr. Jones may purchase
(i) 111,000 shares at par value subject to the condition precedent that
the Company's shares are trading at $1.50 per share, (ii) 361,000 shares
at par value subject to the condition precedent that the Company's shares
are trading at $3.00 per share, (iii) 111,000 shares at par value subject
to the condition precedent that the Company's shares are publicly trading
at $4.50 per share, and (iv) the balance of 250,000 shares at par value
subject to the condition precedent that the Company's shares are publicly
trading at $5.00 per share. These incentive stock options were granted to
Mr. Jones by the Company's board of directors (Mr. Jones abstaining) on
December 12, 1997 and on December 14, 1998.
(2) Messrs. Poynter and Aleckner each hold an option for 333,000 shares in the
Company's Common Stock. These options, incentive in nature, provide that
Messrs. Poynter and Aleckner may purchaser (i) 111,000 shares at par value
subject to the condition precedent that the Company's shares are trading
at $1.50 per share, (ii) 111,000 shares at par value subject to the
condition precedent that the Company's shares are trading at $3.00 per
<PAGE>
share, and (iii) the balance of 111,000 shares at par value subject to the
condition precedent that the Company's shares are publicly trading at
$4.50 per share. These incentive stock options were granted to Messrs.
Poynter and Aleckner by the Company's board of directors (Messrs. Poynter
and Aleckner abstaining on the grant of their stock option) on December
14, 1998.
2000 INCENTIVE STOCK OPTION PLAN
In February, 2000, the Board of Directors adopted, and a majority of the
stockholders approved, the Company's 2000 Incentive Stock Option Plan, subject
to approval of stockholders at the next annual meeting. The purpose of the plan
is to enable the Company to attract, retain and motivate key employees who are
important to the success and growth of the Company's business, and to create a
long-term mutuality of interest between the stockholders of the Company and
those key employees by granting them options to purchase the Company's Common
Stock. Options granted under the plan may be either incentive stock options or
non-statutory options. The Plan is to be administered either directly by the
Board, or by a committee consisting of two or more outside directors (the
"Committee"). Under the plan, options may be granted to key employees of the
Company. The option price is to be fixed by the Committee at the time the option
is granted. If the option is intended to to be an incentive stock option, the
purchase price is to be not less than 100% of the fair market value of the
Common Stock at the time the option is granted, or, if the person to whom the
option is granted is the owner of 10% or more of the Company's Common Stock,
110% of such fair market value. The Committee is to specify when and on what
terms the options granted to key employees are to become exercisable. However,
no option may be exercisable after the expiration of 10 years from the date of
grant or five years from the date of grant in the case of incentive stock
options granted to a holder of 10% or more of the Company's common stock. In the
case of incentive stock options, the aggregate fair market value of the shares
with respect to which the options are exercisable for the first time during any
calendar year may not exceed $100,000 unless this limitation has ceased to be in
effect under Section 422 of the Internal Revenue code. In the event of a change
of control of the Company, all outstanding options become immediately
exercisable in full. In the event of an employee's death, or following the
employee's retirement at or after age 65 or before age 65 with the consent of
the Committee, outstanding options may be exercised for a period of one year
from the applicable date of death or retirement. If the employee's employment is
terminated for reasons other than death or retirement, the options remain
exercisable for a period of three months after such termination unless
termination was for cause, in which case all outstanding options are immediately
canceled. 1,500,000 shares of Common Stock have been initially authorized for
issuance under the Plan. Under the Plan, eligible individuals may, at the
discretion of the Committee, be granted options to purchase shares of Common
Stock. However, no eligible individuals may be granted options for more than
500,000 shares in any calendar year. The option price and number of shares
covered by an option will be adjusted proportionately in the event of a stock
split, stock dividend, etc., and the Committee is authorized to make other
adjustments to take into consideration any other event which it determines to be
appropriate to avoid distortion of the operation of the Plan. In the event of a
merger or consolidation, option holders will be entitled to acquire the number
and class of shares of the surviving corporation which they would have been
entitled to receive after the merger or consolidation if they had been the
holders of the number of shares covered by the
<PAGE>
options. If the Company is not the surviving entity in a merger and
consolidation, the Committee may in its discretion terminate all outstanding
options, and in that event option holders will have 20 days from the time they
received notice of termination to exercise all their outstanding options. The
Plan terminates 10 years from its effective date unless terminated earlier by
the Board of Directors or the stockholders. Proceeds of the sale of shares
subject to options under the Plan are to be added to the general funds of the
Company and used for its general corporate purposes. The Company has not granted
any options under the Plan.
COMPENSATION OF DIRECTORS
No Director receives or has received any compensation from the Company for
service as a member of the Board of Directors.
ITEM 7 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Jones, the president of the Company, is also president of Jones & Cannon, a
Texas professional corporation, which has provided legal services to the Company
and which may continue to provide legal services to the Company in the future.
During the fiscal year ended December 31, 1998 the Company incurred legal fees
of $66,331 to that firm. The Company currently owes Jones & Cannon an amount in
excess of $83,550 for legal services rendered. Jones & Cannon has also been
providing the limited amount of office space required by the Company and certain
clerical and other services required for the Company's operations without charge
under an oral agreement with Mr. Jones.
In December, 1997, the Company agreed to redeem at par value an aggregate of
1,505,399 shares of the Common Stock held by the ten former shareholders of
First Brewery of Dallas, Inc., a company the Company had acquired in April,
1997. The aggregate redemption price was to have been $7,527.02. That redemption
was to have occurred no later than March 31, 1998. However, the Company did not
have sufficient funds to honor this commitment and is currently in default under
the agreement. Messrs. Jones, Poynter, and Aleckner and Ms. Biggs were among
those whose shares were to have been redeemed. In February, 2000, the Company
and Messrs. Jones and Aleckner agreed that the shares that were to have been
redeemed from those two individuals would not be redeemed. The Company
anticipates that the remaining shares will be redeemed during the first quarter
of 2000.
During the period from July, 1997 through May, 1998 Mr. Jones, the president of
the Company, lent the Company an aggregate of $90,000 for use as operating
capital. Of this amount, $65,000 was subsequently eliminated when Mr. Jones
accepted in full satisfaction of that debt certain equipment securing bank debt
which Mr. Jones had guaranteed, leaving a balance of $25,000. This indebtedness
is evidenced by an unsecured demand promissory note at an annual interest rate
of 12% per annum.
ITEM 8 - DESCRIPTION OF SECURITIES
<PAGE>
The Company changed its jurisdiction of incorporation from Nevada to Texas in
February, 2000. The Company's Articles of Incorporation, as in effect following
the change, authorize the issuance of 50 million shares of Common Stock, of a
par value of $.005 per share, of which 11,922,150 shares were issued and
outstanding as of January 31, 2000, and 2,000,000 shares of Preferred Stock, par
value $0.005 per share, none of which has been issued.
COMMON STOCK
Holders of shares of Common Stock are entitled to one vote for each share on all
matters to be voted on by the shareholders. Holders of Common Stock have no
cumulative voting rights. Holders of shares of Common Stock are entitled to
share ratably in dividends, if any, as may be declared, from time to time by the
Board of Directors in its discretion, from funds legally available therefor. In
the event of a liquidation, dissolution, or winding up of the Company, the
holders of shares of Common Stock are entitled to share pro rata all assets
remaining after payment in full of all liabilities. Holders of Common Stock have
no preemptive rights to purchase the Company's common stock. There are no
conversion rights or redemption or sinking fund provisions with respect to the
common stock.
The Company's common stock is covered by a Securities and Exchange Commission
rule that imposes additional sales practice requirements on broker-dealers who
sell such securities to persons other than established customers and accredited
investors, generally institutions with assets in excess of $5,000,000 or
individuals with net worth in excess of $1,000,000 or annual income exceeding
$200,000 or $300,000 jointly with their spouses. For transactions covered by the
rule, the broker-dealer must make a special suitability determination for the
purchaser and transaction prior to the sale. Consequently, the rule may affect
the ability of broker-dealers to sell the Company's securities and may also
affect the availability ability of purchasers of the Company's stock to sell
their shares in the secondary market. It may also cause fewer brokers to be
willing to make a market in the Company's common stock and it may affect the
level of news coverage the Company receives.
PREFERRED STOCK
The Company is authorized to issue 2,000,000 shares of Preferred Stock with such
voting rights, designations, preferences, limitations and relative rights as may
be determined by the Board of Directors. Although the Company has no current
plans to issue any shares of Preferred Stock, the issuance of Preferred Stock or
of rights to purchase Preferred Stock could be used to discourage an unsolicited
acquisition proposal. In addition, the possible issuance of Preferred Stock
could discourage a proxy contest, make more difficult the acquisition of a
substantial block of the Company's Common Stock, or limit the price that
investors might be willing to pay in the future for shares of the Company's
Common Stock
The Company believes that the Preferred Stock will provide the Company with
increased flexibility in structuring possible future financing and acquisitions,
and in meeting other corporate needs that might arise. Having such authorized
shares available for issuance will allow the Company to issue shares of
Preferred Stock without the expense and delay of a special stockholders'
meeting. The authorized shares of Preferred Stock, as well as shares of Common
Stock, will be available for issuance without further action by stockholders,
unless such action is required by applicable law or the rules of any stock
exchange on which the Company's securities may be listed.
<PAGE>
CERTAIN ANTI-TAKEOVER PROVISIONS
Under the Company's Articles of Incorporation, the power to alter, amend,
suspend or repeal the Company's bylaws requires the affirmative vote of not less
than a majority of the "Continuing Directors" of the Company. A Continuing
Director is a member of the Board who is not an affiliate or associate of a
holder of 10% or more of the Company's voting stock ("Related Person") and who
was a member of the Board of Directors immediately prior to the time the 10% or
more holder became the beneficial owner of 10% or more of such voting stock. The
Articles of Incorporation also require that shareholder votes be taken only at a
meeting, and prohibit action by written consent.
In addition, the Company may not effect a "Business Combination" in which a
Related Person has an interest without the vote of at least 80% of its voting
stock (voting as a single class) including the vote of not less than 50% of the
outstanding shares of voting stock not beneficially owned by the Related Person.
The additional voting requirements described in this paragraph does not apply if
the Board of Directors by a vote of not less than a majority of the Continuing
Directors then holding office expressly approves in advance of the acquisition
of shares that resulted in the Related Person's becoming such, or approves the
Business Combination before the Related Person became a Related Person. Those
requirements also do not apply if certain conditions are met, including among
other things, that the cash or fair market value of property received by holders
in the Business Combination is not less than the highest price per share paid by
the Related Person in acquiring any of its shares, and the Related Person does
not receive the benefit of any loans, advances, guarantees or other financial
assistance or tax advantages provided by the Company except proportionately as a
shareholder, and that the transaction be covered by a fairness opinion of a
reputable investment banking firm if deemed advisable by a majority of the
Continuing Directors. The term "Business Combination" includes among other
things a merger, consolidation or share exchange involving the Company or a
subsidiary, a sale, mortgage or other disposition of a substantial part of the
Company's assets, the issuance of additional securities, a reclassification
which would increase the voting power of a Related Person or a liquidation or
dissolution of the Company. These provisions might discourage an unsolicited
acquisition proposal that could be favorable to stockholders. They could also
discourage a proxy contest, make more difficult the acquisition of a substantial
block of the Company's Common Stock or limit the price that investors might be
willing to pay in the future for shares of the Company's Common Stock.
The Company is also subject to Article 13 of the Texas Business Corporation Act.
That Article prohibits the Company from engaging in a business combination with
an affiliated shareholder, generally defined as a person holding 20% or more of
the Company's outstanding voting stock, during the three-year period immediately
following the affiliated shareholder's share acquisition date, unless the
business combination or acquisition by the affiliated shareholder was approved
by
o the Company's Board of Directors before the affiliated shareholder's
share acquisition date, or
o two-thirds of the holders of the outstanding voting shares of the
Company not beneficially owned by the affiliated shareholder at a
meeting of shareholders and not by written consent, called for that
purpose not less than six months after the affiliated shareholder's
share acquisition date.
Transfer Agent. Continental Stock Transfer, Inc. of New York is the Company's
transfer agent.
CONVERTIBLE PROMISSORY NOTES/PROMISSORY NOTES
The Company has outstanding $100,000 in principal amount of its Convertible
Promissory Notes. These notes bear interest at the rate of 12 percent per annum,
call for monthly payments of interest, and mature May 10, 1998 (the "Convertible
Promissory Notes"). The holder of each Convertible Promissory Note has a
non-assignable option to purchase 7,500 shares of Common Stock at par value.
Alternatively, each holder has the right to convert his Convertible Promissory
Note at the rate of 1.25 shares of Common Stock for each $1.00 in principal
amount of notes.
The Company has outstanding $25,000 in principal amount of a promissory note due
to L. Kelly Jones upon demand. This note bears interest at the rate of 12
percent per annum.
The Company has outstanding $235,500 in principal amount of promissory notes
payable to other shareholders, all of which are in default. These notes provide
for an initial issuance of shares of common stock in lieu of interest, all of
which (913,000 shares) have been issued. Accordingly, no additional interest is
accruing on these notes. However, $103,500 in principal amount of such
promissory notes provide for a per diem issuance of common stock as a penalty
for late payment. To date, the per diem issuance would be in excess of 2,000,000
shares of the Company's Common Stock. The Company has received an opinion from
counsel, Richard L. Wright, P.C., that the penalty provisions are unenforceable
as illegal usury under applicable Texas law. The Company believes that upon full
payment of these promissory notes along with non-usurious monetary interest,
this matter of additional shares for late payment by the Company will be
amicably resolved between the Company and the holder of these promissory notes.
However no assurance can be given in that regard.
<PAGE>
PART II
ITEM I - MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
OTHER SHAREHOLDER MATTERS
MARKET INFORMATTON
The Company's Common Stock is quoted under the symbol "GAMZ" on the OTC
Electronic Bulletin Board. The following table sets forth the high and low bid
prices for shares of the Company Common Stock for the periods noted, as reported
by the OTC Electronic Bulletin Board. Quotations are on an as-adjusted basis to
reflect a 1 for 5 reverse split effected in 1997 and reflect inter dealer
prices, without retail markup, mark down or commission and may not represent
actual transactions.
BID PRICES
YEAR PERIOD HIGH LOW
1997 First Quarter $0.50 $0.50
Second Quarter 0.25 0.25
Third Quarter 1.25 0.25
Fourth Quarter 1.25 0.25
1998 First Quarter 1.25 0.25
Second Quarter 2.25 0.25
Third Quarter 0.50 0.25
Fourth Quarter 0.875 0.375
1999 First Quarter 0.6875 0.09375
Second Quarter 1.0313 0.26
Third Quarter 1.2188 0.09
Fourth Quarter 0.70 0.065
The Company's common stock was not quoted on the OTC Bulletin Board during the
first quarter of 1997. As of February 15, 2000 the reported bid price for the
Company's common stock was $0.54 per share.
SHAREHOLDERS
<PAGE>
As of January 21, 2000, the Company had 11,922,150 shares of Common Stock
outstanding held by 103 shareholders of record.
DIVIDENDS
The Company has not paid cash dividends on its Common Stock in the past and does
not anticipate doing so in the foreseeable future.
ITEM 2 - LEGAL PROCEEDINGS
The Company's First Brewery of Dallas, Inc. subsidiary is a defendant in a
proceeding commenced June 14, 1999 in the County Court at Law Number Two,
Tarrant County, Texas by Ben Strong individually and d/b/a Benco & Associates.
This litigation arose out of the construction of a brewpub which First Brewery
acquired from its predecessor in interest, and alleges that the transaction in
which First Brewery of Dallas, Inc. acquired the assets of the predecessor in
interest constituted a fraudulent conveyance. The amount sought is approximately
$58,000. The Company believes that this claim is without merit, and anticipates
that it will be eliminated in any event through the filing of a Chapter 7
bankruptcy proceeding by First Brewery of Dallas, Inc.
The Company's First Brewery of Dallas, Inc. subsidiary is a defendant in a
proceeding commenced June 30, 1999 in the County Court at Law Number Three,
Dallas County, Texas by Alliant Foodservice, Inc. seeking to recover
approximately $19,000 allegedly owed for foodstuffs furnished to the subsidiary.
The Company anticipates that this claim will be eliminated through the filing of
a Chapter 7 bankruptcy proceeding by First Brewery of Dallas, Inc.
In January, 1999, the Company commenced an action in the 141st District Court of
Tarrant County, Texas, against Robert Elton Bragg, III, the Company's former
president. The suit alleges, among other things, that Mr. Bragg, while President
of the Company, misappropriated its funds by paying himself consulting fees
although no meaningful services were performed for the Company, and that he
threatened, without justification, to rescind the March 1997 stock for stock
transaction pursuant to which the Company acquired its brewpub/microbrewery
operations. It seeks, among other things, (i) a declaratory judgment that the
March, 1997 agreement, is a valid and binding agreement, (ii) an injunction
prohibiting Bragg from selling his shares in the Company, and (iii) damages for
misappropriation of the Company's funds. As permitted under Texas law, the
Company has not specified in its complaint the amount of damages sought from Mr.
Bragg.
<PAGE>
In November, 1999, the Company commenced an action against Kelly Hart and Mitch
Geller d/b/a Nu-Design in the 348th District Court of Tarrant County, Texas.
This suit alleges that Nu-Design repeatedly failed to provide software for which
the Company had contracted for its `Net GameLink(TM) system, that the Company
was forced to obtain a substitute for the promised software from a third party,
and that after learning of the Company's purchase of the replacement software
the defendants wrongfully withheld assets of the Company. As permitted under
Texas law, the Company seeks damages of an as yet unspecified amount.
ITEM 3 - CHANGES IN AND DISAGREEMENTS WTTH ACCOUNTANTS
Inapplicable
ITEM 4 - RECENT SALES OF UNREGISTERED SECURITIES
Upon its organization in January, 1996, the Company issued 2,100,000 of its
Common Stock to its promoters and a limited number of third party investors at a
purchase price of $0.02 per share for an aggregate purchase price of $42,000.
This sale was made in reliance upon the exemption contained in Section 4(2) of
the Securities Act of 1933, as amended (the "Act").
In May of 1996, the Company sold 400,000 units at a price of $0.125 per unit to
a number of individual investors for an aggregate purchase price of $50,000.
Each unit consisted of one share of Common Stock and two warrants, each warrant
authorizing the holder to buy one share of the Company's Common Stock at the
purchase price of $0.50. This sale was made in reliance upon the exemption
contained in Rule 504 of Regulation D under the Act.
In March of 1997, the Company sold 633,000 shares of the Company's Common Stock
at a price of $.01 per share, for an aggregate purchase price of $63,300. This
sale was made in reliance on the exemption contained in Rule 504 of Regulation D
under the Act .
In March of 1997, the Company issued 3,860,000 shares of its Common Stock to 10
shareholders of First Brewery of Dallas, Inc., then operating the Hubcap Brewery
& Kitchen of Dallas, Texas, in exchange for all of the outstanding shares of
that corporation. The shares were issued in reliance upon the private offering
exemption contained in Section 4(2) of the Act.
In conjunction with the stock-for-stock swap discussed in the preceding
paragraph, the Company redeemed 193,000 shares of its Common Stock from Adams
Bragg & Company, Inc. in exchange for a Gateway computer valued at $2,000.
In September of 1997 the Company issued 490,102 shares of its Common Stock at
$0.50 per share for an aggregate purchase price of $245,051 upon exercise of the
warrants originally issued in 1996. The shares were issued in reliance upon the
private offering exemption contained in Section 4(2) of the Act.
In December of 1997, the Company issued 425,000 shares of its Common Stock to
Adams Bragg & Company, Inc., in exchange for its proprietary rights in the 'Net
GameLinkTM idea, which was valued by the Company's Board of Directors at $2,125.
The shares were issued in reliance upon
<PAGE>
the private offering exemption contained in Section 4(2) of the Act.
In March of 1998, the Company issued 120,000 shares of its Common Stock to
certain of its existing shareholders as additional consideration for a loan in
the aggregate amount of $50,000. The shares were issued in reliance upon the
private offering exemption contained in Section 4(2) of the Act.
Between December, 1997 and February, 1998, the Company issued $100,000 in
principal amount of its convertible subordinated notes to certain of its
existing shareholders and one additional sophisticated investor. These notes
were issued in reliance upon the private offering exemption contained in Section
4(2) of the Act.
In May of 1998, the Company issued 300,000 shares of its Common Stock to Net
Gameport, Inc., an accredited investor, in payment for financial and public
relations consulting services valued at $75,000. These notes were issued in
reliance upon the private offering exemptions contained in Section 4(2) and the
accredited investor exemption contained in Section 4(6) of the Act.
In June of 1998, the Company issued 300,000 shares of its Common Stock to
Capital & Media Partners, Inc. in payment for financial and public relations
consulting services valued at $150,000. These shares were issued in reliance
upon the private offering exemption contained in Section 4(2) and the accredited
investor exemption contained in Section 4(6) of the Act.
In September of 1998, the Company issued $123,000 in principal amount of
promissory notes to existing shareholders and issued 493,000 shares of its
Common Stock in lieu of future interest on such notes. These notes and shares
were issued in reliance upon the private offering exemption contained in Section
4(2) of the Act.
In November of 1998, the Company issued 60,000 shares of its Common Stock to a
current shareholder who was an accredited investor at $0.25 per share for an
aggregate purchase price of $15,000. These shares were issued in reliance upon
the private offering exemption contained in Section 4(2) and the accredited
investor exemption contained in Section 4(6) of the Act.
In December of 1998, the Company issued 800,000 shares of its Common Stock to an
individual accredited investor in payment for shareholder relations and
strategic planning services valued at $200,000. These shares were issued in
reliance upon the private offering exemption contained in Section 4(2) and the
accredited investor exemption contained in Section 4(6) of the Act.
In January of 1999, the Company issued issued $88,500 in principal amount of
promissory notes to existing shareholders and issued 240,000 shares of its
Common Stock in lieu of future interest on such notes. These notes and shares
were issued in reliance upon the private offering exemption contained in Section
4(2) of the Act.
In January of 1999, the Company issued 300,000 shares of its Common Stock to its
Chief Executive Officer and two employees at $0.005 per share upon the exercise
of stock options for an aggregate of $1,500. The shares were issued in reliance
upon the private offering exemption contained in Section 4(2) of the Act.
In April of 1999, the Company issued in aggregate of 1,000,000 shares of its
Common Stock to two investors at $0.06 per share for an aggregate of $60,000,
and an additional 100,000 shares also valued at $0.06 per share for an aggregate
of $6,000, to the law firm handling the transaction and a financial services
firm in payment for their services in connection with the transaction. The
<PAGE>
shares were issued in reliance upon the limited offering exemption of Rule 504
under the Act.
In July, 1999, the Company issued 119,048 shares of its Common Stock at $0.42
per share for an aggregate of $50,000. These shares were issued in reliance upon
the private offering exemption contained in Section 4(2) of the Act.
In October of 1999, the Company issued 250,000 shares of its Common Stock to an
accredited investor at $0.10 per share for an aggregate of $25,000. Also in
October of 1999, the Company issued 25,000 shares of its common stock in partial
payment of legal fees incurred in connection with registration of its Common
Stock under the Securities Exchange Act of 1934. These shares were issued in
reliance upon the private offering exemption contained in Section 4(2) and the
accredited investor exemption contained in Section 4(6) of the Act.
In January of 2000, the Company issued 100,000 shares of its Common Stock to its
Chief Executive Officer as compensation for his guaranty of an unsecured bank
loan to the Company in the amount of $20,000. These shares were issued in
reliance upon the private offering exemption contained in Section 4(2) of the
Act.
ITEM 5 - INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Articles of Incorporation generally limit the personal liability of
directors for monetary damages for any act or omission in their capacities as
directors to the fullest extent permitted by law. In addition, the Company's
bylaws provide that the Company shall indemnify and advance or reimburse
reasonable expenses incurred by, directors, officers, employees or agents of the
Company, to the fullest extent that a Company may grant indemnification to a
director under the Texas Business Corp. Act, and may indemnify such persons to
such further extent as permitted by law.
PART F/S
FINANCIAL STATEMENTS
<PAGE>
GAMECOM, INC.
CONSOLIDATED FINANCIAL STATEMENTS
As of and for the Years ended December 31, 1998 and 1997 and the Nine Months
ended September 30, 1999 and 1998 (Unaudited)
GAMECOM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Auditors
<TABLE>
<CAPTION>
Consolidated Financial Statements of GameCom, Inc. and subsidiary:
<S> <C>
Consolidated statement of Financial Condition as of December 31, 1998 and
December 31, 1997, and September 30, 1999 (Unaudited)..................................1
Consolidated Statements of Operations for the years ended December 31,
1998 and 1997 and nine months ended September 30, 1999 and 1998 (unaudited)............2
Consolidated Statements of Shareholders' Equity (Deficit) for the years
ended December 31, 1998 and 1997 and the nine months ended September 30, 1999
(Unaudited)............................................................................3
Consolidated Statements of Cash Flows for the years ended December 31,
1998 and 1997 and nine months ended September 30, 1999 and 1998 (Unaudited)............4
Notes to Consolidated Financial Statements................................................5
</TABLE>
<PAGE>
INDEPENDENT AUDITORS REPORTS
Thomas O. Bailey
and Associates, PC
Certified Public Accountants
Report of Independent Public Accountants
To the Shareholders of The Schooner Brewery Incorporated
We have audited the accompanying balance sheet of The Schooner Brewery
Incorporated as of December 31, 1998 and the related statement of operations,
changes in stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above, revised as described
in Note 15, present fairly, in all material respects, the financial position of
The Schooner Brewery Incorporated as of December 31, 1998 and the results of
their operations and their cash flows in conformity with generally accepted
accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. During the year ended December 31,
1998, the Company incurred a net loss of $681,018. Future working capital
requirements are dependent on the Company's ability to restore and maintain
profitable operations, to restructure it's financing arrangements, and to
continue it's present short-term financing, or obtain alternative financing as
required. It is not possible to predict the outcome of future operations or
whether the necessary alternative financing may be arranged, if needed. Those
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/Thomas O. Bailey and Associates, P.C.
<PAGE>
Dallas, Texas
June 17, 1999, except for Note 15 as to which the date is February 15, 2000.
<PAGE>
Thomas O. Bailey
and Associates, PC
Certified Public Accountants
Report of Independent Public Accountants
To the Shareholders of The Schooner Brewery Incorporated
We have audited the accompanying balance sheet of The Schooner Brewery
Incorporated as of December 31, 1997 and the related statement of operations,
changes in stockholders' equity, and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of The Schooner Brewery
Incorporated as of December 31, 1997 and the results of their operations and
their cash flows in conformity with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. During the year ended December 31,
1997 the Company incurred a net loss of $576,520. Future working capital
requirements are dependent on the Company's ability to restore and maintain
profitable operations, to restructure its financing arrangements, and to
continue its present short-term financing, or obtain alternative financing as
required. It is not possible to predict the outcome of future operations or
whether the necessary alternative financing may be arranged, if needed. Those
conditions raise substantial doubt about the Company's ability to continue as a
going concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
/s/Thomas O. Bailey and Associates, P.C.
Certified Public Accountants
Dallas, Texas
September 11, 1998
<PAGE>
GAMECOM, INC.
(Fomerly The Schooner Brewery Incorporated)
Consolidated Balance Sheet
<TABLE>
<CAPTION>
(Unaudited)
December 31, September 30,
-------------
1998 1999 1998
---- ---- ----
ASSETS
------
<S> <C> <C> <C>
Current assets
Cash $ 5,666 $ 4,529 $ 16,427
Accounts receivable 1,547 180 6,999
Inventories -- -- --
----------- ----------- -----------
Total current assets 7,213 4,709 23,426
Property and equipment
Equipment, furniture and fixtures 473,324 91,150 605,868
Accumulated (348,526) (5,614) (467,215)
----------- ----------- -----------
Net property and equipment
124,798 85,536 138,653
Other assets
Organization cost 38,490 -- 41,697
Security deposits 12,033 8,989 12,033
----------- ----------- -----------
Total other assets 50,523 8,989 53,730
----------- ----------- -----------
Total assets $ 182,534 $ 99,234 $ 215,809
=========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Trade payables $ 388,344 $ 524,111 $ 374,632
Accrued interest 24,439 24,169 18,177
Notes payable to shareholders 444,041 360,500 365,811
Short-term notes payable to bank 106,319 -- 116,398
----------- ----------- -----------
Total current liabilities 963,143 908,780 875,018
Shareholders' equity
Capital stock 50,000,000 shares authorized
par value $.005; 9,788,102, 11,547,150 and
8,928,102 issued and outstanding respectively, 48,940 57,735 44,640
of which shares outstanding, in each year,
1,505,399 are redeemable for cash in
the amount of $7,527
Paid-in capital 914,944 1,074,899 697,994
Retained earnings (1,744,493) (1,942,180) (1,401,844)
----------- ----------- -----------
Total shareholders' equity (780,609) (809,546) (659,210)
----------- ----------- -----------
Total liabilities and shareholder equity $ 182,534 $ 99,234 $ 215,808
=========== =========== ===========
</TABLE>
<PAGE>
GAMECOM, INC.
(Formerly The Schooner Brewery Incorporated)
Consolidated Statement of Operations
<TABLE>
<CAPTION>
Nine Month Ended
Year Ended December 31,
-----------------------
1998 1997 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues
Restaurant sales $ 469,357 $ 361,074 $ 5,431 $ 357,675
Other (7,500) 9,500 -- --
------------ ------------ ------------ ------------
Total revenues 461,857 370,574 5,431 357,675
Cost of sales
Food, beer, wine and merchandise 182,334 126,505 (2,893) 125,561
Salaries and labor 268,826 161,574 27,365 194,440
------------ ------------ ------------ ------------
Total cost of sales 451,160 288,079 24,472 320,001
------------ ------------ ------------ ------------
Gross profit 10,697 82,495 (19,041) 37,674
General and administrative
expense
Administrative cost 902,192 604,579 272,130 612,508
Interest 39,026 12,776 8,770 30,103
Depreciation and amortization 63,952 41,660 3,038 46,888
------------ ------------ ------------ ------------
1,005,170 659,015 283,938 689,499
------------ ------------ ------------ ------------
Loss from operations (994,473) (576,520) (302,979) (651,825)
Gain or (loss) from discontinued operations (132,545) -- 143,781 (132,545)
------------ ------------ ------------ ------------
Cummulative effect of change in accounting
principle -- -- (38,489) --
------------ ------------ ------------ ------------
Net loss $ (1,127,018) $ (576,520) $ (197,687) $ (784,379)
============ ============ ============ ============
Per share amounts:
Loss from operations per share $ (0.118) $ (0.097) $ (0.028) $ (0.080)
============ ============ ============ ============
Gain/(loss) from discontinued operations $ (0.016) $ -- $ 0.013 $ (0.016)
============ ============ ============ ============
Loss from cummulative effect of change $ -- $ -- $ (0.004) $ --
============ ============ ============ ============
Net loss per share $ (0.134) $ (0.097) $ (0.018) $ (0.096)
============ ============ ============ ============
Average outstanding shares 8,435,721 5,923,784 10,838,550 8,165,542
============ ============ ============ ============
</TABLE>
<PAGE>
THE SCHOONER BREWERY INCORPORATED
Consolidated Statement of Stockholders' Equity
For the year ended December 31, 1998
<TABLE>
<CAPTION>
Shares of Additional Total
Common Common Paid-in Accumulated Stockholders'
Stock Stock Capital Deficit Equity
----- ----- ------- ------- ------
<S> <C> <C> <C> <C> <C>
Balance December 31, 1997 7,715,102 $ 38,575 $ 460,309 $ (617,475) $ (118,591)
Stock issued for Consulting Services 600,000 3,000 22,000 225,000
Contribution of capital for services 18,750 18,750
Stock issued for loan incentives 613,000 3,065 (3,065) --
Loss for the nine months ended
September 30, 1998 -- -- -- (784,370) (784,370)
--------- ----------- ----------- ----------- -----------
Balance at September 30, 1998 8,928,102 44,640 697,994 (1,401,845) (659,211)
--------- ----------- ----------- ----------- -----------
Stock issued in compensation for services 800,000 4,000 196,000 200,000
Sale of stock 60,000 300 14,700 15,000
Contribution of capital for services -- -- 6,250 -- 6,250
Net loss for the three months ended
December 31, 1998 -- -- -- (342,648) (342,648)
----------- ----------- ----------- ----------- -----------
Balance December 31, 1998 9,788,102 $ 48,940 $ 914,944 $(1,744,493) $ (780,609)
----------- ----------- ----------- ----------- -----------
Stock issued as incentive for loans 240,000 1,200 (1,200) -- --
Stock issued in compensation for
services 100,000 500 2,000 -- 2,500
Sales of stock 1,119,048 5,595 104,405 110,000
Contribution of capital for services -- -- 18,750 -- 18,750
Exercise of stock options 300,000 1,500 36,000 -- 37,500
Loss for the nine months ended
September 30, 1999 -- -- -- (197,687 (197,687)
----------- ----------- ----------- ----------- -----------
11,547,150 $ 57,735 $ 1,074,899 $(1,942,180 $ (809,546)
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>
GAMECOM, INC.
(Formerly The Schooner Brewery Incorporated)
Consolidated Statement of Cash Flows
<TABLE>
<CAPTION>
Nine Month Ended
Year Ended December 31, September 30
------------------------ ------------
1998 1997 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Cash flows from operating activities
Loss from operations $ (994,475) $ (576,520) $ (302,979) $ (651,825)
Loss from discontinued operations (132,545) -- 143,781 (132,545)
Cummulative effect of change in
accounting principle -- -- (38,489) --
----------- ----------- ----------- -----------
Net loss (1,127,020) (576,520) (197,687) (784,370)
Adjustments to reconcile net loss to net
cash provided by operating activities
Depreciation and amortization 183,667 28,830 3,038 169,811
(Increase) decrease in:
Accounts receivable-trade 483 2,908 1,367 (4,969)
Prepaid and other assets 20,146 (10,024) 41,534 16,939
Increase (decrease) in:
Accounts payable and accrued expense 122,601 205,198 135,497 102,631
----------- ----------- ----------- -----------
Net cash provided by operating activities (800,121) (349,608) (16,251) (499,963)
Cash flows from investing activities
Sale of capital assets -- -- 127,374 --
Capital expenditures (2,081) (15,193) (91,150) (2,078)
----------- ----------- ----------- -----------
Net cash used by investing activities (2,081) (15,193) 36,224 (2,078)
Cash flow from financing activities
Short-term notes payable 311,452 76,962 (189,860) 243,302
Increase in capital stock and
paid-in capital 465,001 308,350 168,750 243,751
----------- ----------- ----------- -----------
Net cash provided by financing activities 776,453 385,312 (21,220) 487,053
Net increase in cash and cash equivalents (25,749) 20,511 (1,137) (14,988)
Cash and cash equivalents beginning of period 31,415 10,904 5,666 31,415
----------- ----------- ----------- -----------
Cash and cash equivalents end of period $ 5,666 $ 31,415 $ 4,529 $ 16,427
=========== =========== =========== ===========
Interest paid during the year $ 19,701 $ 7,932 $ 9,040 $ 11,926
=========== =========== =========== ===========
Income taxes paid during the year $ -- $ -- $ -- $ --
=========== =========== =========== ===========
</TABLE>
<PAGE>
THE SCHOONER BREWERY INCORPORATED AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES
Principal Business Activity
The Schooner Brewery Incorporated operates a restaurant and brewpub through it's
wholly owned subsidiary, First Brewery of Dallas, Inc.
Principals of Consolidation
The accompanying consolidated financial statements include the accounts of the
parent company, The Schooner Brewery Incorporated ("Company") and its subsidiary
after elimination of significant intercompany accounts and transactions.
Concentration of Credit Risk
The Company maintains deposits within federally insured limits. Statement of
Financial Accounting Standards No. 105 identifies these items as concentration
of credit risk requiring disclosure, regardless of the degree of risk. The risk
is managed by maintaining all deposits in high quality financial institutions.
Use of Estimates in Preparation of Financial Statements
The preparation of the accompanying financial statements in conformity with
generally accepted accounting principles requires management to make certain
estimates and assumptions that directly affect the results of reported assets,
liabilities, revenues and expenses. Actual results may differ from these
estimates.
Fair Value of Financial Instruments
The fair value of all reported assets and liabilities which represent financial
instruments (none of which are held for trading purposes) approximate the
carrying value of such amounts.
Inventories
Inventories are stated at the lower of cost or market.
<PAGE>
Cash Flow Presentation
For purposes of the Statement of Cash Flows, cash equivalents include time
deposits, certificates of deposits and all liquid debt instruments with original
maturates of three months or less.
Earnings Per Share
Primary earnings per share amounts are computed based upon the weighted average
number of shares actually outstanding. The number of shares used in the
computation was 8,435,721.
Property, Equipment and Depreciation
Property and equipment are valued at cost. Maintenance and repair costs are
charged to expenses as incurred. Gains and losses on disposition of property and
equipment are reflected in income. Depreciation is computed on the straight-line
method for financial reporting purposes, based on the estimated useful lives of
the assets.
NOTE 1 SIGNIFICANT ACCOUNTING POLICIES (Continued)
Revenue Recognition and Accounts Receivable
Sales are made for cash or they are charged to credit cards. The credit card
sales are recorded as accounts receivable and collected within the following
two-week period. Revenues are recognized at the point sales are made.
Intangibles
Intangibles (Organization Cost) consist of cost incurred in the organization of
the Company and are amortized over five years. For the current year amortization
expense was $12,830.
Common Stock Issued for Services
The Company has in the past issued stock for service of non-employees on a
negotiated basis where the value of the services is recorded and stock issued
based upon the agreed number of shares issued for the value of the services
performed.
NOTE 2 GOING CONCERN
<PAGE>
As shown in the accompanying financial statements the Company has incurred
losses from operations and has a deficit working capital. The Company's current
net operating revenues are not sufficient to provide adequate cash flow required
to pay all of the Company's administrative expenses. For this reason the Company
must rely on short-term borrowing and equity financing. The Company's subsidiary
ceased operations of its business on January 10, 1999 the effect of which
eliminates sources of cash flow from operations. Because the subsidiary was
generating negative cash flow Management closed those operations to mitigate
further deterioration. Management has begun efforts for a new line of business
and anticipates additional equity funding to overcome these problems.
NOTE 3 DISCONTINUED OPERATIONS
Operations of the Company's brewpub and restaurant was discontinued in early
1999 and was being phased out in 1998. For the year 1998 the Company identified
the loss that would be incurred as the result of the discontinued operations.
The loss to be incurred related to the equipment and other fixed assets that
would be impaired and a loss sustained upon their disposition. The provision for
the loss was provided based on those assessments.
NOTE 4 ACQUISITION OF SUBSIDIARY
In March 1997 the Company acquired all of the outstanding stock of First Brewery
of Dallas, Inc. ("First") by exchanging 19,300,000 shares of the Company's
common capital stock for all of the outstanding capital stock of First whereby
First became the wholly owned subsidiary of the Company. This transaction was
accounted for as a "Pooling of Interest." Prior to the pooling the Company had
recorded a net loss for the current year of approximately $175,000. Prior to the
acquisition by the Company, First had acquired the interest of all of the
partners in First Brewery of Dallas, Ltd., a limited partnership by issuing its
capital stock in exchange for all of the partners' interest in the partnership.
The partnership had operated a restaurant and brewpub in the West End district
of Dallas, Texas since June 1994. On July 1, 1997, First acquired all of the
assets of the partnership in exchange for 49,500 shares of common stock of
First.
NOTE 5 NOTES PAYABLE
Notes payable at December 31, 1998 consisted of the following:
Note payable to bank due March 1, 1999 with interest at 9.5% $ 56,319
Note payable to bank due March 19, 1999 with interest at 11% 50,000
Note payable to stockholder due on demand with interest at 8% 118,541
Notes payable to stockholders due June 10, 1998, interest at 12% 100,000
Notes payable to stockholders due from August 1through
December 2, 1998 with no interest 162,000
Notes payable to stockholders due in February and March 1999
Without interest 63,500
--------
$550,360
--------
<PAGE>
The notes due from stockholders due in dates through December 31, 1998 were in
default at December 31, 1998. The notes due to stockholders due in 1999 have
subsequently become in default. Notes payable to stockholders in the amount of
$100,000 were issued by the Company in increments of $10,000 having a maturity
date of May 10, 1998. The holder of each of these Convertible Promissory Notes
has a non-assignable option to purchase 7,500 shares of Common Stock at par
value. Alternately, each holder has the right to convert their Convertible
Promissory Note to equity in the form of 12,500 shares of Common Stock. None of
the notes have been converted.
NOTE 6 STOCKHOLDERS' EQUITY
Common Stock
The Company's authorized number of Common Shares that can be issued is
50,000,000 shares with a par value of $.005. The number of shares outstanding at
December 31, 1998 was 9,788,102; of this amount 1,505,399 were redeemable for
the total amount of $7,527. The Company's board of directors adopted a
resolution on December 12, 1997 to redeem 1,505,399 shares of the Common Stock
from certain shareholders to be redeemed from the proceeds of a subsequent stock
offering no later than March 31, 1998. At December 31, 1998 none of the stock
has been redeemed.
Incentive Stock Options [Non-Compensation]
These options, incentive in nature, provide that Mr. Jones may purchase (i)
111,000 shares at par value subject to the condition precedent that the
Company's shares are trading at $1.50 per share, (ii) 361,000 shares at par
value subject to the condition precedent that the Company's shares are trading
at $3.00 per share, (iii) 111,000 shares at par value subject to the condition
precedent that the Company's shares are publicly trading at $4.50 per share, and
(iv) the balance of 250,000 shares at par value subject to the condition
precedent that the Company's shares are publicly trading at $5.00 per share.
These incentive stock options were granted to Mr. Jones by the Company's board
of directors (Mr. Jones abstaining) on December 12, 1997 and on December 14,
1998.
Messrs. Poynter and Aleckner each hold an option for 333,000 shares in the
Company's Common Stock.These options, incentive in nature, provide that Messrs.
Poynter and Aleckner may purchaser (i) 111,000 shares at par value subject to
the condition precedent that the Company's shares are trading at $1.50 per
share, (ii) 111,000 shares at par value subject to the condition precedent that
the Company's shares are trading at $3.00 per share, and (iii) the balance of
111,000 shares at par value subject to the condition precedent that the
Company's shares are publicly trading at $4.50 per share. These incentive stock
options were granted to Messrs. Poynter and Aleckner by the Company's board of
directors (Messrs.Poynter and Aleckner abstaining on the grant of their stock
option) on December 14, 1998.
Outstanding options were 1,499,000 and 750,000 respectively at December 31 1998
and 1997.
Redeemable Common Stock
<PAGE>
In December 1997, the ten former shareholders of First Brewery of Dallas, Inc.,
acquired by the Company in April 1997, collectively agreed with the Company's
Board of Directors that a dilution of their collective equity interest was in
the best interest of the Company. Therefore, the Company adopted a resolution on
December 12, 1997, redeeming 1,505,399 shares of the Common Stock from the ten
shareholders, at par value, with the consideration for such redemption to be
paid pro rata to such shareholders no later that March 31, 1998, presumably out
of the proceeds of a future equity offering. None of the shares have been
redeemed.
NOTE 7 INCOME TAXES
The Company follows Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes," which requires an asset and liability approach
for accounting for income taxes. Deferred income taxes arise from temporary
differences between financial and tax basis of certain assets and liabilities. A
valuation allowance has been established in the amount of $172,808. It is not
likely that the allowance will be realized consequently the allowance has been
fully reserved. The Company's net operating loss carryforward is $1,600,849.
NOTE 8 LEASES
The Company leases its restaurant space under a lease agreement, which expires
October 1, 1999. During the year ended December 31, 1998, the Company paid
$130,960 under the lease agreement.
NOTE 9 OFFICER AND DIRECTOR COMPENSATION
No director receives or has received any compensation from the Company for
service as a member of the Board of Directors. None of the officers have
received any compensation for service from the Company. However, based on the
time spent by one officer expense was recorded based on the estimated
compensation and that amount was credited to paid-in capital as a contribution
to capital.
NOTE 10 RELATED PARTY TRANSACTIONS
On December 12, 1997, by unanimous consent, the Board of Directors approved
borrowing up to $100,000 from certain stockholders. The promissory notes provide
that the notes be secured by the `Net Game LinkTM system to be installed at the
Company's restaurant. The holders of said notes shall, for each $10,000 of
notes, in addition to the payment of principal and interest, be entitled to
7,500 shares of the Company's common stock at par value at maturity. Prior to
maturity, the holders of the promissory notes shall have the right to convert
their notes to equity in the amount of 12,500 shares of the Company's restricted
common stock. Thereafter, by unanimous consent, the Board of Directors approved
additional borrowings from certain shareholders, in the aggregate sum of
$344,041. In lieu of interest, the Company issued to such shareholders
restricted shares of the Company's common stock.
NOTE 11 STOCK BASED COMPENSATION PLAN
<PAGE>
In 1995 the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards ["SFAS"] No. 123, "Accounting for Stock-Based
Compensation." SFAS No. 123 is effective for fiscal years beginning after
December 31, 1995 and requires companies to use
recognized option pricing to estimate the fair value of stock-based
compensation, including stock options. The Statement requires additional
disclosure based on the fair value based method of accounting for an employee
stock option and encourages, but does not require, companies to recognize the
value of these option grants as additional compensation using methodology of
SFAS No. 123. The Company has elected to continue recognizing expense as
prescribed by APB Opinion No.25, "Accounting for Stock Issued to Employees," as
allowed under FASB No. 123 rather than recognizing compensation expense as
calculated under SFAS No. 123. As such adoption SFAS No. 123 during 1998 did not
have any effect on the Company's consolidated financial statements.
The Company has one stock-based compensation plan as noted below. With regard to
its stock option plan, the Company applies APB No. 25 in accounting for such
plans and accordingly no compensation cost has been recognized. Had compensation
expense been determined based on fair value at the grant date for stock options
consistent with SFAS No. 123 the Company's net income and net income per common
share would not have changed for 1998 because no grants were made in 1998. The
effect of the grant in 1997, as described below, would reduced by $950
On December 12, 1997, by unanimous consent of the Board of Directors, restricted
options to purchase 50,000 shares of the Company's common stock were issued to
certain key personnel of the Company at an exercise price of $.005 per share.
The shares are non-transferable and may be redeemed at $.005 per share by the
Company in the event the holder shall cease for any reason to be employed by the
Company.
1998 1997
Number of options granted -- 50,000
======== =======
Weighted average exercise price per
share outstanding and exercisable $ -- $ .005
======== =======
Total compensation cost recognized $ $ --
======== =======
Weighted average grant date fair value $ $ .019
=======
The calculation of the fair values of the options, under the minimum value
method, assumes that no corporate dividends will be issued prior to exercise of
the options, and that the options will be exercised immediately prior to the
exercise expiration date. The risk free interest rate used in the calculation
was based on the zero coupon government issue rate of approximately 6 percent.
<PAGE>
NOTE 12 LEGAL PROCEEDINGS
On February 27, 1998 a judgement was rendered against First Brewery of Dallas I,
Ltd. the partnership all of which interest was acquired by First Brewery of
Dallas, Inc. The Company believes this judgement will be liquidated bankruptcy
proceedings of the subsidiary.
The Company's First Brewery of Dallas, Inc. subsidiary is a defendant in a
proceeding commenced June 14, 1999 in Tarrant County, Texas by Ben Strong
individually and the d/b/a Benco & Associates. This litigation arose out of the
construction of a brewpub which First Brewery acquired from its predecessor in
interest, and alleges that the transaction in which first Brewery of Dallas,
Inc. acquired the assets of the predecessor in interest constituted a fraudulent
conveyance. The amount sought is approximately $58,000. The Company believes
that this claim is without merit, and anticipates that it will be eliminated in
any event through the filing of a bankruptcy proceeding by First Brewery of
Dallas, Inc.
The Company has outstanding $235,500 in principal amount of promissory notes
payable to other shareholders, all of which are in default. These notes provide
for an initial issuance of shares of common stock in lieu of interest, all of
which (913,000 shares) have been issued. Accordingly, no additional interest is
accruing on these notes. However, $103,500 in principal amount of such
promissory notes provide for a per diem issuance of common stock as a penalty
for late payment. To date, the per diem issuance would be in excess of 2,000,000
shares of the Company's Common Stock. The Company has received an opinion from
counsel, Richard L. Wright, P.C., that the penalty provisions are unenforceable
as illegal usury under applicable Texas law. The Company believes that upon full
payment of these promissory notes along with non-usurious monetary interest,
this matter of additional shares for late payment by the Company will be
amicably resolved between the Company and the holder of these promissory notes.
However no assurance can be given in that regard. No provision for this matter
based on the opinion of legal counsel.
NOTE 13 REVERSE STOCK SPLIT
In a Special Meeting of the Board of Directors on June 30, 1997 and pursuant to
the action of taken by the shareholders owning a majority of the issued and
outstanding shares of the Company's common stock the Company gave effect to a
reverse stock split of one share for five shares of the Company's common stock.
Before the stock split the Company had 34,965,000 shares of stock outstanding;
immediately after the stock split the Company had outstanding 6,993,000 shares
of common stock.
NOTE 14 SUBSEQUENT EVENTS
In January 1999, the Company ceased operations of its restaurant and brewpub
because of the continuing negative results of operation and the declining market
in the general area of the location of the business. Because of the
discontinuance of operations in January 1999, the Company has provided a
provision for the loss on the impairment of the assets associated with the
discontinuance in the amount of $132,545, which is included in the Consolidated
Statement of Operations. The revenues relative to discontinued operations were
$469,357 and the related expense was $661,490.
<PAGE>
Based on the decision of the Board of Directors the Company is redirecting its
efforts in the interactive Internet entertainment business. On February 10, 1999
the Company amended its articles of incorporation changing the name of the
Company to "GameCom, Inc."
On June 18, 1999, the judgement creditor mentioned above in Note 12, "Legal
Proceedings", served the Company with a lawsuit. As the lawsuit is against First
Brewery of Dallas, Inc., the general partner of the party defendant in the
previous judgement, management is of the opinion that this lawsuit provides no
greater exposure to the Company than that reflected by the judgement discussed
above.
NOTE 15 REVISED FINANCIAL STATEMENTS
Subsequent to the completion of the audit and the issuance of the audit report
it was determined that additional transactions had occurred during the year
where common stock of the Company had been issued for consulting and other
services. The financial statements have been revised to reflect these
transactions which were recorded based on the value of the services performed
and the price of the stock at the time of the services.
PART III
ITEM I - INDEX TO EXHIBITS
EXHIBIT DESCRIPTION
NO
(3.1) *Articles of Incorporation of The Schooner Brewery Incorporated
(3.2) *Certificate of Amendment of Articles of Incorporation of The Schooner
Brewery Incorporated dated February 14, 1997
(3.3) *Certificate of Amendment of Articles of Incorporation of The Schooner
Brewery Incorporated filed February 10, 1999
(3.4) *Bylaws
(3.5) Plan of Merger between GameCom, Inc., a Nevada corporation and GameCom,
Inc., a Texas corporation
(3.6) Articles of Incorporation of GameCom, Inc., a Texas corporation
(3.7) Bylaws of GameCom, Inc.
(4.1) *Form of Subordinated Notes
(4.2) *Form of Convertible Subordinated Notes
<PAGE>
(4.3) *Form of Convertible Subordinated Notes providing for penalty payable in
shares
(10) 2000 Incentive Stock Option Plan
(21) *List of Subsidiaries
(27) Financial Data Schedule
*Previously filed
ITEM 2 - DESCRIPTION OF EXHIBITS
Not applicable
SIGNATURE
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant has caused this registration statement to be signed on its behalf by
the undersigned, thereunto duly authorized.
Date: February 24, 2000 GAMECOM, INC.
By: /s/ L. Kelly Jones
--------------
L. Kelly Jones
Chief Executive Officer and Chief
Financial Officer
Date:
Exhibit 3.5
PLAN OF MERGER
Between
GameCom, Inc., a Nevada corporation
and
GameCom, Inc., a Texas corporation
A. Effective upon the filing of appropriate articles of merger with the
Secretary of State of Nevada and the Secretary of State of Texas and the
issuance of a certificate of merger by the Secretary of State of Texas (the
"Effective Time"), GameCom, Inc., a Nevada corporation ("GameCom Nevada")
formerly named The Schooner Brewery Incorporated, will merge (the "Merger") with
and into GameCom, Inc., a Texas corporation ("GameCom Texas").
B. GameCom Texas shall be the surviving corporation of the Merger (the
"Surviving Corporation"). The Surviving Corporation shall continue to be
governed by the laws of the State of Texas.
C. The post office address of the Surviving Corporation's registered
office in the State of Texas is 440 North Center, Arlington, Texas 76011, and
the name of its registered agent in such State is L. Kelly Jones. The post
office address of GameCom Nevada's registered office is American Corporate
Register, 4960 South Virginia Street, Suite 300, Reno, Nevada 89502.
D. At the Effective Time, the Articles of Incorporation, Bylaws, directors
and officers of the Surviving Corporation will be those of GameCom Texas
immediately prior to the Effectivre Time until changed in accordance with the
Articles of Incorporation and Bylaws of the Surviving Corporation and applicable
law.
E. As a result of the Merger and without any action on the part of the
holders thereof, each of the 11,591,053 shares of Common Stock, par value $.005
per share, of GameCom Nevada ("GameCom Nevada Common Stock") issued and
outstanding at the Effective Time shall be converted into one (1) validly
issued, fully paid and nonassessable share of the Common Stock, par value $.005
per share, of the Surviving Corporation ("Surviving Corporation Common Stock").
Each share of GameCom Nevada Common Stock held in treasury of GameCom Nevada at
the Effective Time, if any, by virtue of the Merger, shall cease to be
outstanding and shall be canceled and retired without payment of any
consideration therefor and shall cease to exist.
F. Each of the 10 shares of GameCom Texas Common Stock, pr value $.005 per
share, outstanding immediately prior to the Effective Time will not be changed
or otherwise affected by the Merger, and will remain outstanding following the
Merger as a like number of shares of Surviving Corporation Common Stock. Each
share of GameCom Texas Common Stock held in treasury of GameCom Texas at the
Effective Time, if any, by virtue of the Merger, shall cease to be outstanding
and shall be canceled and retired without payment of any consideration therefor
and shall cease to exist.
Exhibit 3.6
ARTICLES OF INCORPORATION
OF
GAMECOM, INC.
The undersigned natural person, of the age of eighteen years or more, a
resident of the State of Texas, acting as an incorporator of a corporation under
the Texas Business Corporation Act, does hereby adopt the following Articles of
Incorporation for such corporation:
ARTICLE ONE
The name of the corporation (the "Company") is GameCom, Inc.
ARTICLE TWO
The period of its duration is perpetual.
ARTICLE THREE
The purpose for which the Company is organized is to transact any or all
lawful business for which corporations may be incorporated under the Texas
Business Corporation Act, as amended and in effect from time to time (the
"TBCA").
ARTICLE FOUR
(A) Authorized Capital Stock. The aggregate number of shares of all
classes of stock the Company shall have authority to issue is 52,000,000
consisting of and divided into:
(i) one class of 50,000,000 shares of Common Stock, par value $0.005 per
share (the "Common Stock"); and
(ii) one class of 2,000,000 shares of Preferred Stock, par value $0.005
(the "Preferred Stock"), which may be divided into and issued in one
or more series, as hereinafter provided.
(B) Series. The Preferred Stock may be divided into and issued in, at any
time and from time to time, one or more series as the Board of Directors shall
determine pursuant to the authority hereby vested in it. The Board of Directors
shall have the authority to establish series of unissued shares of Preferred
Stock, at any time and from time to time, by fixing and determining the
designations, preferences, limitations and relative rights of the shares of the
series, subject to and within the limitations of the TBCA and the Articles of
Incorporation, including without limitation the following:
(a) the number of shares constituting the series and the distinctive
designation of that series;
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(b) the dividend rate on shares of the series, the dividend payment
dates, whether dividends shall be cumulative (and, if so, from which
date or dates), non- cumulative, or partially cumulative, and the
relative rights of priority, if any, of payment of dividends on the
shares of the series;
(c) the amount payable to the holders of shares of the series upon any
voluntary or involuntary liquidation of the Company;
(d) the preference in the assets of the Company over any other class,
classes or series of shares upon the voluntary or involuntary
liquidation of the Company;
(e) whether the shares of the series are redeemable at the option of the
Company, the shareholder or another person or upon occurrence of a
designated event and, if so, the price payable upon redemption of
shares of the series and the terms and conditions on which such
shares are redeemable;
(f) the provisions of the sinking fund, if any, for the redemption or
purchase of shares of the series;
(g) the voting rights, if any, of the shares of the series;
(h) the terms and conditions, if any, on which such shares may be
converted, at the option of the Company, the shareholder or another
person or upon occurrence of a designated event, into shares of any
other class or series;
(i) the terms and conditions, if any, on which such shares may be
exchanged, at the option of the Company, the shareholder or another
person or upon occurrence of a designated event, for shares,
obligations, indebtedness, evidences of ownership, rights to
purchase securities or other securities of the Company or one or
more other domestic or foreign corporations or other entities or for
other property or for any combination of the foregoing; and
(j) any other special rights and qualifications, limitations or
restrictions permitted by the TBCA to be granted to or imposed on
the series.
Any of the designations, preferences, limitations and relative rights of
the shares of any series so established may be made dependent upon facts
ascertainable outside the Articles of Incorporation, which facts may include
future acts of the Company, provided that the manner in which such facts shall
operate upon the designations, preferences, limitations and relative rights of
the shares of any series shall be set forth in the resolution or resolutions
establishing the series.
All shares within the same series of Preferred Stock shall be identical
except as to the date of issue and the dates from which dividends on shares of
the series issued on different dates will cumulate, if cumulative. The Board of
Directors shall have the authority to increase or decrease the number of shares
within each series of Preferred Stock; provided, that the Board of Directors may
not
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<PAGE>
decrease the number of shares within a series to less than the number of
shares within such series that are then outstanding.
(C) Preemptive Rights. No shareholder of the Company shall by reason of
the shareholder's holding shares of any class or series have any preemptive or
preferential right to purchase or subscribe to any shares of any class or series
of the Company, now or hereafter to be authorized, or any notes, debentures,
bonds or other securities convertible into or carrying options or warrants to
purchase shares of any class or series, now or hereafter to be authorized,
whether or not the issuance of any such shares, or such notes, debentures, bonds
or other securities, would adversely affect the dividend or voting rights of
such shareholders, other than such rights, if any, as the Board of Directors in
its discretion may fix; and the Board of Directors may issue shares of any class
or series of the Company, or any notes, debentures, bonds or other securities
convertible into or carrying options or warrants to purchase shares of any class
or series, without offering any such shares of any class or series, either in
whole or in part, to the existing shareholders of any class or series.
(D) Subordination of Common Stock. The Common Stock shall be subject and
subordinate to the rights, privileges and preferences of any series of Preferred
Stock to the extent set forth in the resolution or resolutions of the Board of
Directors establishing the series.
(E) Other Provisions Applicable to Capital Stock.
(a) Each outstanding share of Common Stock shall be entitled to one vote
on each matter submitted to a vote at a meeting of shareholders,
except as otherwise provided by the TBCA or as set forth in the
resolution or resolutions of the Board of Directors establishing any
series of Preferred Stock.
(b) At each election for directors of the Company ("Directors"), every
shareholder entitled to vote at such election shall have the right
to vote the number of shares owned by such shareholder for as many
persons as there are Directors to be elected and for whose election
such shareholder has a right to vote; provided that cumulative
voting in the election for Directors is prohibited.
(c) In the event of any dissolution, liquidation or winding up of the
Company, but subject to the rights of the holders of any series of
Preferred Stock, holders of Common Stock shall be entitled to
receive pro rata all of the remaining assets of the Company
available for distribution to its shareholders.
(d) Subject to the rights of the holders of Preferred Stock as set forth
in the resolution or resolutions of the Board of Directors
establishing any series of Preferred Stock, dividends may be paid
upon Common Stock to the exclusion of Preferred Stock out of any
assets of the Company available therefor.
3
<PAGE>
ARTICLE FIVE
The street address of the Company's registered office is 440 North Center,
Arlington, Texas 76011, and the name of its registered agent at that address is
L. Kelly Jones.
ARTICLE SIX
(A) Number. The number of Directors constituting the Board of Directors of
the Company shall be fixed from time to time by the Board of Directors by the
affirmative vote of not less than a majority of the Continuing Directors (as
defined in Article Ten) but shall not be less than three (3), subject to such
rights to elect additional Directors under such specified circumstances as may
be granted to holders of Preferred Stock,
(B) Required Vote to Elect Directors. With respect to the election of
Directors, the act of the shareholders electing the Directors shall be a vote of
the holders of a majority of the outstanding shares entitled to vote in the
election of Directors.
(C) Term. Directors shall hold office until their respective successors
shall have been elected and qualified.
(D) Removal. Directors may be removed from office, with or without cause,
only by the affirmative vote of the holders of not less than a majority of the
outstanding shares entitled to vote in the election of Directors, if notice of
the intention to act upon such matter shall have been given in the notice
calling for the meeting.
(E) Vacancies; Increase in Number of Directors. Subject to such rights to
elect Directors under specified circumstances as may be granted to holders of
Preferred Stock, newly created directorships resulting from any increase in the
number of Directors and any vacancies on the Board of Directors resulting from
death, resignation, disqualification, removal or other reason shall be filled
solely by the affirmative vote of a majority of the Continuing Directors, even
though less than a quorum of the Board of Directors. No decrease in the number
of Directors constituting the Board of Directors shall shorten the term of any
incumbent Director.
(F) Initial Directors. The number of Directors constituting the initial
Board of Directors is three (3), subject to being increased or decreased as set
forth above. The names and addresses of the persons who are to serve as
Directors until the first annual meeting of shareholders or until their
respective successors are elected and qualified, are as follows:
Name Address
L. Kelly Jones 440 North Center
Arlington, Texas 76011
W. James Poynter City Center Tower II
301 Commerce Street, Suite 1205
Fort Worth, Texas 76102
4
<PAGE>
John F. Aleckner, Jr. 1901 Rockcliff Court
Arlington, Texas 76012
ARTICLE SEVEN
To the fullest extent permitted by law, a Director shall not be liable to
the Company or its shareholders for monetary damages for any act or omission in
his capacity as a Director. Any repeal or modification of this Article shall be
prospective only and shall not adversely affect any limitation of the personal
liability of a Director existing at the time of the repeal or modification. The
provisions of this Article shall not be deemed to limit or preclude
indemnification of a Director by the Company for any liability of a Director
that has not been eliminated by the provisions of this Article.
ARTICLE EIGHT
(A) Power to Alter, Amend or Repeal Bylaws. The power to alter, amend,
suspend or repeal the Bylaws or to adopt new Bylaws shall be vested in, and
shall require the affirmative vote of not less than a majority of the Continuing
Directors (as defined in Article Ten); provided that any Bylaw or amendment
thereto as adopted by the Board of Directors may be altered, amended, suspended
or repealed by the affirmative vote of the holders of not less than 66 2/3% of
the outstanding Voting Stock (as defined in Article Ten) or a new Bylaw in lieu
thereof may be adopted by vote of such shareholders. No Bylaw that has been
altered, amended or adopted by such a vote of the shareholders may be altered,
amended or repealed by vote of the Directors until two years shall have expired
since such action by such vote of shareholders.
(B) Bylaw Stock Ownership Restrictions. The Board of Directors shall have
the power and authority, from time to time, to adopt, alter or amend the Bylaws
to add or amend such provisions as in their judgment may be necessary or
appropriate to ensure that the Company and its shareholders satisfy the
citizenship or other requirements imposed by any federal or state law relating
to the ownership, possession or leasing of any property, licenses or rights of
any nature whatsoever in which the Company or any of its subsidiaries may have
or hereafter have, or seek to have, any right or interest. Without limiting such
general powers, the Board of Directors shall have the power and authority, from
time to time, to adopt, alter or amend the Bylaws to add or amend provisions
that for such purpose impose restrictions on the transfer or registration of
transfer of the shares of the Company, including without limitation restrictions
that:
(1) obligate the holders of the restricted shares to offer to the
Company or to any other holders of shares of the Company or to any other
person or to any combination of the foregoing, a prior opportunity, to be
exercised within a reasonable time, to acquire the restricted shares;
(2) provide that the Company or the holders of any class of shares
of the Company must consent to any proposed transfer of the restricted
shares or approve the proposed transferee of the restricted shares before
the transfer may be effected;
(3) prohibit the transfer of the restricted shares to designated
persons or classes of persons; or
5
<PAGE>
(4) maintain any tax or other status or advantage to the Company.
ARTICLE NINE
(A) No Shareholder Written Consent Action. Any action required or
permitted to be taken by the shareholders of the Company must be effected
at a duly called annual or special meeting of such holders and may not be
effected by any consent in writing by such holders.
(B) Special Meetings of Shareholders. Subject to such rights to call
special meetings of shareholders under specified circumstances as may be
granted to holders of Preferred Stock, special meetings of shareholders
may be called only by the Chairman of the Board or the President of the
Company, at the request in writing or by vote of not less than a majority
of the Continuing Directors (as defined in Article Ten) or at the request
of the holders of not less than 50% of the outstanding shares entitled to
vote at the meeting, and not by any other persons. Any request for a
special meeting made by the Board of Directors shall state the purpose or
purposes of the proposed meeting, and business transacted at the meeting
shall be confined to the objects stated in the notice of the meeting.
ARTICLE TEN
In addition to any other vote of shareholders required by the TBCA,
the Articles of Incorporation or otherwise, the affirmative vote of the
holders of not less than 80% of the outstanding shares of "Voting Stock"
(as hereinafter defined) of the Company, including the affirmative vote of
the holders of not less than 50% of the outstanding shares of Voting Stock
not "Beneficially Owned"(as hereinafter defined), directly or indirectly,
by any "Related Person" (as hereinafter defined), shall be required for
the approval or authorization of any "Business Combination" (as
hereinafter defined) in which any Related Person has an interest (except
proportionately as a shareholder of the Company); provided, that the 50%
voting requirement referred to above shall not be applicable if the
Business Combination is approved by the affirmative vote of the holders of
not less than 90% of the outstanding shares of Voting Stock; provided
further that the 80% requirement referred to above shall not be applicable
if:
(1) The Board of Directors by a vote of not less than a
majority of the "Continuing Directors" (as hereinafter defined) then
holding office (a) expressly approved in advance the acquisition of
outstanding shares of Voting Stock that resulted in the Related
Person becoming a Related Person or (b) approved the Business
Combination prior to the Related Person involved in the Business
Combination having become a Related Person;
(2) The Business Combination is solely between the Company and
another corporation, 100% of the Voting Stock of which is owned,
directly or indirectly, by the Company; or
(3) All of the following conditions have been met: (a) the
Business Combination is a merger or consolidation, the consummation
of which is proposed to take place within one (1) year after the
date of the transaction that resulted in the
6
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Related Person becoming a Related Person and the cash or fair market
value of the property, securities or other consideration to be
received per share by holders of Common Stock in the Business
Combination is not less than the highest per share price (with
appropriate adjustments for recapitalizations and for stock splits,
reverse stock splits and share dividends, and including any
brokerage commissions, transfer taxes and soliciting dealer fees)
paid by the Related Person in acquiring any of its holdings of
Common Stock; (b) the consideration to be received by such holders
is either cash or, if the Related Person shall have acquired the
majority of its holdings of Common Stock with a form of
consideration other than cash, the same form of consideration with
which the Related Person acquired such majority; (c) after such
Related Person has become a Related Person and prior to consummation
of such Business Combination: (i) except as approved by a majority
of the "Continuing Directors" (as hereinafter defined), there shall
have been no failure to declare and pay at the regular date therefor
any full quarterly dividends (whether or not cumulative) on any
outstanding shares of Preferred Stock, (ii) there shall have been no
reduction in the annual rate of dividends paid per share on the
Company's Common Stock (adjusted as appropriate for
recapitalizations and for stock splits, reverse stock splits and
share dividends) except as approved by a majority of the Continuing
Directors, (iii) such Related Person shall not have become the
Beneficial Owner of any additional shares of Voting Stock of the
Company except as part of the transaction that resulted in such
Related Person becoming a Related Person, and (iv) such Related
Person shall not have received the benefit, directly or indirectly
(except proportionately as a shareholder), of any loans, advances,
guarantees, pledges or other financial assistance or any tax credits
or other tax advantages provided by the Company, whether in
anticipation of or in connection with such Business Combination or
otherwise; and (d) a proxy statement, that complies with the
requirements of the "Exchange Act" (as hereinafter defined) and the
rules and regulations thereunder (or any subsequent provisions
replacing the Exchange Act, rules or regulations), shall be mailed
to all shareholders of record not less than forty (40) days prior to
the consummation of the Business Combination for the purpose of
soliciting shareholder approval of the Business Combination and
shall contain at the front thereof, in a prominent place, any
recommendations as to the advisability (or inadvisability) of the
Business Combination that the Continuing Directors, or any of them,
may choose to state and, if deemed advisable by a majority of the
Continuing Directors, an opinion of a reputable investment banking
firm as to the fairness (or unfairness) of the terms of such
Business Combination from the point of view of the remaining
shareholders of the Company (such investment banking firm to be
selected
by a majority of the Continuing Directors and to be paid a
reasonable fee for its services by the Company upon receipt of such
opinion).
For the purposes of this Article:
"Affiliate," when used to indicate a relationship to a specified
person, shall mean a person that directly, or indirectly through one or
more intermediaries, controls, or is controlled by, or is under common
control with, the specified person.
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"Associate," when used to indicate a relationship with a specified
person, shall mean (a) any corporation, partnership or other organization
of which the specified person is an officer or partner or is, directly or
indirectly, the Beneficial Owner of five percent or more of any class of
equity securities, (b) any trust or other estate in which the specified
person has a substantial beneficial interest or as to which the specified
person serves as trustee or in a similar fiduciary capacity, (c) any
relative or spouse of the specified person, or any relative of that
spouse, who has the same home as the specified person or who is a director
or officer of the Company or any of its parents or Subsidiaries, and (d)
any person who is a director or officer of the specified person or any of
its parents or subsidiaries (other than the Company or any Subsidiary of
the Company).
"Beneficial Owner" and "Beneficially Own," when used with reference
to any Voting Stock, shall mean
(a) that the person or any of its Affiliates or Associates
beneficially owns, directly or indirectly, within the meaning of Rule
13d-3 under the Exchange Act as in effect on February 2, 2000;
(b) that the person or any of its Affiliates or Associates has (i)
the right to acquire (whether that right is exercisable immediately or
only after the passage of time and whether that right is contingent or
absolute) pursuant to any agreement, arrangement or understanding or upon
the exercise of conversion rights, exchange rights, warrants or options,
or otherwise, or (ii) the right to vote pursuant to any agreement,
arrangement or understanding (but neither that person nor any such
Affiliate or Associate shall be deemed to be the Beneficial Owner of any
shares of Voting Stock solely by reason of a revocable proxy granted with
respect to shares for a particular meeting of shareholders pursuant to a
public solicitation of proxies for that meeting, if neither that person
nor any such Affiliate or Associate is otherwise deemed the Beneficial
Owner of those shares); or
(c) that are beneficially owned, directly or indirectly, within the
meaning of Rule 13d-3 under the Exchange Act as in effect on February 2,
2000 by any other person with which the person or any of its Affiliates or
Associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting (other than solely by reason of a revocable
proxy given in response to public proxy or consent solicitation made
pursuant to the applicable rules under the Exchange Act) or disposing of
any shares of Voting Stock;
provided, however, that in the case of any employee stock ownership or
similar plan of the Company or of any Subsidiary in which the
beneficiaries thereof possess the right to vote any shares of Voting Stock
held by that plan, no such plan and no trustee with respect thereto (or
any Affiliate of that trustee), solely by reason of that capacity as
trustee, shall be deemed for the purposes hereof to Beneficially Own any
shares of Voting Stock held under any such plan.
"Business Combination" shall mean (a) any merger, consolidation or
share exchange involving the Company or a Subsidiary, (b) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of all or any
"Substantial Part" (as hereinafter defined) of the assets either of the
Company (including without limitation any voting securities of a
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Subsidiary) or of a Subsidiary, (c) any sale, lease, exchange, transfer or
other disposition of assets having a fair market value of $1,000,000 or
more to the Company or a Subsidiary, (d) the issuance or transfer by the
Company or a Subsidiary (other than by way of a pro rata distribution to
all shareholders) of any securities of the Company or a Subsidiary, (e)
any reclassification of securities (including any reverse stock split) or
recapitalization by the Company, the effect of which would be to increase
the voting power (whether or not currently exercisable) of a Related
Person, (f) any plan or proposal for the liquidation or dissolution of the
Company, (g) any series or combination of transactions having, directly or
indirectly, the same effect as any of the foregoing, and (h) any
agreement, contract or other arrangement providing, directly or
indirectly, for any of the foregoing.
"Continuing Director" shall mean any member of the Board of
Directors who is not an Affiliate or Associate of a Related Person and who
was a member of the Board of Directors immediately prior to the time that
the Related Person became a Related Person, and any successor to a
Continuing Director who is not an Affiliate or Associate of the Related
Person and is recommended to succeed a Continuing Director by a majority
of Continuing Directors then serving as members of the Board of Directors.
Provisions hereof requiring approval by Continuing Directors shall not be
deemed satisfied unless there is at least one Continuing Director.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time.
"other consideration to be received," for purposes of subparagraph
(3) of this Article, shall include without limitation Common Stock
retained by the Company's existing public shareholders in the event of a
Business Combination in which the Company is the surviving corporation.
"person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, unincorporated organization,
association, limited liability company, corporation, company, institution,
entity, party or governmental authority.
"Related Person" shall mean and include any person or "group" of
persons (as such term is used in Regulation 13D-G under the Exchange Act),
and each Affiliate and Associate
of any such person, that individually or collectively is the Beneficial
Owner in the aggregate of not less than 10% of the outstanding Voting
Stock, other than the Company or any employee benefit plan(s) sponsored by
the Company.
"Subsidiary" shall mean, with respect to any person, a person in
which the person directly or indirectly owns at least a majority of the
outstanding voting securities or other equity interests having the power,
under ordinary circumstances, to elect a majority of the directors, or
otherwise to direct the management and policies, of such person, and any
person that is affiliated with such person.
"Substantial Part" shall mean more than 5% of the book value of the
total assets of the person in question as of the end of the most recently
completed fiscal year or, in the case
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of Voting Stock of a Subsidiary, 10% or more of the outstanding shares of
such Subsidiary's Voting Stock.
"Voting Stock" shall mean all outstanding shares of capital stock of
the Company or other person entitled to vote generally in the election of
Directors, considered for the purposes of this Article as a single class.
If the Company has Voting Stock entitled to more or less than one vote for
any such share, each reference in this Article to a proportion or
percentage of shares of Voting Stock shall be calculated by reference to
the portion or percentage of votes entitled to be cast by the holders of
such shares.
For the purpose of this Article, a majority of the Continuing
Directors shall have the power to determine, on the basis of information
known to them, of: (a) the number of shares of Voting Stock of which any
person is the Beneficial Owner, (b) whether a person is a Related Person,
(c) whether a person is an Affiliate or Associate of another person, (d)
whether a person has an agreement, arrangement or understanding with
another as to the matters referred to in the definition of Beneficial
Owner herein, (e) whether the assets subject to any Business Combination
constitute a Substantial Part, (f) whether any Business Combination is one
in which a Related Person has an interest (except proportionately as a
shareholder of the Company), (g) the fair market value of property other
than cash or stock, (h) the highest per share price in accordance with
this Article, (i) whether the applicable conditions set forth in this
Article have been met with respect to any Business Combination, and (j)
such other matters with respect to which a determination is required under
this Article.
A majority of the Continuing Directors then in office shall have the
right to demand that any person who those Directors reasonably believe is
a Related Person (or holds of record shares of Voting Stock Beneficially
Owned by any Related Person) supply the Company with complete information
about (a) the record owner(s) of all shares Beneficially Owned by the
persons who those Directors reasonably believe is a Related Person, (b)
the number of, and class or series of, shares Beneficially Owned by any
such person who those Directors reasonably believe is a Related Person and
held of record by each such record owner and the number(s) of the stock
certificates(s) evidencing such shares and (c) any other factual matter
relating to the applicability or effect of this Article as may reasonably
be
requested of such person, and that person shall furnish that information
within ten days after receipt of the demand.
ARTICLE ELEVEN
The provisions set forth in Articles Six, Eight and Nine hereof may
not be amended, altered, changed, repealed or rescinded in any respect
unless such action is approved by the affirmative vote of the holders of
not less than 75% of all shares of "Voting Stock" (as defined in Article
Ten), considered for purposes of this Article as one class; the amendment,
alteration, change, repeal or recision of this Article and Article Ten
hereof shall require both such 75% vote and the affirmative vote of the
holders of not less than 50% of such Voting Stock, excluding the vote of
any shares owned by a "Related Person" (as defined in Article Ten), if any
(such 50% voting requirement shall not be applicable if such amendment,
alteration, change, repeal or recision is approved by the affirmative vote
of the holders of
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not less than 90% of such Voting Stock). The voting requirement contained
in this Article and in Articles Six, Eight, Nine and Ten hereof shall be
in addition to voting requirements imposed by law, other provisions of
these Articles of Incorporation or any designation of preferences in favor
of certain classes or series of classes of shares of capital stock of the
Company.
ARTICLE TWELVE
The Company will not commence business until it has received for the
issuance of shares consideration of the value of at least One Thousand
Dollars ($1,000.00).
ARTICLE THIRTEEN
The name and address of the incorporator are:
Jay D. Reeve 901 Main Street
Suite 6000
Dallas, Texas 75202
Dated this 3rd day of February, 2000.
--------------------------------------
Jay D. Reeve, Incorporator
11
Exhibit 3.7
BYLAWS OF GAMECOM, INC., A
CORPORATION INCORPORATED UNDER
THE LAWS OF THE STATE OF TEXAS
PURPOSE AND SCOPE OF BYLAWS
These Bylaws shall constitute the private laws of GAMECOM, INC., a
corporation duly incorporated under the laws of the State of Texas (herein
called the "Company"), for the administration and regulation of the affairs of
the Company.
In the event any provision of these Bylaws is or may be in conflict with
any applicable law of the United States or the State of Texas, or of any order,
rule, regulation, decree or judgment of any governmental body or power or court
having jurisdiction over the Company, or over the subject matter to which such
provision of these Bylaws applies or may apply, such provision of these Bylaws
shall be inoperative to the extent only that the operation thereof unavoidably
conflicts with such law or order, rule, regulation, decree or judgment, and
shall in all other respects be in full force and effect.
ARTICLE I
OFFICES
Section 1. The registered office of the Company shall be at 440 North
Center, in the City of Arlington, County of Tarrant, State of Texas, and the
registered agent of the Company at such address shall be L. Kelly Jones or such
other person as the Board of Directors may from time to time designate.
Section 2. The Company may also have offices at such other places both
within and without the State of Texas as the Board of Directors may from time to
time determine or the business of the Company may require.
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ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. All meetings of the shareholders shall be held at the
registered office of the Company or at such other place either within or without
the State of Texas as shall be designated from time to time by the Board of
Directors.
Section 2. The annual meeting of shareholders shall be held on the second
Tuesday of May in each year, commencing in the year 2001, at 2:00 P.M., for the
election of a Board of Directors and the transaction of such other business as
may properly be brought before the meeting.
Section 3. Special meetings of the shareholders may only be called by the
Chairman of the Board or the President, at the request in writing or by vote of
not less than a majority of the Continuing Directors (as defined in Article Ten
of the Articles of Incorporation of the Company) of the Board of Directors, or
the holders of not less than 50% of all the outstanding shares entitled to vote
at the meetings, and not by any other persons. Business transacted at all
special meetings shall be confined to the objects stated in the notice of
meeting.
Section 4. Written or printed notice stating the place, day and hour of
the meeting, and, in case of a special meeting, the purpose or purposes for
which the meeting is called, shall be delivered not less than ten (10) nor more
than sixty (60) days before the date of the meeting, either personally or by
mail, by or at the direction of the Chairman, the Secretary, or the officer or
person calling the meeting, to each shareholder of record entitled to vote at
such meeting. If mailed, such notice shall be deemed to be delivered when
deposited in the United States mail addressed to the shareholder at his address
as it appears on the stock transfer books of the Company, with postage thereon
prepaid.
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Section 5. The officer or agent having charge of the stock transfer books
for shares of the Company shall make, at least ten (10) days before each meeting
of shareholders, a complete list of the shareholders entitled to vote at such
meeting or any adjournment thereof, arranged in alphabetical order, with the
address of and the number of shares held by each, which list, for a period of
ten (10) days prior to such meeting, shall be kept on file at the registered
office of the Company and shall be subject to inspection by any shareholder at
any time during usual business hours. Such list shall also be produced and kept
open at the time and place of the meeting and shall be subject to the inspection
of any shareholder during the whole time of the meeting. The original stock
transfer books shall be prima-facie evidence as to who are the shareholders
entitled to examine such list or transfer books or to vote at any meeting of
shareholders.
Section 6. The holders of a majority of the shares issued and outstanding
and entitled to vote thereat, present in person or represented by written proxy,
shall constitute a quorum at all meetings of the shareholders for the
transaction of business. If, however, such quorum shall not be present or
represented at any meeting of the shareholders, the shareholders entitled to
vote thereat, present in person or represented by proxy, shall have power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified.
Section 7. Each outstanding share, of any class, shall be entitled to as
many votes per share as the Articles of Incorporation shall provide, on each
matter submitted to a vote at a meeting of shareholders, except to the extent
that the voting rights of the shares of any class or classes are limited or
denied by the Articles of Incorporation or these Bylaws. The vote for the
election of Directors and,
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upon demand by any shareholder, the vote upon any question before the meeting
shall be by ballot. Cumulative voting is expressly prohibited.
Section 8. At any meeting of the holders, every shareholder having the
right to vote shall be entitled to vote in person or by proxy executed in
writing by such shareholder or by his duly authorized attorney-in-fact. No proxy
shall be valid after eleven (11) months from the date of its execution unless
otherwise provided in the proxy. All proxies shall be revocable unless expressly
provided therein to be irrevocable and are coupled with an interest and shall be
filed with the Secretary of the Company prior to or at the time of the meeting
at which they are to be voted.
Section 9. When a quorum is present at any meeting, matters brought before
the meeting shall be determined by the shareholders in the following manner: (a)
with respect to any matter, other than the election of Directors or a matter for
which the affirmative vote of a specified portion of the shares entitled to vote
is required by the statutes or the Articles of Incorporation, the act of the
shareholders shall be the affirmative vote of the holders of a majority of the
shares entitled to vote on, and voted for or against, that matter at a meeting
of shareholders at which a quorum is present and (b) with respect to the
election of Directors, the act of the shareholders electing the Directors shall
be a majority of all outstanding shares entitled to vote in the election of
Directors, unless in each case the question is one upon which, by express
provision of the statutes or of the Articles of Incorporation or of these
Bylaws, a different vote is required, in which case such express provision shall
govern and control the decision of such question. The shareholders present at a
duly organized meeting may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum.
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Section 10. The Chairman shall preside at all meetings of the
shareholders. In his absence, the President or an officer of the Company
designated by the Board of Directors shall preside and perform the duties of the
Chairman at such meeting. He shall appoint two inspectors of voting to serve at
each such meeting. Before acting at any meeting, the inspectors shall be sworn
faithfully to execute their duties with strict impartiality and according to the
best of their ability. The inspectors shall determine the number of shares
outstanding, the voting power of each, the shares represented at the meeting,
the existence of a quorum, the qualification of the voters, the authenticity,
validity and effect of proxies, receive votes and ballots, hear and determine
all challenges and questions in any way arising in connection with the vote,
count and tabulate all votes and determine and announce the result of the
voting.
Section 11. At an annual meeting of the shareholders, only such business
shall be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be specified in the
notice of meeting (or any supplement thereto) given by or at the direction of
the Board, otherwise properly brought before the meeting by or at the direction
of the Board, or otherwise properly brought before the meeting by a shareholder.
In addition to any other applicable requirements, for business to be properly
brought before an annual meeting by a shareholder, the shareholder must have
given timely notice thereof in writing to the Secretary. To be timely, a
shareholder's notice must be delivered to or mailed and received at the
principal executive offices of the Company, not less than fifty (50) days nor
more than seventy-five (75) days prior to the meeting; provided, however, that
in the event that less than sixty-five (65) days' notice or prior public
disclosure of the date of the meeting is given or made to shareholders, notice
by the shareholder to be timely must be so received not later than the close of
business on the 15th day following the day on
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which such notice of the date of the annual meeting was mailed or such public
disclosure was made. A shareholder's notice to the Secretary shall set forth as
to each matter the shareholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for conducting such business at the annual meeting, (ii)
the name and record address of the shareholder proposing such business, (iii)
the class and number of shares of the Company which are beneficially owned by
the shareholder, and (iv) any material interest of the shareholder in such
business.
Notwithstanding anything in these Bylaws to the contrary, no business
shall be conducted at the annual meeting except in accordance with the
procedures set forth in this Section 11; provided, however, that nothing in this
Section 11 shall be deemed to preclude discussion by any shareholder of any
business properly brought before the annual meeting in accordance with said
procedure.
The chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 11, and if he should
so determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
Section 12. Only persons who are nominated in accordance with the
following procedures shall be eligible for election as Directors. Nominations of
persons for election to the Board of the Company may be made at a meeting of
shareholders by or at the direction of the Board of Directors by any nominating
committee or person appointed by the Board or by any shareholder of the Company
entitled to vote for the election of Directors at the meeting who complies with
the notice procedures set forth in this Section 12. Such nominations, other than
those made by or at the direction of the Board, shall be made pursuant to timely
notice in writing to the Secretary. To be timely, a
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shareholder's notice shall be delivered to or mailed and received at the
principal executive offices of the Company not less than fifty (50) days nor
more than seventy- five (75) days prior to the meeting; provided, however, that
in the event that less than sixty-five (65) days' notice or prior public
disclosure of the date of the meeting is given or made to shareholders, notice
by the shareholder to be timely must be so received not later than the close of
business on the 15th day following the date on which such notice of the date of
the meeting was mailed or such public disclosure was made. Such shareholder's
notice to the Secretary shall set forth (a) as to each person whom the
shareholder proposes to nominate for election or re-election as a Director, (i)
the name, age, business address and residence address of the person, (ii) the
principal occupation or employment of the person, (iii) the class and number of
shares of capital stock of the Company which are beneficially owned by the
person, and (iv) any other information relating to the person that is required
to be disclosed in solicitations for proxies for election of Directors pursuant
to Rule 14A under the Securities Exchange Act of 1934 as amended; and (b) as to
the shareholder giving the notice (i) the name and record address of shareholder
and (ii) the class and number of shares of capital stock of the Company which
are beneficially owned by the shareholder. The Company may require any proposed
nominee to furnish such other information as may reasonably be required by the
Company to determine the eligibility of such proposed nominee to serve as
Director of the Company. No person shall be eligible for election as a Director
of the Company unless nominated in accordance with the procedures set forth
herein.
The chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
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ARTICLE III
DIRECTORS
Section 1. The powers of the Company shall be exercised under the
authority of, and the business and affairs of the Company shall be managed under
the direction of, its Board of Directors who may do all such lawful acts and
things as are not by statute or by the Articles of Incorporation or by these
Bylaws directed or required to be exercised or done by the shareholders.
Section 2. The Board of Directors shall consist of three Directors, none
of whom need be shareholders or residents of the State of Texas. The Board of
Directors may change the number of Directors only by affirmative vote of not
less than a majority of the Continuing Directors. A person shall be ineligible
to be a Director of the Company after the date of the annual meeting of
shareholders of the Company in the year in which such person's seventieth
birthday occurs. Unless he shall resign or become ineligible, each Director
shall hold office until his successor shall be elected and shall qualify.
Section 3. Any Director may resign at any time either by oral tender of
resignation at any meeting of the Board of Directors or by giving written notice
thereof to the Secretary. Resignations shall take effect when tendered or at the
time specified in the tender and, unless otherwise specified, the acceptance of
a resignation shall not be necessary to make it effective.
Section 4. Any Director may be removed either for or without cause, at any
special meeting of shareholders by the affirmative vote of the holders of record
of not less than a majority of the shares entitled to vote for such removal, if
notice of the intention to act upon such matter shall have been given in the
notice calling for such meeting. Any vacancy occurring in the Board of Directors
may be filled by the affirmative vote of a majority of the remaining
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Directors even though such remaining Directors shall be less than a quorum of
the Board of Directors. A Director elected to fill a vacancy shall be elected
for the unexpired term of his predecessor in office. Any directorship to be
filled by reason of an increase in the number of directors as provided in
Section 2 hereof shall be filled solely by the affirmative vote of not less than
a majority of the Continuing Directors for a term of office continuing until the
next annual meeting of shareholders; provided that the Board of Directors may
not fill more than two such directorships between any two successive annual
meetings of shareholders.
Section 5. The Board of Directors, by resolution adopted by a majority of
the full Board of Directors, may designate from among its members one or more
committees, each of which shall be comprised of one or more of its members, and
may designate one or more of its members as alternate members of any committee,
who may, subject to any limitations imposed by the Board of Directors, replace
absent or disqualified members at any meeting of that committee. Any such
committee, to the extent provided in such resolutions or in the Articles of
Incorporation or the Bylaws, shall have and may exercise all of the authority of
the Board of Directors, provided that no committee of the Board of Directors
shall have the authority of the Board of Directors in reference to: (1) amending
the Articles of Incorporation, except that a committee may, to the extent
provided in the resolution designating that committee or in the Articles of
Incorporation or the Bylaws, exercise the authority of the Board of Directors
vested in it in accordance with Article 2.13 of the Texas Business Corporation
Act ("Act"); (2) proposing a reduction of the stated capital of the Company in
the manner permitted by Article 4.12 of the Act; (3) approving a plan of merger
or share exchange of the Company; (4) recommending to the shareholders the sale,
lease, or exchange of all or substantially all of the property and assets of the
Company otherwise than in the usual and regular course of its business; (5)
recommending to the shareholders a voluntary dissolution of the Company or a
revocation thereof, (6)
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amending, altering, or repealing the Bylaws of the Company or adopting new
Bylaws of the Company; (7) filling vacancies in the Board of Directors; (8)
filling vacancies in or designating alternate members of any such committee; (9)
filling any directorship to be filled by reason of an increase in the number of
Directors; (10) electing or removing officers of the Company or members or
alternate members of any such committee; (11) fixing the compensation of any
member or alternate members of such committee; or (12) altering or repealing any
resolution of the Board of Directors that by its terms provides that it shall
not be so amendable or repealable; and, unless such resolution designating a
particular committee, the Articles of Incorporation, or the Bylaws expressly so
provide, no committee of the Board of Directors shall have the authority to
authorize a distribution or to authorize the issuance of shares of the Company.
MEETINGS OF THE BOARD OF DIRECTORS
Section 6. The Directors of the Company may hold their meetings, both
regular and special, either within or without the State of Texas.
Section 7. The first meeting of each newly elected Board of Directors
shall be held without further notice immediately following the annual meeting of
shareholders, and at the same place, unless by unanimous consent of the
Directors then elected and serving such time or place shall be changed.
Section 8. Regular meetings of the Board of Directors may be held with or
without notice at such time and place as shall from time to time be determined
by the Board of Directors.
Section 9. Special meetings of the Board of Directors may be called on
twenty-four (24) hours' notice to each Director, or such shorter period of time
as the person calling the meeting deems appropriate in the circumstances, either
personally, or by mail, or by telegram; special meetings shall be called by the
Chairman or, in the event of the inability of the Chairman to act, the President
or the
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Secretary in like manner and on like notice on the written request of two
Directors. Neither the business to be transacted at, nor the purpose of, any
special meeting need be specified in a notice or waiver of notice.
Section 10. At all meetings of the Board of Directors the presence of a
majority of the Directors shall constitute a quorum for the transaction of
business and the act of a majority of the Directors present at any meeting at
which there is a quorum shall be the act of the Board of Directors. Any action
required or permitted to be taken at a meeting of the Board of Directors may be
without a meeting if a consent in writing, setting forth the action so taken, is
signed by all members of the Board of Directors. If a quorum shall not be
present at any meeting of Directors, the Directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
Section 11. The Board of Directors shall have authority to establish, from
time to time, the amount of compensation which shall be paid to its members for
their services as Directors.
ARTICLE IV
NOTICES
Section 1. Whenever under the provisions of the statutes or of the
Articles of Incorporation or of these Bylaws, notice is required to be given to
any Director or shareholder, and no provision is made as to how such notice
shall be given, it shall not be construed to mean notice, but any such notice
may be given in writing, by mail, postage prepaid, addressed to such Director or
shareholder at such address as appears on the books of the Company. Any notice
required or permitted to be given by mail shall be deemed to be given at the
time when the same shall be thus deposited in the United States mails as
aforesaid.
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Section 2. Whenever any notice is required to be given to any shareholder
or Director of the Company under the provisions of the statutes or of the
Articles of Incorporation, or of these Bylaws, a waiver thereof in writing
signed by the person or persons entitled to such notice, whether before or after
the time stated in such notice, shall be equivalent to the giving of such
notice. Attendance of a Director at a meeting shall constitute a waiver of
notice of such meeting, except when a Director attends a meeting for the express
purpose, in writing filed at the meeting, of objecting to the transaction of any
business on the grounds that the meeting is not lawfully called or held.
ARTICLE V
OFFICERS
Section 1. The officers of the Company shall be a President and a
Secretary and the Board may elect other officers, such as one or more Executive
Vice Presidents, Senior Vice Presidents or Vice Presidents, a General Counsel, a
Controller, a Treasurer, all of whom shall be elected by the Board of Directors.
Any two or more offices may be held by the same person. Each such officer shall
have such authority and perform such duties in the management of the Company as
may be determined by resolution of the Board of Directors.
Section 2. The Board of Directors may elect or appoint such other officers
and agents as it shall deem necessary, who shall hold their offices for such
term and who shall have such authority and perform such duties as may be
prescribed by the Board of Directors or the Chairman. The power to appoint such
other officers and agents may be delegated by the Board of Directors to the
Chairman to the extent the Board may delineate by resolution.
Section 3. Each officer of the Company shall hold office until his
successor is chosen and qualified in his stead or until his death or until his
resignation, retirement or removal from office.
Any
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officer or agent elected or appointed by the Board of Directors may be removed
by the Board of Directors whenever in its judgment the best interests of the
Company will be served thereby, but such removal shall be without prejudice to
the contract rights, if any, of the person so removed. Election or appointment
of an officer or agent shall not of itself create contract rights.
Section 4. The Chairman shall be the chief executive officer of the
Company. He shall, subject to the direction and control of the Board of
Directors, be their representative and medium of communication. He shall see
that all orders, resolutions and policies adopted by the Board of Directors are
carried into effect. He shall preside at all meetings of shareholders and at all
meetings of the Board of Directors. He shall be in complete charge with
attendant responsibility and accountability of the entire Company and its
affairs.
Section 5. The President shall be the chief operating officer of the
Company. He shall, subject to the direction of the Chairman, have responsibility
for such operations and functions assigned to him; and in the absence of the
Chairman, shall preside at all meetings of the shareholders and at all meetings
of the Board of Directors.
Section 6. Each Executive Vice President shall have such powers and
responsibilities, and shall perform such duties, as delineated by the Board or
by the Chairman. They shall be directly responsible to such officer as the
Chairman may from time to time prescribe.
Section 7. The Senior Vice President, Chief Financial Officer, shall have
such powers and responsibilities and shall perform such duties, as delineated by
the Board of Directors or by the Chairman. He shall be responsible to the
Chairman in said performance.
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<PAGE>
Section 8. Other Senior Vice Presidents shall have such powers and
responsibilities, and shall perform such duties, as delineated by the Board or
by the Chairman. They shall be directly responsible to such officer as the
Chairman may from time to time prescribe.
Section 9. The General Counsel shall have general control over all matters
of a legal nature concerning the Company and shall perform such duties as
delineated by the Board or by the Chairman. He shall be directly responsible to
the Chairman in said performance.
Section 10. Each Vice President shall have such powers and
responsibilities, and shall perform such duties, as may be delineated by the
Board or the Chairman. They shall be directly responsible to such officer as the
Chairman may from time to time prescribe.
Section 11. The Controller shall be in general control of the accounts of
the Company, shall be responsible for the making of adequate audits, shall
prepare and interpret required accounting, financial and statistical statements,
and shall be directly responsible to such officer and perform such other duties
as the Board or Chairman may from time to time prescribe.
Section 12. The Secretary shall attend all meetings of the Board of
Directors and shareholders and act as secretary thereof and shall record all
votes and the minutes of all proceedings of the Board of Directors and
shareholders in a book for that purpose maintained and kept in his custody. He
shall keep in his custody the seal of the Company and shall in general perform
all the duties incident to the office of Secretary of a Company. He shall act as
Transfer Agent of the Company and/or Registrar of its capital stock and other
securities unless the Board of Directors by resolution appoints one or more
other persons or corporations as Transfer Agents and/or Registrars or as
Co-Transfer Agents and/or Co-Registrars. He shall be directly responsible
to such officer and shall perform such other duties as the Board or Chairman may
from time to time prescribe.
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<PAGE>
Section 13. The Treasurer shall have custody of all the funds and
securities of the Company and shall keep full and accurate accounts of receipts
and disbursements. He may endorse checks, notes and other obligations on behalf
of the Company for collection and shall deposit the same, together with all
monies and other valuable effects, to the credit of the Company in banks or
depositories as the Board of Directors may designate by resolution or as may be
established in
accordance with Article VIII of these Bylaws. He shall be directly responsible
to such officer as the Chairman may from time to time designate and shall
perform all duties incident to the office of Treasurer of a Company or as the
Board or Chairman shall designate.
Section 14. The Board of Directors may appoint one or more Assistant
Secretaries, Assistant Treasurers and Assistant Controllers and such other
appointive officers as may be appropriate and required. They shall be directly
responsible to such officer and shall perform such duties as the Board or
Chairman may from time to time designate.
ARTICLE VI
CERTIFICATES REPRESENTING SHARES
Section 1. The shares of stock of the Company shall be deemed personal
estate, and shall be transferable only on the books of the Company in such
manner as these Bylaws prescribe.
Section 2. Every shareholder in the Company shall be entitled to have a
certificate or certificates representing the number of shares owned by him. The
certificates of shares of stock of the Company shall be numbered and shall be
entered in the books of the Company as they are issued. They shall exhibit the
holder's name and number of shares, and shall be signed by the Chairman, the
President or a Vice President, and the Treasurer or an Assistant Treasurer and
bear the corporate seal; but the signatures of such officers and the seal of the
Company upon such certificates may be
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<PAGE>
facsimiles, engraved or printed where such certificate is signed by a duly
authorized Transfer Agent or Co-Transfer Agent and a Registrar or Co-Registrar.
Section 3. The Board of Directors may make such rules and regulations as
it may deem expedient concerning the issue, transfer, conversion, and
registration of certificates for shares of the capital stock of the Company.
Section 4. The Board of Directors may direct a new certificate
representing shares to be issued in place of any certificate theretofore issued
by the Company alleged to have been lost or destroyed, upon the making of an
affidavit of that fact by the person claiming the certificate to be lost or
destroyed. When authorizing such issue of a new certificate, the Board of
Directors, in its discretion and as a condition precedent to the issuance
thereof, may require the owner of such lost or destroyed certificate, or his
legal representative, to advertise the same in such manner as it shall require
and/or give the Company a bond in such form, in such sum, and with such surety
or sureties as it may direct as indemnity against any claim that may be made
against the Company and its Transfer Agents and Registrars and its Co-Transfer
Agents and Co-Registrars with respect to the certificate alleged to have been
lost or destroyed.
Section 5. Transfers of shares of stock shall be made on the books of the
Company only by the person named in the certificate or by attorney, lawfully
constituted in writing, and upon surrender of the certificate therefor.
Section 6. The Board of Directors may close the stock transfer books of
the Company for a period not to exceed sixty (60) days for the purpose of
determining shareholders entitled to notice of or to vote at any meeting of
shareholders or any adjournment thereof, or entitled to receive payment of any
distribution and share dividend, or in order to make a determination of
shareholders for any
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<PAGE>
purpose, provided that if such books shall be closed for the purpose of
determining shareholders entitled to notice of or to vote at a shareholders'
meeting, such books shall be closed for at least ten (10) days immediately
preceding such meeting. In lieu of so closing the stock transfer books, the
Board of Directors may fix a date in advance, not exceeding sixty (60) days
preceding the date of any meeting of shareholders, or the date for the payment
of any distribution and share dividend or the date for the allotment of rights,
or the date when any change or conversion or exchange of capital stock shall go
into effect, as a record date for the respective determination of the
shareholders entitled to notice of, and to vote at, any such meeting, or
entitled to receive payment of any such distribution and share dividend, or to
any such allotment of rights, or to exercise rights in respect of any such
change, conversion or exchange of capital stock and in such case such
shareholders and only such shareholders as shall be shareholders of record on
the date so fixed shall be entitled to such notice of, and to vote at, such
meeting, or to receive payment of such distribution and share dividend, or to
receive such allotment of rights, or to exercise such rights, as the case may
be, notwithstanding any transfer of any shares of stock on the books of the
Company after any such record date fixed as aforesaid. In the absence of any
designation with respect thereto by the Board of Directors, the date upon which
the notice of a meeting is mailed or resolutions declaring a distribution and
share dividend are adopted shall be the record date for such determination in
regard to meetings of shareholders or declarations of distributions and share
dividends.
Section 7. The Company shall be entitled to treat the holder of record of
any share or of stock as the holder in fact thereof and, accordingly, shall not
be bound to recognize any equitable or other claim to or interest in such share
on the part of any other person, whether or not it shall have express or other
notice thereof, save as expressly provided by the laws of Texas.
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<PAGE>
Section 8. Bonds, debentures and other evidence of indebtedness of the
Company shall be signed by the Chairman, the President or any Vice President and
the Treasurer or an Assistant Treasurer and shall bear the corporate seal and
when so executed shall be binding upon the Company, but not otherwise. The seal
of the Company thereon may be facsimile, engraved or printed, and where any such
bond, debenture or other evidence of indebtedness is authenticated with the
manual signature of an authorized officer of the Company or trustee appointed or
named by an indenture of trust or other agreement under which such security is
issued, the signature of any of the Company's officers authorized to execute
such security may be facsimile.
Section 9. In case any officer who signed, or whose facsimile signature
has been placed on any certificate representing shares of stock, bond, debenture
or evidence of indebtedness of this Company shall cease to be an officer of the
Company for any reason before the same has been issued or delivered by the
Company, such certificate, bond, debenture or evidence of indebtedness may
nevertheless be issued and delivered as though the person who signed it or whose
facsimile signature had been placed thereon had not ceased to be such officer.
ARTICLE VII
DEEDS AND OTHER INSTRUMENTS OF CONVEYANCE
Section 1. Deeds and other instruments of the Company conveying land or
any interest in land shall be signed by the Chairman, the President or a Vice
President or attorney-in-fact of the Company when authorized by appropriate
resolution of the Board of Directors or shareholders, and when required by law,
shall be attested by the Secretary or an Assistant Secretary and shall bear the
corporate seal, and when so executed shall be binding upon the Company, but not
otherwise.
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<PAGE>
ARTICLE VIII
CHECKS, DRAFTS AND BILLS OF EXCHANGE
Section 1. The Chairman or the President of the Company may from time to
time establish General Bank Accounts, Depository Bank Accounts, and such Special
Bank Accounts as in the judgment of either of them may be needed in carrying on
and dispatching the business of the Company. All checks, drafts and bills of
exchange issued in the name of the Company and calling for the payment of money
out of said General Accounts, Depository Accounts, or Special Accounts of the
Company shall be signed by the Controller or Assistant Controller, or such
agents and employees as the Chairman or the President may from time to time
designate and authorize to sign for the Controller, and countersigned by the
Treasurer or any Assistant Treasurer, or such agents and employees as the
Chairman or the President may from time to time designate and authorize to sign
for the Treasurer; and when so designated by the Chairman or the President, the
signature of the Treasurer or an Assistant Treasurer may be affixed by the use
of a check-signing machine; provided that for the purpose of transferring funds
from any bank or depository at which the Company has funds on deposit to any
other bank or depository of the Company for credit to the Company's account, a
form of check having plainly printed upon its face "DEPOSITORY TRANSFER CHECK,"
and being by its wording payable to a bank or depository for credit to the
account of the Company, is hereby authorized, and such checks shall require no
signature other than the name of the Company printed at the lower right corner;
and further provided that checks, drafts and bills of exchange issued in the
name of the Company in the amount of $25,000.00 or less need bear only one
signature and that being the signature of the Treasurer or an Assistant
Treasurer, affixed either manually or by the use of a check-signing machine, or
the manual signature of such agents and employees as the Chairman or the
President may from time to time
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<PAGE>
designate and authorize to sign for the Treasurer; and provided further
that checks and drafts issued in the name of the Company and calling for the
payment of production revenue or royalties need bear only one signature and that
being the signature of the Treasurer or an Assistant Treasurer, affixed either
manually or by the use of a check-signing machine, or the manual signature of
such agents and employees as the Chairman or the President may from time to time
designate and authorize to sign for the Treasurer; and provided further that
checks and drafts issued in the name of the Company and calling for payment of
money out of Special Bank Accounts established for the payment of dividends need
bear only one signature and that being the signature of the Treasurer or an
Assistant Treasurer, affixed either manually or by the use of a check-signing
machine, or the manual signature of such agents and employees as the Chairman or
the President may from time to time designate and authorize to sign for the
Treasurer; and further provided that no person authorized to sign checks or
drafts may sign a check or draft payable to himself. When in such applicable
manner, but not otherwise, every check, draft or bill of exchange issued in the
name of the Company and calling for the payment of money out of the General Bank
Accounts, Depository Bank Accounts, and Special Bank Accounts of the Company
shall be valid and enforceable according to its wording, tenor and effect, but
not otherwise. Provided, however, that for the purpose of transferring funds
between accounts of the Company, from accounts of the Company to accounts of
subsidiaries and affiliates, from accounts of the Company for the purpose of
investment of corporate funds, and from accounts of the Company for the payment
of dividends, the Treasurer or an Assistant Treasurer, or such agents and
employees as the Chairman or the President may from time to time designate and
authorize, may make such transfer of funds by bank wire transfers through oral
or written instructions; and for the purpose of transferring funds from accounts
of the Company to accounts of other third parties, such funds may be transferred
- 20 -
<PAGE>
by bank wire transfers but only upon written instructions from the Treasurer or
an Assistant Treasurer, or such agents and employees as the Chairman or the
President may from time to time designate and authorize to sign for the
Treasurer, and countersigned by the Controller or Assistant Controller, or such
agents and employees as the Chairman or the President may from time to time
designate and authorize to sign for the Controller.
Section 2. The Treasurer of the Company may establish special bank
accounts designated as Agent's Account in such bank or banks as in his judgment
may be needed in carrying on and dispatching the business of the Company,
provided that the Treasurer in establishing and maintaining such accounts shall
keep only such funds therein and in such amount as may be
required for the local needs of such accounts and provided that checks or drafts
issued against or drawn on such accounts shall be valid and binding on the
Company according to their wording, tenor and effect when signed by either the
Treasurer of the Company or by such agent or employee of the Company as may be
designated by the Treasurer in writing to such bank or when signed in such
manner and by such agent or employee of the Company as may be designated by the
Chairman or the President of the Company; and further provided that checks and
drafts issued in the name of the Company against funds in such Agent's Account
in the amount of $1,000.00 or more must be countersigned by two persons
authorized to sign such checks or drafts.
ARTICLE IX
FISCAL YEAR
Section 1. The fiscal year shall begin on the first day of January in each
year.
ARTICLE X
DISTRIBUTIONS AND SHARE DIVIDENDS
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<PAGE>
Section 1. Distributions and share dividends upon the outstanding shares
of the Company, subject to the provisions of the Articles of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting. Distributions may be paid in cash or property, and share dividends may
be paid in shares of the authorized but unissued shares or in treasury shares,
of the Company subject to the provisions of the Articles of Incorporation.
ARTICLE XI
RESERVES
Section 1. There may be created by resolution of the Board of Directors
out of the earned surplus of the Company such reserve or reserves as the
Directors from time to time, in their discretion, think proper to provide for
contingencies, or to equalize dividends, or to repair or maintain any property
of the Company, or for such other purpose as the Directors shall think
beneficial to the Company, and the Directors may modify or abolish any such
reserve in the manner in which it was created.
ARTICLE XII
SEAL
Section 1. The Company's seal shall have inscribed thereon the name of the
Company, the year of the organization and the words "Corporate Seal, Texas."
Said seal may be used by causing it or a facsimile thereof to be impressed or
affixed or reproduced or otherwise.
ARTICLE XIII
INDEMNIFICATION
Section 1. The Company shall indemnify, and advance or reimburse
reasonable expenses incurred by, any person who (1) is or was a director,
officer, employee or agent of the corporation,
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<PAGE>
or (2) while a director, officer, employee or agent of the Company, its
divisions or subsidiaries, is or was serving at the request of the Company,
pursuant to a resolution adopted by the Board of Directors, as a director,
officer, partner, venturer, proprietor, trustee, employee, agent or similar
functionary of another foreign or domestic Company, partnership, joint venture,
sole proprietorship, trust, employee benefit plan or other enterprise, to the
fullest extent that a Company may or is required to grant indemnification to a
director under the Texas Business Corporation Act. The Company, pursuant to a
resolution adopted by the Board of Directors, may indemnify any such persons to
such further extent as permitted by law. Action by the Board of Directors to
amend, modify or terminate this ARTICLE XIII, Section 1. shall be prospective
from the effective date of such action and any rights or obligations resulting
from an event or events occurring prior thereto shall be governed by the
provisions of this ARTICLE XIII, Section 1, as of the date of such event or
events.
ARTICLE XIV
AMENDMENTS
Section 1. The power to alter, amend, suspend or repeal the Bylaws or to
adopt new Bylaws shall be vested in, and shall require the approval of, the
majority of Continuing Directors then in office; provided, however, that any
Bylaw or Amendment thereto as adopted by the Board of Directors may be altered,
amended, suspended or repealed by the vote of the holders of 66 2/3% of the
shares entitled to vote for the election of Directors or a new Bylaw in lieu
thereof may be adopted by vote of such shareholders. No Bylaw which has been
altered, amended or adopted by such a vote of the shareholders may be altered,
amended, suspended or repealed by vote of the Directors until two years after
such action by vote of the shareholders.
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Exhibit 10
GAMECOM, INC.
2000 INCENTIVE STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this GameCom, Inc. 2000 Incentive Stock
Option Plan, (the "Plan") are to enable GameCom, Inc. (the "Company") and its
Subsidiaries (as defined herein) to attract, retain and motivate the Key
Employees (as defined herein) who are important to the success and growth of the
business of the Company, and to create a long-term mutuality of interest between
the stockholders of the Company and such Key Employees by granting them options
(which may, in the case of Key Employees, be either incentive stock options (as
defined herein) or non-statutory stock options) to purchase the Company's Common
Stock.
2. Definitions.
(a) "Act" means the Securities Exchange Act of 1934.
(b) "Board" means the Board of Directors of the Company.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
(d) "Committee" means such committee, if any, as may be appointed from
time to time by the Board to administer the Plan, consisting of two or more
directors, each of whom shall qualify as an "outside director" within the
meaning of Section 162(m) of the Code and, to the extent required by Rule 16b-3
promulgated under Section 16(b) of the Act as then in effect, or any successor
provisions ("Rule 16b-3"), as a "non-employee director" within the meaning of
Rule 16b-3. If for any reason the appointed Committee does not meet the
requirements of Rule 16b-3 or Section 162(m) of the Code, such non-compliance
shall not affect the validity of the Options, grants, interpretations or other
actions of the Committee. If the Board does not appoint a committee for this
purpose, "Committee" means the Board.
(e) "Common Stock" means the common stock of the Company, par value $.005,
any common stock into which such Common Stock may be converted, and any common
stock resulting from any reclassification of the Common Stock.
(f) "Company" means the Company and its Subsidiaries, any of whose
employees are Participants in the Plan.
(g) "Disability" means permanent and total disability, as determined by
the Committee in its sole discretion, provided that in no event shall any
disability that is not a permanent and total disability within the meaning of
Section 22(e)(3) of the Code be treated as a Disability. A Disability shall be
deemed to occur at the time of the determination by the Committee of the
Disability.
(h) "Fair Market Value" means the value of a Share (as defined herein) on
a particular date, determined as follows:
(i) If the Common Stock is listed on such date on a national
securities exchange or quoted on the National Market System of The Nasdaq Stock
Market, Inc. ("NASDAQ"), the closing sales price of a Share on such exchange or
on the National Market System, as the case may be, on such date, or in the
absence of reported sales on such day, the
<PAGE>
mean between the reported bid and asked prices on such exchange or on the
National Market System, as the case may be, on such date; or
(ii) If the Common Stock is not listed or quoted as described in the
preceding clause, but bid and asked prices are quoted through NASDAQ, the mean
between the closing bid and asked prices as quoted through NASDAQ on such date;
or
(iii) If the Common Stock is not listed or quoted as described in
clauses (i) or (ii) above, by such other method as the Committee determines to
be reasonable and consistent with applicable law; or
(iv) If the Common Stock is not publicly traded, such amount as is
set by the Committee in good faith.
(i) "Incentive Stock Option" means any Option which is intended to qualify
as an "incentive stock option" as defined in Section 422 of the Code.
(j) "Key Employee" means any person who is an executive officer or other
valuable staff, managerial, professional or technical employee of the Company,
as determined by the Committee. A Key Employee may also be a director of the
Company.
(k) "Option" means the right to purchase one Share at a prescribed
purchase price on the terms specified in the Plan. An Option may be an Incentive
Stock Option or a non-qualified option.
(l) "Participant" means a Key Employee of the Company who is granted
Options under the Plan.
(m) "Purchase Price" means the purchase price per Share payable upon
exercise of an option.
(n) "Securities Act" means the Securities Act of 1933, as it may be
amended from time to time, or any successor statute.
(o) "Share" means a share of Common Stock.
(p) "Subsidiary" means any "subsidiary corporation" within the meaning of
Section 424(f) of the Code. An entity shall be deemed a Subsidiary of the
Company only for such periods as the requisite ownership relationship is
maintained.
(q) "Substantial Stockholder" means any Participant who is a Key Employee
and who, at the time of grant, owns directly or is deemed to own, by reason of
the attribution rules set forth in Section 424(d) of the Code, Shares possessing
more than 10% of the total combined voting power of all classes of stock of the
Company, a Subsidiary, or any "parent corporation" within the meaning of Section
424(e) of the Code.
(r) "Termination of Employment" means cessation of an individual's status
as an employee of the Company or any Subsidiary. In the event an entity shall
cease to be a Subsidiary of the Company, any individual who is not otherwise an
employee of the Company or another Subsidiary shall suffer a Termination of
Employment at the time the entity ceases to be a Subsidiary. A leave of absence
approved by the Committee shall not constitute a Termination of Employment.
2
<PAGE>
3. Effective Date/Expiration of Plan. The Plan shall become effective on
February 1, 2000 (the "Effective Date"), subject, however, to approval by the
Company's stockholders. The Plan will terminate on the tenth anniversary of the
Effective Date, unless earlier terminated in accordance with Section 11. No
Option shall be granted under the Plan on or after the tenth anniversary of the
Effective Date, but Options previously granted may extend beyond that date.
4. Administration.
(a) Duties of the Committee. The Plan shall be administered by the
Committee. The Committee shall have full authority, subject to the terms of the
Plan: to interpret the Plan and to decide all questions and settle all
controversies and disputes that may arise in connection with the Plan; to
establish, amend, and rescind rules for carrying out the Plan; to administer the
Plan; to select Key Employees to participate in, and grant Options to Key
Employees under, the Plan; to determine the terms, exercise price and permitted
forms of payment for each Option granted under the Plan; to determine which
Options granted under the Plan to Key Employees shall be Incentive Stock
Options; to prescribe the form or forms of the agreements evidencing Options and
any other instruments required under the Plan and to change such forms from time
to time; and to make all other determinations and take all such steps in
connection with the Plan and the Options as the Committee, in its sole
discretion, deems necessary or desirable. The Committee shall not be bound to
any standards of uniformity or similarity of action, interpretation or conduct
in the discharge of its duties, regardless of the apparent similarity of the
matters coming before it. The determination, action or conclusion of the
Committee in connection with the foregoing shall be final and conclusive.
(b) Advisors. The Committee may designate officers or other employees of
the Company or professional advisors to assist it in the administration of the
Plan, and may grant authority to such persons to execute Option Agreements (as
defined herein) or other documents on behalf of the Committee. The Committee may
employ such legal counsel, consultants and agents as it may deem desirable for
the administration of the Plan, and may rely upon any opinion received from any
such counsel or consultant and any computation received from any such consultant
or agent. Expenses incurred by the Committee in the engagement of such counsel,
consultants and agents shall be paid by the Company.
(c) Indemnification. No officer, member or former member of the Committee
shall be liable for any action taken or made in good faith with respect to the
Plan or any Option granted under it. To the maximum extent permitted by
applicable law, the Company shall indemnify and hold harmless each officer,
member or former member of the Committee and the Board against any cost or
expense (including reasonable fees of counsel reasonably acceptable to the
Company) or liability (including any sum paid in settlement of a claim), and
shall advance all amounts necessary to pay the foregoing at the earliest time
and to the fullest extent permitted by applicable law, arising out of any act or
omission to act in connection with the Plan. Such indemnification shall be in
addition to any rights of indemnification the officers, members or former
members may have as officers or directors under applicable law or under the
Certificate of Incorporation or By-Laws of the Company.
(d) Meetings of the Committee. The Committee shall select one of its
members as a Chairman and shall adopt such rules and regulations as it shall
deem appropriate concerning the holding of its meetings and the transaction of
its business. Any member of the Committee may
3
<PAGE>
be removed at any time, either with or without cause, by resolution adopted by
the Board, and any vacancy on the Committee may at any time be filled by
resolution adopted by the Board. All determinations by the Committee shall be
made by the affirmative vote of a majority of its members. Any such
determination may be made at a meeting duly called and held at which a majority
of the members of the Committee are in attendance in person or through
telephonic communication. Any determination set forth in writing and signed by
all of the members of the Committee shall be as fully effective as if it had
been made by a majority vote of the members at a meeting duly called and held.
5. Shares; Adjustment Upon Certain Events.
(a) Shares to be Delivered; Fractional Shares. Shares to be issued under
the Plan shall be made available, at the discretion of the Board, either from
authorized but unissued Shares or from issued Shares reacquired by the Company
and held in treasury. No fractional Shares will be issued or transferred upon
the exercise of any Option. In lieu thereof, the Company shall pay a cash
adjustment equal to the same fraction of the Fair Market Value on the date of
exercise.
(b) Number of Shares. Subject to adjustment as provided below in this
Section 5, the maximum aggregate number of Shares that may be issued under the
Plan shall be 1,500,000. If Options are for any reason canceled, or expire or
terminate unexercised, the Shares covered by such Options shall again be
available for the grant of Options, subject to the limit provided in the
preceding sentence. Subject to adjustment as provided below in this Section 5,
the maximum number of Shares subject to any Option which may be granted under
the Plan to each Key Employee shall not exceed 500,000 Shares in each calendar
year during the entire term of the Plan. Notwithstanding the foregoing, in order
to comply with Section 162(m) of the Code, the Committee shall take into account
that (i) if an Option is canceled, the canceled Option continues to be counted
against the maximum number of Shares for which Options may be granted to a Key
Employee under this Section 5(b) of the Plan, and (ii) if after the grant of an
Option, the Committee or the Board reduced the Purchase Price, the transaction
is treated as a cancellation of the Option and a grant of a new Option, and in
such case, both the Option that is deemed to be canceled and the Option that is
deemed to be granted, reduce the maximum number of Shares for which Options may
be granted to a Key Employee under the Option. To the extent that Shares for
which Options are permitted to be granted to a Key Employee during a calendar
year are not covered by a grant of an Option in the calendar year, such Shares
shall be available for grant or issuance to the Key Employee in any subsequent
calendar year during the term of the Plan.
(c) Adjustments; Recapitalization, etc. The existence of the Plan and
Options granted hereunder shall not affect in any way the right or power of the
Board or the stockholders of the Company to make or authorize any adjustment,
recapitalization, reorganization or other change in the Company's capital
structure, any merger or consolidation of the Company, any issue of bonds,
debentures, preferred or prior preference stocks ahead of or affecting Common
Stock, the dissolution or liquidation of the Company, or any sale or transfer of
all or part of its assets or business or any other corporate act or proceeding.
If the Company takes any such action, however, the following provisions shall,
to the extent applicable, govern:
(i) If and whenever the Company shall effect a stock split, stock
dividend, subdivision, recapitalization or combination of Shares or other change
in the Company's capital
4
<PAGE>
stock, (x) the Purchase Price (as defined herein) per Share and the number and
class of Shares and/or other securities with respect to which outstanding
Options thereafter may be exercised, and (y) the total number and class of
Shares and/or other securities that may be issued under the Plan, shall be
proportionately adjusted by the Committee. The Committee may also make such
other adjustments as it deems necessary to take into consideration any other
event (including, without limitation, accounting changes) if the Committee
determines that such adjustment is appropriate to avoid distortion in the
operation of the Plan.
(ii) Subject to Section 5(c)(iii), if the Company merges or
consolidates with one or more corporations, then, from and after the effective
date of such merger or consolidation, upon exercise of Options theretofore
granted, the Participant shall be entitled to acquire under such Options, in
lieu of the number of Shares as to which such Options shall then be exercisable
but on the same terms and conditions of exercise thereof, the number and class
of Shares and/or other securities or property (including cash) which the
Participant would have held or been entitled to receive immediately after such
merger or consolidation if, immediately prior to such merger or consolidation,
the Participant had been the holder of record of the total number of Shares
receivable upon exercise of such Options (whether or not then exercisable) had
such merger or consolidation not occurred.
(iii) In the event of a merger or consolidation in which the Company
is not the surviving entity or any transaction that results in the acquisition
of substantially all of the Company's outstanding Common Stock by a single
person or entity or by a group of persons and/or entities acting in concert, or
in the event of the sale or transfer of all of the Company's assets (all of the
foregoing being referred to as "Acquisition Events"), then the Committee may, in
its sole discretion, terminate all outstanding Options granted to Key Employees
by delivering notice of termination to each such Key Employee, provided that,
during the twenty (20) day period following the date on which such notice of
termination is delivered, each Participant who is a Key Employee shall have the
right to exercise in full all of his Options that are then outstanding (without
regard to any limitations on exercisability otherwise contained in the Option
Agreements). If an Acquisition Event occurs and the Committee does not terminate
the outstanding Options pursuant to the preceding sentence, then the provisions
of Section 5(c)(ii) shall apply.
(iv) Subject to Section 5(b), the Committee may grant Options under
the Plan in substitution for options held by employees of another corporation
who concurrently become employees of the Company as the result of a merger or
consolidation of the employing corporation with the Company, or as the result of
the acquisition by the Company of property or stock of the employing
corporation. Such substitute awards be granted on such terms and conditions as
the Committee considers appropriate in the circumstances.
(v) If, as a result of any adjustment made pursuant to the preceding
paragraphs of this Section 5, any Participant shall become entitled upon the
exercise of Options to receive any securities other than Common Stock, then the
number and class of securities thereafter receivable upon exercise shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Common Stock set
forth in this Section 5, as determined by the Committee in its sole discretion.
5
<PAGE>
(vi) Except as expressly provided above, the issuance by the Company
of shares of stock of any class, or securities convertible into shares of stock
of any class, for cash, property, labor or services, whether upon direct sale,
upon the exercise of rights or warrants to subscribe therefore, or upon
conversion of shares or other securities, and in any case whether or not for
fair value, shall not affect, and no adjustment by reason thereof shall be made
with respect to, the number and class of Shares and/or other securities or
property subject to Options theretofore granted or the Purchase Price per Share.
6. Awards and Terms of Options for Key Employees.
(a) Grant. The Committee may grant Options, including Options intended to
be Incentive Stock Options, to Key Employees of the Company. Each Option shall
be evidenced by an Option agreement (the "Option Agreement") in such from not
inconsistent with the Plan as the Committee shall approve from time to time.
(b) Exercise Price. The purchase price per share (the "Purchase Price")
deliverable upon the exercise of an Option granted to a Key Employee shall be
determined by the Committee (but in no event less than the par value of the
Share), except that the Purchase Price of an Incentive Stock Option shall not be
less than 100% (110% for an Incentive Stock Option granted to a Substantial
Stockholder) of the Fair Market Value at the time the Incentive Stock Option is
granted. To the extent that the grant of an Option is intended to comply with
the exception for performance-based compensation under Section 162(m) of the
Code, the Purchase Price of the Option shall not be less than 100% of the Fair
Market Value at the time the Option is granted.
(c) Number of Shares. Each Option Agreement shall specify the number of
Options granted to the Key Employees, as determined by the Committee in its sole
discretion.
(d) Exercisability. At the time of grant, the Committee shall specify when
and on what terms the Options granted to a Key Employee shall be exercisable. In
the case of Options not immediately exercisable in full, the Committee may at
any time accelerate the time at which all or any part of the Options may be
exercised. No Option shall be exercisable after the expiration of ten (10) years
from the date of grant (five years (5) in the case of an Incentive Stock Option
granted to a Substantial Stockholder). Every Option shall be subject to earlier
termination as provided in Section 7 below.
(e) Special Rule for Incentive Options. If required by Section 422 of the
Code or any successor provision, to the extent the aggregate Fair Market Value
of the Shares with respect to which Incentive Stock Options are exercisable for
the first time by a Key Employee during any calendar year (under all plans of
his employer corporation and its parent and subsidiary corporations) exceeds
$100,000, such Options shall not be treated as Incentive Stock Options. Nothing
in this special rule shall be construed as limiting the exercisability of any
Option.
(f) Acceleration of Exercisability on Change of Control. Upon a Change of
Control of the Company (as defined herein) all outstanding Options granted to
Key Employees not then fully exercisable shall immediately become fully
exercisable. For this purpose, a "Change of Control" shall be deemed to have
occurred if:
(i) any person (or group of persons acting in concert) becomes the
beneficial owner of 30% or more of the Company's outstanding voting securities
or securities convertible into such amount of voting securities; or
6
<PAGE>
(ii) within two years after a tender offer or exchange offer, or as
the result of a merger, consolidation, sale of substantially all of the
Company's assets or a contested election of the Board of Directors, or any
combination of such transactions, the persons who were directors of the Company
prior to such transaction do not constitute a majority of the Board of Directors
of the Company or its successor; provided, however, that no transaction shall be
deemed to constitute a Change in Control if such transaction is approved by
two-thirds of the Prior Directors of the Company and the Successor Directors
(each as hereafter defined), if any, voting together. For purposes of this
Agreement, Prior Directors are those directors of the Company in office
immediately prior to such event, and Successor Directors are successors to Prior
Directors who were recommended to succeed Prior Directors by a majority of the
Prior Directors then in office.
(g) Exercise of Options.
(i) A Key Employee may elect to exercise one or more Options by
giving written notice to the Committee of such election and the number of
Options such Participant has elected to exercise, accompanied by payment in full
of the aggregate Purchase Price for the number of shares for which the Options
are being exercised.
(ii) Shares purchased pursuant to the exercise of Options granted to
Key Employees shall be paid for at the time of exercise as follows:
(A) in cash or by check, bank draft or money order
payable to the order of the Company;
(B) if so permitted by the Committee: (x) through the
delivery of unencumbered Shares (including Shares being acquired pursuant to the
Options then being exercised), provided such Shares (and such Options) have been
owned by the Key Employee for such periods as may be required by applicable
accounting standards to avoid a charge to earnings, (y) through a combination of
Shares and cash as provided above, (z) by delivery of a promissory note of the
Key Employee to the Company, such promissory note to be payable, in the case of
an Incentive Stock Option, on such terms as are specified in the Option
Agreement (except that, in lieu of a stated rate of interest, an Incentive Stock
Option may provide that the rate of interest on the promissory note will be such
rate as is sufficient, at the time the note is given, to avoid the imputation of
interest under the applicable provisions of the Code), or by a combination of
cash (or cash and Shares) and the Key Employee's promissory note; provided,
that, if the Shares delivered upon exercise of the Option is an original issue
of authorized Shares, at least so much of the exercise price as represents the
par value of such Shares shall be paid in cash or by a combination of cash and
Shares;
(C) if the Common Stock is at the time publicly traded,
through the delivery of irrevocable instructions to a broker to deliver promptly
to the Company an amount equal to the aggregate Purchase Price; or
(D) on such other terms and conditions as may be
acceptable to the Committee and in accordance with the law of the State of
Texas. Upon receipt of payment, the Company shall deliver to the Participant as
soon as practicable a certificate or certificates for the Shares then purchased.
7. Effect of Termination of Employment.
7
<PAGE>
(a) Death, Disability, Retirement, etc. Upon the Termination of Employment
of a Key Employee, all outstanding Options then exercisable (and any outstanding
Options not previously exercisable but made exercisable by the Committee at or
after the Termination of Employment) shall remain exercisable by the Key
Employee for the following time periods (subject to the ten year limit set forth
in Section 6(d)).
(i) In the event of the Key Employee's death, such Options shall
remain exercisable (by the Key Employee's estate or by the person given
authority to exercise such Options by the Key Employee's will or by operation of
law) for a period of one (1) year from the date of the Key Employee's death,
provided that the Committee, in its sole discretion, may at any time extend such
time period to up to three years from the date of the Key Employee's death.
(ii) In the event the Key Employee retires at or after age 65 (or,
with the consent of the Committee, before age 65), or if the Key Employee's
employment terminates due to Disability, such Options shall remain exercisable
for one (1) year from the date of the Key Employee's termination of employment,
provided that the Committee, in its sole discretion, may at any time extend such
time period to up to three years from the date of the Key Employee's Termination
of Employment.
(b) Other Termination. In the event of a Termination of Employment for any
reason other than as provided in Section 7(a) or in 7(c), all outstanding
Options shall remain exercisable after such Termination of Employment (but only
to the extent exercisable immediately prior thereto) for a period of three (3)
months after such termination, provided that the Committee, in its sole
discretion, may extend such time period to up to one year from the date of the
Key Employee's Termination of Employment.
(c) Cause. Upon the Termination of Employment of a Key Employee for Cause
(as defined herein) or if it is discovered after his other Termination of
Employment that such Key Employee had engaged in conduct that would have
justified a Termination of Employment for Cause, all outstanding Options held by
the Key Employee shall immediately be canceled. Termination of Employment shall
be deemed to be for "Cause" for purposes of this Section 7(c) if (i) the Key
Employee shall have committed fraud or any felony in connection with his duties
as an employee of the Company, willful misconduct or any act of disloyalty,
dishonesty, fraud or breach of trust or confidentiality as to the Company, or
any other act which is intended to cause or may reasonably be expected to cause
economic or reputational injury to the Company or (ii) such termination is or
would be deemed to be for Cause under any employment agreement between the
Company and the Key Employee.
8. Nontransferability. No Option shall be transferable by the Participant
otherwise than by will or under applicable laws of descent and distribution, and
during the lifetime of the Participant may be exercised only by the Participant
or his guardian or legal representative. In addition, no Option shall be
assigned, negotiated, pledged or hypothecated in any way (whether by operation
of law or otherwise), and no Option shall be subject to execution, attachment or
similar process. Upon any attempt to transfer, assign, negotiate, pledge or
hypothecate any Option, or in the event of any levy upon any Option by reason of
any execution, attachment or similar process contrary to the provisions hereof,
such Option shall immediately become null and void. Notwithstanding the
foregoing, the Committee may determine at the time of grant or thereafter that
an Option (other than an Incentive Stock Option) that is otherwise not
transferable
8
<PAGE>
pursuant to this Section 8, is transferable in whole or in part and in such
circumstances and under such conditions, as specified by the Committee.
9. Rights as a Stockholder. A Participant (or a permitted transferee of his
Options) shall have no rights as a stockholder with respect to any Shares
covered by such Participant's Options until such Participant shall have become
the holder of record of such Shares, and no adjustments shall be made for
dividends in cash or other property or distributions or other rights in respect
to any such Shares except as otherwise specifically provided for in this Plan.
10. Determinations. Each determination, interpretation or other action made or
taken pursuant to the provisions of this Plan by the Committee shall be final
and binding for all purposes and upon all persons, including, without
limitation, the Participants, the Company, the directors, officers and other
employees of the Company, and their respective heirs, executors, administrators,
personal representatives and other successors in interest.
11. Termination, Amendment and Modification. The Plan shall terminate at the
close of business on the tenth anniversary of the Effective Date, unless
terminated sooner as hereinafter provided, and no Option shall be granted under
the Plan on or after that date. The termination of the Plan shall not terminate
any outstanding Options that by their terms continue beyond the termination date
of the Plan. At any time prior to that date, the Board or the stockholders of
the Company may terminate, suspend or amend the Plan; provided, however, that no
amendment may be made that would require the approval of the stockholders of the
Company under Rule 16b-3, Section 162(m) of the Code or, with respect to
Incentive Stock Options, Section 422 of the Code, or under the rules of any
exchange or system on which the Company's securities are listed or traded at the
request of the Company, unless any such amendment is subject to such stockholder
approval. No such Option may be exercised prior to the receipt of such
stockholder approval. Nothing contained in this Section 11 shall be deemed to
prevent the Board or the Committee from authorizing amendments of outstanding
Options of Key Employees, so long as all Options outstanding at any one time
shall not call for issuance of more Shares than the remaining number provided
for under the Plan, and so long as the provisions of any amended Options would
have been permissible under the Plan if such Option had been originally granted
or issued as of the date of such amendment with such amended terms.
Notwithstanding anything to the contrary contained in this Section 11, no
termination, amendment or modification of the Plan may without the consent of
the Participant (or any transferee of such Participant's Options), alter or
impair the rights and obligations arising under any then outstanding Option.
12. Non-exclusivity. Neither the adoption nor the amendment of the Plan by the
Board, nor the submission of the Plan or such amendments to the stockholders of
the Company for approval, shall be construed as creating any limitations on the
power of the Board to adopt such other incentive arrangements as it may deem
desirable, including, without limitation, the granting or issuance of stock
options, Shares and/or other incentives otherwise than under the Plan, and such
arrangements may be either generally applicable or limited in application.
13. Use of Proceeds. The proceeds of the sale of Shares subject to Options under
the Plan are to be added to the general funds of the Company and used for its
general corporate purposes as the Board shall determine.
14. General Provisions.
9
<PAGE>
(a) Right to Terminate Employment. Neither the adoption or the amendment
of the Plan nor the grant of Options shall impose any obligations on the Company
to continue the employment of any Key Employee, nor shall it impose any
obligation on the part of any Key Employee to remain in the employ of the
Company, subject, however, to the provisions of any agreement between the
Company and a Key Employee.
(b) Purchase for Investment. If the Board determines that the law so
requires, the holder of Options granted hereunder shall, upon any exercise or
conversion thereof, execute and deliver to the Company a written statement, in
form satisfactory to the Company, representing and warranting that such
Participant is purchasing or accepting the Shares then acquired for such
Participant's own account and not with a view to the resale or distribution
thereof, that any subsequent offer for sale or sale of any such Shares shall be
made either pursuant to (i) a registration statement on an appropriate form
under the Securities Act of 1933 (the "Securities Act"), which registration
statement shall have become effective and shall be current with respect to the
Shares being offered and sold, or (ii) a specific exemption from the
registration requirements of the Securities Act, and that in claiming such
exemption the holder will, prior to any offer for sale or sale of such Shares,
obtain a favorable written opinion from counsel approved by the Company as to
the availability of such exception.
(c) Trusts, etc. Nothing contained in the Plan and no action taken
pursuant to the Plan (including, without limitation, the grant of any Option
thereunder) shall create or be construed to create a trust of any kind, or a
fiduciary relationship, between the Company and any Participant or the executor,
administrator or other personal representative, or designated beneficiary of
such Participant, or any other persons. Any reserves that may be established by
the Company in connection with the Plan shall continue to be part of the general
funds of the Company, and no individual or entity other than the Company shall
have any interest in such funds until paid to a Participant. If and to the
extent that any Participant or such Participant's executor, administrator, or
other personal representative, as the case may be, acquires a right to receive
any payment from the Company pursuant to the Plan, such right shall be no
greater than the right of an unsecured general creditor of the Company.
(d) Notices. Each Participant shall be responsible for furnishing the
Committee with the current and proper address for the mailing to such
Participant of notices and the deliver to such Participant of agreements, Shares
and payments. Any notices required or permitted to be given shall be deemed
given if directed to the person to whom addressed at such address and mailed by
regular United States mail, first class and prepaid. If any item mailed to such
address is returned as 13 undeliverable to the addressee, mailing will be
suspended until the Participant furnishes the proper address.
(e) Severability of Provisions. If any provisions of the Plan shall be
held invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provisions of the Plan, and the Plan shall be construed and
enforced as if such provisions had not been included.
(f) Payment to Minors, etc. Any benefit payable to or for the benefit of a
minor, an incompetent person or other person incapable of receipting therefor
shall be deemed paid when paid to such person's guardian or to the party
providing or reasonably appearing to provide for the care of such person, and
such payment shall fully discharge the Committee, the Company and their
employees, agents and representatives with respect thereto.
10
<PAGE>
(g) Headings and Captions. The headings and captions herein are provided
for reference and convenience only. They shall not be considered part of the
Plan and shall not be employed in the construction of the Plan.
(h) Controlling Law. The Plan shall be construed and enforced according to
the laws of the State of Texas.
15. Issuance of Stock Certificates; Legends and Payment of Expenses.
(a) Stock Certificates. Upon any exercise of Options and payment of the
aggregate Purchase Price as provided in the relevant Option Agreements, a
certificate or certificates for the Shares as to which Options have been
exercised shall be issued by the Company in the name of the person or persons
exercising such Options and shall be delivered to or upon the order of such
person or persons.
(b) Legends. Certificates for Shares issued upon exercise of Options shall
bear such legend or legends as the Committee, in its discretion, determines to
be necessary or appropriate to prevent a violation of, or to perfect an
exemption from, the registration requirements of the Securities Act or to
implement the provisions of any agreements between the Company and a Key
Employee with respect to such Shares.
(c) Payment of Expenses. The Company shall pay all issue or transfer taxes
with respect to the issuance or transfer of Shares, as well as all fees and
expenses necessarily incurred by the Company in connection with such issuance or
transfer and with the administration of the Plan.
16. Listing of Shares and Related Matters. If at any time the Board shall
determine in its sole discretion that the listing, registration or qualification
of the Shares covered by the Plan upon any national securities exchange or under
any state or federal law, or the consent or approval of any governmental
regulatory body, is necessary or desirable as a condition of, or in connection
with, the award or sale of Shares under the Plan, no Shares will be delivered
unless and until such listing, registration, qualification, consent or approval
14 shall have been effected or obtained, or otherwise provided for, free of any
conditions not acceptable to the Board.
17. Withholding Taxes. The Company shall be entitled to withhold (or secure
payment from the Key Employee in cash or other property, including Shares
already owned by the Key Employee for six (6) months or more (valued at the Fair
Market Value thereof on the date of delivery) in lieu of withholding) the amount
of any Federal, state or local taxes required to be withheld by the Company in
connection with any Shares or cash payments deliverable under this Plan in
respect of Options granted to any Key Employee, and the Company may defer
delivery unless such withholding requirement is satisfied. The Committee may
permit any such withholding obligation to be satisfied by reducing the number of
Shares otherwise deliverable to the Key Employee.
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