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U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-KSB
[x] Annual Report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the Fiscal Year ended September 30, 1996
[ ] Transition report under Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _______ to _________
Commission file number 0-28318
Multimedia Games, Inc.
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(Name of Small Business Issuer in Its Charter)
Texas 74-2611034
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(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification Number)
7335 S. Lewis Avenue, Suite 204
Tulsa, Oklahoma 74136
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(Address of Principal Executive Offices) (Zip Code)
(918) 494-0576
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(Issuer's Telephone Number,
Including Area Code)
Securities Registered Under Section 12(b) of the Exchange Act: NONE
Securities Registered Under Section 12(g) of the Exchange Act:
Common Stock, $.01 par value
Check whether the issuer: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days Yes x No
Check if there is no disclosure of delinquent filers in response to
Item 405 of Regulation S-B contained in this form, and no disclosure will be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-
KSB or any amendment to this Form 10-KSB [ ]
State the issuer's revenues for its most recent fiscal year: $22,887,000
The aggregate market value of the voting stock held by non-affiliates of
the issuer as of December 13, 1996 was $16,703,000.
The number of shares outstanding of the issuer's Common Stock as of
December 13, 1996, was 4,026,783.
Transitional Small Business Disclosure Format (check one):
Yes ___ No X
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PART I
ITEM 1. DESCRIPTION OF BUSINESS
GENERAL
The Company provides satellite linked, high stakes bingo games and
interactive high speed bingo games played on interconnected electronic player
stations to participating bingo halls owned primarily by American Indian tribes
located throughout the United States. The Company also provides proxy play
services to bingo players located off Indian lands through its 49% interest in
American Gaming Network L.L.C.
Prior to August 1995, the Company's principal business was to furnish
the marketing and other operating services required in the conduct of high
stakes bingo games conducted under the names MegaBingo, MegaCash and MegaBingo
Lite. MegaBingo and MegaCash are bingo games played simultaneously at multiple
bingo halls via a closed-circuit, television satellite link. As of September
30, 1996, the MegaBingo and MegaCash games were being played at 50
independently owned bingo halls located in Alabama, Arizona, California,
District of Columbia, Idaho, Kansas, Minnesota, Montana, New Mexico, Oklahoma,
Oregon, South Dakota, Texas and Washington, operated primarily on behalf of
American Indian tribes. MegaBingo Lite provides smaller prizes to similarly
linked Indian bingo halls. As of September 30, 1996, MegaBingo Lite was being
delivered to 11 bingo halls located in the State of Oklahoma. For the year
ended September 30, 1996, aggregate revenues derived from MegaBingo, MegaCash
and MegaBingo Lite were $15,609,000 (68.2%) of the Company's total revenues of
$22,887,000.
In August 1995, the Company introduced MegaMania, an interactive
high-speed bingo game developed by the Company that is played on electronic
player stations interconnected among participating Indian bingo halls. As of
September 30, 1996, there were approximately 800 MegaMania player stations in
operation at 20 Indian bingo halls located in 3 states. For the year ended
September 30, 1996, revenues derived from MegaMania were $6,074,000 (26.5%) of
the Company's total revenues for the period.
In February 1995, the Company formed a 50-50 partnership named "American
Gaming Network" with Graff Pay-Per-View, Inc. ("Graff") to own and operate the
rights and properties associated with the Company's proxy play services. In
July, 1996, the Company entered into a series of transactions that resulted in
the termination of Graff's interest in the partnership, the transfer of all
rights and properties of the partnership to American Gaming Network L.L.C.
("AGN"), and the introduction of a new group of investors to provide working
capital to AGN (see Note 3 of Notes to Consolidated Financial Statements).
Since its inception in February 1995, AGN has continued to develop its
properties and has conducted virtually no operations.
From April 1994 to December 1994, the Company derived its revenue
principally as a fee for providing services to American Gaming and
Entertainment, Ltd. ("AGE"), which owned
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the MegaBingo and MegaCash games, pursuant to a Services Agreement entered into
with AGE in April 1994 (the "AGE Services Agreement"). In December 1994, the
Company acquired substantially all of the assets relating to the MegaBingo and
MegaCash games from AGE for a purchase price of approximately $1.8 million,
plus the assumption of certain liabilities relating to AGE's bingo gaming
activities. Excluded from the assets acquired were all of the Integrated
Gaming Services Agreements between AGE and various Indian tribes. The Company
has continued to provide services with respect to the contracts retained by AGE
pursuant to the AGE Services Agreement. Since the December 1994 acquisition,
revenues and expenses of the MegaBingo and MegaCash games, including games
serviced pursuant to the AGE Services Agreement, have been reflected in the
financial statements of the Company at their gross amounts and not netted and
recorded as service fee income.
Prior to April 1994, the Company was a development stage enterprise
engaged in the development of bingo related games and services and conducted no
operations.
Multimedia Games, Inc. (the "Company" or "Multimedia") was incorporated
under the laws of the State of Texas on August 30, 1991. Unless the context
otherwise requires, the term the "Company" includes Multimedia Games, Inc., and
its subsidiaries - TV Games, Inc., MegaBingo, Inc., and Multimedia Creative
Services, Inc., as well as the activities conducted by the Company through its
49% interest in American Gaming Network L.L.C. The Company's executive offices
are located at 7335 South Lewis Avenue, Suite 204, Tulsa, Oklahoma 74136, and
its telephone number is (918) 494-0576.
MegaBingo(R), MegaCash(R), MegaBingo Lite(TM) and MegaMania(TM)
are registered trademarks and tradenames of the Company, and all references
herein are deemed to include the applicable tradename or trademark designation.
RISK FACTORS
The following risk factors should be carefully considered in connection
with the other information and financial statements contained in this Report on
Form 10-KSB.
GOVERNMENT REGULATION. In doing business with Indian tribes and
participating in tribal gaming activities, the Company is subject to various
Federal regulations and laws regarding the manner in which business can be
transacted. The operation of gaming on Indian reservations is subject to the
Indian Gaming Regulatory Act of 1988 (the "Gaming Act"), which also
established the National Indian Gaming Commission (the "NIGC") with the
authority to promulgate rules and regulations to enforce certain aspects of the
Gaming Act and to protect Tribal interests involved in gaming activities. The
NIGC has previously given favorable rulings regarding the Company's Integrated
Gaming Service Agreements with the tribes and has determined them to be service
contracts rather than management contracts, thereby allowing the Company to
obtain more favorable terms than would have been permitted had the agreements
been determined to be management contracts. In addition, on July 10, 1996, the
NIGC issued its opinion that the Company's MegaMania game is a Class II rather
than a Class III gaming activity. There can be no assurance however, that the
NIGC will not enact additional
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regulations or reinterpret existing regulations in a manner that would have a
material and adverse effect upon the Company, including requiring the Company
to restructure its existing arrangements with the tribes or requiring changes
in the way the Company's games are conducted so that such games are classified
as Class II. There also can be no assurances that the pending investigation by
the U.S. Attorney (see "Item 1. Description of Business - Risk Factors -
Pending Investigation") will not have a material and adverse effect upon the
Company by requiring the Company to discontinue its MegaMania game or
restructuring the game to meet the U.S. Attorney's definition of a Class II
game. Any such restructuring of the Company's games has the additional risk
that such games will no longer appeal to consumers or be acceptable to the
Tribes. There can also be no assurance that the Gaming Act or other Federal
laws and regulations will not be amended or adopted in response to pressure
from state and local sources so as to limit the authority of Tribes to self-
regulate Class II gaming or to change the definition of Class II gaming.
DEVELOPING OPERATING ENVIRONMENT. The environment in which the Company
conducts its business is relatively new and presents significant operating
challenges and uncertainties. The Gaming Act was adopted in 1988 and the
development of the Federal, State and Tribal infrastructure to regulate the
proliferation of Indian gaming activities has occurred only since that time.
Fundamental issues concerning the scope and intent of the Gaming Act remain
unresolved. The NIGC was not fully operational until February 1993, and prior
to that the Bureau of Indian Affairs was responsible for certain functions now
performed by the NIGC. As a result, the adoption and implementation of
regulations in furtherance of the Gaming Act have moved cautiously and there is
a comparative lack of case law or interpretation of such regulations or of the
Gaming Act. Moreover, the Company is on the leading edge of the rapid
advancement of technological innovation in Indian gaming and issues relating,
for example, to electronic games or gaming on the Internet are either novel or
lack historical precedent sufficient to enable companies to predict with
certainty the outcome of planned actions.
TRIBAL REGULATION. Each Federally recognized Indian tribe has the
standing of a sovereign nation. As such, without approval from the tribes, the
tribes cannot be sued or otherwise held accountable under any but tribal laws.
Each tribe which is a party to the Company's integrated service agreements has
waived its sovereign immunity to the Company as it relates to equipment used in
the conduct of games or to the revenues of the gaming facility. Although the
Company has never experienced any difficulties in this regard, there can be no
assurance that a particular tribe will not attempt to invoke its sovereign
immunities with respect to obligations and/or contracts with the Company which,
if successful, could have the effect of rendering the Company's contracts
unenforceable.
In addition, gaming on Indian lands is generally closely administered by
Tribal officials. Most Tribes have established a regulatory framework with
agencies to administer the conduct of gaming on Indian lands. These
regulations generally include licensing and approval procedures and reporting
and audit requirements. Not all constituencies within each Indian tribe view
gaming favorably, and changes in Tribal officials have in the past, and could
in the future, result in a more difficult environment in which to conduct the
Company's business at a particular Tribe.
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DEPENDANCE UPON TRIBAL CONTRACTS. Virtually all of the Company's
revenues are derived from contracts with Native Indian tribes. As of September
30, 1996, the Company had, either in its own name or through the AGE Services
Agreement, written agreements with 51 Indian tribes that provide the Company
with the exclusive right to conduct linked bingo operations on their respective
Indian lands. No assurances can be given that any of such contracts will be
renewed upon the expiration of their term or that, if renewed, the terms and
conditions thereof will be favorable to the Company, nor can any assurances be
given that a tribe or tribes will not cancel any of such agreements prior to
expiration of their stated term. A failure to renew such contracts upon terms
favorable to the Company or the cancellation of a significant number of such
contracts would have a material adverse effect upon the Company's business and
results of operations.
CUSTOMER DEMAND; COMPETITION. The Company's product development and
marketing activities are based upon the Company's assessment of customer demand
for gaming services in establishments in which the Company provides services.
Significant changes in customer demand or preference for gaming products in a
given geography, including competing gaming and other leisure activities, could
have an adverse impact on the Company's business and results of operations.
PENDING INVESTIGATION. On October 16, 1996, the Company was advised by
the Office of the U.S. Attorney in Tulsa, Oklahoma (the "U.S. Attorney"), that
the Company was part of a criminal investigation to determine whether, in the
opinion of the U.S. Attorney, the Company's MegaMania bingo game constituted
Class II or Class III gaming, as defined by the Gaming Act. MegaMania has been
designed and is operated as a Class II game within the definition of bingo set
forth in the Gaming Act. In a written opinion dated July 10, 1996, the Company
was informed by the NIGC of the NIGC's determination that MegaMania constituted
a Class II game. The Company has relied on the NIGC's opinion in conducting
its operations and believes that the NIGC made its determination with a
complete and accurate understanding of the facts and the applicable law.
The Gaming Act classifies games that may be played on Indian land into
three categories. Class I gaming includes traditional Indian social and
ceremonial games and is regulated only by the tribes. Class II gaming includes
bingo, pull-tabs, lotto, punch boards, tip jars, instant bingo, certain card
games played under limited circumstances and other games similar to bingo if
those games are played at the same location where bingo is played. Class III
gaming consists of all forms of gaming that are not Class I or Class II, such
as video casino games, slot machines, most table games (e.g., blackjack and
craps) and keno.
Generally speaking, Class II gaming may be conducted on Indian lands if
the state in which the Indian reservation is located permits such gaming for
any purpose by any person. Class III gaming, on the other hand, may only be
conducted pursuant to a compact reached between the Indian tribe and the state
in which the tribe is located.
No assurances can be given that the U.S. Attorney will not conclude that
MegaMania is Class III gaming. If the U.S. Attorney does reach such a
conclusion, the Company intends
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to vigorously defend its position that MegaMania is a Class II game. It is
unclear at this time how the U.S. Attorney and the NIGC would have their
positions reconciled in the event the U.S. Attorney determines that MegaMania
is Class III gaming. No assurances can be given that the Company will be
successful on the merits. If MegaMania is ultimately determined to be Class
III gaming, the loss of the MegaMania business would have a material adverse
effect upon the Company's financial condition and results of operation.
ACCUMULATED DEFICIT; UNCERTAIN PROFITABILITY. Although the Company
achieved net income of $40,000 in the fiscal year ended September 30, 1996 (as
compared to $505,000 in the prior fiscal year), the Company has incurred an
accumulated deficit of $2,574,000 since its inception in August 1991 through
September 30, 1996. No assurances can be given that the Company will be able
to maintain profitable operations in the future. In addition, such profits, if
any, are not expected to be commensurate or proportional with any increases in
revenues as the Company anticipates experiencing significant start-up costs
related to the expansion of its MegaMania game as well as increases in general
and administrative expenses associated with satisfying the regulatory and
other operating uncertainties facing the Company in the developing operating
environment in which the Company conducts its business.
FUTURE FINANCING. The Company's future business plans are dependent
upon its ability to find financing on a timely basis with which to fund the
Company's activities, including the placement of additional MegaMania player
stations and related equipment and the development of new products. Any
inability to obtain additional financing when needed could have a material
adverse effect on the Company's ability to achieve its long-term objectives.
Moreover, any additional financing may involve substantial dilution to the
Company's then existing shareholders.
TECHNOLOGICAL INNOVATION. The Company believes that an important factor
to its future success will include its continued development of new products
that appeal to the tastes of consumers and the introduction of such products in
a timely manner. Successful product development and introduction depends upon
a number of factors, including the identification of products expected to
appeal to consumer preferences and the timely completion of design and testing.
Importantly, any new or modified gaming products will be designed and operated
to meet the requirements of Class II gaming. The Company expects to continue
to solicit the opinion of the NIGC as to whether any new or modified gaming
products meet the definitions of Class II gaming, although there can be no
assurance that the Company will always wait for a final opinion from the NIGC
before introducing a new game or modifying an existing game. Interpretations
and policies of the NIGC with respect to the requirements for Class II gaming
will also affect the timing and nature of any new products. As a result of
these and other factors, there can be no assurance that the Company will
continue to develop and introduce new products in a timely manner that will
achieve commercial success.
PRIZE FULFILLMENT. The prizes awarded under the Company's bingo games
are based upon attaining an assumed level of gross game receipts and
statistical assumptions as to the frequency of winners. To date, the Company
has not experienced a "game deficit" where prize
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allocations have exceeded game revenues; however, no assurances can be given
that the Company will not experience abnormally high rates of jackpot prize
wins in the future.
SIGNIFICANT OUTSTANDING OPTIONS AND WARRANTS. As of December 13, 1996,
there were outstanding immediately exercisable stock options to purchase an
aggregate of 140,418 shares of Common Stock at exercise prices ranging from
$1.50 to $2.75 per share, and outstanding immediately exercisable warrants to
purchase an aggregate of 404,970 shares of Common Stock at exercise prices
ranging from $2.00 to $6.60 per share. In addition, there were outstanding
additional warrants to purchase an aggregate of 2,042,143 shares of Common
Stock at an exercise price of $8.00 per share that become exercisable on August
12, 1997, additional stock options to purchase 392,082 shares of Common Stock
at exercise prices ranging from $1.50 to $4.375 per share that are generally
exercisable in equal annual increments over four years commencing in 1997, and
an option to exchange interests in AGN for up to 412,000 shares of the
Company's common Stock at the equivalent of $3.00 per share (see "Note 3 of
Notes to Consolidated Financial Statements"). The Company's Series A Preferred
Stock is also convertible commencing in January 1997 into 671,590 shares of
Common Stock at a conversion rate of five shares of Common Stock for each share
of Series A Preferred Stock. To the extent that such stock options, warrants
and Series A Preferred Stock are exercised or converted, dilution to the
Company's shareholders will occur. Moreover, the terms upon which the Company
will be able to obtain additional equity capital may be adversely affected,
since the holders of such options, warrants and Series A Preferred Stock can be
expected to exercise or convert them at a time when the Company would, in all
likelihood, be able to obtain any needed capital on terms more favorable to the
Company than the exercise terms provided in such securities.
ISSUANCE OF SHARES FOR NOTES. Of the 4,026,783 shares of Common Stock
outstanding at December 13, 1996, 541,545 shares, or approximately 13.4%, of
the total outstanding have been issued for promissory notes of the purchasers,
including 291,545 shares purchased by the Chairman of the Board of the Company
for a promissory note in the principal amount of $583,000. Although the
Company believes that such notes are collectible when due for the full amount
thereof, no assurances to that effect can be given.
SHARES AVAILABLE FOR FUTURE SALE; SALES BY AFFILIATES. Of the 4,026,783
shares of Common Stock outstanding at December 13, 1996, 895,070 of such shares
are held by non-affiliates and are freely traded in the public market and
3,131,713 shares may be deemed "restricted securities" as that term is defined
under the Securities Act, and in the future may be sold pursuant to a
registration under the Securities Act, in compliance with Rule 144 under the
Securities Act, or pursuant to another exemption therefrom. Of such
restricted securities, 2,118,208 shares of Common Stock are expected to be
registered for public sale under the Securities Act of 1933, as amended (the
"Securities Act") on Form S-3 in early January, 1997. With respect to the
remaining 1,013,505 of restricted shares, Rule 144 provides that, in general, a
person holding restricted securities for a period of two years may, every three
months thereafter, sell in brokerage transactions an amount of shares which
does not exceed the greater of one percent (1%) of the Company's then
outstanding Common Stock or the average weekly trading volume of the Common
Stock during the four calendar weeks prior to
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such sale. Rule 144 also permits, under certain circumstances, the sale of
shares without any quantity limitations by a person who is not an affiliate of
the Company and was not an affiliate at any time during the 90 day period prior
to sale and who has satisfied a three year holding period. Of such 1,013,505
shares of "restricted" Common Stock, approximately 113,024 shares have been
held for more than two years and are, therefore, eligible for immediate sale
under Rule 144, subject to the volume limitations described above. Of the
remaining 900,481 shares of "restricted" Common Stock, 34,940 shares will
become eligible for sale under Rule 144 during the period ending September 30,
1997.
In addition, 671,590 shares of Common Stock issuable upon conversion of
the Series A Preferred Stock will become eligible for resale under Rule 144
beginning in January 1997.
REGISTRATION RIGHTS. Of the 1,013,505 shares of "restricted" Common
Stock referred to above, 616,485 have "piggyback" registration rights. The
Company has also granted registration rights to the holders of the 2,042,143
warrants described above, the 412,000 shares of Common Stock issuable upon the
exercise of the put and call agreement described under "Note 3 of Notes to
Consolidated Financial Statements" and the 404,970 shares of Common Stock
issuable upon the exercise of other presently outstanding warrants and options.
Exercise of these registration rights could cause the Company to incur
substantial expenses and could adversely affect the Company's ability to obtain
future equity or debt financing. Furthermore, the exercise of these warrants
and stock options, and the conversion of the Series A Preferred Stock, and the
sale of the underlying Common Stock (or even the potential of such exercise,
conversion and sale) may have a depressive effect on the market price of the
Company's securities.
Certain holders of restricted Common Stock have, directly or indirectly,
entered into lock-up agreements with Walsh, Manning Securities, Inc. ("Walsh,
Manning") that contractually restrict the sale of such shares without the
consent of Walsh, Manning. Of the 3,131,713 shares of restricted Common Stock
(including the 2,118,208 to be registered in the Form S-3 registration
statement referred to above), approximately 2,544,467 of such shares are
subject to such lock-up agreements.
ABSENCE OF DIVIDENDS. The Company has never declared or paid any cash
dividends on its Common Stock. The Company intends to retain its earnings, if
any, to finance the growth and development of its business and therefore does
not anticipate paying any cash dividends on its Common Stock in the foreseeable
future.
CURRENT GAMES
The MegaBingo, MegaCash and MegaBingo Lite games are telecast live to
television monitors at each participating bingo hall by means of a
closed-circuit, television satellite network which, except for the satellite,
is designed, owned and operated by the Company. The Company's broadcast studio
is currently located at the Cheyenne-Arapaho Lucky Star gaming facility which
is approximately 20 miles west of Oklahoma City in Concho, Oklahoma. Prior to
November, 1996, the Company's broadcast studio was located at the Muscogee
(Creek)
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gaming facility in Muscogee, Oklahoma, but was moved due to a dispute with that
tribe. The studio houses the equipment needed to produce and televise the game
drawings and verify winning cards, including television production equipment
and satellite up-link equipment. The Company's central game computers and
communications equipment are housed at the Company's principal offices in
Tulsa, Oklahoma. MegaBingo and MegaCash game drawings are conducted on the
floor of the Cheyenne-Arapaho bingo hall before live audiences of players, and
MegaBingo Lite drawings are conducted in the broadcast studio. The Company's
MegaBingo, MegaCash and MegaBingo Lite games, which are approximately twelve
(12) minutes in duration, represent only a limited percentage of the total
number of bingo games conducted by each participating bingo hall operator
during any given bingo session.
The MegaBingo, MegaCash and MegaBingo Lite games allow customers to
enter a participating bingo hall and purchase a bingo card for a game that will
be played at a future designated time. The Company has contracted with the
Cheyenne-Arapaho Nation to draw the bingo numbers on its reservation and to
transmit the drawing of the numbers to all participating bingo halls by
satellite. Prize money emanates from the proceeds of bingo card sales, with
profits to the Company derived from revenues from bingo card sales remaining
after prizes, bingo hall commissions and operating expenses are paid. The
Company believes that its MegaBingo, MegaCash and MegaBingo Lite games are the
only regularly scheduled multi-hall, high stakes bingo games in the United
States.
In the MegaBingo game, which is conducted on the Company's satellite
gaming network seven nights per week, a player pays either $3 for a single
bingo game face card or $5 for a bingo game card consisting of three separate
game faces. When a player covers his card after 50 balls or fewer are drawn
and calls bingo, and his card is verified, the player is given the chance to
win the jackpot prize of up to $1,000,000 (paid $100,000 cash and the remainder
in the form of a 24-year annuity) by spinning the MegaBingo wheel. When there
is no jackpot winner, the game continues until a player calls bingo. Once that
player's card is verified, the player will receive a consolation prize of
$2,500 if a $3 card was played, or $5,000 if a $5 card was played, as well as
certain lesser prizes. MegaBingo Lite is similar to MegaBingo, but involves
fewer halls and smaller prizes (e.g., jackpot prizes of $25,000). In the
MegaCash game, which is conducted on the Company's network each Saturday and
Sunday in matinee sessions, the player pays either $2 or $5 for the same single
bingo game face card, which carries a jackpot of, respectively, $100,000 or, by
spinning the MegaBingo wheel, up to $1,000,000. When there is no MegaCash
jackpot winner after 50 balls are drawn, the game continues until bingo is
called and a consolation winner is determined, of $2,500 or $5,000
respectively, as well as certain lesser prizes. Typically 13 games of
MegaBingo and two of MegaCash are played each week.
In September 1995, the Company conducted a Mega-MegaBingo ("MegaMega")
Bingo session. MegaMega was a special event providing an entire evening
session of multi-hall bingo games operated on the MegaBingo network during
which many significant prizes were awarded, including a "must go" $1,000,000
prize. The program operated for 90 minutes and included 11 different games
with a total prize package of $1,450,000. The Company believes MegaMega was
the largest single bingo program ever offered.
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MegaMania utilizes interconnected electronic player stations throughout
participating halls on the Company's inter-hall network. The Company has
designed MegaMania, such that it (a) requires that sound strategic decisions be
made rapidly and repeatedly by players in order to maximize prize payout, (b)
presents game results in a fast-action color video presentation featuring
state-of-the-art graphics and animation accompanied by sound, (c) pays back
approximately 85% of the total amount wagered in prizes to players, (d) pits
players against each other to win a common pooled prize in accordance with the
rules of class II bingo, (e) costs only a quarter per card, per cycle, (f) pays
out a prize of $25 to $150+ for every completed game (which is about 90 seconds
duration), and (g) pays out other progressive jackpot prizes based on winning
within a specified number of bingo balls drawn. As of September 30, 1996, 20
halls had approximately 800 electronic player stations playing MegaMania. The
Company has plans to install additional electronic player stations playing
MegaMania or to install MegaMania software on other vendors' machines within
the next year. As of December 13, 1996, there were 21 halls with approximately
915 player stations playing MegaMania, after taking into account the removal of
139 player stations from the Muscogee (Creek) facilities in November 1996 due
to a dispute with that tribe. Also at December 13, 1996, the Company was in
the process of installing an additional 150 player stations at six new bingo
halls.
AGN offers proxy play services of the MegaBingo game to off-reservation
participants. AGN accepts orders and purchases bingo cards at on-reservation
Indian bingo halls and plays those cards at the bingo halls on behalf of proxy
play participants.
INTEGRATED GAMING SERVICES AGREEMENTS ("IGS AGREEMENTS")
Virtually all of the Company's revenues are derived from contracts with
Native Indian tribes. The Company's contract with each bingo hall operator is
typically for five years, and provides for a variety of integrated, multi-hall
games on an exclusive basis. Participation in the network not only generates
additional profit for the bingo hall, but also allows the bingo hall operators
to advertise jackpot prizes well in excess of those offered by other bingo
halls where the Company's games are not played, thus providing participating
halls a competitive advantage.
The Company has IGS Agreements with approximately 50 Native Indian
tribes, of which 18 agreements were renewed for five-year terms in 1995. About
half of the remaining contracts have unexpired terms of between two and three
years and the balance of the contracts are currently under negotiation and are
being continued on a month to month basis pending negotiations.
In order to provide protection against the risk that prizes awarded to
players in the MegaBingo and MegaCash games might exceed game revenues, the
terms of the IGS Agreements with the various hall operators that conduct
MegaBingo and MegaCash (the "MegaBingo Operators"), provide that a fixed
percentage of gross game receipts from those games (the "MegaBingo Prize
Allocation") is deposited in a prize allocation account from which prizes,
prize fulfillment fees and bank fees are paid ("MegaBingo Prize Allocation
Costs"). The
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MegaBingo Operator and the Company are each entitled to a fee (the "MegaBingo
Fee") which approximates 15% of gross game receipts increased by its share of
cumulative game surplus and decreased, in the case of the Company, by 100% of
all game deficits. A surplus (or deficit) exists to the extent that the
MegaBingo Prize Allocation exceeds (or is exceeded by) the MegaBingo Prize
Allocation Costs.
Under the terms of the IGS Agreements, specified initial portions of the
MegaBingo Fee are deposited in separate prize reserve accounts for the
MegaBingo Operators from which loans may be made to the prize allocation
account in the event of a game deficit. However, during the past five years
there has never been a game deficit and no loans have ever been made. Such
loans from the MegaBingo Operators' prize reserve accounts would be liabilities
of the Company and would have to be repaid when there are sufficient funds in
the prize allocation account available for such purpose. Each MegaBingo
Operator is entitled to the return of its prize reserve funds upon termination
of its IGS Agreement. In addition, those parties who have completed their
prize reserve funding obligations are entitled to receive formula-determined
refunds of their respective prize reserve funds from time to time to the extent
it is determined that such funds are not required to assure the payment of
MegaBingo Prize Allocation Costs.
Under the IGS Agreements, the Company may procure such technical,
marketing and other support as it determines to operate the games, and is
obligated to obtain any licenses and approvals required for the operation of
the games, to provide errors and omissions insurance coverage against the
possibility of duplication of prize liabilities, and to guaranty the payment of
prizes won in the games by letters of credit, performance bonds, insurance or
other guarantees.
The IGS Agreements obligate the tribes to provide space to operate the
games and to provide such advertising and promotion as they determine to be
beneficial. The parties to the IGS Agreements have also constituted audit,
legal, marketing and operations committees which provide oversight for the
games and exercise specific approval functions mandated by the IGS Agreements.
PRIZE FULFILLMENT
The MegaBingo and MegaCash games are designed assuming a certain minimum
level of gross game receipts, with MegaBingo Prize Allocation Costs averaged
over long periods of time expected to be less than the MegaBingo Prize
Allocation. In order to reduce the need for prize reserve account funds and to
further reduce exposure to game deficits during periods of abnormally high
rates of jackpot prize wins, the Company is party to an agreement (the "Risk
Assumption Agreement") with SCA Promotions, Inc. ("SCA"), which specializes in
prize fulfillment services, to pay jackpot prizes won during the term of the
agreement. SCA owns warrants to purchase 45,682 shares of the Company's Common
Stock at $2.00 per share and holds 12,563 shares of Series A Preferred Stock
that are convertible in January 1997 into 62,815 shares of Common Stock.
-11-
<PAGE> 12
For an administrative fee (based on a fixed percentage of gross game
sales receipts) and prize fulfillment fees (based on a varying percentage of
gross game sales receipts) paid to SCA with funds from the MegaBingo Prize
Allocation, the Company receives an amount equal to the present value of the
jackpot prize payments less a deductible of $15,000. The Company also advances
the first $37,000 of SCA's liability for each prize pay-off, which is
subsequently deducted from fees due SCA. These prize fulfillment funds are then
utilized to satisfy the obligation to the jackpot prize winner through a
lump-sum cash payment or the purchase of an annuity.
SCA may cease its prize fulfillment responsibilities if its total
cumulative prize payouts exceed its fees earned under the contract by
$2,500,000. SCA is required at all times to maintain not less than $500,000 of
prize fulfillment resources in the form of a performance bond or other mutually
acceptable escrow arrangement. The Risk Assumption Agreement expires on
February 28, 1997, and is currently being negotiated for extension.
GAMING EQUIPMENT
In support of its MegaBingo, MegaCash and MegaBingo Lite games, the
Company utilizes, among other things, television production equipment,
satellite transmission and reception equipment, computer hardware and software,
conference calling equipment and specially printed ticket stocks typically
imprinted with the game's logo. The Company has contracted with a vendor for
satellite time to transmit the aforementioned games. With the exception of the
computer software, which is custom developed by or on behalf of the Company,
all other gaming equipment and supplies required for the operation of the
aforementioned games are typically available off-the-shelf from a number of
vendors. Under the IGS Agreements, any satellite dishes and monitoring
equipment then dedicated for use thereunder revert to the bingo halls upon the
expiration of such arrangements.
MegaMania electronic player stations, which consists primarily of
electronic equipment and computer hardware, are placed in participating halls
pursuant to an addendum to the IGS Agreements (the "IGS Addendum"). Pursuant
to the IGS Addendum, the tribes typically purchase the MegaMania equipment from
the Company by allocating to the Company a portion of the Tribes' share of
MegaMania game revenues until the agreed purchase price of the stations have
been paid. With the exception of the computer software, which is custom
developed by or for the Company and remains the property of the Company (either
outright or through licensing or joint venture arrangements with others)
notwithstanding the ownership of the player stations by the Tribes,
substantially all of the electronic equipment and computer hardware is
available from a number of vendors, although significant lead times exist with
respect to certain components.
MARKETING, ADVERTISING AND PROMOTION
The Company arranges national and local news coverage of the Company's
games and currently provides press releases to local newspapers regarding
recent jackpot wins as well as
-12-
<PAGE> 13
the introduction of the Company's games at new network halls. In addition, the
Company has focused advertising and promotion, including direct mailings in
localities near network halls advertising the availability of the Company's
games (including discount coupons for new players) as well as the purchase of
advertising space in specialized bingo newsletters. The Company's games
typically are prominently featured in the participating halls' program
materials, such as calendars and flyers, and on outdoor billboards near certain
participating halls. Halls often provide free bus rides to players from nearby
states and towns.
SERVICE MARKS AND PATENTS
The Company owns service marks for "MegaBingo(R)", "MegaCash(R)" and
"MegaRacing(R)" registered with the United States Patent and Trademark Office,
and a paid-up perpetual exclusive license to use the registered service mark,
"MegaPick(TM)", in bingo activities. The Company also utilizes the trademarks
"MegaBingo Lite(TM)" in connection with its special game introduced in a
limited number of halls, "TV MegaBingo(TM)" in connection with its televised
game and "MegaMania(TM)" in connection with its game played on electronic
player stations. The Company relies on trade secrets, proprietary know-how and
continuing technological innovation to develop and maintain its competitive
position. However, there can be no assurance that, insofar as the Company
relies on trade secrets and unpatented know-how, others will not independently
develop similar technology or that secrecy will not be breached.
COMPETITION
Competition in the gaming industry is intense. The Company presently
estimates that gaming is permitted in almost all states in some form, and
gaming activities continue to expand. There are numerous national and
international corporations and entities engaged in the gaming business.
Competition in the gaming industry has increased substantially in recent years,
more competitors participate in the industry each year, and most of the
competitors have substantially greater financial and personnel resources than
the Company.
Many forms of gaming are conducted both on and off Indian lands in the
United States which, in a broad sense, may be deemed to be in competition with
the Company's services. Although there is a general lack of reliable data
regarding the effect of any one form of gaming on the level of business
experienced by another, the Company is not aware of any data suggesting that
revenues from any specific form of gaming are particularly sensitive to the
level of wagering on other forms of gaming. The Company believes that its
MegaBingo, MegaCash and MegaBingo Lite are the only multi-hall, high stakes
bingo games currently available on or off Indian lands in the United States.
In addition to other bingo operations, the Company's activities may also
compete with such other forms of gaming as lotto, table games, sports betting
and pari-mutuel wagering. The extent to which the various forms of gaming
conducted both on and off Indian lands in the United States may be competitive
with the Company's services will depend upon several
-13-
<PAGE> 14
factors, including the nature and location of the gaming activity and the
demographics of the players' population.
EMPLOYEES
As of September 30, 1996, the Company had 71 full-time and part-time
employees, consisting of 14 engaged in field operations, 13 in computer
operations relating to bingo activities, seven in accounting functions, four
in sales and marketing activities, 12 in other general administrative and
executive functions and 21 full-time and part-time bingo hall employees. The
Company does not have a collective bargaining agreement with any of its
employees and considers its relationship with its current employees to be good.
In addition, approximately 30 individuals were employed by tribes to operate
the Company's games in their respective halls all of whom are reimbursed by the
Company.
GOVERNMENTAL REGULATION
GENERAL. The operation of gaming on Indian reservations is subject to
the Indian Gaming Regulatory Act of 1988 (25 U.S.C. Sections 2701, et seq.)
(the "Gaming Act" or "IGRA"), which created the National Indian Gaming
Commission (the "NIGC") to promulgate regulations to enforce certain aspects of
IGRA. The NIGC became fully operational in February 1993, prior to which the
Bureau of Indian Affairs was responsible for certain functions of the NIGC in
accordance with guidelines formulated by the Assistant Secretary of the
Interior for Indian Affairs. Shortly after IGRA was enacted, the Federal
Communications Commission ("FCC") and the United States Postal Service amended
their regulations to allow the use of television, telephone and the United
States mail for certain purposes in regard to Indian gaming, as long as the
gaming was in compliance with IGRA. On questions of compliance, the FCC defers
to the NIGC. Due to the relatively recent adoption of the foregoing
provisions, it is anticipated that statutes and regulations may be amended in
the future to correct initial deficiencies or to respond to changes in the
gaming industry. Management of the Company believes that it is not in
violation of any regulations or laws, but there is a risk that the regulations
or laws may change, or that new interpretations may be given to existing laws
and regulations, which may restrict or prohibit the games currently operated
and planned by the Company.
INDIAN GAMING. IGRA classifies games that may be played on Indian land
into three categories. Class I gaming includes traditional Indian social and
ceremonial games and is regulated only by the tribes. Class II gaming includes
bingo, pull-tabs, lotto, punch boards, tip jars, instant bingo, certain card
games played under limited circumstances and other games similar to bingo if
those games are played at the same location where bingo is played. The
Company's operations have been designed as Class II games, and the NIGC has
issued its opinion that the Company's games are, in fact, Class II. Class III
gaming consists of all forms of gaming that are not Class I or Class II, such
as video casino games, slot machines, most table games and keno.
IGRA provides that Indian tribes may engage in Class II gaming,
including the conduct of high-stakes bingo games, if (i) the state in which the
Indian reservation is located permits
-14-
<PAGE> 15
such gaming for any purpose by any person, (ii) the gaming is not otherwise
specifically prohibited on the Indian reservation by Federal law, (iii) the
gaming is conducted in accordance with a tribal ordinance which has been
approved by the NIGC, and (iv) several other requirements are met, including
the requirement that an Indian tribe shall have the sole proprietary interest
and responsibility for the conduct of gaming, and that primary management
officials and key employees must be licensed by the tribe.
Under IGRA, the NIGC has the power to inspect and examine all Indian
gaming facilities, to conduct background checks on all persons associated with
Class II Indian gaming, to inspect, copy and audit all records of Indian gaming
facilities, and to hold hearings, issue subpoenas, take depositions and adopt
regulations in furtherance of its responsibilities. IGRA authorizes the NIGC
to impose civil penalties for violations of its regulations or of the Act, and
also imposes Federal criminal sanctions for illegal gaming on Indian
reservations and for theft from Indian gaming facilities.
IGRA also regulates Indian gaming management contracts. The Act provides
that the Gaming Commission may approve a management contract only after
determining that the contract provides for (ii) adequate accounting procedures
and verifiable financial reports, which must be furnished to the tribe, (ii)
tribal access to the daily operations of the gaming enterprise, including the
right to verify daily gross revenues and income, (iii) minimum guaranteed
payments to the tribe, which must have priority over the retirement of
development and construction costs, (iv) a ceiling on the repayment of
development and construction costs, (v) a contract term not exceeding five
years and a management fee not exceeding thirty percent of net revenues,
provided that the NIGC may approve up to a seven year term and a forty percent
return to the Manager if the Chairman of the NIGC is satisfied that the capital
investment required, and the income projections for the particular gaming
activity, justify the larger percentage and longer term. Certain other
requirements for approval of a management contact are specified in the
regulations promulgated by the NIGC.
IGRA requires the NIGC to review all management contracts and collateral
agreements approved by the Bureau of Indian Affairs before the creation of the
NIGC to ensure that such agreements are in compliance with IGRA. The NIGC has
determined that the IGS Agreements are service agreements and not management
contracts, thereby allowing the Company to obtain more favorable terms than
would have been permitted had the contacts been determined to be management
contacts. There is no assurance however, that further reviews of the IGS
Agreements by the NIGC or alternative interpretation of applicable laws and
regulations will not require substantial modifications to the IGS Agreements
and cause the operations of the Company to be marginally profitable or even
unprofitable.
OFF-RESERVATION GAMING SERVICE. Through AGN, the Company plans to use
proxy play services to bring bingo games to a regional or national
off-reservation audience and as a result, may also be subject to rules
promulgated by the NIGC, the FCC or other agencies governing whether a
broadcast station, the Internet or cable network may carry information
regarding the results of a Class II bingo game played on Indian lands. The
Senate Committee
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<PAGE> 16
on Indian Affairs, when drafting IGRA, indicated that the intent of the law was
to allow Indians to use the latest technological aids, including television,
satellites and telephones, on and off the reservation, to conduct bingo games.
In July 1995, the Chairman of the NIGC ruled that proxy play of bingo was
allowed under IGRA. There can be no assurance, however, as regulations are
reinterpreted or new laws enacted, that the Company's proposals to reach home
viewers through commercial broadcasts, the Internet, or cable networks may not
be constrained or prohibited.
OTHER. Existing federal and state regulations may also impose civil and
criminal sanctions for various activities prohibited in connection with gaming
operations including false statements on applications and failure or refusal to
obtain necessary licenses described in the regulations. Violation of any of
these existing or newly adopted regulations may have a substantial adverse
effect on the Company.
ITEM 2. PROPERTIES
The Company leases approximately 9,440 sq.ft. of space for its
executive offices located at 7335 S. Lewis Avenue, Tulsa, Oklahoma. The lease
expires in October 2001. The Company also leases approximately 1,030 sq.ft.
of office space for some of its computer programmers in the Pavilion Office
Park Building in Dallas, Texas, which lease expires in June 1999. Aggregate
annual rentals under the two leases are $107,000. The Company believes that
such leases will be renewed as they expire or that alternative properties can
be leased on acceptable terms. The Company also houses a portion of its
satellite link equipment in a trailer located adjacent to the Cheyenne-Arapaho
bingo hall in Concho, Oklahoma at no cost.
ITEM 3. LITIGATION
The Company is the subject of a criminal investigation by the Office of
the U.S. Attorney in Tulsa, Oklahoma to determine whether, in the opinion of
the U.S. Attorney, the Company's MegaMania bingo game constitutes Class II or
Class III gaming, as defined by the Gaming Act. (See Part I, Item 1,
Description of Business - Risk Factors - Pending Investigation.")
The Company is also the subject of various pending and threatened claims
arising out of the ordinary course of business. Management believes that any
liability resulting from such claims will not have a material adverse effect on
the results of operations or the financial condition of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
Not applicable
PART II
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
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<PAGE> 17
The Company's Common Stock has been listed on the small cap market of
the NASDAQ Stock Market ("NASDAQ") under the symbol MGAM since May 15, 1996.
Prior to that, the Company's Common Stock was traded on the OTC Bulletin Board
and in the over-the-counter market "pink sheets" under the symbol "MGAM". The
following table sets forth the range of the quarterly high and low bid prices,
as reported by the National Quotation Bureau, Incorporated, for the last two
fiscal years. Over-the-counter market quotations reflect inter-dealer prices
and do not reflect retail mark-ups, mark-downs or commissions, and may not
represent actual transactions.
<TABLE>
<CAPTION>
Fiscal Quarter High Low
- -------------- ---- ---
<S> <C> <C>
October - December 1994 $2.00 $0.75
January - March 1995 3.75 0.75
April - June 1995 3.25 2.00
July - September 1995 3.125 2.375
October - December 1995 3.25 2.25
January - March 1996 3.625 2.125
April - June 1996 6.50 3.625
July - September 1996 5.75 4.75
</TABLE>
There were 257 shareholders of record of the Common Stock on September 30, 1996
(327 shareholders at December 13, 1996).
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION
BUSINESS OVERVIEW
Multimedia Games, Inc. and subsidiaries (the "Company") were organized
to develop, promote and produce lawful gaming activities over the information
highway, including but not limited to, satellites, television, telephone and
the Internet. The Company provides satellite linked, high stakes bingo games
and interactive high speed bingo games played on interconnected electronic
player stations to participating bingo halls owned primarily by American Indian
tribes located throughout the United States. The Company also provides proxy
play services for its MegaBingo and MegaCash games to bingo players located off
Indian lands through a subsidiary's 49% interest in American Gaming Network
L.L.C. ("AGN")
Prior to August 1995, the Company's principal business was to furnish
the marketing and other operating services required in the conduct of high
stakes bingo games conducted under the names MegaBingo, MegaCash and MegaBingo
Lite (the "MegaBingo Games"). MegaBingo and MegaCash are played simultaneously
using a closed-circuit television satellite link at 50 independently owned
bingo halls located in 14 states throughout the United States, operated
primarily on behalf of American Indian tribes. MegaBingo Lite provides smaller
prizes
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<PAGE> 18
to similarly linked Indian bingo halls and is presently delivered to 11 bingo
halls located in the State of Oklahoma.
In August 1995, the Company introduced MegaMania, an interactive high-
speed bingo game developed by the Company that is played on electronic player
stations interconnected among participating Indian bingo halls. Significant
revenue generation for MegaMania did not begin until March 1996. As of
December 13, 1996, MegaMania is played at 21 independently owned American
Indian bingo halls located in 6 different states, primarily Oklahoma.
RESULTS OF OPERATIONS
An analysis of the Company's revenues and direct gaming expenses were as
follows for the years ended September 30, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
MegaBingo, MegaCash and
MegaBingo Lite:
Gross Revenues $ 15,579,000 $ 16,123,000(1)
Prizes and Related Costs (9,697,000) (9,706,000)(1)
Allotments to Hall Operators (3,188,000) (3,200,000)(1)
------------ ------------
Net MegaBingo Margin $ 2,694,000 $ 3,217,000
============ ============
MegaMania:
Gaming Revenue, Net of Prizes(2) $ 6,074,000 $ 106,000
Allotments to Hall Operators (4,408,000) (75,000)
------------ ------------
Net MegaMania Margin $ 1,666,000 $ 31,000
============ ============
</TABLE>
- --------------
(1) Not presented consistent with the service fee accounting used in the
financial statements prior to December 22, 1994. See Note 1 of Notes to
Consolidated Financial Statements.
(2) MegaMania gross revenues and prizes are netted for financial statement
presentation purposes.
The following discussion should be read in conjunction with the
Consolidated Financial Statements and Notes thereto included under "Item 7
Financial Statements".
REVENUES - Total revenues for fiscal year 1996 were $22.9 million as
compared to $17.1 million in 1995, a 33.7% increase. The increase is due to a
39.6% increase in gaming revenues over 1995, primarily as a result of the
Company's new MegaMania game which generated revenues of $6.1 million during
1996 as compared to $.1 million in 1995. MegaBingo revenues decreased $.5
million in 1996 as compared to 1995, after eliminating the netting effects of
the service fee accounting
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<PAGE> 19
used in 1995. The decrease in MegaBingo revenues is the net of (i) $1.0 million
generated by the MegaBingo Lite network in 1996, (ii) the Company not conducting
the one-time MegaMega game in 1996 as it did in 1995, (iii) player headcount
being down at most bingo facilities across the country, and (iv) several bingo
halls electing not to continue playing the MegaBingo game during 1996.
The Company expects MegaMania revenues to continue to increase over the
coming year. MegaBingo revenues, however, may continue to decrease as the
result of decreased MegaBingo play at the facilities of a major network tribe
subsequent to year end.
Non-gaming revenues during 1996 were $1.2 million, or $.4 million less
than in 1995. The primary reason for the decrease was the discontinuance of
the Company's business relationship with Graff which resulted in $.95 million
in revenues in 1995 and only $.2 million up to the termination of the
relationship in January 1996. The decrease in other revenues related to Graff
was offset by $.5 million in software license revenues attributable to the
license of the MegaBingo software for use in Canada and China to AI Software
during 1996.
BINGO PRIZES AND RELATED COSTS - Bingo prizes and related costs
increased $.7 million or 7.4% during 1996 as compared to 1995; however, after
eliminating the netting effects of the service fee accounting in 1995 and the
$.5 million in additional prizes related to the MegaBingo Lite network, such
costs were actually $.6 million lower in 1996 as compared to 1995. The
decrease in these costs is not commensurate with the decrease in revenues for
MegaBingo discussed above because most of the prizes offered on the MegaBingo
network are fixed in amount and are not sensitive to the volume of cards sold
in a particular bingo session. Jackpot prize costs, which are insured, were
consistent in their relation to MegaBingo revenues from 1996 to 1995.
MegaMania revenues are recorded net of prize costs; therefore, MegaMania
prizes have no effect on Bingo Prizes and Related Costs.
ALLOTMENTS TO HALL OPERATORS - Allotments to hall operators consist of
the halls' share of the gaming income after prizes and allocable prize costs.
Allotments to hall operators increased 142.7% to $7.6 million in 1996, as
compared to $3.1 million in 1995. After eliminating the netting effects of the
service fee accounting in 1995 and the $.2 million in hall commissions paid on
the MegaBingo Lite network, such allotments to hall operators increased $4.1
million during 1996 as compared to 1995. The primary reason for the increase is
hall commissions related to MegaMania which were $4.4 million in 1996. The
decrease in hall commissions related to MegaBingo is caused by the decrease in
MegaBingo revenues discussed above.
SALARIES AND WAGES - Salaries and wages increased $.3 million, or 18.3%
during 1996 as compared to 1995; however, most of the increase came in the
fourth quarter of 1996 and relates to additional personnel hired to assist in
the installation, training and maintenance related to the MegaMania network.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES - Selling, General and
Administrative Expenses increased $.7 million, or 27.5% during 1996 as compared
to 1995. The increase relates primarily to MegaMania telecommunications,
operational, training and support costs. Additionally, travel costs related to
the sales, installation and maintenance efforts for MegaMania contributed to
the increase.
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<PAGE> 20
AMORTIZATION AND DEPRECIATION - Amortization and depreciation increased
$.3 million, or 111.6% during 1996 as compared to 1995. The increase results
from MegaMania electronic player station and software programming costs
capitalized during 1996. The Company made $1.8 million in capital additions
during 1996.
INTEREST EXPENSE - Interest expense increased $.1 million to $.2 million
in 1996, primarily as a result of interest expense recognized on the Bridge
Debt related to financing costs and the value of warrants attached to the
Bridge Debt.
FUTURE EXPECTATIONS AND FORWARD LOOKING STATEMENTS
This Annual Report and the information incorporated herein by reference
contains various "forward-looking statements" within the meaning of Federal and
state securities laws, including those identified or predicated by the words
"believes," "anticipates," "expects," "plans," or similar expressions. Such
statements are subject to a number of uncertainties that could cause the actual
results to differ materially from those projected. Such factors include, but
are not limited to, those described under "Item 1. Description of Business -
Risk Factors". Given these uncertainties, readers of this Annual Report are
cautioned not to place undue reliance upon such statements.
LIQUIDITY AND CAPITAL RESOURCES
At September 30, 1996, the Company had unrestricted cash and cash
equivalents of $1.5 million, only a slight decrease from September 30, 1995.
During the year ended September 30, 1996, $.2 million of cash was provided by
operations versus $.7 million in 1995. The change is primarily due to
decreased net income and cash used to build inventories, partially offset by an
increase in amortization and depreciation. The Company added $1.8 million to
fixed assets, consisting primarily of software development for MegaMania and
hardware for MegaMania player stations and game operation. Financing
activities which funded the investing activities consisted of a private
placement of stock in February-March 1996 which generated $1.0 million in
proceeds and a Bridge Debt placement in August 1996 which generated $.8 million
in gross proceeds. In connection with the Bridge Debt, the Company issued
533,310 warrants to purchase common stock at $8.00 per warrant, including
173,310 warrants issued to the placement agent in the transaction. Upon
completion of the November placement described below, the terms of the Bridge
Debt warrants were amended to be identical to those issued in the November
placement, including redemption provisions. Additional debt was incurred to
help finance the acquisition of MegaMania player stations of approximately $.2
million which is due over the next two to three years. Working capital at
September 30, 1996 was $.2 million.
Subsequent to year end, the Company completed a $3.4 million private
placement of its common stock wherein purchasers acquired for $3.00, one share
of common stock and a five-year warrant to acquire another share of common
stock for $8.00. In the November placement, 1.2 million shares were sold and
1.5 million warrants were issued, including 350,000 warrants issued to the
placement agent in the transaction. The warrants are redeemable by the
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<PAGE> 21
Company for $.10 if and when the Company's common stock price is greater than
$12.00 for 20 consecutive trading days.
The November placement generated net cash proceeds of approximately $2.1
million in addition to repaying the outstanding Bridge Debt of $.8 million.
The proceeds of the November placement will be used by the Company to expand
its MegaMania network through the purchase and installation of additional
MegaMania player stations and related equipment. The proforma effects of the
November placement are reflected on the consolidated balance sheet under the
columnar heading "proforma." The Company also has available $50,000 on a
$100,000 line of credit with a financial institution.
The Company has plans to utilize the proceeds from the November
placement to install an additional estimated 1,000 MegaMania player stations.
The Company's ability to achieve this plan is dependent upon the performance of
existing installations and new installations, competition, continued demand for
the MegaMania game product and a lack of barriers from possible regulatory
changes, as well as other risk factors discussed under Item 1, "Description of
the Business - Risk Factors."
INFLATION AND OTHER COST FACTORS
The Company's operations have not been, nor are they expected to be,
materially affected by inflation. However, the Company's operational expansion
is affected by the cost of hardware components, which are not considered to be
inflation sensitive, but rather sensitive to changes in technology and
competition in the hardware markets. In addition, the Company expects it will
continue to incur increased legal and other similar costs associated with
compliance with regulatory requirements and the uncertainties present in the
operating environment in which the Company conducts its business.
ACCOUNTING PRONOUNCEMENTS
See Note 1 of the Notes to Consolidated Financial Statements regarding
newly issued accounting pronouncements.
ITEM 7. FINANCIAL STATEMENTS
The financial statements filed in this Annual Report on Form 10-KSB are
listed in the attached Index to Financial Statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
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<PAGE> 22
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A)OF THE EXCHANGE ACT
The executive officers and directors of the Company, and their
respective ages and positions with the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Gordon T. Graves 59 Chairman of the Board, Chief Executive Officer
and Director
Larry Montgomery 58 President, Chief Operating Officer and Director
Gordon Sjodin 55 Executive Vice President
Michael E. Newell 45 Vice President
Frederick E. Roll 53 Vice President and Secretary
Mike Howard 33 Vice President, Treasurer and Chief Financial
Officer
Gregory Stern 51 Director
</TABLE>
-----------------------
GORDON T. GRAVES has been Chairman of the Board and a director of the
Company since its inception, and has been Chief Executive Officer since
September 1994. Since December 1993 and from 1989 to 1990, Mr. Graves has been
the President of Graves Management, Inc., a management consultant and
investment company. Mr. Graves, from 1992 through December 1993 was president
and Chief Executive Officer of Arrowsmith Technologies, Inc. ("Arrowsmith"), a
computer systems company, and from 1991 to 1993 Mr. Graves was employed by KDT
Industries, Inc., a high-tech manufacturing and services company and affiliate
of Arrowsmith, as, successively, Vice President of Corporate Development and
President. From 1987 to 1989, Mr. Graves was the Chairman of the Board of
Directors of Gamma International Ltd. (currently American Gaming and
Entertainment, Ltd. ("AGE"), a company co-founded by him.
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<PAGE> 23
LARRY MONTGOMERY has been President and a director of the Company since
November 1992. Since September 1994, Mr. Montgomery has been the Company's
Chief Operating Officer, having held the position of Chief Executive Officer
from November 1992 through September 1994. From December 1991 until December
1993, Mr. Montgomery was also a private consultant to gaming companies. From
1989 through 1991, Mr. Montgomery was the President of Public Gaming Research
Institute, and from 1987 to 1989 was the Executive Director of the Kansas State
Lottery.
GORDON SJODIN has been Vice President of the Company since September
1994. In April 1994, Mr. Sjodin joined the Company's wholly-owned subsidiary,
MegaBingo, Inc., as its Vice President - Sales and served in such position
until September 1994, when he became President and Chief Executive Officer of
MegaBingo, Inc. From August 1989 until April 1994, Mr. Sjodin was employed by
AGE as, successively, Director, Sales and Marketing, and Director, Corporate
Development.
MICHAEL E. NEWELL has been Vice President of the Company since September
1994. In April 1994, Mr. Newell joined MegaBingo, Inc. as its Vice
President-Chief Operating Officer and served in such position until November
1995, when he became Senior Vice President- of game operations for the Company.
From 1988 until April 1994, Mr. Newell was employed by AGE as Director,
MegaBingo operations.
FREDERICK E. ROLL has been Vice President and Secretary of the Company
since September 1994, having joined the Company in February 1994 as its acting
general manager and Chief Financial Officer. From November 1990 until joining
the Company, Mr. Roll was a certified public accountant in his own practice.
From 1983 until October 1990, Mr. Roll was Chief Financial Officer, Vice
President and an owner of Park Hill Nurseries, Ltd., a commercial nursery.
MIKE HOWARD has been Vice President and Treasurer since he joined the
Company in March 1996. In June 1996, he was named as Chief Financial Officer
of the Company. From May 1985 to March 1996, Mr. Howard worked in the business
assurance practice of Coopers & Lybrand L.L.P., an international accounting
firm, as a manager.
GREGORY STERN has been a director of the Company since December 1993.
Mr. Stern has worked as an independent management consultant to The Littleton
Group, since leaving RKS Associates, a venture capital firm, in 1989, where he
served as a general partner.
All directors hold office until the next annual meeting of shareholders
or until their successors are elected and qualified. Officers are appointed by
the Board of Directors and serve at the discretion of the Board.
No family relationship exists between any of the directors or executive
officers of the Company.
-23-
<PAGE> 24
The Company has granted to the Placement Agent the right to have a
representative of the Placement Agent attend meetings of the Company's Board of
Directors as an observer.
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE.
In connection with the preparation of this Annual Report, it was
determined that Larry Montgomery, Michael Newell, Frederick Roll, Daniel
Sarnoff and Gordon Sjodin had failed to include in their original report on
Form 3 filed in May 1996 when the Company's Common Stock became registered
under Section 12(g) of the Exchange Act, certain options granted by the
Company to such individuals in April 1996. The number of such options were as
follows: Mr. Montgomery (5,000); Mr. Newell (3,000); Mr. Roll (2,500); Mr.
Sarnoff (4,000); and Mr. Sjodin (4,500). As this determination was not made
until after October 15, 1996, such persons also failed to report such options
in a Form 5 which was required to be filed within 45 days after the end of the
Company's fiscal year ended September 30, 1996. In addition, Graff Pay-Per-
View, Inc. failed to file a Report on Form 4 with respect to the month of July,
1996, to report the sale by Graff of 275,000 shares of Common Stock to the
Company (see Note 3 of Notes to Consolidated Financial Statements).
ITEM 10. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE. The following table sets forth certain
information concerning the annual compensation for the Company's chief
executive officer and each executive officer earning more than $100,000 for the
fiscal year ended September 30, 1996 (the "named executive officers"):
-24-
<PAGE> 25
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
Securities
Compensation Annual Underlying
----------------- Options/ All Other
Financial Position Year Salary Warrants(#)(1) Compensation(2)
- ------------------ ---- -------- -------------- ---------------
<S> <C> <C> <C> <C>
Gordon T. Graves 1996 $ 65,423 $ 485
Chairman of the 1995 46,364 (3) --
Board and Chief 1994 19,121 (3) --
Executive Officer
Larry Montgomery 1996 100,939 5,000 3,238
President and Chief 1995 108,000 13,000 3,420
Operating Officer 1994 107,311 (4) 623
Gordon Sjodin 1996 115,669 4,445 3,309
Vice President 1995 108,000 -- 13,206
1994 41,540 (5) 45,000 623
</TABLE>
- --------------
(1) Represents shares of Common Stock underlying options granted pursuant to
the Company's 1994 Employee Stock Option Plan, 1996 Stock Incentive
Plan and its Salaried Employee Participation Plan, and underlying
warrants issued in lieu of compensation in July 1994 (see "Stock Plans"
below); does not include shares of Common Stock underlying warrants
acquired for investment (See "Item 12. Certain Relationships and
Related Transactions").
(2) Represents contributions made by the Company on behalf of the named
executive officers to the Company's 401(k) plan.
(3) Such amount (except for $1,129) was contributed by Mr. Graves to the
Company.
(4) Includes $8,769 represented by a one-year note (subject to extension for
three months) issued to Mr. Montgomery in July 1994 which accrued
interest at 10% per annum and was subsequently converted into Series A
preferred Stock.
(5) Mr. Sjodin joined the Company in April, 1994.
OPTION/WARRANT GRANT TABLE. The following table sets forth certain
information regarding options and warrants granted by the Company during its
fiscal year ended September 30, 1996 to the named executive officers (exclusive
of warrants acquired for investment which are discussed in "Item 12. Certain
Relationships and Related Transactions"):
-25-
<PAGE> 26
OPTION/WARRANT GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Individual Grants
Number of % of Total
Securities Options/
Underlying Warrants
Options/ Granted to
Warrants Employees in Price Expiration
Name Granted (#) Fiscal Year Per Share Date
- ---- ----------- ------------ --------- ----------
<S> <C> <C> <C> <C>
Gordon T. Graves -- -- -- --
Larry Montgomery 5,000 3.1 $4.00 4/1/06
Gordon Sjodin 4,500 2.8 $4.00 4/1/06
</TABLE>
AGGREGATE OPTION/WARRANT EXERCISES AND YEAR-END OPTION TABLE. The
following table sets forth certain information regarding stock options and
warrants held as of September 30, 1996 by the named executive officers
(exclusive of warrants acquired for investment as discussed in "Item 12.
Certain Relationships and Related Transactions"). No named executive officer
exercised any stock options or warrants during said period (except for warrants
acquired for investment as described in "Item 12. Certain Relationships and
Related Transactions"):
AGGREGATE OPTION/WARRANTS EXERCISES AND
FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Options/Warrants at In-The-Money Options/
Year End (#) Warrants at Year-End(*)
------------ -----------------------
Exercisable Unexercisable Exercisable Unexercisable
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gordon T. Graves -- -- $ -- $ --
Larry Montgomery 39,250 23,750 165,187 83,563
Gordon Sjodin 22,500 27,000 73,125 81,000
</TABLE>
- ---------------
(*) Calculated on the basis of the fair market value of the underlying
securities at year-end, minus the exercise price.
-26-
<PAGE> 27
STOCK PLANS. In November 1994, the stockholders of the Company approved
the Company's 1994 Employee Stock Option Plan (the "1994 Plan") and the 1994
Director Stock Option Plan ("Director Plan"), under which options to purchase
an aggregate of 360,000 shares and 60,000 shares, respectively, of Common Stock
were reserved for issuance. As of September 30, 1996, options to purchase
285,000 shares and 40,000 shares, respectively, of Common Stock were
outstanding under the 1994 Plan and the Director Plan. No options granted
under the Director Plan had been exercised. As a result of the adoption of the
Company's 1996 Stock Incentive Plan (the "1996 Plan"), no further options will
be granted under the 1994 Plan or the Director Plan.
At September 30, 1996, options for an aggregate of 45,000 shares of
Common Stock had been granted to Larry Montgomery and remained outstanding
under the Company's 1993 Salaried Employee Participation Plan. Such Plan has
been terminated and no further options will be granted thereunder.
In August 1996, the Board of Directors adopted the Company's 1996
Incentive Stock Plan (the "1996 Plan") pursuant to which 274,320 shares of
Common Stock or Common Stock equivalents may be issued plus an additional
number of shares or share equivalents equal to 10% of the number of shares of
Common Stock issued by the Company after August 15, 1996 and prior to December
31, 2000.
The 1996 Plan will be administered by the Board of Directors of the
Company or by a committee of the Board designated for such purpose (the
"Administrator"). The Administrator will have authority, subject to the terms
of the 1996 Plan, to determine when and to whom to make grants under the 1996
Plan, the number of shares to be covered by the grants, the types and terms of
"Awards" to be granted under the 1996 Plan (which are stock based incentives
and may include incentive stock options, non-qualified stock options, stock
appreciation rights, restricted stock, performance shares and deferred stock
purchases), the exercise or purchase price of the shares of Common Stock and
Common Stock equivalents subject to the Awards, and to prescribe, amend and
rescind rules and regulations relating to the 1996 Plan.
The Company has agreed with Walsh, Manning Securities, Inc., that the
Company will not, without the consent of Walsh, Manning, grant options under
the 1996 Plan to purchase more than 200,000 shares during the one (1) year
period ending July 24, 1997, or more than 100,000 shares during each of the
three one (1) year periods thereafter. As of September 30, 1996, the Company
had not granted any options under the 1996 Plan. As of December 13, 1996, the
Company had granted options to purchase 162,500 shares of Common Stock , all at
an exercise price of $4.375 per share.
Under the terms of the 1996 Plan, Awards may be granted by the
Administrator in its discretion to key employees (including officers and
directors who are employees) of the Company and any of its subsidiary
corporations as well as to consultants, advisors and other independent
contractors to the Company.
-27-
<PAGE> 28
The exercise price of stock appreciation rights and of non-qualified or
incentive stock options may not be less than 100% of the fair market value of
the underlying shares of Common Stock on the date of grant. Other Awards may be
granted at such price as the Administrator determines.
Shares of Common Stock purchased upon the exercise of an option are to
be paid for in cash or through the delivery of other shares of Common Stock
with a value equal to the total option price or in a combination of cash and
such shares, or with money lent by the Company to the optionee in compliance
with applicable law and on terms and conditions to be determined by the
Administrator.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of December 13,
1996, with respect to the number of shares of Common Stock, and of Series A
Preferred Stock, owned by (i) each person known by the Company to own
beneficially more than 5% of the outstanding shares of, respectively, the
Common Stock and the Series A Preferred Stock, (ii) each director of the
Company, (iii) each named executive officer, and (iv) all directors and
executive officers of the Company as a group:
-28-
<PAGE> 29
<TABLE>
<CAPTION>
Common Stock Preferred Stock
------------ ---------------
Number of Number of
Shares Shares
Beneficially Percent Beneficially Percent
Beneficial Owner Owned of Class Owned of Class
- ---------------- ------------- -------- ------------ --------
<S> <C> <C> <C> <C>
Gordon T. Graves 1,043,420 (1) 23.6 80,175 (2) 59.7%
1604 Crested Butte
Austin, Texas 78746
SCA Promotions, Inc. 108,497 (3) 2.6 12,563 9.4
8300 Douglas Avenue
Suite 625
Dallas, Texas 75225
Frank T. Nickell 108,497 (3)(4) 2.6 12,563 (4) 9.4
350 Park Avenue,
21st Floor
New York, New York 10022
Larry Montgomery 81,434 (5) 2.0 1,411 1.1
1920 S. West Union Road
Topeka, Kansas 66615
Gordon Sjodin 45,233 (6) 1.1 1,272 (7)
5804 E. 104th Street
Tulsa, Oklahoma 74137
Gregory Stern 13,334 (8) (7) -- --
130 Barton Road
Stow, Massachusetts 01775
All executive officers 1,257,745 (9) 27.4 83,351 62.1
and directors as a group
(eight persons)
</TABLE>
(1) Includes 272,727 shares held by Graves Properties, Ltd., a limited
partnership controlled by Mr. Graves, and 400,875 shares issuable upon
the conversion of the Series A Preferred Stock. Excludes an aggregate of
90,600 shares as to which Mr. Graves disclaims beneficial ownership,
consisting of: (1) 44,100 shares beneficially owned by Cynthia Graves,
Mr. Graves' wife, and (ii) 46,500 shares beneficially owned by the
Gordon Graves Grandchildren Trust.
(2) Includes 75,000 shares held by Graves Properties Ltd., a limited
partnership controlled by Mr. Graves.
(3) Represents shares issuable upon the exercise of presently exercisable
warrants and 62,815 shares issuable upon the conversion of shares of the
Series A Preferred Stock.
-29-
<PAGE> 30
(4) Does not include shares beneficially owned by SCA Promotions, Inc., in
which Mr. Nickell is a principal shareholder, as to which Mr. Nickell
disclaims any beneficial ownership.
(5) Includes 39,250 shares issuable upon exercise of options granted by the
Company and are exercisable and 5,129 shares issuable upon exercise of
warrants issued by the Company and exercisable at such date. Also
includes 7,055 shares issuable upon conversion of the Series A Preferred
Stock.
(6) Includes 4,623 shares issuable upon exercise of warrants issued by the
Company and exercisable at such date and 22,500 shares issuable upon
exercise of options granted by the Company and are exercisable. Also
includes 6,360 shares issuable upon conversion of the Series A Preferred
Stock.
(7) Less than 1%.
(8) Includes 13,334 shares issuable upon the exercise of currently
exercisable options.
(9) Includes 135,948 shares issuable upon exercise of options granted by the
Company and are exercisable and 18,813 shares issuable upon exercise of
warrants issued by the Company and exercisable. Also includes 416,755
shares issuable upon conversion of Series A Preferred Stock.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1996, Gordon Graves, the Company's Chairman of the Board,
exercised warrants to purchase 291,545 shares of Common Stock at $2.00 per
share. Such exercise was accomplished by the issuance to the Company of Mr.
Graves' promissory note due in five years and bearing interest at 6% per annum.
Also during 1996, Mr. Sjodin exercised for cash 2,500 warrants to purchase
Common Stock at $1.50 per share.
In January 1995, Messrs. Graves (including a limited partnership
controlled by Mr. Graves), Montgomery, Sjodin and Newell, along with other non-
employee investors that included SCA, exchanged certain outstanding
subordinated notes due them by the Company for shares of the Company's Series A
Preferred Stock, at the exchange price of $10 principal amount of such notes
for each share of Series A Preferred Stock. In connection with such exchange,
the Company issued its substitute warrants for other warrants held by such
parties (see Note 9 of Notes to Consolidated Financial Statements). As a result
of such exchange, Mr. Graves (and such limited partnership) held 80,175 shares
of Series A Preferred Stock and substitute warrants for the purchase of 291,545
shares of Common Stock; Messrs. Montgomery and Sjodin each held 534 shares of
Series A Preferred Stock and substitute warrants for the purchase of 1,940
shares of Common Stock; and Mr. Newell held 107 shares of Series A Preferred
Stock and substitute warrants for the purchase of 388 shares of Common Stock.
All of the substitute warrants have an exercise price of $2.00 per share of
Common Stock.
-30-
<PAGE> 31
In August 1996, Mr. Graves, along with other investors acquired a 10%
interest in AGN Venturer LLC, for $50,000 in cash and the several guarantee
(i.e., 10%) of the $336,000 note payable to the Company by AGN (see Note 3 of
Notes to Consolidated Financial Statements).
Mr. Nickell is a principal shareholder of SCA which indemnifies the
Company against a portion of its prize fulfillment risk. The Company believes
that the terms of the Risk Assumption Agreement with SCA are at least as
favorable as could have been obtained with an unaffiliated third party (see
"Item 1, Description of Business - Prize Fulfillment.")
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
Certain of the exhibits designated below have been previously filed with
the Commission and, where indicated, are incorporated by reference.
-31-
<PAGE> 32
POWER OF ATTORNEY
Know all men by these presents, that each person whose signature appears
below constitutes and appoints Mike Howard and Gordon T. Graves, and each of
them singly, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him or her and in his or her
name, place and stead, in any and all capacities (including his or her capacity
as a director or officer of Multimedia Games, Inc.) to sign any and all
amendments (including post-effective amendments) to this Annual Report, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite and necessary to be done in
and about the premises, as fully to all intents and purposes as he or she might
or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue thereof.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned hereunto duly authorized.
MULTIMEDIA GAMES, INC.
Dated: December 27, 1996 By: /s/ MIKE HOWARD
---------------------------------------
Mike Howard
Vice President - Finance and
Chief Financial Officer
-32-
<PAGE> 33
In accordance with the requirements of the Securities Exchange Act of
1934, this Annual Report has been signed by the following persons on behalf of
the Registrant in the capacities and on the dates indicated.
<TABLE>
<S> <C> <C>
/s/ GORDON T. GRAVES Chairman of the Board
- ------------------------------ Chief Executive
Gordon T. Graves Officer and Director December 27, 1996
/s/ LARRY MONTGOMERY President and Chief
- ------------------------------ Operating Officer
Larry Montgomery and Director December 27, 1966
/s/ FREDERICK E. ROLL Vice President and
- ------------------------------ Controller December 27, 1966
Frederick E. Roll
/s/ MIKE HOWARD Vice President and
- ------------------------------ Chief Financial
Mike Howard Officer December 27, 1996
/s/ GREGORY STERN Director December 27, 1996
- ------------------------------
Gregory Stern
</TABLE>
-33-
<PAGE> 34
SUPPLEMENTAL INFORMATION TO BE
FURNISHED WITH REPORTS FILED PURSUANT TO
SECTION 15(d) OF THE EXCHANGE ACT BY
NON-REPORTING ISSUERS
The Registrant has not sent to its security holders any annual report
covering the Registrant's last fiscal year, or any proxy statement, form of
proxy or other proxy soliciting material with respect to any annual or meeting
of security holders. In connection with its 1997 annual meeting of
stockholders, the Company anticipates sending its 1996 annual report and proxy
materials to security holders.
-34-
<PAGE> 35
MULTIMEDIA GAMES, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Sequentially
Numbered
Exhibit No. Title Pages
- ----------- ----- -----
<S> <C> <C>
3.1 Articles of Incorporation *
3.2 Bylaws *
10.1 Form of Integrated Services Agreement *
10.2 Contingent Grand Prize Risk Assumption
Agreement dated October 1, 1995, between
the Company and SCA Promotions, Inc.
10.3 Lease Agreement dated October 10, 1996, between
the Company and Intervest-Southern
Oaks LP
10.4 Form of 1992-3 Warrant Certificate
Issued by the Company *
10.5 Form of 1995 Warrant Certificate
Issued by the Company *
10.6 Form of Bridge Warrant
10.7 Form of Private Placement Warrant
10.8 Form of Bridge Note
10.9 Registration Rights Agreement dated
January 23, 1995 between the Company
and holders of 1994 Original Warrants *
10.10 Registration Rights Agreement dated
January 23, 1995 between the
Company and holders of 1995
Substitute Warrants *
10.11 Registration Rights Agreement among
the Company and holders of
Bridge Warrants and Private
Placement Warrants
10.12 Stock Option Agreement dated October 24,
1992 between the Company
and Larry Montgomery *
10.13 1994 Employee Stock Option Plan *
10.14 1994 Director Stock Option Plan *
10.15 1996 Stock Incentive Plan
10.16 Unit Purchase Agreement dated August 14,
1996 between the Company and the
AGN Investor Group
10.17 Right of first Refusal Agreement dated
August 14, 1996 between the Company
and the AGN Investor Group
</TABLE>
-35-
<PAGE> 36
<TABLE>
<S> <C>
10.18 Put/Call Agreement dated August 14, 1996
between the Company and AGN Venturer LLC
10.19 Registration Rights Agreement between
the Company and AGN Venturer LLC
10.20 Limited Liability Company Agreement
of AGN Venturer LLC
10.21 Limited Liability Company Agreement
of American Gaming Network LLC
10.22 Certificate of Merger of American
Gaming Network LP into
American Gaming Network LLC
10.23 Form of Several Guaranty of AGN Investor
Group
10.24 Purchase Agreement dated June 25, 1996
between the Company and Graff Pay-
Per-View, Inc. ("Graff")
10.25 Registration Rights Agreement between
the Company and Graff
10.26 Form of Stock Purchase Agreement between
the Company and Frank J. Skelly, III and Craig Gross
10.27 Form of Registration Rights Agreement between
the Company and Frank J. Skelly, III and Craig Gross
10.28 Placement Agency Agreement dated July 24,
1996 between the Company and Walsh, Manning
Securities, Inc.
10.29 Placement Agency Agreement dated January 29,
1996 between the Company
and G-V Capital Corp.
11.1 Earnings Per Share Statement
21.1 Subsidiaries of Registrant
23.1 Consent of Coopers & Lybrand L.L.P.
24.1 Power of Attorney (included on page 32)
27.1 Financial Data Schedule
</TABLE>
* Indicates incorporated by reference to the Company's Form 10-KSB filed
with the Commission for the fiscal year ended September 30, 1994.
-36-
<PAGE> 37
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Accountants . . . . . . . . . . . . . . . . . . . . . . F-2
Consolidated Balance Sheet, September 30, 1996 . . . . . . . . . . . . . . . F-3
Consolidated Statements of Operations, Years Ended September 30,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-5
Consolidated Statements of Changes in Stockholders Equity, Years Ended
September 30, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . F-6
Consolidated Statements of Cash Flows, Years Ended September 30,
1996 and 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . F-7
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . F-8
</TABLE>
F-1
<PAGE> 38
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders
Multimedia Games, Inc.
We have audited the accompanying consolidated balance sheet of
Multimedia Games, Inc. and Subsidiaries as of September 30, 1996, and the
related consolidated statements of operations, changes in stockholders' equity
and cash flows for each of the two years in the period ended September 30,
1996. These consolidated financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
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
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Multimedia Games, Inc. and Subsidiaries as of September 30, 1996 and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended September 30, 1996, in conformity with generally
accepted accounting principles.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
December 18, 1996
F-2
<PAGE> 39
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Historical Proforma
------------ ------------
ASSETS (Unaudited -
See Note 9)
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,508,000 $ 3,565,000
Accounts Receivable:
Trade, net of allowance for doubtful accounts
of $76,000 247,000 247,000
Other 45,000 45,000
Inventory 358,000 358,000
Prepaid expenses 92,000 92,000
------------ ------------
Total current assets 2,250,000 4,307,000
------------ ------------
Restricted cash and cash equivalents 1,534,000 1,534,000
Note receivable from American Gaming Network LLC 336,000 336,000
Property and equipment, net 2,616,000 2,616,000
Other assets 196,000 91,000
Goodwill, net 499,000 499,000
------------ ------------
Total assets $ 7,431,000 $ 9,383,000
============ ============
</TABLE>
Continued
F-3
<PAGE> 40
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
SEPTEMBER 30, 1996
<TABLE>
<CAPTION>
Continued Historical Proforma
----------- -----------
(Unaudited
See Note 9)
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable $ 50,000 $ 50,000
Current portion of long-term debt 197,000 197,000
Due to American Gaming Network LLC 99,000 99,000
Accounts payable and accrued expenses 1,292,000 1,292,000
Halls' share of surplus 120,000 120,000
Prize fulfillment fees payable 320,000 320,000
----------- -----------
Total current liabilities 2,078,000 2,078,000
----------- -----------
Bridge notes payable 800,000 --
Long-term debt 787,000 787,000
Other long-term liabilities 1,372,000 1,372,000
Commitments and Contingencies (Note 11)
Stockholders' equity:
Preferred stock, Series A, $.01 par value, 2,000,000
shares authorized, 134,318 shares
issued and outstanding 1,000 1,000
Common stock, $.01 par value, 10,000,000 shares
authorized, 2,859,200 shares and 4,018,033
proforma shares issued and 2,825,201
shares and 3,984,034 proforma shares outstanding 29,000 40,000
Additional paid-in capital 6,296,000 9,071,000
Stockholder notes receivable (1,271,000) (1,271,000)
Treasury stock, 33,999 shares at cost (87,000) (87,000)
Accumulated deficit (2,574,000) (2,608,000)
----------- -----------
Total stockholders' equity 2,394,000 5,146,000
----------- -----------
Total liabilities and stockholders' equity $ 7,431,000 $ 9,383,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE> 41
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
------------ ------------
<S> <C> <C>
Revenues:
Gaming revenue $ 21,653,000 $ 14,841,000
MegaBingo services fee 669,000
Other 1,234,000 1,602,000
------------ ------------
Total revenues 22,887,000 17,112,000
------------ ------------
Operating costs and expenses:
Bingo prizes and related costs 9,697,000 9,026,000
Allotments to hall operators 7,596,000 3,130,000
Salaries and wages 1,659,000 1,402,000
Selling, general and administrative expenses 3,149,000 2,470,000
Amortization and depreciation 529,000 250,000
Other 55,000 243,000
------------ ------------
Total operating costs and expenses 22,685,000 16,521,000
------------ ------------
Operating income 202,000 591,000
Interest income 51,000 31,000
Interest expense (213,000) (117,000)
------------ ------------
Net income $ 40,000 $ 505,000
============ ============
Earnings (loss) per common and equivalent share,
2,872,258 and 1,555,471 shares, respectively $ (.04) $ .26
============ ============
Earnings (loss) per common and equivalent share
assuming full dilution, 2,872,258 and 1,679,067
shares, respectively $ (.04) $ .24
============ ============
</TABLE>
See notes to consolidated financial statements.
F-5
<PAGE> 42
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
Preferred Stock Common Stock
------------------------ -----------------------
Number Number Additional
of of Paid-in
Shares Amount Shares Amount Capital
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance, October 1, 1994 -- $ -- 1,311,008 $ 13,000 $2,345,000
Common stock issued for legal and
consulting services 7,841 -- 1,000 -- 80,000
Preferred stock issued in exchange for
notes payable 120,977 1,000 -- -- 1,208,000
Sale of common stock -- -- 267,273 3,000 547,000
Compensation recognized and
adjustment to unearned compensation -- -- -- -- (10,000)
Exercise of common stock warrants -- -- 260,667 2,000 520,000
Sale of preferred stock 7,500 -- -- -- 75,000
Preferred stock dividends ($.70 per
preferred share) -- -- -- -- --
Net income -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance, September 30, 1995 136,318 1,000 1,839,948 18,000 4,765,000
Exercise of common stock warrants -- -- 28,332 -- 50,000
Sale of common stock -- -- 699,375 8,000 941,000
Exercise of common stock warrants --
by Chairman -- -- 291,545 3,000 580,000
Purchase of treasury stock -- -- -- -- --
Issuance of treasury stock -- -- -- -- (47,000)
Redemption of preferred stock (2,000) -- -- -- (20,000)
Preferred stock dividends ($1.10 per
preferred share) -- -- -- -- --
Value of warrants associated with Bridge
Notes -- -- -- -- 27,000
Net income -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Balance, September 30, 1996 134,318 $ 1,000 2,859,200 $ 29,000 $6,296,000
========== ========== ========== ========== ==========
<CAPTION>
Treasury Total
Stockholder Stock / Stockholders'
Notes Unearned Accumulated Equity
Receivable Compensation Deficit (Deficit)
----------- ------------ ----------- ------------
<S> <C> <C> <C> <C>
Balance, October 1, 1994 $ -- $ (21,000) $(2,874,000) $ (537,000)
Common stock issued for legal and
consulting services -- -- -- 80,000
Preferred stock issued in exchange for
notes payable -- -- -- 1,209,000
Sale of common stock (200,000) -- -- 350,000
Compensation recognized and
adjustment to unearned compensation -- 21,000 -- 11,000
Exercise of common stock warrants -- -- -- 522,000
Sale of preferred stock -- -- -- 75,000
Preferred stock dividends ($.70 per
preferred share) -- -- (96,000) (96,000)
Net income -- -- 505,000 505,000
----------- ----------- ----------- -----------
Balance, September 30, 1995 (200,000) -- (2,465,000) 2,119,000
Exercise of common stock warrants -- (14,000) -- 36,000
Sale of common stock -- -- -- 949,000
Exercise of common stock warrants
by Chairman (583,000) -- -- --
Purchase of treasury stock 200,000 (808,000) -- (608,000)
Issuance of treasury stock (688,000) 735,000 -- --
Redemption of preferred stock -- -- -- (20,000)
Preferred stock dividends ($1.10 per
preferred share) -- -- (149,000) (149,000)
Value of warrants associated with Bridge
Notes -- -- -- 27,000
Net income -- -- 40,000 40,000
----------- ----------- ----------- -----------
Balance, September 30, 1996 $(1,271,000) $ (87,000) $(2,574,000) $ 2,394,000
=========== =========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE> 43
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 40,000 $ 505,000
Adjustments to reconcile net income to cash
provided by (used for) operating activities:
Amortization and depreciation 529,000 250,000
Software license fee (Note 4) (500,000) --
Other non-cash expenses 84,000 31,000
(Increase) decrease in:
Accounts and notes receivable (367,000) (468,000)
Inventory (358,000) --
Other (75,000) (9,000)
Increase (decrease) in:
Accounts payable and accrued expenses 361,000 390,000
----------- -----------
Net cash provided by (used for) operating activities (286,000) 699,000
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (1,294,000) (364,000)
Net cash acquired in the purchase of MegaBingo
assets -- 355,000
Other -- (2,000)
----------- -----------
Net cash provided by (used for) investing activities (1,294,000) (11,000)
----------- -----------
Cash flows from financing activities:
Proceeds from sale of common stock 985,000 819,000
Proceeds from sale of preferred stock -- 75,000
Proceeds from debt 1,062,000 1,102,000
Principal repayments of debt (171,000) (1,131,000)
Payment of preferred stock dividends (149,000) (96,000)
Preferred stock redemption (10,000) --
Financing Costs (166,000) --
----------- -----------
Net cash provided by (used for ) financing activities 1,551,000 769,000
----------- -----------
Net change in cash and cash equivalents (29,000) 1,457,000
Cash and cash equivalents, beginning of period 1,537,000 80,000
----------- -----------
Cash and cash equivalents, end of period $ 1,508,000 $ 1,537,000
=========== ===========
Supplemental disclosure of interest paid: $ 102,000 $ 141,000
=========== ===========
</TABLE>
See notes to consolidated financial statements.
F-7
<PAGE> 44
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS - Multimedia Games, Inc. and its subsidiaries (the "Company")
were organized to develop, promote and produce lawful gaming activities
over the information highway, including but not limited to, satellites,
television, wires and the Internet. The Company provides satellite
linked, high stakes bingo games and interactive high speed bingo games
played on interconnected electronic player stations to participating
bingo halls owned primarily by American Indian tribes located throughout
the United States. The Company also provides proxy play services for
its MegaBingo and MegaCash games to bingo players located off Indian
lands through a subsidiary's 49% interest in American Gaming Network
L.L.C. ("AGN")
Prior to August 1995, the Company's principal business was to furnish
the marketing and other operating services required in the conduct of
high stakes bingo games conducted under the names MegaBingo, MegaCash
and MegaBingo Lite (the "MegaBingo Games"). MegaBingo and MegaCash are
played simultaneously using a closed-circuit television satellite link
at independently owned bingo halls located in several states throughout
the United States, operated primarily on behalf of American Indian
tribes. MegaBingo Lite provides smaller prizes to similarly linked
Indian bingo halls located in the State of Oklahoma.
In August 1995, the Company introduced MegaMania, an interactive high-
speed bingo game developed by the Company that is played on electronic
player stations interconnected among participating Indian bingo halls.
Significant revenue generation for MegaMania did not begin until March
1996.
The Company's games are currently designed to be operated as Class II
games as defined by the Indian Gaming Regulatory Act of 1988 ("IGRA").
IGRA classifies gaming on Indian lands into three classes. Class I
gaming includes traditional Indian social and ceremonial games and is
regulated only by the tribes. Class II gaming includes bingo, pull-
tabs, lotto, punch boards, tip jars, instant bingo, certain card games
played under limited circumstances and other games similar to bingo if
those games are played at the same location where bingo is played.
Class III gaming consists of all forms of gaming that are not Class I or
Class II, such as video casino games, slot machines, most table games
and keno. ( See Note 11.)
F-8
<PAGE> 45
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Generally speaking, Class II gaming may be conducted on Indian lands if
the state in which the Indian reservation is located permits such gaming
for any purpose by any person. Class III gaming, on the other hand, may
be conducted pursuant to a compact reached between the Indian tribe and
the state in which the tribe is located.
MegaBingo(R), MegaCash(R), MegaBingo Lite(TM) and MegaMania(TM) are
registered trademarks and tradenames of the Company, and all references
herein are deemed to include the applicable tradename or trademark
designation.
CONSOLIDATION PRINCIPLES - These financial statements include the
activities of Multimedia Games, Inc. and its three wholly owned
subsidiaries, MegaBingo, Inc. ("MBI"), Multimedia Creative Services,
Inc. and TV Games, Inc. ("TV Games"). All intercompany transactions
have been eliminated in consolidation.
These financial statements also include TV Games' allocable share of
income or losses (to the extent of the Company's investment basis) from
American Gaming Network L.L.C ("AGN"), which is accounted for under the
equity method.
CASH AND CASH EQUIVALENTS - For purposes of the statement of cash flows,
the Company considers all highly liquid debt instruments with remaining
maturities when purchased of three months or less to be cash
equivalents.
RESTRICTED CASH AND CASH EQUIVALENTS - Restricted cash and cash
equivalents include $246,000 held in reserve for MegaBingo prizes under
the provisions of the Integrated Services Agreements with the tribes and
$1,288,000 representing the present value of investments held by the
Company's prize fulfilment firm related to outstanding jackpot prize
winner annuities.
INVENTORY - Inventory consists primarily of computer equipment
components for MegaMania player stations. Inventory is carried at the
lower of cost, (first-in, first-out) or market.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost. The
cost of property and equipment is depreciated over its estimated useful
life using the straight line method. Predominately all of the Company's
property and equipment is depreciated over five years. Sales and
retirements of depreciable property are recorded by removing the related
cost and accumulated depreciation from the accounts. Gains or losses on
sales and retirements of property are reflected in operations.
F-9
<PAGE> 46
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Under the provisions of the Integrated Services Agreements with the
tribes, any MegaBingo satellite dishes and monitoring equipment
purchased and placed at the hall locations revert to the ownership of
the tribe at the end of the agreement. This provision does not apply to
MegaMania related equipment.
GOODWILL--The amount paid for the assets of MegaBingo plus the
liabilities assumed in excess of the fair value of the identifiable
assets purchased has been recorded as goodwill. The Company amortizes
goodwill over 20 years using the straight-line method. Goodwill is
reported net of accumulated amortization in the accompanying financial
statements. Accumulated amortization amounted to $48,000 and $20,000 at
September 30, 1996 and 1995, respectively.
The Company continually re-evaluates the carrying amount of goodwill as
well as the amortization period to determine whether current events and
circumstances warrant adjustments to the carrying value and/or estimates
of useful lives. The specific methodology of future pre-interest cash
flows associated with the assets of the MegaBingo business is used for
this evaluation. At this time, the Company believes that no impairment
of goodwill has occurred and that no reduction of the estimated useful
life is warranted.
INCOME TAXES - The Company applies the provisions of Statement of
Financial Accounting Standards No. 109 ("SFAS No. 109"), "Accounting for
Income Taxes." Under SFAS No. 109, deferred tax liabilities or assets
arise from differences between the tax basis of assets or liabilities
and their basis for financial reporting, and are subject to tests of
realizability in the case of deferred tax assets. The amount of
deferred tax liabilities or assets is calculated by applying the
provisions of enacted tax laws to determine the amount of taxes payable
or refundable currently or in future years. A valuation allowance is
provided for deferred tax assets to the extent realization is not judged
to be more likely than not.
TREASURY STOCK - The Company utilizes the cost method for accounting for
its treasury stock acquisitions and dispositions.
ACCOUNTING ESTIMATES - The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets
and liabilities at the date of the financial statements and the
F-10
<PAGE> 47
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
reported amounts of revenues and expenses during the reporting period.
Examples include provisions for bad debts and inventory obsolescence,
asset lives of equipment, the tax valuation allowance and the provision
for and disclosure of litigation and loss contingencies. Actual results
may differ from these estimates in the near term.
INCOME (LOSS) PER COMMON SHARE - Income (loss) per common share is
computed on the basis of the weighted average shares of common stock
outstanding for the years ended September 30, 1996 and 1995. Options
and warrants are common stock equivalents and, along with contingent
stock issuances, are considered in the computation of income per common
share using the treasury stock method when they are dilutive. To
determine income per common share, net income is adjusted for preferred
stock dividends, whether paid or not.
REVENUE - Revenues from the operation of the MegaBingo, MegaMania and
other bingo games are recognized as the gaming session for which the
cards were purchased occurs. MegaMania revenues are recorded net of
prizes awarded.
From April 1994 to December 1994, the Company principally derived its
revenue under a services agreement (the "AGE Services Agreement") to
operate the MegaBingo and MegaCash games for American Gaming and
Entertainment ("AGE"). Such revenues consisted of a fee equal to 95% of
the net operating cash flow generated in the conduct of such games and
payments to the Company for expenses incurred by the Company in the
course of operating such bingo activities. These revenues were recorded
as the cash flow was generated and as the expenses were incurred,
respectively.
Revenues from the sale of electronic player stations is recorded when
the units are delivered to the purchaser. Lease revenues from the lease
of the MegaMania player stations, which are generally based on a
percentage of revenue generated by the player stations, are reflected in
other revenue and recognized as the revenues are generated by the player
stations.
Project development revenue relates to amounts paid to the Company for
Internet development activities undertaken for Graff Pay-Per-View, Inc.
(See Note 3).
Revenues related to certain intellectual property sold to Graff were
recognized when the related documentation evidencing the transfer of the
Company's ownership rights was executed.
F-11
<PAGE> 48
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
IMPACT OF FINANCIAL ACCOUNTING PRONOUNCEMENTS - In March 1995, Statement
of Financial Accounting Standards No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
Of," was issued. The statement establishes accounting standards for the
impairment of long-lived assets, such as property and equipment and
intangibles. The Company does not believe the new standard will
significantly impact its financial statement evaluation of impairment of
long-lived assets.
In October 1995, Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" was issued. The statement
requires the computation of compensation for grants of stock, stock
options and other equity instruments issued to employees based on fair
value. The compensation calculated is to be either recorded as an
expense in the financial statements or, alternatively, disclosed. The
Company anticipates it will elect the disclosure method of complying
with the new standard. Under existing accounting rules, the Company's
stock option grants have not resulted in compensation expense.
Accordingly, under the provisions of the new statement, pro forma net
income to be disclosed may be lower than net income reported in the
financial statements.
These pronouncements will be effective for the Company in fiscal 1997.
2. MEGABINGO TRANSACTIONS
In December 1993, MBI entered into an Asset Purchase Agreement with AGE
to purchase substantially all of the assets used by AGE in its bingo
gaming activities (the "AGE Assets"), including the assets used in the
conduct of the MegaBingo and MegaCash games but excluding the Integrated
Services Agreements between AGE and various Indian tribes (the "AGE
Contracts"). At the same time, MBI purchased for $100,000 an option to
enter into the AGE Services Agreement to provide AGE, on an exclusive
basis, the services required by AGE to conduct its bingo activities
pursuant to the AGE Contracts.
On April 15, 1994, MBI exercised its option and entered into the AGE
Services Agreement. On December 23, 1994, MBI purchased the AGE Assets
pursuant to the AGE Asset Purchase Agreement for a purchase price
consisting of cash and notes aggregating $1.8 million, plus the
assumption of certain specified liabilities of AGE. The notes were paid
in 1995 out of the proceeds of bank debt and the issuance of preferred
F-12
<PAGE> 49
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
stock by the Company, at which time the fee payable under the AGE
Services Agreement increased to 100% of the net cash flow generated by
the AGE Contracts retained by AGE plus expenses.
The AGE Services Agreement expires on April 15, 1997, subject to
extension by MBI for an additional two years if MBI has not, in its own
name, entered into Integrated Services Agreements with tribes accounting
for 90% or more of the aggregate gross player attendance in AGE's bingo
operations as of April 15, 1994. As of September 30, 1996, MBI had not
entered into Integrated Services Agreements with tribes accounting for
90% of such gross player attendance and anticipates exercising its
option to extend the AGE Services Agreement for an additional two years.
Service fees for the period October 1, 1994 to December 22, 1994
amounted to $669,000 which included $132,000 representing MBI's share of
cash flow and $537,000 in payments to MBI by AGE for associated
expenses. Since December 23, 1994, the acquisition date, the revenues
and expenses of the MegaBingo Games have been reflected in the financial
statements at their gross amounts and not netted and recorded as a
services fee.
Virtually all of the Company's revenues are derived from the Integrated
Services Agreements with various tribes. The Company, in its name and
in the name of AGE, has written agreements with approximately 50
American Indian tribes that provide the Company with the exclusive right
to conduct bingo operations on their respective Indian lands.
Approximately 20 of these agreements were renewed for five (5) year
terms in 1995 and half of the remaining contracts have unexpired terms
of between two and three years. The remaining contracts are being
continued on a month to month basis pending negotiations.
Approximately 43% and 39% of revenues (inclusive of MegaBingo and
MegaMania revenues) during the years ended September 30, 1996 and 1995,
respectively, were derived from halls operated by four tribes, including
22% and 11% derived from two tribes in 1996.
3. GRAFF TRANSACTIONS
In July 1995, the Company entered into a series of agreements (the
"Agreements") with Graff Pay-Per-View ("Graff") in which Graff purchased
a 33% interest in certain previously developed intellectual property
from the Company for $500,000. The
F-13
<PAGE> 50
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
$500,000 was paid in the form of a note payable to the Company which
bore interest at 8% and was payable over three years.
Pursuant to the Agreements, the Company and Graff each contributed their
ownership interests in the intellectual property to a joint venture,
American Gaming Network, JV. ("AGN JV"). AGN JV was established to
pursue the development of gaming opportunities over the Internet.
In addition, Graff agreed to pay the Company an additional $450,000 to
develop a business plan for AGN JV and design certain new products for
use on the Internet. At September 30, 1995, the Company's development
efforts were substantially complete, and it therefore recognized the
entire amount as revenue in fiscal year 1995. At September 30, 1995,
$375,000 had been received under such provisions, and $75,000 was due
July 31, 1996.
Graff also purchased 100,000 shares of the Company's common stock for
$2.75 per share. The $275,000 purchase price was paid in the form of a
note, of which $75,000 was paid prior to September 30, 1995. The
remaining $200,000 was due August 1, 1996 and was shown as a reduction
of equity. In connection with the above transactions, Graff was granted
a warrant to acquire 175,000 shares of the Company's common stock at
$2.50 per share. The Company subsequently reduced the exercise price of
such warrant to $2.25 per share and upon exercise of the warrant by the
payment of cash, the Company granted an additional 175,000 warrants to
Graff which are exercisable at $3.50 per share and remain unexercised.
Pursuant to the Agreements, Graff was to provide the needed capital to
finance AGN JV. During 1996, Graff indicated that it did not intend to
provide further funding for AGN JV and that it wanted a third party to
assume its contractual obligations to AGN JV and the Company. Although
not obligated to do so, because of the decision by Graff not to further
fund the efforts of AGN JV, the Company provided approximately $336,000
to AGN JV for development activities which are to be reimbursed to the
Company by AGN JV.
At June 30, 1996, Graff was indebted to the Company for a total of
approximately $800,000, $200,000 of which was presented as a direct
reduction of equity at June 30, 1996. Additionally, Graff owned
275,000 shares of the Company's common stock and held warrants to
purchase an additional 175,000 shares of common stock at $3.50 per
share.
F-14
<PAGE> 51
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
In July 1996, the Company entered into an agreement with Graff whereby
the Company accepted the 275,000 shares of the Company's common stock
owned by Graff as payment for amounts owed by Graff to the Company
($808,000 at the time). Additionally, Graff's interest in AGN was
acquired for $100,000 in cash and a note for $400,000 (the $400,000
Graff Note") payable in three years by a new entity ("AGN Venturers
LLC") established by the Company. Graff retained its 175,000 warrants.
Contemporaneously, the Company sold AGN Venturers LLC to a group of
investors ("Investors"), one of which is a related party who acquired
10% of AGN Venturers LLC, for $100,000, an agreement of the Investors to
contribute $400,000 to AGN JV and a several Investor guarantee of AGN
JV's note payable to the Company in the amount of $336,000. The
$336,000 note payable by AGN JV to the Company is in reimbursement of
amounts advanced by the Company as described above. At September 30,
1996, $99,000 of the proceeds from the Investors which was deposited to
the accounts of the Company had not been transferred to AGN JV's bank
account.
Simultaneously with the sale of AGN Venturers LLC, the Company and the
Investors entered into a put and call agreement pursuant to which,
during a one year window commencing in August 1997, the Investors can
put AGN Venturers LLC's interest in AGN JV to the Company for 278,666
shares of the Company's common stock plus a number of common shares
equal to the principal paid on the $400,000 Graff Note divided by three.
Under the call provisions of the agreement, the Company can, during such
one year window period, call one-half of AGN Venturers LLC's interest in
AGN JV for 278,666 shares of the Company's common stock plus a number of
common shares equal to the principal paid on the $400,000 Graff note
divided by three. As of the date of these financial statements,
management of the Company cannot determine what specific value, if any,
should be assigned to the put and call agreement, but believes such
value is not significant. Accordingly, no amounts have been recorded in
the financial statements related to the put and call agreement.
Also in July 1996, the Company entered into agreements with two
investors whereby each investor purchased 125,000 of the shares of
common stock previously owned by Graff for $2.75 per share. Notes were
issued to the Company for the purchase price of the stock bearing
interest at 10.5% and payable in one year. The notes receivable will be
shown as a reduction of equity until such time as the notes are
collected.
F-15
<PAGE> 52
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
4. DISTRIBUTION AND LICENSING AGREEMENT WITH NETWORK GAMING
In December 1995, the Company entered into distribution and licensing
agreements with Network Gaming International Corporation (formerly AI
Software, Inc.; "Network Gaming"), a company with its principal offices
located in Vancouver, British Colombia.
For $500,000, Network Gaming purchased and was appointed the exclusive
distributor of the Company's MegaBingo and MegaCash systems and other
game software for use in Canada and China. The revenue from the sale of
the license agreement is reflected as other revenue in the accompanying
financial statements.
The Company purchased (for $500,000) and was appointed the exclusive
distributor of all Network Gaming bingo and other game software,
including future games that are being developed or will be developed,
for use in the United States of America Native Indian market, including
the "off reservation" market, and the State of Texas. The cost of the
license is reflected in property and equipment and is being amortized
over five years, the term of the agreement.
5. PROPERTY AND EQUIPMENT
At September 30, 1996, the Company's property and equipment consisted of
the following:
<TABLE>
<S> <C>
Gaming and satellite equipment $ 2,158,000
Software costs 1,103,000
Other 58,000
-----------
Total property and equipment 3,319,000
Less accumulated depreciation (703,000)
-----------
Property and equipment, net $ 2,616,000
===========
</TABLE>
Depreciation expense amounted to $479,000 and $229,000 during the years
ended September 30, 1996 and 1995, respectively. The net book value of
capitalized software cost at September 30, 1996, was $901,000.
Depreciation expense related to software cost amounted to $159,000 and
$4,000 during the years ended September 30, 1996 and 1995, respectively.
F-16
<PAGE> 53
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
6. NOTES PAYABLE
Notes payable consist of the Company's outstanding borrowings on its
revolving line of credit with its financial institution and $800,000 in
Bridge Debt. The revolving line of credit is in the amount of $100,000,
under which there were $50,000 in outstanding borrowings at September
30, 1996. The revolving line of credit bears interest at Chase
Manhattan Bank N.A. prime rate (8 1/4% at September 30, 1996) plus 1/2%
and matures on August 15, 1997. Interest is payable monthly.
In August 1996, Bridge Debt was raised in anticipation of the Company's
private placement of equity securities which was completed in November
1996 (the "November Placement"). The Bridge Debt bears interest at
10.5%, is due in one year and is mandatorily redeemable from the
proceeds of the November Placement. (see Note 9). In connection with
the Bridge Debt, redeemable warrants representing the right to purchase
173,310 common shares were issued to the placement agent and 360,000
redeemable warrants were issued to the purchasers of the Bridge Debt
(collectively, the "Bridge Warrants"). Each Bridge Warrant represents
the right to purchase one share of common stock at $8.00 per share
(subject to adjustments) and has identical terms as the warrants issued
in the November Placement. The value assigned to the Bridge Warrants as
well as the remainder of the Bridge Debt issuance costs have been
treated as an adjustment to the effective interest rate of the Bridge
Debt. Approximately $84,000 in interest cost was recognized during
1996 related to the value of the Bridge Warrants and issuance costs and
an additional $28,000 will be recognized in the first quarter of fiscal
1997. The Bridge Debt was converted into common stock and warrants in
connection with the November Placement and therefore has been reflected
as long-term notes payable in the accompanying consolidated balance
sheet.
7. LONG-TERM DEBT
In August 1995, the Company entered into a Revolving Credit and Term
Loan Agreement (the "Credit Agreement"), which as amended, provided for
a term loan in the amount of $837,000 and a revolving line of credit
discussed in Note 6 above. The proceeds of the original loan along with
12,500 shares of the Company's Series A preferred stock were used to
satisfy debt incurred in the purchase of the AGE Assets (see Note 2).
Principal of $9,510 and interest are payable monthly until October 31,
1998, at which time all outstanding principal and interest are due. The
interest rate is the Chase Manhattan Bank, N.A. prime rate plus 1/2%.
F-17
<PAGE> 54
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The term loan is collateralized by substantially all of the tangible and
intangible assets of Multimedia Games, Inc. and MBI. The debt is also
guaranteed by the Company's Chairman/Chief Executive Officer. The
Credit Agreement contains covenants which, among other things, require
the Company to maintain a minimum net worth, debt service coverage ratio
and gross gaming revenues, all as defined by the Credit Agreement.
The remainder of long-term debt consists primarily of debt used to
finance the purchase of electronic gaming player station components.
The debts are due in monthly payments plus interest at approximately
12%. The debts are collateralized by the equipment purchased and to the
extent of approximately $100,000, are guaranteed by the Company's
Chairman/Chief Executive Officer. Subsequent to year end, approximately
$120,000 was borrowed under similar terms, but without a guarantee.
Based upon the borrowing rates currently available to the Company for
bank borrowings with similar terms, the Company believes that the
carrying amount of these borrowings at September 30, 1996, approximates
fair value.
At September 30, 1996, aggregate future maturities of long-term debt are
as follows: 1997 - $197,000; 1998 - $195,000 and 1999 - $592,000.
8. INCOME TAXES
The provision for income taxes (benefit) consisted of the following for
the years ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Current:
Federal $ 32,000 $ 204,000
State 5,000 32,000
Deferred (37,000) (236,000)
--------- ---------
Net income tax expense $ -- $ --
========= =========
</TABLE>
F-18
<PAGE> 55
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
A reconciliation of the expected income tax expense based upon the
federal statutory rate of 34% and the taxes reflected in tax expense is
as follows for the years ended September 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Expected federal income
tax expense $ 14,000 $ 171,000
State tax expense 1,000 21,000
Nondeductible meals 13,000 10,000
Use of net operating losses for
which valuation allowances
existed (28,000) (202,000)
---------- ----------
Net income tax expense $ -- $ --
========== ==========
</TABLE>
F-19
<PAGE> 56
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
Differences between the book value and the tax basis of the Company's
assets and liabilities and net operating losses results in deferred tax
assets and liabilities as follows:
<TABLE>
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax asset - current:
Accounts receivable allowance $ 29,000 $ 21,000
Vacation accrued 23,000 19,000
Valuation allowance (52,000) (40,000)
---------- ----------
Net current deferred taxes $ -- $ --
========== ==========
Deferred tax asset - noncurrent:
Net operating losses $ 749,000 $ 787,000
Deferred tax liability - noncurrent
Goodwill (6,000) (3,000)
---------- ----------
743,000 784,000
Valuation Allowance (743,000) (784,000)
---------- ----------
Net noncurrent deferred taxes $ -- $ --
========== ==========
</TABLE>
In spite of the generation of profits in the past two years, the Company
has provided a valuation allowance for all deferred tax assets in excess
of deferred tax liabilities due to the lack of historical operational
profitability and the number of new products/ventures in which the
Company is involved.
At September 30, 1996, the Company's operating loss carryforward for
income tax purposes was approximately $1,972,000. Because of the
private placement of equity in November 1996, the Company's use of its
net operating loss carryforwards will be limited to approximately
$800,000 in any one taxable year. The Company's net operating loss
carryforwards expire $573,000 in 2008 and $1,399,000 in 2009.
F-20
<PAGE> 57
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
9. STOCKHOLDERS' EQUITY
Series A Preferred Stock
During fiscal year 1995, the Company's stockholders voted to amend the
Company's articles of incorporation to provide for the issuance of up to
2,000,000 shares of preferred stock in series as defined by the Board of
Directors. In January 1995, the Board of Directors approved a Series A
preferred stock which is cumulative, voting and has a par value of $.01
per share. The Series A preferred stock is subject to redemption at
the election of the Company for $10 per share.
In February 1995, holders of certain outstanding debt of the Company
elected to convert the indebtedness into 106,476 shares of the Series A
preferred stock and 5,841 shares of the Series A preferred stock were
issued in satisfaction of amounts owed for professional services.
Additionally in 1995, 12,500 shares of the Series A preferred stock were
issued in satisfaction of $125,000 principal amount of MBI's promissory
notes issued to AGE in connection with the purchase of the AGE Assets.
In late 1995, an additional 11,501 shares of Series A preferred stock
were issued for cash and in satisfaction of outstanding indebtedness.
During 1996, 2,000 outstanding Series A preferred shares were canceled
in exchange for a combination of the cancellation of amounts owed to the
Company and cash.
Beginning in January 1997, the Series A preferred stock is convertible
into common stock at the rate of five shares of common for one share of
Series A preferred stock. Based on the number of shares of Series A
preferred stock outstanding at September 30, 1996, an additional 671,590
shares of common stock would be issued if a full conversion were to
occur. Of the Series A preferred stock outstanding, 80,175 shares
(convertible into 400,875 common shares) are owned by or under the
control of the Company's Chairman/Chief Executive Officer.
The Series A preferred stock has a liquidation preference over the
Company's common stock equal to $10 per share of Series A preferred
stock, or $1,343,000 in the aggregate at September 30, 1996. The
holders of the Series A preferred stock are entitled to a cumulative
preferred dividend, payable quarterly, at the rate of $1.10 per share
per annum. In the event the Company remains in arrears for more than
two quarters,
F-21
<PAGE> 58
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
holders of the Series A preferred stock voting as a class are entitled
to elect a majority of the Company's Board of Directors.
Common Stock
In February and March 1996, the Company completed a private placement
(the "March Placement") of 589,375 shares of its common stock at a price
of $2.00 per share, including 39,875 shares issued to the placement
agent. The March Placement generated net proceeds after offering costs
of approximately $949,000. The shares sold were subject to a provision
in a registration rights agreement which required the Company to issue
1/10th of a share for each share originally issued in the March
Placement for each 90 day period after the closing date that the Company
has failed to file a registration statement with the SEC. Because of
the pending offering of Bridge Debt and the November Placement, the
Company was unable to file the registration statement until November
1996, and accordingly an additional 110,000 shares were issued pursuant
to this provision.
Concurrently with the March Placement, the Board of Directors
authorized the exercise by the Company's Chairman/Chief Executive
Officer of previously issued common stock purchase warrants to acquire
291,545 shares of the Company's common stock at $2.00 per share. Such
exercise was accomplished by the issuance to the Company of a note
bearing interest at 6% and due in five years. The purpose of this
exercise at this time was to maintain current ownership levels in the
Company's common stock in order to avoid a change in ownership for tax
purposes which could limit the amount of net operating losses available
in any future annual period to offset taxable income of the Company.
In November 1996, the Company completed a private placement of
approximately 1.2 million shares of the Company's common stock for $3.00
per share. Each of the 1.2 million shares sold was accompanied by a
redeemable warrant to purchase an additional share of the Company's
common stock for $8 (a "Redeemable Warrant"). After nine months, each
Redeemable Warrant may be called by the Company for $.10 when the
closing bid price of the Company's common stock has been at least $12.00
for 20 consecutive trading days. Redeemable Warrants totaling 350,000
were granted to the placement agent in connection with the November
Placement. Proceeds from the November Placement (which included the
conversion of the Bridge Debt discussed below) are intended to finance
the expansion of the Company's MegaMania network. The proforma effects
of the November Placement have been reflected on the
F-22
<PAGE> 59
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
consolidated balance sheet under the heading "proforma" as though the
November Placement had been completed as of September 30, 1996.
The November Placement was preceded by a private placement of bridge
debt financing in the amount of $800,000 (the "Bridge Debt") which was
completed in early August 1996. Redeemable Warrants representing
360,000 shares accompanied the Bridge Debt and an additional 173,310
Redeemable Warrants were granted to the placement agent. The Bridge
Debt was converted into common stock and Redeemable Warrants in
connection with the completion of the November Placement.
Common Stock Warrants
In connection with past financing arrangements and as compensation for
consulting and professional services, the Company has issued warrants to
purchase its common stock. The following tables summarize such warrant
activity for 1996 and 1995:
F-23
<PAGE> 60
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1995 ACTIVITY:
<TABLE>
<CAPTION>
Number of Number of
Exercise Warrants Warrants
Price Outstanding Outstanding
Per Expiration October Expired/ September
Share Date 1, 1994 Granted Exercised Canceled 30, 1995
------- --------- ----------- ------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
$1.00 Dec 94-Oct 95 16,000 - - 10,000 6,000
$1.40 - 1.50 Jul 95-Dec 95 106,000 13,000 85,667 - 33,333
$2.00 Sep 97-Jan 98 7,273 387,177 - - 394,450
$2.50 Mar 2000 - 185,000 175,000 - 10,000
$2.75 May 97-Jul 97 470,942 - - 387,177 83,765
$3.50 Jul 2000 - 175,000 - - 175,000
$4.00 Jul 2000 - 18,750 - - 18,750
$6.60 Jul 98 23,550 - - - 23,550
------- ------- ------- ------- -------
623,765 778,927 260,667 397,177 744,848
======= ======= ======= ======= =======
</TABLE>
1996 ACTIVITY:
<TABLE>
<CAPTION>
Number of Number of
Exercise Warrants Warrants
Price Outstanding Outstanding
Per Expiration October Expired/ September
Share Date 1, 1995 Granted Exercised Canceled 30, 1996
------- --------- ----------- ------- --------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
$1.00 Oct 95 6,000 - 6,000 - -
$1.50 Oct 95-Dec 95 33,333 - 13,332 20,001 -
$2.00 Sep 97-Jan 98 394,450 - 291,545 - 102,905
$2.50 Mar 2000 10,000 - - - 10,000
$2.75 May 97-Jul 97 83,765 - 9,000 - 74,765
$3.50 Jul 2000 175,000 - - - 175,000
$4.00 Jul 2000 18,750 - - - 18,750
$6.60 Jul 98 23,550 - - - 23,550
$8.00 Aug 2001 - 533,310 - - 533,310
------- ------- ------- ------- -------
744,848 533,310 319,877 20,001 938,280
======= ======= ======= ======= =======
</TABLE>
Other than with respect to the $8.00 warrants, which are not exercisable
until August 1997, all of the above warrants are currently exercisable.
F-24
<PAGE> 61
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
10. STOCK OPTION AND EMPLOYEE BENEFIT PLANS
During fiscal year 1993, the Company's Board of Directors approved a
Salaried Employee Participation Plan (the "1993 Plan") and reserved an
aggregate of 200,000 shares of common stock to be issued thereunder.
Options issued under the 1993 Plan vest ratably over a five-year period
from the date of grant. No further grants of options will be made under
the 1993 Plan.
In November 1994, the stockholders of the Company approved the Company's
1994 Director Stock Option Plan (the "Director Plan") and the Company's
1994 Employee Stock Option Plan (the "1994 Employee Plan") previously
adopted by the Board of Directors, pursuant to which 60,000 shares and
360,000 shares, respectively, of the Company's common stock were
reserved for issuance. No further grants of options will be made under
either the Director Plan or the 1994 Employee Plan.
In August 1996, the Board of Directors of the Company approved the 1996
Stock Incentive Plan (the "1996 Plan"). Under the 1996 Plan, various
stock based incentive awards may be made including incentive stock
options, non-qualified stock options, stock appreciation rights,
restricted stock, performance shares or deferred stock purchases. The
total number of shares of common stock or common stock equivalents that
may be issued under the 1996 Plan is 274,320 plus an amount equal to 10%
of the number of shares of common stock issued by the Company after
August 15, 1996 and prior to December 31, 2000. As a result of the
shares of common stock issued in the November Placement, a total of
403,000 shares of common stock or common stock equivalents were
available for grant under the 1996 Plan. The Company has agreed with
the placement agent of its November Placement that it will not grant
options under the 1996 Plan to purchase more than 200,000 shares during
the one year period ending July 24, 1997, or more than 100,000 shares
during each of the three one year periods thereafter. In order to have
grants made which qualify as incentive stock options, the 1996 Plan must
be approved by the Company's stockholders before August 1997.
F-25
<PAGE> 62
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
The activity relating to stock option issuances under the above plans
are as follows for each of the two years ending September 30, 1996:
1995 ACTIVITY:
<TABLE>
<CAPTION>
Number of Number of
Exercise Options Options
Price Outstanding Exercised/ Outstanding
Per Expiration October Expired/ September
Share Date 1, 1994 Granted Canceled 30, 1995
-------- ---------- ----------- ------- ---------- -----------
<S> <C> <C> <C> <C> <C>
1993 PLAN:
$1.50 Oct 97 65,000 - 20,000 45,000
1994 DIRECTOR
PLAN:
$2.50 Jul 2004 40,000 - - 40,000
1994 EMPL-
OYEE PLAN
$2.00 Mar 2005 - 91,000 - 91,000
$2.50 Jul 2004 130,000 - - 130,000
$2.75 Jul 2005 - 24,500 - 24,500
------- ------- ------ -------
235,000 115,500 20,000 330,500
======= ======= ====== =======
</TABLE>
F-26
<PAGE> 63
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
1996 ACTIVITY:
<TABLE>
<CAPTION>
Number of Number of
Exercise Options Options
Price Outstanding Exercised/ Outstanding Exercisable
Per Expiration October Expired/ September September
Share Date 1, 1995 Granted Canceled 30, 1996 30, 1996
-------- ---------- ----------- ----------- ---------- -------------- --------------
<S> <C> <C> <C> <C> <C> <C>
1993 PLAN:
$1.50 Oct 97 45,000 - - 45,000 27,000
1994 DIRECTOR
PLAN:
$2.50 Jul 2004 40,000 - - 40,000 26,668
1994 EMPL-
OYEE PLAN
$2.00 Mar 2005 91,000 35,000 56,000 14,000
$2.50 Jul 2004 130,000 10,000 120,000 60,000
$2.50 Feb 2006 - 75,000 - 75,000 -
$2.75 Jul 2005 24,500 - 9,500 15,000 3,750
$3.00 Oct 2005 - 60,000 60,000 - -
$4.00 Apr 2006 - 26,000 7,000 19,000 -
------- ------- ------- ------- -------
330,500 161,000 121,500 370,000 131,418
======= ======= ======= ======= =======
</TABLE>
Subsequent to September 30, 1996, the Company's Board of Directors
granted 162,500 options to employees throughout the Company pursuant to
the 1996 Plan. The options vest ratably over a four year period, are
exercisable at a price of $4.375 per share and expire ten years from the
date of grant. The Company expects to continue to issue stock options
to new employees as they are hired and to current employees as
incentives from time to time.
During 1994, the Company established an employee savings plan pursuant
to Section 401(K) of the Internal Revenue Code. The plan provides for
the employees to make tax deferred deposits into the plan to the extent
of 6% of their annual base compensation. The Company matches half of
the allowed employee contributions and such Company contributions
amounted to $34,000 and $21,000 for the years ended September 30, 1996
and 1995.
F-27
<PAGE> 64
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
11. COMMITMENTS AND CONTINGENCIES
Pending Investigation
On October 16, 1996, the Company was advised by the Office of the U.S.
Attorney in Tulsa, Oklahoma (the "U.S. Attorney") that the Company was
part of a criminal investigation to determine whether, in the opinion of
the U.S Attorney, the Company's MegaMania bingo game constituted Class
II or Class III gaming, as defined by the Indian Gaming Regulatory Act
of 1988 (the "Gaming Act"). MegaMania has been designed and is operated
as a Class II game within the definition of bingo set forth in the
Gaming Act. In a written opinion dated July 10, 1996, the Company was
informed by the National Indian Gaming Commission ("NIGC"), of the
NIGC's determination that MegaMania constituted a Class II game. The
Company has relied on the NIGC's opinion in conducting its operations
and believes that the NIGC made its determination with a complete and
accurate understanding of the facts and the applicable law. The Company
is unaware of any circumstances that would have caused the investigation
by the U.S. Attorney or on what basis the U.S. Attorney could conclude
that MegaMania is not a Class II game.
No assurances can be given that the U.S. Attorney will not conclude that
MegaMania is Class III gaming. If the U.S. Attorney does reach such a
conclusion, the Company intends to vigorously defend its position that
MegaMania is a Class II game. No assurances can be given that the
Company will be successful on the merits. If MegaMania is ultimately
determined to be Class III gaming, the loss of the MegaMania business
would have a material adverse effect upon the Company's financial
condition and results of operation.
Litigation
The Company is a party to various lawsuits and claims arising out of the
ordinary course of its business. No accrual for potential loss has been
made in the accompanying financial statements as management does not
believe that the likelihood of a material loss is probable at this time.
Prize Fulfillment Firm
In order to reduce the need for prize reserve account funds and to
further reduce exposure to game deficits during periods of abnormally
high rates of jackpot prize wins,
F-28
<PAGE> 65
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MBI has engaged a related party firm specializing in prize fulfillment
services to pay jackpot prizes won during the term of a prize
fulfillment agreement. The prize fulfillment agreement specifies a
maximum cumulative liability over the term of the contract, in exchange
for fees based on gross game receipts. Prize fulfillment premiums
amounted to $3,041,000 and $3,278,000 for the years ended September 30,
1996 and 1995, respectively. The current arrangements with such firm
expire on February 28, 1997 and are currently being negotiated for
extension. There can be no assurance that the prize fulfillment
agreement will be available at all or on commercially acceptable terms
upon the expiration of the existing agreement.
Under the terms of the prize fulfillment agreement, the Company is
reimbursed for prizes awarded at an amount equal to the present value
for the jackpot prize payments less a deductible which is $15,000 per
occurrence. These prize fulfillment funds are then utilized to satisfy
the obligation to the jackpot prize winner through a lump-sum cash
payment or the purchase of an annuity.
In those cases where the prize winner elects an annuity, the obligation
has historically been discharged by purchasing annuity contracts from
insurance companies rated by A.M. Best as A+, with the prize winner
listed as the sole beneficiary. Purchased annuity contracts entered
into by AGE prior to April 15, 1994, which provide for various insurance
companies to make payments directly to prize winners over a specified
period of time in the aggregate amount of approximately $7,808,000 are
outstanding at September 30, 1996. The outstanding amounts include 23
annuity contracts aggregating approximately $6,168,000 which were
purchased from an insurance carrier that is currently under an Order of
Rehabilitation to the Michigan State Commissioner of Insurance. Under
this Order, payments under all such contracts will continue until
ordered otherwise by the State of Michigan. It is unknown at this time
as to whether further court actions will result in reductions in amounts
owed under these annuity contracts. There can be no assurance that
this or any other insurance company responsible for outstanding
annuities will continue to fulfill all their obligations under the
annuity contracts.
The Company is not responsible for any obligations to prize winners
prior to April 15, 1994, whether in lieu of annuities or in respect of
shortfalls on annuities or otherwise (except for specifically assumed
liabilities which amounted to approximately $84,000 at September 30,
1996). Further, the Company is not responsible for prize annuities
awarded during the period April 15, 1994 through December 22, 1994,
except as to the obligation to discharge obligations of the MegaBingo
operations with the assets of the
F-29
<PAGE> 66
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
MegaBingo operation and under the indemnification provisions of the AGE
Services Agreement. The present value, at September 30, 1996, of the
prize annuities awarded from April 15, 1994 to December 22, 1994, which
are not reflected in the financial statements, amount to approximately
$273,000. The present value of the prize annuities and market value of
the related treasury investments at September 30, 1996 of prize
annuities awarded subsequent to December 23, 1994 through September 30,
1996 was approximately $1,288,000, which has been reflected as
restricted investments and other long-term liabilities in the
accompanying financial statements.
Beginning in August of 1994, the Company began a policy of funding prize
annuities with United States Treasury Bills with maturities which
correspond to the due dates of the annuity payments. Under its
arrangements with the prize fulfillment firm, the prize fulfillment firm
purchases the treasury securities and administrates payments to the
winners. The Company believes that this annuity payment structure will
minimize the risk of annuity defaults on future prizes awarded.
Operating Leases
The Company leases its executive offices and other corporate offices
under non-cancelable operating leases. Future minimum rentals by fiscal
year under these arrangements are as follows:
<TABLE>
<S> <C>
1997 $107,000
1998 107,000
1999 104,000
2000 94,000
2001 94,000
</TABLE>
Rental expense during fiscal years 1996 and 1995 amounted to $117,000
and $68,000, respectively.
12. RELATED PARTY TRANSACTIONS
Of $1,266,000 of short-term debt issued in 1994, and converted into
preferred stock in 1995, the Company's Chairman/Chief Executive Officer,
president, prize fulfillment firm and a principal of the prize
fulfillment firm purchased $802,000, $5,000, $126,000 and $126,000,
respectively, and received warrants to purchase 291,545, 1,940, 45,682
and 45,682 shares of the Company's common stock at $2.75 per share,
respectively. Each
F-30
<PAGE> 67
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
of these four parties also elected to exchange such notes and warrants
for Series A preferred stock and warrants to acquire shares of the
Company's common stock at $2.00 per share. In connection with the
exchange of the notes and warrants, the Company's Chairman/Chief
Executive Officer, president, the prize fulfillment firm and a principal
of the prize fulfillment firm received 80,175, 534, 12,563, and 12,563
shares of Series A preferred stock, respectively, and 291,545, 1,940,
45,682 and 45,682 warrants to acquire the Company's common stock at
$2.00 per share, respectively. In connection with amounts loaned to the
Company, the four received interest of $19,000, $0, $3,000 and $3,000,
respectively, during fiscal year 1995. See also Notes 3, 9 and 11.
13. MEGAMANIA LEASES
The Company sells its electronic player stations to its customers for
cash or through revenue sharing arrangements. Under the revenue sharing
arrangements, a portion of the revenue from the player stations is paid
to the Company until the sales price of the unit, plus interest, is
recovered. Approximately $64,000 was received under such provisions
during 1996 and is reflected within Other revenues in the accompanying
Consolidated Statements of Operations. Outstanding principal under
equipment sales pursuant to such revenue sharing arrangements amounted
to $910,000 at September 30, 1996. Generally, title to the player
stations transfers to the lessee at the end of the of the lease period.
Revenue from the equipment sales earned pursuant to revenue sharing is
recorded as revenue as it is earned because the Company generally must
continue to operate the MegaMania network in order to realize the sales
proceeds. There can be no assurance that the Company will realize the
entire amount shown as outstanding at September 30, 1996, because
customers could elect to remove the player stations prior to their being
fully paid for or because the economic performance of the player
stations at a particular location is not sufficient to amortize the
principal of the revenue sharing obligation.
The cost and net book value at September 30, 1996 of MegaMania lease
equipment amounted to $428,000 and $407,000, respectively. MegaMania
lease equipment is depreciated over a three year period unless the rate
of payments being received indicates transfer of title will occur to the
lessee on a more rapid rate.
F-31
<PAGE> 68
MULTIMEDIA GAMES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
14. CONCENTRATIONS OF CREDIT RISK
The Company maintains its cash in bank deposit accounts which at times
may exceed the federal depository insurance limits. As of September 30,
1996 and 1995, the Company had concentrations of cash in one bank
totaling $1,397,000 and $1,468,000, respectively. The Company has not
experienced any losses on such accounts in the past.
Accounts receivable represent short-term credit granted to the Company's
clients for which collateral is generally not required. Substantially
all of the Company's accounts receivable are from Native American Indian
tribes or their gaming enterprises. Additionally, a large percentage of
these tribes have their reservations and gaming operations in the state
of Oklahoma. Despite the industry and geographic concentrations related
to the Company's clients, due to the historical experience of the
Company on receivable collections, management considers credit risk
limited with respect to accounts receivable.
F-32
<PAGE> 69
MULTIMEDIA GAMES, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Title
- ----------- -----
<S> <C>
3.1 Articles of Incorporation*
3.2 Bylaws*
10.1 Form of Integrated Services Agreement*
10.2 Contingent Grand Prize Risk Assumption
Agreement dated October 1, 1995, between
the Company and SCA Promotions, Inc.
10.3 Lease Agreement dated October 10, 1996, between
the Company and Intervest-Southern
Oaks LP
10.4 Form of 1992-3 Warrant Certificate
Issued by the Company*
10.5 Form of 1995 Warrant Certificate
Issued by the Company*
10.6 Form of Bridge Warrant
10.7 Form of Private Placement Warrant
10.8 Form of Bridge Note
10.9 Registration Rights Agreement dated
January 23, 1995 between the Company
and holders of 1994 Original Warrants*
10.10 Registration Rights Agreement dated
January 23, 1995 between the
Company and holders of 1995
Substitute Warrants*
10.11 Registration Rights Agreement among
the Company and holders of
Bridge Warrants and Private
Placement Warrants
10.12 Stock Option Agreement dated October 24,
1992 between the Company
and Larry Montgomery*
10.13 1994 Employee Stock Option Plan*
10.14 1994 Director Stock Option Plan*
10.15 1996 Stock Incentive Plan
10.16 Unit Purchase Agreement dated August 14,
1996 between the Company and the
AGN Investor Group
10.17 Right of first Refusal Agreement dated
August 14, 1996 between the Company
and the AGN Investor Group
</TABLE>
<PAGE> 70
<TABLE>
<S> <C>
10.18 Put/Call Agreement dated August 14, 1996
between the Company and AGN Venturer LLC
10.19 Registration Rights Agreement between
the Company and AGN Venturer LLC
10.20 Limited Liability Company Agreement
of AGN Venturer LLC
10.21 Limited Liability Company Agreement
of American Gaming Network LLC
10.22 Certificate of Merger of American
Gaming Network LP into
American Gaming Network LLC
10.23 Form of Several Guaranty of AGN Investor
Group
10.24 Purchase Agreement dated June 25, 1996
between the Company and Graff Pay-
Per-View, Inc. ("Graff")
10.25 Registration Rights Agreement between
the Company and Graff
10.26 Form of Stock Purchase Agreement between
the Company and Frank J. Skelly, III and Craig Gross
10.27 Form of Registration Rights Agreement between
the Company and Frank J. Skelly, III and Craig Gross
10.28 Placement Agency Agreement dated July 24,
1996 between the Company and Walsh, Manning
Securities, Inc.
10.29 Placement Agency Agreement dated January 29,
1996 between the Company
and G-V Capital Corp.
11.1 Earnings Per Share Statement
21.1 Subsidiaries of Registrant
23.1 Consent of Coopers & Lybrand L.L.P.
24.1 Power of Attorney (included on page 32)
27.1 Financial Data Schedule
</TABLE>
* Indicates incorporated by reference to the Company's Form 10-KSB filed
with the Commission for the fiscal year ended September 30, 1994.
<PAGE> 1
EXHIBIT 10.2
GRAND PRIZE FULFILLMENT-AGREEMENT
SCA Contract CC#1426
This Agreement is entered into as of the 1st day of October, 1995 by and
between MegaBingo, Inc., an Oklahoma corporation with a principal place of
business at 7335 S. Lewis, Suite 302, Tulsa, Oklahoma 74136 ("MEGABINGO") and
SCA Promotions, Inc. a Texas corporation with a principal place of business at
8300 Douglas Avenue, Suite 625, Dallas, TX 75225 ("SCA").
BACKGROUND
MegaBingo is in the business of providing technical, financial and other
services for the conduct of lawful games of chance ("GAMES"). The Games that
are covered by this Agreement are set forth on Exhibits hereto designated
Exhibit A-1... n. MegaBingo has offered and may hereafter offer prizes in the
Games ("GRAND PRIZES").
SCA is in the contingent prize risk assumption business for sweepstakes
and other lawful promotions and games.
The parties hereto desire that SCA assume contingent prize risk on
behalf of MegaBingo.
The parties hereto have determined to base their business relationship
upon the following terms and conditions.
TERMS AND CONDITIONS
1. Contract Terms.
This Agreement shall apply to Grand Prizes won in Games conducted
from October 1, 1995 through December 31, 1996. MegaBingo shall
have the option to extend the term hereof for a period of 12
months by providing SCA notice of its exercise of such option to
extend the term no later than October 31, 1996.
<PAGE> 2
2. Prize Fulfillment Resources
Upon commencement of this Agreement, SCA shall provide to
MegaBingo prize fulfillment resources ("PRIZE FULFILLMENT
RESOURCES") of not less than five hundred thousand ($500,000.00)
by any combination of:
a. Performance bond
b. Mutually acceptable escrow arrangement.
3 . Game Schedules.
Schedules for each of the Games are, and with respect to Games
devised after the date hereof, may from time to time hereafter
be, executed by MegaBingo and SEA and attached hereto or
incorporated herein by reference to this Agreement and designated
Exhibit Al ... A-n. . Each of the Games Schedules shall set forth
and the corresponding card, ticket or play price (the "CARD
PRICE"), the amount of the Grand Prize ("GRAND PRIZE AMOUNT"),
the odds of winning the particular game ("GAME ODDS"), the
expected payout per entry ("EP"), the amount of each Grand Prize
that SEA is required to reimburse (the "FULFILLMENT LEVEL"), the
deductible amount paid by MegaBingo (the "DEDUCTIBLE") and the
compensation to be paid to SEA with respect to such Game ("SEA
COMPENSATION").
The standards to which the applicable Game must conform (the
"GAME STANDARDS"), additional conditions to payment of the Grand
PRIZES by SEA (the "PRIZE FULFILLMENT CONDITIONS"), the
provisions by which MegaBingo notifies SEA of a Grand Prize win
and verifies its authenticity (the "NOTIFICATION AND VERIFICATION
PROVISIONS") are set forth in Exhibit B attached hereto.
4. Restrictions on SEA's Liability.
Anything herein to the contrary notwithstanding, in no event
shall SCA be obligated to a liability of more than $2,500,000.00
over and above the compensation paid SCA by MegaBingo. If and/or
when the net liability reaches $2,500,000.00, SCA must notify
MegaBingo whether they intend to continue coverage for the games.
If not, then MegaBingo is free to obtain other prize fulfillment
coverage. SCA has thirty days from the day the net liability
reaches $2,500,000 to notify MegaBingo of its intentions. SCA
will give MegaBingo at least thirty days notice of cancellation.
5. SCA's Compensation.
MegaBingo shall pay SCA's Compensation v,,within fifteen (15)
days for the monthly periods of the 1st through the last day of
each month (each such monthly period is hereinafter referred to
as a "PERIOD").
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<PAGE> 3
Any fees payable that are not paid within thirty (30) days of
when due shall bear interest at ' the lesser of twelve percent
(12%) per annum or the maximum rate allowable under applicable
law thereafter until paid.
6. Reporting.
MegaBingo shall provide SCA with daily report of the results of
each Game played the prior day ("GAME REPORTS").
7. SCA charges l be based on the installment values of prizes
payable. In the event Wheel Spin participant elects cash option
then the savings in prize cost shall be divided equally between
MegaBingo and SCA.
8. Grand Prize Annual Payments.
At MegaBingo's request, SCA will agree to pay a Grand Prize
winner directly. SCA will provide a contract with MegaBingo to
pay the winner directly ("Prize Winner Payment Contract"), the
form of which is shown in Exhibit C. SCA will also indemnify
MegaBingo ("Indemnification") against claims arising from SCA's
failure to pay the winner under the Prize Winner Payment
Contract, the form of which is shown in Exhibit D. The
Indemnification will be guaranteed by an account on deposit with
an institution such as Merrill Lynch. A pledge agreement which
establishes the guarantee, will be established by SCA thin 30
days of providing the Indemnification. The Pledge Agreement is
shown as part of Exhibit E.
9. Disputes.
MegaBingo and SCA agree the resolution of all disputes hereunder
shall be by binding arbitration pursuant to the Texas General
Arbitration Act. The site of said arbitration shall be in
Dallas, Texas.
10. Notices.
Except for specific Prize Notification provisions set forth in
the applicable Game Schedule, all notices shall be made in
writing to the parties' addresses first set for-the above.
WHEREFORE, the undersigned have executed this Agreement by their duly
authorized representatives as of the day and year first above written.
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<PAGE> 4
MEGABINGO INC.
By:
Title:
SCA PROMOTIONS, INC.
By:
Title:
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<PAGE> 5
Exhibit A
Covered Games
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<PAGE> 6
Exhibit B
GAME STANDARDS AND CONDITIONS
I. Game Standards
The Games shall be conducted by MegaBingo Inc. on various Indian
reservations throughout the United States. The Games will be conducted in
compliance with the customary rules of Bingo, except as otherwise specified
herein.
All game faces on bingo cards used in the Games shall measure 5 columns
x 5 lines. Each column shall contain 5 numbers, with numbers ranging from 1 to
15- for the first column which shall be referred to as the B column, 16 to 30
for the second column which shall be referred to as the I Column and so on
until the highest available number for column 5, which shall be referred to as
the 0 column is 75. The center square on each card shall not contain a number
and shall be deemed covered in all Games. There shall be no repetition of
numbers on any game face on any individual card.
Each card sold for the Games will have an individual identification
number (the Master Control Number), with each card being assigned a specific
and unique set of numbers (as described above) by a formula. The
identification number of each card sold (and the algorithm that relates the
identification number to its set of numbers) will reside into a central
computer prior to commencement of a Game. All calls made during the Games will
be entered into that computer. MegaBingo shall notify SCA of the serial number
(and a method of relating that serial number to an identification number) for
each card sold prior to beginning the Games and it shall make a record showing
the calls made during the Games available to SCA for its confirmation-nation
procedure. Notification to a mutually acceptable third party shall constitute
notice to SCA. SCA agrees not to disclose this information to any third party
or to use this information for any purpose other than to verify or validate
winners.
Each session shall not exceed two (2) hours in duration. Each session
will be transmitted by satellite to the participating bingo halls. MegaBingo
will advise SCA which halls will be participating in the Games prior to Games
start-up and will advise SCA of any changes in this information as halls are
added or deleted.
MegaBingo shall provide all reasonable and necessary security measures
to insure the secrecy of the relationship between the Game card identification
numbers and the set of numbers on the faces of each card.
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<PAGE> 7
Employees of MegaBingo, advertising agencies and promotional companies
involved in the Games and their immediate families (spouse and dependent
children), agents, successors, and assignees shall be ineligible to participate
in the Games and shall not be eligible for any prize covered herein. The
parties hereto acknowledge, that SCA is not liable for any prize fulfillment to
Game participants in violation of this term.
MegaBingo warrants that the Games shall be implemented only where it
(and the procedures specified in this Exhibit) are lawful. In the event the
actual conditions of the Games are materially different from those represented
by MegaBingo, this Contract shall be null and void unless such changes are made
with the express written consent of SCA.
Bingo Card Generation
The cards used in the Games must comply with the following generation
specifications. Any modifications or deviations from same are subject to
approval by SCA prior to use.
A card shall have up to four game faces, each consisting of five (5)
columns by five (5) rows. Each of the twenty-five (25) resulting cells
contains a unique number in the range of 1 to 75 inclusive, except for the
center cell which is a wild card or conceded cell. The card is further limited
by specifying that each column contains a restricted range of numbers as
follows:
<TABLE>
<CAPTION>
Column Column Low High#
<S> <C> <C> <C>
B 1 1 15
I 2 16 30
N 3 31 45
G 4 46 60
0 5 61 75
</TABLE>
The possible combinations for each of Columns B,I,G,O are three thousand
three (3,003) = ( 15! ) / ( 10! 5! ).
The possible combinations for Column N are (1,365) = (15!) / ( 11! 4! ).
Each of the 3,003 combinations is numbered in sequence using a procedure
similar to the following:
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<PAGE> 8
<TABLE>
<CAPTION>
Combination #1 Combination #3003
Column B Column B
<S> <C>
1 11
2 12
3 13
4 14
5 15
</TABLE>
Each possible Column B combination is assigned a unique number.
Each of the first 1,365 combinations of the N Column is numbered using a
procedure similar to the following:
<TABLE>
<CAPTION>
Combination #1 Combination #1365
Column N Column N
-------- --------
<S> <C>
31 42
32 43
33 44
34 45
</TABLE>
The next 1,365 combinations (of the N Column) are numbered and sequenced
repeating the procedure immediately above. The remaining 273 four-number
combinations are computer selected from the population of 1,365 possible N-
Column combinations such that no combination repeats.
The numbered combinations in each column are then shuffled and reordered
so that each consecutive group of three hundred (300) combinations contains
approximately one hundred (100) occurrences of each of the fifteen numbers in
the population for that column,
Bingo cards are then generated using a computer model that can be
visualized as a 5-wheel speedometer with each wheel consisting of 3,003
distinct positions.
Each position on four of the wheels contains a combination of five
numbers. The middle wheel contains combinations of four numbers in each
position. The combinations of numbers on each wheel corresponds in content and
sequence to the shuffled and reordered sequences for the B,I,N,G,O column
described earlier.
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<PAGE> 9
A set of 3,003 bingo cards are then generated by aligning the five
wheels so that the combination number of corresponding positions on each wheel
are the same. This set is referred to as the master reference deck.
Additional decks are generated by rotating the relative positions of the
five wheels.
Just prior to the commencement of card generation in each hall, one or
more decks are assigned to that hall. The deck is then cut at random to
reassign a new initial card. The cards are numbered in sequence (the serial
number) as generated for sale. Additionally the date of printing is stamped on
the card. As an additional cosmetic measure, the numbers in each column are
printed in random order.
MegaBingo Inc. stores the following information in its computer:
1) The deck(s) assigned to each hall.
2) The cut (O - 3,002) applicable to each hall.
3) The date of printing and card serial number associated ,with each
card generated for sale and sold.
Prize Fulfillment Conditions
For the purposes of this Agreement, the term "Prize Fulfillment" shall
be defined as the arrangement for the provision of monetary or other
compensation to the winners of Grand Prizes in the Games.
SCA and MegaBingo agree that for each session, all prize awards will be
made on a parimutuel basis, (the Grand Prizes for any session will be divided
equally among winning contestants).
GRAND PRIZES
SCA obligations for prize funding shall be scheduled on an exhibit to
this contract which summarizes all information pertinent to any game for which
SCA has assumed prize liability.
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<PAGE> 10
GRAND PRIZE PROCEDURE
Prior to 10:00 am on the second business day following a session in
which there is a potential Grand Prize, MegaBingo will furnish the following
information to SCA:
A) Complete identification of each winning card with:
1) Identification Number
2) Serial Number
3) Date Stamp
B) Name, Address, and Telephone Number(s) of Each Winner(s).
The names and likeness of Games winners may be used by SCA for
promotional purposes without further compensation to MegaBingo if SCA gains
approval to use such winners, names and likenesses. MegaBingo will use its
best efforts to assist SCA in gaining such approval.
PRIZE VERIFICATION PROCEDURES
I) Except as provided in Paragraph 3 herein below, payment by SCA shall be
made if and only if SCA receives all of the following documents ("Payment
Instructions"):
A) a certificate from MegaBingo stating the following:
1. $ was won in a Game conducted in conjunction
with (the "Game") on (date) (the "Win Date"). The name, address and telephone
number of the winner(s) thereof and the portion of the Grand Prize payable to
each winner thereof is an follows:
(name, address, telephone number and Grand Prize portion for each winner)
2. The Game in which the Grand Prize was won was conducted as
outlined in this agreement
3. The amount of the non-annuity portion of the Grand Prize
paid or to be paid to the winner(s) of the Grand Prize or reimbursed or to be
reimbursed to Hall Operators for such payment by them is $
4. The amount of funds to be paid by SCA pursuant to this
Payment
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<PAGE> 11
Instruction is $
B) a certificate from Wackenhut Security (or other security firm
employed by the Hall in which the drawing was held in the Game in which the
Grand Prize was won) stating the following:
"1. The undersigned is the security firm employed by the bingo
hall in which the drawing was held in the (Name of Game on (the Win Date).
2. The bingo balls used for said drawing were taken by this
security firm directly from the drawing area immediately after said game,
placed in a sealed container by this security firm and delivered by this
security firm to Midstates Analytical Laboratories of Tulsa, Oklahoma."
C) one of more certificates from either Wackenhut Security (or other
security firm employed by the Hall in which the drawing was held in the game in
which the Grand Prize was won) or from each of the security organizations
employed by the bingo halls where the winner(s) of the Grand Prize won the
Grand Prize stating the following:
"The undersigned is the security firm employed by the bingo hall in
which the drawing was held in the game on (the Win Date). The serial number of
each winning bingo card held by each winner of the date or a portion thereof is
on the list of game cards sold in said game and that said list was delivered by
MegaBingo, Inc. to this security firm prior to the start of said game."
or
"The undersigned is the security firm for the bingo hall in which a
winner or winners of the Grand Prize or a portion thereof won the such prize on
(the Win Date) - The serial number of each winning game card held by each such
winner in said hall is on the list of game cards sold in said hall and said
list was delivered by MegaBingo, Inc. to this security firm prior to the start
of said game."
D) of more certificates from Midstates Analytical Laboratories of
Tulsa, Oklahoma stating the following:
1. The undersigned Lab has performed weight and size tests on the
bingo balls which MegaBingo, Inc. has purported would be used in the games.
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<PAGE> 12
2. The undersigned Lab received from the (name of sen firm referred
to in certificate (b) above) bingo balls which said security firm purported to
be the bingo balls used in the drawing of the game conducted on (the Win Date)
and said bingo balls were found to be within the following tolerances for
weight and size, to wit: the weight of each ball has not changed from the
original test weight by more than 15% and the diameter of each ball has not
changed from the original test diameter by more than 10%."
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<PAGE> 13
EXHIBIT D
Re: Indemnification of MegaBingo re: Prize Winner Payment Contract
#______
Dear Mike:
For consideration received, SCA Promotions, Inc. agrees to indemnify MegaBingo,
Inc. against claims arising from SCA Promotions' failure to pay the winner as
required in the above referenced Prize Winner Payment Contract.
SCA agrees to place assets in a separate account, or subaccount with Merrill
Lynch which is pledged to indemnify MegaBingo, Inc. as the Sponsor of the
MegaBingo game.
The Pledge Agreement is attached to this letter of indemnification. The assets
will be placed in the referenced account within thirty days of the date of this
letter. Copies of the account statements will be supplied to MegaBingo.
Sincerely,
Jack Saltiel
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<PAGE> 14
EXHIBIT E
SECURITY AGREEMENT FOR
PLEDGE OF PERSONAL PROPERTY
This Security Agreement for Pledge of Personal Property is entered into
between MEGABINGO, INC., a corporation with its principal place of business
located at 7335 South Lewis, Suite 302, Tulsa, Oklahoma 74136 ("Secured
Party"), and SCA PROMOTIONS, INC. a Texas corporation with its principal place
of business located at 8300 Douglas Avenue, Suite 625, Dallas, Texas 75225 (the
"Pledgor"), effective as of the I day of October, 1995.
RECITALS
A. Pledgor is engaged in the business of providing coverage for the
risk of loss associated with the conduct of certain games, contests and
promotions.
B. Secured Party is in the business of conducting lawful games of
chance.
C. Pledgor is indebted to the winner of a certain game, contest or
promotion conducted by Secured Party, as evidenced by that certain Prize Winner
Payment Contract dated between Pledgor and the winner (the "Payment Contract"),
in the principal sum of $_______ (the debt"). Pledgor has also indemnified
Secured Party from any loss in connection with the Payment Contract pursuant to
a separate indemnification agreement between Secured Party and Pledgor (the
"Indemnity").
D. Pledgor and the Secured Party desire to have Pledgor grant the
Secured Party a security interest in certain collateral as security for
Pledgor's performance of the terms and conditions of the Payment Contract and
the Indemnity as well as certain obligations set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants and conditions
contained herein, the parties hereto agree as follows:
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<PAGE> 15
THIS AGREEMENT IS SUBJECT TO ARBITRATION
AGREEMENTS
1. Security Interests.
Pledgor hereby creates and grants to the Secured Party a security
interest in the collateral described in paragraph 2 hereof to secure the
payment and performance of the obligations of Pledgor under the Payment
Contract.
2. Collateral.
The collateral in which the security interest is created is Account
Number (the "Account") in the name of Pledgor at Merrill Lynch Pierce, Fencer &
Smith Inc., 2121 Avenue of the Stars, Century City, California 90067 ("Merrill
Lynch"), which Account has a present balance of $__________. The Account is
sometimes hereinafter referred to as the "Collateral," and the Collateral is,
contemporaneously with the execution of this Agreement, hereby deposited with
Merrill Lynch.
3. Obligation Secured.
The security interest created hereby secures the performance and
discharge of each and every obligation, covenant and agreement of Pledgor
contained in the Indemnity and herein.
4. Warranties and Representations of Pledgor.
Pledgor warrants and represents that:
(a) the Collateral is free and clear of any security interest
(other than the security interest herein granted), liens, restrictions
or encumbrances; and
(b) Pledgor has full right and power to transfer the
Collateral to the Secured Party free and clear thereof and to enter into
and carry out this Agreement;
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<PAGE> 16
5. Other Covenants of Pledgor and Secured Part .
5.1 Covenants of Pledgor. Pledgor hereby covenants and
agrees:
(a) to make all payments to satisfy the Payment
Contract;
(b) to notify the Secured Party in writing within Five
(5) business days of Pledgor's payment of each installment
required to be paid by Pledgor under the Payment Contract, and
(c) not to withdraw from, or reduce the balance of, the
Account except in partial or full satisfaction of its obligations
under the Payment Contract, the Indemnity or this Agreement.
5.2 Covenants of Secured Party. Secured Party hereby covenants and
agrees:
(a) to acknowledge in writing to Pledgor the receipt by
Secured Party of written notice from Pledgor of all payments made by
Pledgor in satisfaction of the Payment Contract;
(b) to release Pledgor from any obligation of indemnification
to Secured Party under the Indemnity with respect to each payment made
thin Fifteen (15) business days of Secured Party's receipt of written
notice of payment from Pledgor, and Secured Party hereby acknowledges
that its failure to acknowledge in writing its receipt of written notice
of payment from Pledgor shall be deemed a release of Pledgor from any
and all obligation to Secured Party under the Indemnity with respect to
that Payment Contract; and
(c) that Pledgor may withdraw from the Account any balance
remaining after all payments required under the Payment Contract have
been made and thereafter use such remaining balance as Pledgor shall
choose in the exercise of its sole discretion and without further
obligation to Secured Party.
6. Events of Default.
As used herein, "Event of Default" shall be any or all of the following:
(a) The failure of Pledgor punctually and properly to observe,
keep or perform any covenant, agreement or condition required by the
Indemnity or this Agreement to be observed, kept or performed;
(b) The failure of Pledgor to punctually and properly to pay
the prize evidenced by the Payment Contract in accordance with the terms
thereof,
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<PAGE> 17
(c) The making by Pledgor of an assignment for the benefit of
its creditors, or the consent by Pledgor to the appointment of a
receiver or a liquidator of itself or of any substantial portion of its
assets, or the seizure by a receiver, trustee or other officer appointed
by any court or any sheriff, constable, marshal or similar governmental
officer, under color of legal authority, of any substantial portion of
the assets of Pledgor and holding possession thereof for a period of
thirty (30) days; or the assumption of jurisdiction, custody or control
of any of the assets of Pledgor under the provisions . of any other now
existing or future law providing for reorganization, dissolution,
liquidation or winding up of persons or corporations, if Pledgor shall
not have been restored to custody and control of such assets within
thirty (30) days after the date of such assumption; or if a final
judgment for the payment of money shall be rendered against Pledgor and,
within thirty (30) days after the entry thereof, such judgment shall not
have been discharged or execution thereof stayed pending appeal, or if,
within thirty (30) days after the expiration of any such stay, such
judgment shall not have been discharged.
7. Disposition of Collateral on Default.
Upon the occurrence of any event of default, the Secured Party may elect
to sell, or otherwise dispose of the Collateral or any part thereof or to
accept or take title to the Collateral or any party thereof in satisfaction of
the Debt of the Pledgor to the Secured Party, such disposition of the
Collateral to be made as authorized by the Texas Business and Commerce Code
after the giving by the Secured Party of such notice or notification as may be
required by said code. In the event of any such sale or other disposition of
the Collateral, all reasonable costs incurred in the preparation of the
Collateral for such sale or disposition, all reasonable attorneys' fees and
legal expenses connected therewith shall be and become part of the obligations
of Pledgor secured by the Collateral, together with interest thereon at a rate
equal to the lesser of (i) two (2) percentage points over the prime rate as
reflected in the Money Rates Section of the Wall Street Journal, or (ii) the
highest lawful rate, until the prize is paid in full. However, in no event
will the Pledgor have any liability beyond the assets in the Account at the
time of the event of default.
8. Waiver.
No failure or delay by Secured Party in exercising any right, power or
privilege hereunder shall operate as a waiver thereof, and no single or partial
exercise thereof shall preclude any other or further exercise or the exercise
of any other right, power or privilege.
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<PAGE> 18
9. Severability.
Should any one or more or the provisions hereof be determined to be
illegal or unenforceable, all other provisions hereof shall be given effect
separately therefrom and shall not be affected thereby.
10. Notices.
All notices, requests or other communications required hereunder shall
be in writing and shall be given by personal delivery, national overnight
courier, facsimile transmission, or certified or registered mail, to either
party at the respective addresses set forth in the first paragraph of this
Agreement, or to such other address as shall be specified in writing by such
party to the other party in accordance vath the terms and conditions of this
Section. All notices, requests or other communications shall be deemed
effective (i) immediately if delivered personally or by facsimile transmission,
(ii) the next business day if delivered by national overnight courier, or (iii)
Three (3) business days after deposit vath the United States Postal Service,
postage prepaid, if delivered by certified or registered mail.
11. Assignment of Secured Party.
This Agreement and the security interest created hereby shall be
assignable by the Secured Party, shall inure to the benefit of Secured Party's
successors and assigns, and shall be binding upon the Pledgor and its
successors and assigns.
12. Choice of Law.
It is the intention of the parties that the laws of Texas should govern
the validity of this Agreement, the construction of its terms and the
interpretation of the rights and duties of the parties.
13. Arbitration.
Any dispute relating to the interpretation or performance of this
Agreement shall be resolved at the request of either party only through final
and binding arbitration. Such arbitration shall be conducted by a panel of
Three (3) arbitrators in Dallas, Texas. Either party may initiate arbitration
of any dispute under this Agreement by giving written notice to the other party
of the commencement of arbitration proceedings. Within Ten (10) days after the
date of that written notice initiating arbitration, each party shall have
selected a single arbitrator and
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<PAGE> 19
notified the other party of the identity of its selection. The two selected
arbitrators shall together select the third arbitrator thin the next ten-day
period. Each party shall bear the cost of the arbitrator selected by it, and
the two parties shall share equally the costs of the third arbitrator.
The arbitration shall be an expedited proceeding in which discovery and
testimony are limited. Each party shall be limited to Two (2) depositions.
Neither party shall be permitted to conduct discovery by written
interrogatories. The arbitration hearing shall commence within Thirty (30)
days after the date of the written notice initiating arbitration. Each party
shall be limited to a total of Six (6) hours in which to present its case over
a time period for both presentations wch shall not to exceed Two (2)
consecutive calendar days. All time expended by a party in cross examining the
other party's witnesses shall be charged to the party conducting that cross
examination. Each party shall be lifted to Two (2) witnesses who may testify
orally. All other testimony shall be by written declarations limited to Five
(5) pages per witness. The written decision of the arbitrators shall be
rendered within Ten (10) days after the conclusion of all oral testimony.
Except as set forth in this paragraph, the then-current commercial arbitration
rules of the American Arbitration Association ("AAA") shall govern the conduct
of any arbitration proceeding.
If judicial enforcement of the award of the arbitrators is sought by
either party, judgment may be entered upon such award in any court of competent
jurisdiction. The prevailing party in the arbitration, or in any such judicial
enforcement of the arbitration award, shall be entitled to recover all of its
attorneys' fees and costs from the other party. The duty of the parties to
arbitrate any dispute relating to the interpretation or performance of this
Agreement shall survive the termination of this Agreement.
14. Paragraph Headings.
Paragraph and other headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning of this
Agreement or its interpretation.
15. Entire Agreement.
This Agreement constitutes the entire agreement between the parties
hereto, and there are no agreements, understandings, restrictions, warranties
or representations between the parties other than those set forth herein or
herein provided for.
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<PAGE> 20
SECURED PARTY:
MEGABINGO, INC.
By:
---------------------------------------
Nelson Johnson
President
PLEDGOR:
SCA PROMOTIONS, INC.
By:
---------------------------------------
Robert D. Hamman
President
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<PAGE> 1
EXHIBIT 10.3
OFFICE LEASE AGREEMENT
THIS LEASE AGREEMENT made this 10th day of October, 1996, between INTERVEST-
SOUTHERN OAKS LIMITED PARTNERSHIP, herein called "Lessor", and MULTIMEDIA
GAMES, INC., herein called "Lessee".
WITNESSETH
IN CONSIDERATION of the covenants and agreements hereinafter set forth, the
parties hereto agree as follows:
1. Leased Premises. Lessor hereby leases and lets unto Lessee space in the
office center known as SOUTHERN OAKS OFFICE BUILDING herein called the "Leased
Premises", being the space designated as SUITE #210, #204 and #302, shown on
Exhibit "A" attached hereto, and being approximately 9,441 square feet.
2. Term. The term of this Lease shall be for a period of five (5) years
and five (5) months beginning on the commencement date, as hereinafter defined,
except that if the commencement date, shall be a day other than the first day
of a month, then the period of time between the commencement date the first day
of the month next following shall be added to the term of the Lease. the term
of this Lease shall not be extended except by written instrument signed by both
parties and in the event Lessee does not surrender possession of the premises
at the end of the term it shall be from month to month, and such monthly
tenancy shall be subject to the covenants, conditions, rules and regulations
herein contained and shall be for and upon a rental equal to 150 percent of the
rental as herein reserved for the last month of the term hereof, and such
tenancy may be terminated by thirty (30) days written notice given by either
party to the other of his or its intention so to do, but nothing in this
paragraph shall be construed as a consent by the Lessor to the occupancy of
said Premises after the end of the term hereof.
3. Commencement Date. The commencement date of this Lease shall be the
first day of October, 1996, or such earlier date as Lessor may, with the
agreement of Lessee, deliver the Leased Premises to Lessee ready for Lessee's
occupancy.
4. Rentals. As rental for the use and possession of the Lease Premises
during the term hereof, Lessee agrees to pay the Lessor, as such place or
places as Landlord shall designate from time to time in writing, and without
set-off, abatement, deduction, or counterclaim, the sum
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<PAGE> 2
of Ninety-Four Thousand Four Hundred Ten and no/100 Dollars ($94,410.00) per
year payable in monthly installments of Seven Thousand Eight Hundred Sixty-
Seven and 50/100 Dollars ($7,867.50) on or before the first calendar month
following the commencement date of this Lease (unless the commencement date is
the first day of a calendar month, in which event the rent shall commence on
that date), and continuing in the same amount on the first day of each and
every calendar month thereafter during the term of this Lease. In the event
the commencement date is a day other than the first day of the calendar month,
Lessee agrees to pay upon signing of this Lease a prorated portion of a month's
rental representing the period of time between the commencement date and the
first day of the next calendar month.
Lessor acknowledges receipt, upon the execution of this Lease by Lessee, of the
sum of $-0- representing a prepayment of the first full or partial month's
rental for the Leased Premises.
No rent shall be due until March 1, 1997.
5. Security Deposit. Lessee shall deposit with Lessor the sum of Two
Thousand Four Hundred Thirty-Three and 33/100 Dollars ($2,433.33), receipt of
which is hereby acknowledged, as security for the full performance of each and
all of the provisions of this Lease. If Lessee defaults in any particular
provision, Lessor may use, apply or retain without prejudice to any other
remedy, the whole or any part of the security (1) to the extent of any sum due
to Lessor, or (2) to make any required payment on Lessee's behalf, or (3) to
compensate Lessor for any expense or damage caused by Lessee's default. On
Lessor's demand, Lessee shall promptly pay to Lessor a sum equivalent to the
amount by which the security deposit was so depleted. Lessee shall pay the
deposit directly to Lessor in trust. Lessor shall have the authority to use or
apply the deposit only on the default and for the purposes, described above as
the purpose of the security deposit. On termination of this Lease, provided
Lessee is not then in default, Lessor shall return to Lessee all the security
deposit then in Lessor's possession. If Lessor transfers its interest in the
premises during the term hereof, Lessor shall assign the security deposit to
the transferred and thereafter shall have no further liability for the return
of said deposit.
6. Late Charge. Lessee agrees to pay a "late charge" equal to ten percent
(10%) of the monthly rent installment as herein provided when any installment
of rent is paid more than ten (10) days after the due date thereof. Landlord
shall provide Tenant written notice of when rent is due. It is hereby
understood that this charge is for extra expenses incurred by the Lessor and
shall not be considered interest. It is further agreed that this provision
does not grant Lessee an unconditional right to cure any default on his part to
pay rent as provided in paragraph 4, nor does it limit Lessor's rights denoted
in paragraph 18, infra.
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<PAGE> 3
7. Use and Assignment. Lessee shall use and occupy the premises for
general office only and no other purpose and shall not assign this Lease or
sublet the Leased Premises or any part thereof without the written consent of
the Lessor, which consent shall not be unreasonably withheld. Lessee shall
neither permit on the Leased Premises any act, sale nor storage that may be
prohibited under standard forms of fire insurance policies, nor use the Leased
Premisses for any such purpose. In addition, no use shall be made or permitted
to be made that shall result in (a) waste on the premises, (b) a public or
private nuisance that may disturb the quiet enjoyment of other tenants in the
Building, (c) improper, unlawful or objectionable use, including sale or
storage of materials generating an odor on the premises, or (d) noises or
vibrations that may disturb other tenants. Lessee shall comply with all
governmental regulations and statutes affecting the Leased Premises either now
or in the future.
8. Utilities, Maintenance, Etc. Lessor shall furnish for ordinary
office occupancy heating, air conditioning, utilities, general maintenance,
janitorial service except on Saturdays, Sundays, and Holidays, free parking and
shall provide a lobby directory in the Building. Lessee agrees that Lessor
shall not be liable for failure to supply any such heating, air conditioning,
utilities, general maintenance, janitor service or parking; however, Lessor
agrees to use his best efforts to supply or resume the supply of such services.
9. Parking Area. In common with others, the Lessee is hereby granted the
right of non-exclusive use of the parking area provided by Lessor; however, the
Lessor reserves the right to promulgate rules and regulations with respect to
the use of the parking area by the Lessee, his employees, and his customers.
10. Alterations. Lessee shall make no alterations in or additions or
improvements to said Leased Premises without first obtaining the written
consent of Lessor, which shall not be unreasonably withheld or delayed, and all
additions and improvements made by Lessee (except only movable office furniture
and fixtures) shall become the property of Lessor on the termination of the
occupancy of the premises, or at Lessor's option, removed at Lessee's expense.
Lessee, at Lessee's sole cost and expense may provide improvements as shown on
Exhibit "A".
11. Lessee's Property. All equipment and trade fixtures installed in or on
the Building by Lessee shall remain the property of Lessee and may be removed
by Lessee upon termination of the Lease or the occupancy of the premises, with
the exception of any additions or improvements to said Leased Premises as
stated in the above Article 10.
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<PAGE> 4
12. Rules and Regulations. Lessee and Lessee's agents, employees, and
invitees, will comply fully with all requirements of the rules of the building
which are attached hereto and made a part hereof as though fully set out
herein. Lessor shall at all times have the right to change such rules and
regulations or to amend them in such reasonable manner as may be deemed
advisable for safety, care, and cleanliness of the Building and for
preservation of good order therein, forwarded to Lessee in writing and shall be
carried out and observed by Lessee. Lessee shall further be responsible for
the compliance with such rules and regulations by the employees, servants,
agents, visitors, and invitees of Lessee.
13. Indemnity by Lessee. Lessee shall at all times protect, save harmless
and indemnify Lessor against all causes of action, claims, demands, suits,
judgments, and liability of every kind and character which may arise, be
imposed or incurred as a consequence of or arising out of any act, default,
negligence or omission, willful or otherwise, on the part of the Lessee, its
agents or employees, or arising out of the conduct by Lessee of its business
upon the Leased Premises.
14. Liability to Lessee. Lessor will carry no insurance on the property of
Lessee and Lessor shall incur no liability to Lessee, its employees or invitees
for damages caused by or resulting from fire, explosion, windstorm, tornado,
earthquake, leakage of water, gases, steam, rain, snow, falling plaster, glass
breakage, theft, burglary, robbery, vandalism, riot or any other casualty or
other risks incident to the extended coverage applicable under standard fir
insurance contracts, and from the acts or omission of other tenants, their
employees or invitees or trespassers.
15. Damage, Destruction or Condemnation. If the Building is destroyed by
casualty or damaged to such an extent that it cannot be repaired or in the
opinion of Lessor it cannot economically be repaired, this Lease shall
terminate and rent shall be adjusted as of the date of such destruction or
damage. If the Leased Premises are damaged from casualty and can be repaired
except as provided in the preceding sentence, Lessor shall, with reasonable
diligence, with allowance for repair the same. If during the period of repair
or any part thereof the premises cannot be used, rent shall abate for such part
of the period. If the Leased Premises can be partially used during said
period, there shall be an equitable abatement of a portion of rent. Repairs
may be made during business hours and there shall be no abatement of rent by
reason of inconvenience. Lessor shall use its best efforts not to interfere
with Lessee's use of the Premises. If the Leased Premises are condemned, the
Lease at Lessor's option shall terminate and rent shall be adjusted as of the
date Lessee surrenders the Leased Premises. All compensation in condemnation
shall be the property of Lessor. Damage to the premises resulting from the
negligence of Lessee or its employees or invitees shall be repaired
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<PAGE> 5
at the expense of Lessee. Lessor shall use its best efforts not to interfere
with Lessee's use of the Premises.
16. Possession on Termination. At the expiration of this Lease, or sooner
termination thereof, the Lessee shall give possession of the Leased Premises to
the Lessor and in as good a condition as when Lessee commenced possession,
usual wear and tear excepted.
17. Quiet and Peaceful Enjoyment. Lessee shall have quiet and peaceful
possession of the Leased Premises during the term hereof as against all parties
claiming adverse thereto by or under Lessor. See Rider #2, paragraph 3.
18. Breach, Default, and Remedies. The covenants and agreements herein
shall be conditions as well as covenants and breach of any of the, or the
failure to pay rent when due, or the abandonment of the Leased Premises, or the
making of an assignment for the benefit of creditors by Lessee, or the
appointment of a received for Lessee, or the filing of a petition by Lessee, or
the filing of a petition by Lessee for reorganization, or relief of debtors, or
a voluntary petition in bankruptcy, or adjudication of bankruptcy of Lessee,
shall constitute a default on the part of Lessee. Upon default by Lessee, the
Lessor shall, at its option, have the following remedies: (a) terminate the
Lease and take posse of the Leased Premises; (b) terminate the Lease and
recover damages in an amount equal to the unpaid future rent or in any greater
amount permitted by law; (c) terminate Lessee's right to posse without
terminating the Lease or obligation to pay rent, whereupon Lessee's right to
possession without terminating the Lease or obligation to pay rent, whereupon
Lessee shall pay Lessor all unpaid rent for the entire term of the Lease and
Lessor shall endeavor to Lease the Leased Premises for the account of Lessee,
and any reasonable expense of remodeling or repair shall be a charge against
the rent received on reletting; (d) any remedy permitted by Federal or State
Law and the remedies granted to Lessor shall be cumulative, and exhaustion of
one shall not preclude Lessor resorting to others. Should Lessor elect to
immediately terminate the Lease, written notice of that termination may be
given by Lessor pursuant to Paragraph 21, infra. In each and every instance of
default, and while the same continues, Lessor may re-enter said Leased Premises
in accordance with appropriate law using all necessary force, and Lessee's
right to enter said Leased Premises shall be suspended, and in order to
effectuate such re-entry and suspension, Lessor may change locks on the doors
of said Leased Premises and exclude Lessee from said Building until any and all
defaults are cured by Lessee. Such re-entry and suspension, and the changing
of locks, shall not operate as an eviction or cancellation of this Lease. The
waiver by Lessor of any default shall not be a waiver or consent to the
continuation of such default or to a subsequent default in accordance with
appropriate law.
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<PAGE> 6
19. Attorney's Fees. If either party brings any action or proceeding to
enforce, protect, or establish any right or remedy, the prevailing party shall
be entitled to recover reasonable attorney's fees. Arbitration is an action or
proceeding for the purpose of this provision. For the purposes hereof, Lessor
shall be deemed to have prevailed in any unlawful detainer if the action is
dismissed by reason of Lessee's curing of the default upon which such action
was based. Lessee shall reimburse Lessor any and all costs incurred by Lessor
in collecting any delinquent payments due from Lessee hereunder whether action
is instituted therefore or not.
20. Delivery of Possession. If Lessee shall be unable to enter into and
occupy the Leased Premises hereby Leased at the time above provided by reason
of said premises not being ready for occupancy, or by reason of a holding over
of any previous occupants of said premises, or as a result of any cause or
reason beyond the direct control of Lessor, Lessor shall not be liable in
damages to Lessee therefore; but during the period Lessee shall be unable to
occupy said premises as hereinbefore provided the rental therefore shall be
abated and Lessor is to be a sole judge as to when the premises are ready for
occupancy. If permission be given by Lessor to Lessee to enter into possession
of the Leased Premises or to occupy comparable premises in the Building other
than the Leased Premises prior to the date herein fixed for the commencement of
the term, and such permission be accepted by Lessee, such occupancy by Lessee
shall be deemed to be that of a tenant under all of the terms, covenants and
conditions of this Lease, except that Lessee shall pay a pro rata rent on a
daily basis for each day of occupancy at a rate equal to the rent specified in
Paragraph 4 unless otherwise agreed in writing.
21. Notice. The legal relationship between Lessor and Lessee shall be that
of Landlord and Tenant. Any notice authorized or required may be given Lessor
by delivery of same to Lessor at such place as shall be designated for the
payment of rent hereunder, and any notice to Lessee, including the termination
delivery of the same to Lessee, one of its officers, or employees found at the
Leased Premises, or, if the Lessee, its officers or employees are not located
at the Premises, by posting of the notice in a conspicuous place on the Leased
Premises.
22. Ground Leases and Mortgages. This Lease is subject and subordinate to
all ground Leases and to all present mortgages affecting the real estate on
which the Building is located and the Building of which the Leased Premises are
a part, and to any ground Leases, mortgage, or mortgages which may hereafter be
executed affecting the same.
23. Inspection. Lessor, or its officers, agents and representatives, shall
have the right upon reasonable prior notice to Lessee to enter into and upon
any and all parts of the Leased
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<PAGE> 7
Premises, (a) at all reasonable hours to inspect same or clean or make repairs
or alterations or additions as Lessor may deem necessary, or (b) during
business hours to show the Leased Premises to prospective tenants, (during the
last six (6) months of the Lease Term) purchasers or lenders; and Lessee shall
not be entitled to any abatement or reduction of rent by reason thereof.
24. Estoppel Certificate. Lessee agrees throughout the term of this Lease
or any extension thereof that upon request by the Lessor or a mortgagee of
Lessor or a prospective purchase of the Building to sign and deliver a
certificate stating in substance (if such be the case); (a) There is no
modification of the terms of this Lease (unless there is such a modification,
in which event a copy thereof shall be furnished by Tenant or stated in
certificate), and that said Lease is in full force and effect; (b) Lessee has
asserted no defenses or offsets as of the date of the certificate; and (c)
Lessee has no knowledge of any default by the Lessor which has not been cured.
After such certificate has been given by Lessee, Lessee will be estopped from
asserting any claim or defense known by its prior to the date of the
certificate contrary to said certificate as against the person, firm, or
corporation to whom such certificate is addressed. Lessor shall have the right
to transfer and assign in whole or in part, any of its rights under this Lease,
and in the building and property referred to herein; and to the extent that
such assignee assumes Lessor's obligations hereunder, Lessor shall by virtue of
such assignments be reLeased from such obligations.
25. Representation and Warranties. Lessee acknowledges and agrees that it
has not relied upon any statement, representations, agreement or warranties
except such as are expressed herein, and that no amendment or modification of
this Lease shall be valid or binding unless expressed in writing and executed
by the parties hereto in the same manner as the execution of this Lease.
26. Joint and Several Obligations. If Lessee consists of more than one
person, the obligations of all such persons are joint and several.
27. Captions. The captions appearing in this Lease are for convenience and
reference and shall in no way define, limit or describe the scope or intent of
this Lease nor in any way affect this Lease.
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<PAGE> 8
28. Binding Effect. The covenants and agreements of this Lease shall extend
to and be binding upon the heirs, executors, administrators, successors, and
assigns of the parties hereto where the context hereof requires or admits.
29. Governing Law. This Lease shall be subject to and governed by the laws
of the State of Oklahoma.
30. Riders. Riders 1 and 2 hereto attached are a part of this Lease.
31. Additional Comments.
32. Door Signage and Roster. Lessee's door signage and directory strip
shall read as follows:
Multimedia Games, Inc., Suite #210
33. Insurance. Lessor will carry no insurance on the property of Lessee and
Lessor shall incur no liability to Lessee, its employees or invitees for
damages caused by or resulting from fire, explosion, windstorm, tornado,
earthquake, leakage of water, gases, steam, rain, snow, falling plaster, glass
breakage, theft, burglary, robbery, vandalism, riot or any other casualty or
other risks incident to the extended coverage applicable under standard fire
insurance contracts, and from the acts or omission of other tenants, their
employees or invitees, or trespassers.
At all times during the term of this Lease, Lessee shall, at its sole expense,
maintain comprehensive public liability insurance against claims for personal
injury, wrongful death and property damages occurring upon, in or about the
Leased Premises, affording insurance protection to limits of not less than the
following: $100,000.00 for personal injury, bodily injury and wrongful death
to each person; $500,000.00 for personal injury, bodily injury and wrongful
death for each occurrence; and $100,000.00 for property damage for each
occurrence. Lessor shall be named as an additional insured on each such policy
with the same limits of coverage and shall be furnished with a certificate of
each thereof, any additional premium therefor to be paid by Lessee. Each such
policy of insurance shall, to the extent obtainable at no extra premium,
provide that any claim shall be payable notwithstanding any act, whether of
commission or omission, negligent or otherwise, of Lessor, of Lessee, of any
other tenant in the building or of any agent, employee, representative, visitor
or guest of any of them, which
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<PAGE> 9
act might otherwise result in the forfeiture of the insurance afforded by such
policy. In addition, each such policy shall provide an agreement by the
insurer that the policy will not be canceled or modified to reduce coverage as
to risk, amount or named insured without at least fifteen (15) days' prior
written notice to both Lessor and Lessee.
34. Options to Renew. If Tenant has complied with the terms and conditions
of this Lease then Tenant shall have the option to renew this Lease at a Base
Rate determined to be the market rate at the termination of this Lease. Tenant
shall notify Landlord, in writing, ninety (90) days prior to the termination of
this Lease of it's intentions to renew or surrender the demised premises.
Should Tenant desire to surrender the demised premises at the termination of
this Lease, then Lessor shall have the right to show and place on the market
the demised premises, but shall in no way interface with Tenant's business or
rights of Quiet Enjoyment.
IN WITNESS WHEREOF, the parties hereto have set their hands and delivered this
Lease on the day and year above written.
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<PAGE> 10
LESSOR:
INTERVEST-SOUTHERN OAKS, LTD. PTSHP.
------------------------------------------
Dale Williams, President
Tulsa Capital Corporation
As General Partner
LESSEE:
MULTIMEDIA GAMES, INC.
------------------------------------------
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<PAGE> 11
BUILDING RULES AND REGULATIONS
1. Lessee shall not alter any lock or install a new or additional lock or
bolt on any door of the Leased Premises without the prior written consent of
Lessor, which consent shall not be unreasonably withheld.
2. Lessee will refer all contractors, contractor's representatives and
installation technicians, rendering any service to Lessee to Lessor for
Lessor's supervision, approval, and control before performance of any
contractual service. This provision shall apply to all work performed in the
Building including installation of telephones, telegraph equipment, electrical
devises and attachments, and installments of any nature affecting floors,
walls, woodwork, trim, windows, ceilings, equipment or any other physical
portion of the Building. Lessor hereby approved Crestline Construction and
Carpet Supply to construct improvements as needed by Lessee.
3. Movement in or out of the Building of furniture, office equipment or
dispatch or receipt of Lessee of any merchandise or materials which requires
use of elevators or stairways, or movement through Building entrances or lobby
movement shall be under supervision of Lessee and in the manner agreed between
Lessee and Lessor by prearrangement before arrangement. Such prearrangement
initiated by Lessee will include determination by Lessor and subject to his
decision and control, of the time, method, and routing of movement, and
limitations imposed by safety or other concerns which may prohibit any article,
equipment, or any other firm from being brought into the Building. Lessee is
to assume all risk as to damage to articles moved and injury to persons or
public engaged or not engaged in such movement, including equipment, property,
and personnel of Lessor if damaged or injured as a result of acts in connection
with carrying out this service for Lessee from time of entering the tract of
which the Building stands to completion of work; and Lessor shall not be liable
for acts of any person engaged in, or any damage or loss to any of said
property or persons resulting from any act in connection with such service
performed for Lessee.
4. No signs will be allowed in any form on exterior of Building or windows
inside or out, and no signs except in uniform location and uniform styles fixed
by Lessor will be permitted in the public corridors or on corridor doors of
entrance to Lessee's space. All signs will be contracted for by Lessor for
Lessee at the rate fixed by Lessor from time to time, and Lessee will be billed
and pay for such service accordingly.
5. Lessee shall not use the common areas of the building for any
solicitation, advertising, demonstration, or political activity.
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<PAGE> 12
6. Lessee shall not place, install, or operate on the Leased Premises or in
any part of the Building, any engine, stove, or machinery, or conduct
mechanical operations, or cook thereon or there or place or use in or about
premises any explosives, gasoline, kerosene, oil, acids, caustics, or any other
flammable, explosive, or hazardous materials without written consent of Lessor.
Microwaves are allowed.
7. Lessor will not be responsible for lost or stolen personal property,
equipment, money, or jewelry from the Leased Premises or public rooms
regardless of whether such loss occurs when area is locked against entry or
not.
8. None of the entries, passages, doors, elevators, elevator doors,
hallways or stairways shall be blocked or obstructed, or any rubbish, litter,
trash or material of any nature placed, emptied or thrown into these areas, or
such areas be used at any time except for ingress by Lessee, Lessee's agents,
employees, or invitees.
9. Lessor shall have the right to prescribe the weight and position of
safes, computers, and other heavy equipment which shall, in all cases, in order
to distribute their weight, stand on supporting devises approved by Lessor.
All damage done to the Building by placing in or taking out any property of
Lessee while in the Building shall be repaired promptly at the expense of
Lessee.
10. Should Lessee require telegraphic, telephonic, annunciator, or other
communication services, Lessor shall direct where and how wires are to be
introduced and placed and none shall be introduced or placed except as Lessor
shall direct.
11. Without Lessor's prior written approval, Lessee shall not install any
radio or television antenna, loudspeaker, music system, or other device on the
roof or exterior walls of the Building, or on common walls with adjacent
tenants.
12. Use of chair mats is required under all chairs with wheels or castors.
13. These Rules and Regulations are in addition to, and shall not be
construed to in any way modify, alter or amend, in whole or in part, the terms,
covenants, agreements, and conditions of any Lease covering premises in the
Building.
14. Lessor reserves the right to make such other reasonable rules and
regulations as in its judgment may from time to time be needed for the safety,
care, and cleanliness of the Building, and for the preservation of good order
therein.
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<PAGE> 13
15. Lessee shall acquire and maintain an A.B.C. Dry Chemical Fire
Extinguisher for its Leased premises.
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<PAGE> 14
RIDER #1
This supplements and amends that certain Office Lease Agreement between
INTERVEST-SOUTHER OAKS LIMITED PARTNERSHIP, as Lessor, and MULTIMEDIA GAMES,
INC., as Lessee, dated _____________________, 199___, to which reference is
herewith made as if here set forth in full as follows:
Rental Escalation: In the event operating expenses (as defined below)
of Lessor upon the land and building, including parking area, of which the
Leased Premises are part, shall in any calendar year, exceed the sum of $4.16
per square foot (based on net rentable square feet comprising the Building),
the upon written notice to the Lessor, the Lessee agrees to pay as additional
rental, Lessee's probata share of such operating expenses in excess of $4.16.
Lessor shall, within ninety (90) days following the close of any
calendar year for which additional rental is due under this section, give
written notice there to Lessee, provided, however, Lessor may within thirty
(30) days prior to the termination of this Lease estimate Lessee's probata
share of the excess operating expenses for that calendar year and reasonable
detail. Lessee agrees to pay Lessor additional rental within fifteen (15) days
after such written notice. The monthly rental rate for the following year will
be increased by the increased amount of expenses during the current calendar
year. The term "operating expenses" as used herein includes Lessor's cost of
providing heating, air conditioning, utilities, janitorial services and
supplies, snow removal, security services, reasonable management costs,
landscape, and general maintenance and repairs. The term "operating expenses"
also includes all real property taxes which accrue against the building and
land during the term of the Lease as well as all insurance premiums Lessor is
required to pay or deems necessary to pay, including public liability
insurance, with respect to the building and land. If an increase in the fire
and extended coverage insurance premiums paid by Lessor for the building is
caused by Lessee's use and occupancy of the Leased Premises, or if Lessee
vacates the Leased Premises and causes an increase in such premiums, then
Lessee shall pay as additional rental the amount of such increase to Lessor.
In no event shall a single rental escalation cause Lessee's total
monthly rental to increase more than five percent (5%) per year.
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RIDER #2
1. Mechanical. Lessor agrees to use its best efforts to provide Lessee
adequate mechanical in order to meet Lessee's electrical and telephone
requirements for ordinary office usage.
2. Lessor's Insurance Requirements. Lessor, at its sole option, may
procure and maintain at times during the term of this Lease a policy or
policies of insurance covering loss or damages to the Property (exclusive of
Lessee's trade fixtures, equipment, and personal property), providing
protection against those perils as Lessor deems appropriate.
3. Quiet Enjoyment. Lessor warrants that it has full right to execute and
to perform this Lease and to grant the estate Leases, and, that Lessee, upon
payment of the required Rent and performing the terms, conditions, covenants,
and agreements contained in this Lease, shall peaceable and quietly have, hold,
and enjoy the Leased Premises during the full term of this Lease as well as any
extension or renewal thereof. However, Lessee accepts this Lease subject and
subordinate to any underlying Lease, mortgage, deed of trust, or other lien
presently existing upon the Property. Lessor hereby is irrevocably vested with
full power and authority to subordinate Lessee's interest under this agreement
to any underlying Lease, mortgage, deed of trust, or other lien hereafter
placed on the Property, and Lessee agrees upon demand to execute additional
instruments subordinating this Lease as Lessor may require. If the Lessor's
interest under this Lease shall be transferred by reason of foreclosure of
other proceedings for enforcement of any lien, deed of trust, or mortgage on
the Property, Lessee shall be bound to the transferee (sometimes called
"Purchaser") under the terms, covenants, and conditions of this Lease for the
balance of the term remaining, and any extensions or renewals thereof, with the
same force and effect as if the Purchaser were the Lessor under this Lease.
Lessee agrees to attorn to the Purchasee, as its Lessor, the attornment to be
effective and self-operative without the execution of any further instruments
upon the Purchase succeeding to the interest of the Lessor under this Lease.
The respective rights and obligations of Lessee and the Purchaser upon the
attornment, to the extent of the then remaining balance of the term of this
Lease, and any extensions and renewals thereof, shall be the same as those
herein contained.
4. Force Majeure. In the event Lessor or Lessee shall be delayed,
hindered, or prevented from the performance of any act required herein by
reason of strikes, lockouts, labor troubles, inability to procure materials,
failure of power, restrictive governmental laws or regulations, riots,
insurrection, war, or any other reason of a like nature ("Event") that is not
the
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<PAGE> 16
fault of the Party delayed in performing the work or doing the acts required
under the terms of this Lease, then said performance of any such act shall be
excused for the period of time the Event takes place. The period for the
performance of any such act shall be extended for a period of time equivalent
to the time period of the Event. The provisions of this section shall not
operate to excuse Lessee from prompt payment of the Base Rent and any other
Rent required by the terms of this Lease.
5. Waiver of Subrogation: Anything in this Lease to the contrary
notwithstanding, the parties hereto hereby waive to the extent permitted by
their respective insurance carriers any and all rights of recovery, claim,
action or cause of action, against each other, their agents, officers, and
employees for any loss or damage that may occur to the premises hereby demised,
or any improvements thereto, or said building of which the premises are a part,
or any improvements thereto, by reason of fire, the elements or origin,
including negligence of the parties hereto, their agents, officers and
employees.
-16-
<PAGE> 1
EXHIBIT 10.6
THE WARRANTS EVIDENCED HEREBY AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE OF SUCH WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") AND MAY NOT BE OFFERED OR SOLD EXCEPT (1) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (2) UPON THE DELIVERY
BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO COUNSEL FOR THE COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER
THE ACT IS AVAILABLE
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, , 2001
NO. W- ___________ Warrants
MULTIMEDIA GAMES, INC.
THIS CERTIFIES that, for value received, _________________ or registered
assigns, is the registered holder of the number of warrants (hereinafter
referred to as the "Warrants") set forth above, each of which entitles such
holder to purchase from Multimedia Games, Inc., a Texas Corporation
(hereinafter referred to as the "Company") at any time commencing with [INSERT
NINE MONTHS FROM CLOSING DATE] (hereinafter referred to as the "Exercise Date")
through 5:00 P.M. New York time, on the date which is the fifth anniversary of
the Exercise Date, one fully paid and nonassessable share of Common Stock, $.01
par value, of the Company (hereinafter referred to as the "Common Stock"), as
such Common Stock is constituted on the date hereof, subject to adjustment from
time to time pursuant to the provisions hereinafter set forth, at the initial
price of $8.00 per share of Common Stock (hereinafter referred to as the
"Exercise Price"), subject to the conditions hereinafter set forth. The
Warrants are redeemable at the option of the Company as hereinafter provided.
This Warrant is one of a series of Warrants being issued as part of a
private offering (the "Bridge Offering") by the Company pursuant to
Subscription Agreements, dated July __, 1996, between the Company and the
purchasers named therein.
-1-
<PAGE> 2
This Warrant Certificate is subject to the following provisions, terms
and conditions:
1. Exercise of Warrant. Each Warrant is initially exercisable to
purchase one (1) share of Common Stock (each a "Warrant Share" and collectively
the "Warrant Shares") at an initial exercise price of $8.00 per Warrant Share,
subject to adjustment as set forth in Section 3 hereof (as so adjusted, the
"Exercise Price"). The Warrant may be exercised by the registered holder
hereof, in whole or in part, by the surrender of this Warrant Certificate with
the annexed Form of Exercise duly executed, at the principal executive office
of the Company, 7335 S. Lewis, Suite 302, Tulsa, OK 74136, and upon payment to
the Company by check (subject to collection) of the Exercise Price of the
Warrant Shares. In the case of a purchase of less than all of the Warrant
Shares purchasable under this Warrant Certificate, the Company shall cancel
this Warrant Certificate upon the surrender thereof and shall execute and
deliver a new Warrant Certificate of like tenor for the balance of the Warrant
Shares.
2. Transfer of Warrant and Warrant Shares. Neither this Warrant nor
the Warrant Shares have been registered under the Act or any state securities
law and may not be sold, transferred, assigned, hypothecated or otherwise
disposed of until a registration statement with respect thereto is declared
effective under the Act or the Company receives an opinion of counsel
reasonably satisfactory to counsel to the Company that an exemption from the
registration requirements of the Act is available. If permitted by the
foregoing, any such sale, transfer, assignment, hypothecation or other
disposition shall be effected by the holder hereof surrendering this Warrant
for cancellation at the office or agency of the Company referred to in Section
1 hereof, accompanied by an opinion of counsel satisfactory to the Company and
its counsel, stating that an exemption from the registration requirements is
available with the annexed Form of Transfer duly executed. In the case of a
transfer of less than all of the Warrants evidenced by this Warrant
Certificate, the Company shall cancel this Warrant Certificate upon the
surrender thereof and shall execute and deliver (i) to the transferee thereof a
new Warrant Certificates of like tenor for the number of Warrants so
transferred and (ii) to the holder hereof a new Warrant Certificates of like
tenor for the balance of the Warrants theretofore evidenced by this Warrant
Certificate.
Each holder of this Warrant Certificate, by taking and holding the same,
consents and agrees to the terms hereof. The holder shall be entitled to the
benefits of, and shall be subject to the obligations under, the Registration
Rights Agreement between such holder and the Company dated the date hereof.
Upon receipt by the Company of evidence satisfactory to it of the loss,
theft, destruction or mutilation of this Warrant Certificate, and (in case of
loss, theft or destruction) of indemnity
-2-
<PAGE> 3
reasonably satisfactory to it, and upon surrender and cancellation of this
Warrant Certificate, if mutilated, the Company, upon reimbursement to it if all
reasonable expenses incidental thereto, will make and deliver a new Warrant
Certificate, of like tenor, in lieu of this Warrant Certificate.
Each Warrant Certificate and each certificate for Warrant Shares shall
bear a legend substantially similar to the following:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") AND MAY NOT BE OFFERED OR SOLD EXCEPT (1) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (2) UPON THE
DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING THAT
AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE
3. Issuance of Certificates Upon Exercise of Warrants. Upon the
exercise of the Warrants, certificates for the Warrant Shares purchased shall
be issued and delivered to the registered holder hereof forthwith (and in any
event within three business days thereafter). Such issuance and delivery of
certificates shall be made without charge to the holder for any issuance tax in
respect thereto; provided, however, that in the event such issuance and
delivery is to a person other than the holder the Company shall not be required
to (i) pay any tax which may be payable in respect of any such transfer, and
(ii) issue or deliver such certificates unless and until the person requesting
the issuance thereof shall have paid to the Company the amount of such tax or
shall have established to the satisfaction of the Company that such tax has
been paid. No fractional shares of Common Stock or scrip or cash in respect of
a fractional share shall be issued upon exercise of the Warrants evidenced
hereby. Instead of a fractional share, all fractional interests shall be
eliminated by rounding any fraction up or down to the nearest whole number of
shares of Common Stock.
4. Redemption of Warrants. The Warrants are redeemable by the
Company, in whole or in part, on not less than thirty (30) days' prior written
notice at a redemption price of $.10 per Warrant (the "redemption price") at
any time after the Exercise Date; provided that, (i) the closing bid quotation
price of the Common Stock for the twenty (20) consecutive trading days ending
not later than the seventh day prior to the day on which the Company gives
notice of redemption has been at least 150% of the then effective Exercise
Price per share, and (ii)
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<PAGE> 4
the Warrants and the Warrant Shares are subject to an effective registration
statement under the Act at the time a notice of redemption is given and at all
times thereafter through the date fixed for redemption; provided further that,
the condition referred to in clause (ii) shall be deemed satisfied if the
holder was afforded the right and opportunity to include the Warrants and the
Warrant Shares in any such registration statement and declined to do so. In
case of the redemption of a part only of the outstanding Warrants, the Company
shall effect such redemption pro rata among all holders of Warrants determined
by multiplying the number of Warrants represented by each Warrant Certificate
by a fraction, the numerator of which shall be the total number of Warrants to
be redeemed by the Company and the denominator of which shall be the total
number of Warrants held by all holders of Warrants. The redemption notice
shall be given by mail, postage prepaid, to the holders of record of the
Warrants to be redeemed, addressed to each such holder at its post office
address as shown by the records of the Company. On and after the date fixed
for redemption and stated in such notice, each holder of the Warrants called
for redemption shall surrender the Warrant Certificate evidencing such Warrants
to the Company at the place designated in such notice and shall thereupon be
entitled to receive payment of the redemption price. In case less than all the
Warrants represented by any such surrendered certificate are redeemed, a new
certificate shall be issued representing the unredeemed Warrants. If such
notice of redemption shall have been duly given, and if on or before the date
fixed for redemption, funds necessary for the redemption shall be available
therefor, then, notwithstanding that the Warrant Certificates evidencing any
Warrants so called for redemption shall not have been surrendered, all rights
with respect to the Warrants so called for redemption shall forthwith after
such date cease and determine, except only the right of the holders to receive
the redemption price without interest upon surrender of the Warrant
certificates therefor. Holders of Warrants shall have the right to exercise
the Warrants for the purchase of Warrant Shares until the close of business on
the date fixed for redemption.
5. Change in Terms of Warrants Without the Consent of the Holders.
(a) (i) If the Company consummates the Private Placement (as defined
below), or (ii) if the Private Placement is not consummated and (A) within 12
months after the Exercise Date, the Company files a registration statement
under the Act covering the sale to the public of warrants (other than the
Private Placement Warrants)(herein called the "other warrants"), and (B) the
Company offers to include this Warrant and the Warrant Shares in such
registration statement, then anything to the contrary contained herein
notwithstanding,:
(1) the Company and the holder agree that the terms and
conditions of this Warrant shall be automatically amended, without the
consent of the holder, to the extent
-4-
<PAGE> 5
necessary so that the terms and conditions of this Warrant are identical
to the terms and conditions of the Private Placement Warrants or the
other warrants (as the case may be); provided that, no such amendment
shall have the effect of reducing the number of Warrant Shares
purchasable upon the exercise hereof or of increasing the exercise price
therefor or of shortening the exercise period hereof without the written
consent of the holder hereof; and
(2) the holder will surrender this Warrant for a warrant in
the form of the Private Placement Warrants or other warrants (as the
case may be) and the holder shall have no further rights hereunder.
(b) If the Company at any time files a registration statement under
the Act covering the sale to the public of the Warrants and the Warrant Shares
then anything to the contrary contained herein notwithstanding, the Company and
the holder agree that the terms and conditions of this Warrant shall be
automatically amended, without the consent of the holder, to the extent
necessary to provide for a Warrant Agent and a certificated form of Warrant
suitable for trading in the public market. The Company agrees to take such
actions as are reasonably necessary to enable such Warrants and Warrants shares
to be traded such as appointing a Warrant Agent and applying for a CUSIP
number.
As used herein, the term "Private Placement" shall mean the proposed
private offering by the Company of a minimum of 50 and a maximum of 70 units,
each unit consisting of 16,667 shares of Common Stock and warrants to purchase
and additional 16,667 shares of Common Stock, at a purchase price of $50,000
per unit.
6. Adjustments to Exercise Price and Number of Warrant Shares. The
number and kind of shares of Common Stock of the Company that are subject to
each Warrant evidenced hereby, and the Exercise Price, shall be subject to
adjustment as hereinafter set forth. Upon each adjustment of the Exercise
Price as provided herein, the holder of the Warrant evidenced hereby shall
thereafter be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of shares of Common Stock (calculated to the nearest
tenth of a share) obtained by multiplying the Exercise Price in effect
immediately prior to such adjustment by the number of Warrant Shares
purchasable pursuant hereto immediately prior to such adjustment and dividing
the product thereof by the Exercise Price resulting from such adjustment.
(a) Dividend and Distributions. In case the Company shall at any
time after the date hereof declare a dividend payable in shares of Common Stock
or make a distribution to its shareholders generally in shares of Common Stock
then, upon such dividend or distribution,
-5-
<PAGE> 6
the Exercise Price in effect immediately prior to the declaration of such
dividend or distribution shall be reduced to a price determined by dividing an
amount equal to the total number of shares of Common Stock outstanding
immediately prior to such dividend or distribution multiplied by the Exercise
Price in effect immediately prior to such dividend of distribution, by the
total number of shares of Common Stock outstanding immediately after such
dividend or distribution.
(b) Subdivision and Combination. In case the Company shall at any
time subdivide its outstanding shares of Common Stock into a greater number of
shares of Common Stock, the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced, and conversely, in case the
outstanding shares of Common Stock of the Company shall be combined into a
smaller number of shares of Common Stock, the Exercise Price in effect
immediately prior to such combination shall be proportionately increased.
(c) Reclassification, Consolidation, Merger, Etc.. In case of any
consolidation or merger of the Company with another corporation after the
Exercise Date, or the sale of all or substantially all of its assets to another
corporation shall be effected after the Exercise Date or in case of any capital
reorganization or reclassification of the capital stock of the Company, then,
as a condition of such consolidation, merger or sale, reorganization or
reclassification, lawful and adequate provision shall be made whereby the
holder of this Warrant Certificate shall thereafter have the right to purchase
and receive upon the basis and upon the terms and conditions specified herein
and in lieu of the shares of Common Stock immediately theretofore purchasable
and receivable upon the exercise of each Warrant evidenced hereby, such shares
of stock, securities or assets as may be issuable or payable with respect to or
in exchange for a number of outstanding shares of Common Stock of the Company
equal to the number of shares of Common Stock immediately theretofore
purchasable and receivable upon the exercise of one Warrant evidenced hereby
had such consolidation, merger, sale, reorganization, or reclassification not
taken place, and in any such case appropriate provision shall be made with
respect to the rights and interest of the registered holder of this Warrant
Certificate to the end that the provisions hereof (including without limitation
provisions for adjustment of the Exercise Price) shall thereafter be
applicable, as nearly as may be, in relation of any shares of stock, securities
or assets thereafter deliverable upon the exercise of the Warrants evidenced
hereby.
For purposes of this Warrant Certificate, the term "Common Stock" shall
mean shares of the Common Stock, $.01 par value, of the Company, and shall also
include any shares of capital stock into which the Common Stock may be changed,
reclassified or converted.
-6-
<PAGE> 7
7. Notices to Warrant Holders. If any of the following events shall
occur:
(a) There shall be any adjustment of the Exercise Price or the number of
shares of Common Stock subject to the Warrants evidenced hereby;
(b) The Company shall declare to the holders of its shares of Common
Stock any dividend or distribution payable otherwise than in cash or if in cash
payable otherwise than out of current or retained earnings;
(c) The Company shall declare any dividend upon its shares of Common
Stock payable in Common Stock or in securities convertible into or exchangeable
for Common Stock, or any right or option to subscribe therefore;
(d) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of The Company
with, or sale of all or substantially all its assets to, another corporation;
or
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of The Company;
then, in any one or more of said cases, the Company shall give written notice,
by first class mail, postage prepaid, to the holder hereof, of the date on
which (A) the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights, or (B) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up shall take place, as the case may be. Such notice shall also
specify the date as of which the holders of shares of Common Stock of record
shall participate in such dividend, distribution or subscription rights or
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding-up, as the
case may be. Such written notice shall be given at least 30 days prior to the
action in question and not less than 30 days prior to the record date or the
date on which The Company's transfer books are closed in respect thereto.
8. Reservation of Shares. The Company shall at all times reserve
and keep available out of its authorized shares of Common Stock, solely for the
purpose of its issue upon the exercise of the Warrants evidenced hereby as
herein provided, such number of shares of Common Stock as shall then be
issuable upon the exercise of the Warrants evidenced hereby. The Company shall
not take any action which results in any adjustment of the Exercise Price
-7-
<PAGE> 8
if the total number of shares of Common Stock issued and issuable after such
action upon exercise of the Warrants evidenced hereby would exceed the total
number of shares of Common Stock then authorized by the Certificate of
Incorporation of The Company.
9. Registered Holder; No Rights as Stockholder. The person in whose
name this Warrant Certificate is registered shall be deemed the owner hereof
and of the Warrant evidenced hereby for all purposes. The registered holder of
this Warrant Certificate shall not be entitled to any rights whatsoever as a
stockholder of The Company except as herein provided.
10. Notices. All notices, requests or instructions hereunder shall
be in writing and delivered personally or sent by registered or certified mail,
postage prepaid as follows: (1) if to the Company: 7335 S. Lewis, Suite 302,
Tulsa, OK 74136; (2) if to the holder of the Warrants evidenced hereby, at its
address last recorded in the books of the Company. Any of the above addresses
may be changed at any time by notice given as provided above; provided,
however, that any such notice of change of address shall be effective only upon
receipt.
11. Amendments. Except as other wise provided in Section 5 hereof,
this Warrant Certificate may not be amended or modified without the written
consent of the holder and the Company.
12. Governing Law. This Agreement shall be deemed to have been made
and delivered in the State of New York and shall be governed as to validity,
interpretation, construction, effect and in all other respects by the internal
laws of the State of New York.
IN WITNESS WHEREOF, Multimedia Games, Inc. has caused this Warrant
Certificate to be signed by its duly authorized officers and this Warrant
Certificate to be dated as of the date first written above.
ATTEST: MULTIMEDIA GAMES, INC.
By:
- ------------------------------ ---------------------------------------
-8-
<PAGE> 9
FORM OF EXERCISE
The undersigned hereby irrevocably exercises _____ Warrants to subscribe for
and purchase shares of Common Stock, $.01 par value("Common Stock"), of
Multimedia Games, Inc., evidenced by the within Warrant Certificate and
herewith makes payment of the purchase price in full. Kindly issue
certificates for shares of Common Stock in accordance with the instructions
given below. The certificate for the unexercised balance of the Warrants
evidenced by the within Warrants Certificate, if any, will be registered in the
name of the undersigned.
DATED:
-------------------------
Instructions for Registration of stock
- --------------------------------------------------------------------------------
Name (please print)
- --------------------------------------------------------------------------------
Social Security or Other identifying Number;
ADDRESS:
- --------------------------------------------------------------------------------
Street
- --------------------------------------------------------------------------------
City, State and Zip Code
-9-
<PAGE> 10
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate)
FOR VALUE RECEIVED, _________________ hereby sells, assigns and
transfers unto
(Please print name and address of transferee)
this Warrant certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______, Attorney, to
transfer the within Warrant certificate on the books of the within named
Company, with full power of substitution.
Dated: Signature:
(Signature must conform in all respects to
name of the holder as specified in the
face of the Warrant certificate)
------------------------------------------
Social Security or Tax I.D. No.
-10-
<PAGE> 1
EXHIBIT 10.7
THE WARRANTS EVIDENCED HEREBY AND THE SHARES OF COMMON STOCK ISSUABLE UPON THE
EXERCISE OF SUCH WARRANTS HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT") AND MAY NOT BE OFFERED OR SOLD EXCEPT (1) PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (2) UPON THE DELIVERY
BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY
TO COUNSEL FOR THE COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER
THE ACT IS AVAILABLE
MULTIMEDIA GAMES, INC.
WARRANT CERTIFICATE TO ACQUIRE COMMON STOCK,
$.01 PAR VALUE, OF MULTIMEDIA GAMES, INC.
VOID AFTER [INSERT DATE]
CERTIFICATE FOR [INSERT NUMBER OF ] WARRANT(S)
THIS WARRANT IS REDEEMABLE AS PROVIDED HEREIN
THIS CERTIFIES THAT
or registered assigns, has the right to purchase at any time after [INSERT NINE
MONTH DATE AFTER THE INITIAL CLOSING DATE] (the "Exercise Date") and on or
before the close of business on [INSERT FIFTH ANNIVERSARY OF THE INITIAL
CLOSING DATE], (the "Expiration Date"), one fully paid and non-assessable share
of Common Stock, $.01 par value (the "Common Stock"), of MULTIMEDIA GAMES,
INC., a Texas corporation (hereinafter called the "Company"), for each Warrant
represented hereby, upon payment therefor in cash at the rate initially of
$8.00 per share of such Common Stock (the "Exercise Price") between the
Company and Corporate Stock Transfer, Inc., as Warrant Agent (as the same may
from time to time be
-1-
<PAGE> 2
amended, the "Warrant Agreement"), subject to the adjustments, terms and
conditions herein and in the Warrant Agreement. If at any time no other
Warrant Agent is acting for the Company, the Company shall be deemed the
Warrant Agent.
This Warrant Certificate is issued pursuant to the terms and provisions
of the Warrant Agreement and each holder of a Warrant is entitled to the
benefits thereof. The Warrant Agreement provides, among other things, for
adjustment of the Exercise Price and the number of shares of Common Stock
issuable upon exercise of this Warrant Certificate in certain events, including
the issuance of Common Stock as a stock dividend; sub-divisions, combinations
and reclassifications of the Common Stock; the distribution to all holders of
Common Stock of evidences of indebtedness, assets (excluding cash dividends or
other distributions) or rights to subscribe other than those mentioned above;
and certain mergers, consolidations and sales of substantially all the assets
of the Company. Upon each such adjustment, notice thereof will be given by
filing a statement thereof with the Warrant Agent and by mailing a copy of such
notice to all registered holders of Warrant Certificates.
No fractional shares of Common Stock will be issued upon the exercise of
a Warrant; instead, the Warrant holder will be entitled to receive cash for
such fractional interest at current market value.
The Warrants are redeemable by the Company, in whole or in part, on not
less than 30 days' prior written notice at a redemption price of $.10 per
Warrant (the "redemption price") at any time after the Exercise Date; provided
that, (i) the closing bid quotation price of the Common Stock for the 20
consecutive trading days ending not later than the seventh day prior to the day
on which the Company gives notice of redemption has been at least 150% of the
then effective Exercise Price per share, and (ii) the Warrants and the Warrant
Shares are
-2-
<PAGE> 3
subject to an effective registration statement under the Securities Act of
1933, as amended, (the "Act") at the time a notice of redemption is given and
at all times thereafter through the date fixed for redemption; provided further
that, the condition referred to in clause (ii) shall be deemed satisfied if the
holder was afforded the right and opportunity to include the Warrants and the
Warrant Shares in any such registration statement and declined to do so. On
and after the date fixed for redemption and stated in such notice, each holder
of the Warrants called for redemption shall surrender the Warrant Certificate
evidencing such Warrants to the Company at the place designated in such notice
and shall thereupon be entitled to receive payment of the redemption price. If
such notice of redemption shall have been duly given, and if on or before the
date fixed for redemption, funds necessary for the redemption shall be
available therefor, then, notwithstanding that the Warrant Certificates
evidencing any Warrants so called for redemption shall not have been
surrendered, all rights with respect to the Warrants so called for redemption
shall forthwith after such date cease and determine, except only the right of
the holders to receive the redemption price without interest upon surrender of
the Warrant Certificates therefor. Holders of the Warrant shall have the right
to exercise the Warrants for the purchase of Warrant Shares until the close of
business on the date fixed for redemption.
Each Warrant represented hereby may be exercised by presentation and
surrender of this Certificate at the office of the Warrant Agent, with the Form
of Exercise on the reverse hereof duly executed, accompanied by payment for the
shares of Common Stock purchased and, if required, with the Form of Assignment
on the reverse hereof or a separate instrument of transfer duly executed with
signature guaranteed. In the event that the number of Warrants so exercised is
less than the total number of Warrants represented hereby, there will be issued
to the person so exercising the Warrants, or his registered assigns, a new
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<PAGE> 4
Warrant Certificate representing the number of Warrants not exercised.
In the event of the liquidation, dissolution or winding-up of the
Company, in cases where the property to be distributed to the holders of Common
Stock of the Company consists principally of other than securities of another
entity which shall have purchased all or substantially all of the Company's
assets, the right to exercise Warrants shall terminate at the close of business
on the fourth full business day before the earliest date fixed for the payment
of any amount distributable on the Common Stock of the Company; provided that,
at least 45 days prior thereto, notice of such payment date shall have been
given by the Warrant Agent in writing to all registered holders of Warrant
Certificates. Warrants shall terminate and shall be of no further force and
effect at such close of business on such date.
Holders of Warrant Certificates, as such holders, shall have no voting
or any other rights of a stockholder of the Company, shall have no right, other
than the right evidenced thereby, to purchase or receive Common Stock of the
Company, shall not be entitled to subscribe to or purchase any additional or
increased stock of the Company of any class, whether now or hereafter
authorized, or obligations convertible into any class or classes of stock, or
stock of any class convertible into stock of any other class or classes, or
obligations, stock or other securities carrying warrants or rights to subscribe
to stock of the Company of any class or classes, whether now or hereafter
authorized.
This Warrant Certificate is transferable by the registered holder in
person or by his duly authorized attorney on the books of the Company at the
office of the Warrant Agent upon surrender of this Certificate with the Form of
Assignment on the reverse hereof duly endorsed or with other appropriate
instruments of transfer duly endorsed with signature
-4-
<PAGE> 5
guaranteed and payment of any transfer taxes or other governmental charges in
connection with such transfer.
This Warrant Certificate is exchangeable for Warrant Certificates of
different denominations at the office of the Warrant Agent upon surrender of
this Certificate, duly endorsed or with appropriate instruments of transfer.
Warrant Certificates issued upon transfers and exchanges shall be issued only
for full Warrants or an integral multiple thereof. Warrant Certificates which
are transferred shall be canceled.
This Warrant is not valid unless countersigned by the Warrant Agent.
Unless sooner terminated as provided herein upon exercise or upon
liquidation, dissolution or winding-up of the Company, the purchase rights
under the Warrants shall terminate on the Expiration Date and thereafter the
Warrants represented by this Certificate shall be of no further force and
effect.
WITNESS the facsimile signature of the proper officer of the Company and
its facsimile seal.
Dated:
---------------
COUNTERSIGNED:
[INSERT NAME]
Warrant Agent,
By:
--------------------------------------
Authorized Officer
MULTIMEDIA GAMES, INC.
By:
--------------------------------------
Authorized Officer
ATTEST:
- ------------------------------
Secretary
-5-
<PAGE> 6
[FORM OF REVERSE SIDE OF CERTIFICATE]
FORM OF EXERCISE
The undersigned hereby irrevocably exercises _____ Warrants to subscribe for
and purchase shares of Common Stock of the within named Company evidenced by
this Warrant Certificate and herewith makes payment of the purchase price in
full. Kindly issue certificates for shares of Common Stock in accordance with
the instructions given below. The certificate for the unexercised balance of
the Warrants evidenced by the within Warrants Certificate, if any, will be
registered in the name of the undersigned.
DATED:
-------------------------
Instructions for Registration of stock
- --------------------------------------------------------------------------------
Name (please print)
- --------------------------------------------------------------------------------
Social Security or Other identifying Number;
ADDRESS:
- --------------------------------------------------------------------------------
Street
- --------------------------------------------------------------------------------
City, State and Zip Code
-6-
<PAGE> 7
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Warrant Certificate)
FOR VALUE RECEIVED, _________________ hereby sells, assigns and
transfers unto
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______, Attorney, to
transfer the within Warrant Certificate on the books of the within named
Company, with full power of substitution.
Dated: Signature:
(Signature must conform in all respects to
name of the holder as specified in the
face of the Warrant certificate)
------------------------------------------
Social Security or Tax I.D. No.
-7-
<PAGE> 1
EXHIBIT 10.8
THIS NOTE AND THE SECURITIES ISSUABLE UPON THE CONVERSION OF THIS NOTE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") AND
MAY NOT BE OFFERED OR SOLD EXCEPT (1) PURSUANT TO AN EFFECTIVE REGISTRATION
STATEMENT UNDER THE ACT OR (2) UPON THE DELIVERY BY THE HOLDER TO THE COMPANY
OF AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY,
STATING THAT AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE
CONVERTIBLE PROMISSORY NOTE
$[Insert Purchase Price] Dated: [Insert Closing Date]
FOR VALUE RECEIVED, the undersigned MULTIMEDIA GAMES, INC., a Texas
corporation ("Payor" or the "Company") HEREBY PROMISES TO PAY to the order of
[Insert name of Purchaser] (the "Payee"), the principal sum of [Insert Purchase
Price] ($________). The principal amount of, and any accrued and unpaid
interest on, this Note shall be due and payable by Payor on the earlier of
[Insert first anniversary of Closing Date], or upon the occurrence of an Event
of Default (defined below)(such earlier date being hereinafter called the
"Maturity Date").
This Note shall bear interest at a rate of ten and one-half percent
(10.5%) per annum payable on the Maturity Date.
This Note is issued pursuant to a Subscription Agreement, dated July
___, 1996 (the "Subscription Agreement"), by and between Payor and Payee; and
Payee or any successor holder hereof is entitled to the benefits thereof, may
enforce the agreements of the
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Payor contained therein and may exercise the remedies provided for thereby.
1. Prepayment. This Note may not be prepaid by Payor prior to its
maturity except as provided in this Section 1. Payor shall be required to
prepay this Note, without premium or penalty, out of the net proceeds of the
Private Placement (defined below) or an underwritten public offering by the
Company of its securities for cash. Any such payment shall be applied, first,
to any interest accrued but unpaid to the date of such payment and, second, to
the unpaid principal amount of this Note. Payee agrees to make a notation on
this Note of any such payment, as of the prepayment date, of the prepaid
portion of the principal amount hereof. All payments of principal and interest
shall be in lawful money of the United States and made to Payee at his address
heretofore provided to Payor. Any such prepayment shall be subject to the
right of the holder to convert this Note as provided in Section 2 hereof.
2. Conversion.
(a) Upon Private Placement. (i) If prior to the Maturity Date the
Company consummates the Private Placement, the holder of this Note may, at the
time of Closing of the Private Placement:
(A) convert all or any part of the principal amount of this
Note (in integral multiples of not less than such fraction of a unit of
the Private Placement Securities (defined below) as may be demanded by
the holder) by surrendering this Note to the Company together with a
duly executed Notice of Conversion in the form annexed hereto not later
than five (5) business days prior to the date of closing of the Private
Placement, and
(B) apply such principal amount so converted to the purchase
price of the Private Placement Securities; provided that, such holder
shall have satisfied all other terms and
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conditions applicable to a purchaser of Private Placement Securities.
The Company shall provide the holder with at least 10 business days
prior written notice of the date of closing of the Private Placement.
(ii) At the time of closing of the Private Placement, the Company
shall deliver to the holder:
(A) to the extent the holder has duly exercised its right of
conversion as provided in Section 2(a), certificates evidencing the
Private Placement Securities so purchased, plus interest to the date of
such conversion on the principal amount so converted at the rate of
interest provided in this Note; and
(B) to the extent the holder has not exercised for conversion
the entire principal amount of this Note, a certified or bank cashiers'
check in an amount equal to the principal amount of this Note that was
not so converted, plus interest thereon to the date of such payment at
the rate of interest provided in this Note.
(b) Conversion Into Conversion Units. (i) Prior to the closing of
the Private Placement and at any time after the earlier of:
(A) the date of any prepayment required under Section 1 hereof by
reason of the Company having consummated an underwritten public offering
of its securities for cash, or
(B) the Maturity Date (whether at the scheduled maturity or
earlier by reason of an Event of Default) unless the Company defaults in
the payment of principal and interest on
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the Maturity Date then until such later date on which payment of the
principal and interest is made, or
(C) commencing on and at any time after the 270th day after the
date of this Note,
the principal amount of this Note may, at the option of the holder, be
converted into units (each a "Conversion Unit" and collectively the "Conversion
Units") at a conversion price (the "Conversion Price") of $3.00 per Conversion
Unit. Each Conversion Unit shall consist of (x) one (1) share of Common Stock
and (y) one (1) Redeemable Stock Purchase Warrant representing the right to
purchase for a period of five years from the date of issuance thereof one share
of Common Stock at $8.00 per share and otherwise in substantially the same form
as a Warrant (defined below). The Company shall provide the holder with at
least 10 business days prior written notice of an event described in Section
2(b)(i)(A) and (B) other than the maturity of this Note upon its scheduled
Maturity Date.
(ii) In order to exercise such conversion privilege, the holder of
this Note shall surrender this Note to the Company together with a duly
executed Notice of Conversion in the form annexed hereto at least two (2)
business days prior to the date of such conversion. Upon such conversion,
certificates for the Conversion Units shall be issued and delivered to the
registered holder hereof forthwith (and in any event within five business days
thereafter). Such issuance and delivery of certificates shall be made without
charge to the holder for any issuance tax in respect thereto; provided,
however, that in the event such issuance and delivery is to a person other than
the holder the Company shall not be required to (i) pay any tax which may be
payable in respect of any such transfer, and (ii) issue or deliver such
certificates unless and until the person requesting the issuance thereof shall
have paid to the Company the amount of such tax or shall have established to
the satisfaction of the Company that such tax has
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been paid. No fractional shares of Common Stock or warrants or scrip or cash
in respect of a fraction shall be issued upon conversion of the Notes.
Instead, all fractional interests shall be eliminated by rounding any fraction
up or down to the nearest whole number of shares of Common Stock or of
warrants.
(iii) In the case of a conversion of less than all of this Note, the
Company shall cancel this Note upon the surrender thereof and shall execute and
deliver a new Note of like tenor for the balance of the principal amount
thereof; provided that, if such conversion is in connection with an event
described in Section 2(b)(i)(A) and (B), to the extent the holder has not
exercised for conversion the entire principal amount of this Note, the Company
shall deliver a certified or bank cashiers' check in an amount equal to the
principal amount of this Note that was not so converted, plus interest thereon
to the date of such payment at the rate of interest provided in this Note.
3. Transfer of Note. This Note and the Conversion Units issuable upon
the conversion hereof may not be sold, transferred, assigned, hypothecated or
otherwise disposed of unless such transfer would not result in a violation of
the provisions of the Act and the rules and regulations promulgated under the
Act. No such sale or transfer shall be permitted unless a registration
statement with respect thereto is declared effective under the Act or the
Company receives an opinion of counsel satisfactory to the Company that an
exemption from the registration requirements of the Act is available. If
permitted by the foregoing, any such sale, transfer, assignment, hypothecation
or other disposition shall be effected by the holder surrendering this Note for
cancellation at the office or agency of the Company maintained for such
purpose, accompanied by an opinion of counsel satisfactory to the Company and
its counsel, stating that an exemption from the registration requirements is
available and by an annexed Form of Assignment duly executed.
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Each Note and each certificate for Conversion Units shall bear a legend
substantially similar to the following:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") AND MAY NOT BE OFFERED OR SOLD EXCEPT (1) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (2) UPON THE
DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING THAT
AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE
4. Adjustments. (a) The number and kind of Conversion Units that are
subject to the conversion of this Note, and the Conversion Price, shall be
subject to adjustment as hereinafter set forth. Upon each adjustment of the
Conversion Price as hereinafter provided herein, the holder of the Note shall
thereafter be entitled to purchase, at the new Conversion Price resulting from
such adjustment, the number of Conversion Units (calculated to the nearest
tenth of a Unit) obtained by multiplying the Conversion Price in effect
immediately prior to such adjustment by the number of Conversion Units
purchasable pursuant hereto immediately prior to such adjustment and dividing
the product thereof by the Conversion Price resulting from such adjustment. In
addition to any such adjustment in the Conversion Units, appropriate adjustment
shall also be made to the exercise price of warrants comprising a part of the
Conversion Units.
(b) In case the Company shall at any time after the date hereof
declare a dividend payable in shares of Common Stock or make a distribution to
its shareholders generally in shares of Common Stock then, upon such dividend
or distribution, the Conversion Price in effect immediately prior to the
declaration of such dividend or distribution shall be reduced to a price
determined by dividing an amount equal to the total number of shares of Common
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Stock outstanding immediately prior to such dividend or distribution multiplied
by the Conversion Price in effect immediately prior to such dividend of
distribution, by the total number of shares of Common Stock outstanding
immediately after such dividend or distribution.
(c) In case the Company shall at any time subdivide its outstanding
shares of Common Stock into a greater number of shares of Common Stock, the
Conversion Price in effect immediately prior to such subdivision shall be
proportionately reduced, and conversely, in case the outstanding shares of
Common Stock of the Company shall be combined into a smaller number of shares
of Common Stock, the Conversion Price in effect immediately prior to such
combination shall be proportionately increased.
(d) In case of any consolidation or merger of the Company with
another corporation after the date hereof, or the sale of all or substantially
all of its assets to another corporation shall be effected after the date
hereof or in case of any capital reorganization or reclassification of the
capital stock of the Company, then, as a condition of such consolidation,
merger or sale, reorganization or reclassification, lawful and adequate
provision shall be made whereby the holder of this Note shall thereafter have
the right to purchase and receive upon the basis and upon the terms and
conditions specified herein and in lieu of the Conversion Units immediately
theretofore purchasable and receivable upon the conversion of this Note, such
shares of stock, securities or assets as may be issuable or payable with
respect to or in exchange for a number of outstanding shares of Common Stock of
the Company equal to the number of shares of Common Stock immediately
theretofore receivable upon the conversion of this Note had such consolidation,
merger, sale, reorganization, or reclassification not taken place, and in any
such case appropriate provision shall be made with respect to the rights and
interest of the registered holder of this Note to the end that the provisions
hereof (including without limitation provisions for adjustment of
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the Conversion Price) shall thereafter be applicable, as nearly as may be, in
relation of any shares of stock, securities or assets thereafter deliverable
upon the conversion of this Note.
5. Notices to Holders. If any of the following events shall occur:
(a) there shall be any adjustment of the Conversion Price or the number
of Conversion Units issuable upon the conversion of this Note;
(b) the Company shall declare to the holders of its shares of Common
Stock any dividend or distribution payable otherwise than in cash or if in cash
payable otherwise than out of current or retained earnings;
(c) the Company shall declare any dividend upon its shares of Common
Stock payable in Common Stock or in securities convertible into or exchangeable
for Common Stock, or any right or option to subscribe therefore;
(d) there shall be any capital reorganization or reclassification of
the capital stock of the Company, or consolidation or merger of the Company
with, or sale of all or substantially all its assets to, another corporation;
or
(e) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall give written notice,
by first class mail, postage prepaid, to the holder hereof, of the date on
which (a) the books of the Company shall close or a record shall be taken for
such dividend, distribution or subscription rights, or (b) such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up shall take place, as the case may be. Such notice shall also
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specify the date as of which the holders of shares of Common Stock of record
shall participate in such dividend, distribution or subscription rights or
shall be entitled to exchange their shares of Common Stock for securities or
other property deliverable upon such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation, or winding-up, as the
case may be. Such written notice shall be given at least 10 days prior to the
action in question and not less than 10 days prior to the record date or the
date on which the Company's transfer books are closed in respect thereto.
6. Reservation of Common Stock. The Company shall at all times reserve
and keep available out of its authorized shares of Common Stock, solely for the
purpose of its issue upon the conversion of this Note, such number of shares of
Common Stock as shall then be issuable upon such conversion. The Company shall
not take any action which results in any adjustment of the Conversion Price if
the total number of shares of Common Stock issued and issuable after such
action upon the conversion of this Note would exceed the total number of shares
of Common Stock then authorized by the Certificate of Incorporation of the
Company.
7. Events of Default. If any of the following events shall occur and
be continuing (herein called "Events of Default"):
(a) if the Company defaults in the payment of the principal of, and
interest on, the Note when the same shall become due, either by the terms
thereof or otherwise as herein provided;
(b) if for more than 30 days the Company or any majority owned
subsidiary defaults in any other obligation for borrowed money beyond any
period of grace provided with respect thereto or in the performance of any
other agreement, term or condition contained in any agreement under which any
such obligation is created if the effect of such default is to cause, or permit
the holder or holders of such obligation (or a trustee on behalf of
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such holder or holders) to cause such obligation to become due prior to its
stated maturity;
(c) if any material representation or warranty made by the Company
herein or in any writing furnished by the Company to the Purchaser in
connection with this Note and the Subscription Agreement shall he false in any
material respect;
(d) if the Company defaults in the performance or observance of any
other agreement, term or condition contained herein and such default shall not
have been remedied within 30 days after written notice thereof shall have been
received by the Company from the Purchaser;
(e) if the Company or any majority owned subsidiary makes an
assignment for the benefit of creditors, or admits in writing its inability to
pay its debts in the ordinary course of business or is adjudicated bankrupt or
insolvent;
(f) if the Company or any majority owned subsidiary petitions or
applies to any tribunal for the appointment of a trustee or receiver of the
Company or any subsidiary, or of any substantial part of the assets of the
Company or any subsidiary, or commences any proceedings relating to the Company
or any subsidiary under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law of any
jurisdiction, whether now or hereafter in effect; or if any such petition or
application is filed, or any such proceedings are commenced, against the
Company or any subsidiary, and the Company or such subsidiary by any act
indicates its approval thereof, consent thereto, or acquiescence therein, or an
order is entered appointing any such trustee or receiver, or approving the
petition in any such proceedings, and such order remains in effect for more
than 60 days; or
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(g) if any order is entered in any proceedings against the Company
decreeing the dissolution or liquidation of the Company, and such order remains
in effect for more than 60 days;
then the holder may, at its option, by notice in writing to the Company declare
the Note to be, and the Note shall (subject to the right of the holder to
convert the Note as provided in Section 2(b)) thereupon be and become,
forthwith due and payable together with all accrued but unpaid interest
thereon.
8. Definitions. As used in this Note, the following terms have the
meanings indicated:
"Placement Agent" shall mean as such term is defined in the Subscription
Agreement.
"Private Placement" shall mean the proposed private offering by the
Company of a minimum of 50 and a maximum of 70 units, each unit consisting of
16,667 shares of Common Stock and warrants to purchase and additional 16,667
shares of Common Stock, at a purchase price of $50,000 per unit.
"Private Placement Securities" shall mean the securities of the Company
issued pursuant to the Private Placement.
"Warrant" shall mean the warrant issued to the holder as part of a unit
that includes this Note.
9. Miscellaneous. (a) The rights and obligations of Payor may not
be assigned to any other person without the express written consent of Payee.
(b) Upon receipt of evidence satisfactory to Payor of the loss, theft,
destruction or mutilation of the Note and, in the case of any such loss, theft,
or destruction, upon delivery of a bond of indemnity satisfactory to Payor, or
in the case of any such
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mutilation, upon surrender and cancellation of the Note, Payor will issue a new
Note in lieu of such lost, stolen, destroyed or mutilated Note.
(c) The person in whose name this Note is registered shall be deemed
the owner hereof for all purposes. The registered holder of this Note shall
not be entitled to any rights whatsoever as a stockholder of the Company except
as herein provided.
(d) No course of dealing between Payor and the holder hereof or any
delay or failure on the part of the holder of this Note in exercising any
rights hereunder shall operate as a waiver of any rights hereunder, except to
the extent expressly waived in writing by the holder hereof.
(e) Should any dispute arise between Payor and Payee with respect to
this Note, the party prevailing in such dispute as determined by a court of
competent jurisdiction shall be entitled to recover the reasonable fees and
expenses of his legal counsel.
(f) All the covenants, stipulations, promises and agreements in this
Note contained by or on behalf of Payor shall bind his successors and assigns,
whether so expressed or not.
(g) This Note shall be governed by the laws of the State of New York.
MULTIMEDIA GAMES, INC.
By:
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NOTICE OF CONVERSION
TO MULTIMEDIA GAMES, INC.
The undersigned owner of this Note hereby irrevocably exercises the
option to convert this Note, or portion hereof as designated below, into:
CHECK ONE
[ ] If the Private Placement has been consummated, Units consisting
of shares of Common Stock and Redeemable Stock Purchase Warrants
issued pursuant to the Private Placement
[ ] Conversion Units
in each case in accordance with the terms of this Note, and directs that the
securities issuable and deliverable upon the conversion and any Notes
representing any unconverted principal amount hereof, be issued and delivered
to the undersigned unless a different name has been indicated below. If
securities or Notes are to be issued in the name of a person other than the
undersigned, the undersigned will pay all transfer taxes payable with respect
thereto.
Dated _________, 19___
---------------------------------------
Signature
Fill in for registration of securities or Notes if different from
registered owner.
- ------------------------------ ---------------------------------------
(Name) SS or Tax ID No.
- ------------------------------
(Address)
- ------------------------------ ---------------------------------------
Please Print Name and Principal Amount Converted
Address
<PAGE> 14
FORM OF ASSIGNMENT
(To be executed by the registered holder if such
holder desires to transfer the Note)
FOR VALUE RECEIVED, _________________ hereby sells, assigns and
transfers unto
(Please print name and address of transferee)
this Note, together with all right, title and interest therein, and does hereby
irrevocably constitute and appoint __________________, Attorney, to transfer
this Note on the books of the within named Company, with full power of
substitution.
Dated: Signature:
(Signature must conform in all respects to
name of the holder as specified in the
face of the Note)
------------------------------------------
Social Security or Tax I.D. No.
<PAGE> 1
EXHIBIT 10.11
MULTIMEDIA GAMES, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated to be
effective as of the final closing under the Offering (as defined below), by and
among MULTIMEDIA GAMES, INC., a Texas corporation (the "Company"), each Holder
(as defined below) and WALSH, MANNING SECURITIES, INC., as a Holder and as
Agent for the Holders,
W I T N E S S E T H:
WHEREAS, simultaneously with the execution and delivery of this
Agreement, the Holders are purchasing from the Company (the "Offering") not
less than 50 Units, nor more than 70 Units, each Unit consisting of (i) 16,667
shares of the Company's Common Stock, $.10 par value (the "Offering Stock"),
and (ii) 16,667 Redeemable Common Stock Purchase Warrants (collectively the
"Offering Warrants"), each entitling the holder thereof to purchase one share
of Common Stock (collectively the "Offering Warrant Shares")
WHEREAS, prior to the effective date of this Agreement, the Company
offered and sold (the "Bridge Offering") 16 Units, each Unit consisting of (i)
a promissory note of the Company in the principal amount of $50,000, and (ii)
22,500 Redeemable Common Stock Purchase Warrants (collectively the "Bridge
Warrants"), each entitling the holder thereof to purchase one share of Common
Stock (collectively the "Bridge Warrant Shares");
WHEREAS, in connection with the Bridge Offering, the Company issued to
designees of the Agent 173,310 Redeemable Common Stock Purchase Warrants
(collectively the "Bridge Placement Warrants") each entitling the holder
thereof to purchase one share of Common Stock (collectively the "Bridge
Placement Warrant Shares");
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WHEREAS, in connection with the Offering, the Company contemplates
issuing to the Agent or its designees 350,000 Redeemable Common Stock Purchase
Warrants (collectively the "Offering Placement Warrants") each entitling the
holder thereof to purchase one share of Common Stock (collectively the
"Offering Placement Warrant Shares");
WHEREAS, the Company is willing to register the Registerable Securities
(as defined below) under the 1933 Act upon the terms and conditions contained
in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
For the purposes of this Agreement, the following terms have the
following meanings:
"Affiliate", with respect to any Person, means any other Person
directly or indirectly controlling, controlled by or under common
control with, such Person. For purposes of this definition, "control"
(including with correlative meanings, the terms "controlling",
"controlled by" or "under common control with"), as used with respect to
any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities or by
contract or otherwise.
"Beneficial owner" or "beneficially own" has the meaning given
such term in Rule 13d-3 under the 1934 Act.
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"Business Day" means any day, excluding Saturday, Sunday and any
other day on which commercial banks in Boston, Massachusetts or New
York, New York are authorized or required by law to close.
"Commission" means the Securities and Exchange Commission, and
any successor commission or agency having similar powers.
"Common Stock" means the shares of Common Stock, $.01 par value,
of the Company.
"Holder" means the Holder, any Permitted Transferee of a Holder
(and any subsequent Permitted Transferee) that, in each case, holds
Registrable Securities.
"1933 Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Permitted Transferee" means any Person that (i) shall be the
registered owner of Registerable Securities in accordance with the terms
thereof, and (ii) shall have executed and delivered to the Company an
executed counterpart of this Agreement and shall have agreed to be bound
hereunder in the same manner and to the same extent as the Holder is
bound hereunder.
"Person" means an individual, a partnership, a joint venture, a
corporation, an association, a trust, an individual retirement account
or any other entity or organization, including a government or any
department or agency thereof.
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"Registrable Securities" means the Bridge Warrants, the Bridge
Warrant Shares, the Bridge Placement Warrants, the Bridge Placement
Warrant Shares, the Offering Stock, the Offering Warrants, the Offering
Warrant Shares, the Offering Placement Warrants and the Offering
Placement Warrant Shares, in each case as adjusted pursuant to the
provisions of the applicable instrument evidencing such securities.
Registrable Securities shall cease to be Registrable Securities when (i)
a registration statement (other than a registration statement on Form
S-8) with respect to the sale of such securities shall have become
effective under the 1933 Act and such securities shall have been
disposed of under such registration statement, (ii) they shall have been
distributed to the public pursuant to Rule 144, (iii) they shall have
been otherwise transferred or disposed of other than to a Permitted
Transferee, or (iv) any transfer or disposition of them to the public
shall not require their registration or qualification under the 1933 Act
or any similar state law then in force, or (v) they shall have ceased to
be outstanding.
"Registration Expenses" means all expenses incident to the
Company's performance of or compliance with Article II of this
Agreement, including, without limitation, all registration and filing
fees (including filing fees with respect to the National Association of
Securities Dealers, Inc.), all fees and expenses of complying with state
securities or "blue sky" laws (including reasonable fees and
disbursements of underwriters' counsel in connection with any "blue sky"
memorandum or survey), all printing expenses, all listing fees, all
registrars' and transfer agents' fees, the fees and disbursements of
counsel for the Company and of its independent public accountants,
including the expenses of any special audits and/or "cold comfort"
letters required by or incident to such performance and compliance;
provided that, "Registration Expenses" shall not include underwriting
discounts and commissions and applicable transfer taxes, if
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any, and any fees and disbursements of counsel retained by the Holders
of Registrable Securities being registered, which shall be borne by the
sellers of the Registrable Securities being registered in all cases.
"Rule 144" means Rule 144 (or any successor provision) under the
1933 Act.
"Rule 144 Transaction" means any Sale of Shares made in reliance
upon Rule 144 (as in effect on the date hereof) that complies with
paragraphs (e), (f) and (g) thereof (as in effect on the date hereof),
regardless of whether at the time of such Sale the seller is entitled to
rely upon paragraph (k) of Rule 144 in connection with the Sale of such
Shares.
"Share" means any share of Common Stock and, unless the context
otherwise requires, any Bridge Warrant Shares and Warrant Shares. Share
shall also mean any equity securities received in exchange for or with
respect to the Common Stock by way of merger, consolidation, exchange,
stock dividend or reorganization or recapitalization involving the
Company in which the Company is the surviving or resulting entity.
"Warrants" means, collectively, the Bridge Warrants, the Bridge
Placement Warrants, the Offering Warrants and the Offering Placement
Warrants.
ARTICLE II
Registration Rights
SECTION 2.1 Registration Upon Demand.
(a) At any time after the earlier of (i) six months from the date of
this Agreement, or (ii) nine months from the date of closing of the Bridge
Offering, the Agent on behalf of the Holders
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or the Holders of a majority in interest of the Registerable Securities, may
make a written demand of the Company for registration with the Commission under
and in accordance with the provisions of the 1933 Act of all or part of their
Registrable Securities (a "Demand Registration"); provided, however, that the
Company need only effect one Demand Registration. Such request shall specify
the aggregate number of the Registrable Securities proposed to be sold and
shall also specify the intended method of disposition thereof. Within ten (10)
days after receipt of such request, the Company shall give written notice (the
"Notice") of such registration request to all other Holders stating that the
Company will include in such registration all Registrable Securities as to
which the Company has received written requests for inclusion therein within
twenty (20) Business Days after the giving of the Notice. Each Notice shall
also specify the number of Registrable Securities requested to be registered
and the intended method of disposition thereof. Within five (5) Business Days
after the expiration of such twenty (20) Business Days, the Company will notify
all the Holders to be included in such registration of the other Holders and
the number of Registrable Securities requested to be included therein.
(b) Participation by Other Parties. No Person other than a Holder
shall be permitted to offer any securities under any Demand Registration unless
(x) such Person is entitled to exercise "piggyback" or incidental registration
rights pursuant to an existing contractual commitments with the Company and (y)
if such contractual commitments permit, the Holders participating in such
Demand Registration and their underwriters, if any, in their sole discretion,
determine that such Demand Registration can accommodate such additional
participation.
(c) Effective Registration and Expenses. The Company shall use its
best efforts to cause any registration made pursuant to this Section 2.1 to be
declared effective as soon as possible; provided that, the Agent or the Holders
of a majority in interest
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of the Registerable Securities to be included in such registration may, by
written notice to the Company prior to such registration being declared
effective, withdraw such demand without prejudice to any future demand made by
the Agent or such Holders pursuant to this Section 2.1. A registration will not
count as a Demand Registration until it has become effective and has remained
effective for the longer of (i) such time as the Warrants are no longer
outstanding, or (ii) a Holder has disposed of its Registerable Securities
pursuant to such registration, or (iii) nine (9) months from the effective date
of such registration. The Company shall pay all Registration Expenses in
connection with a registration made pursuant to this Section 2.1, whether or
not such registration becomes effective or Registrable Securities are sold
thereunder.
(d) Selection of Underwriters. If any Demand Registration is an
underwritten offering, the Agent or the Holders holding a majority of the
Registrable Securities to be registered by the Holders may, at their option,
select and obtain the investment banker or bankers and managing underwriter or
underwriters that will administer the offering, such investment banker or
bankers and managing underwriter or underwriters to be reasonably satisfactory
to the Company.
SECTION 2.2. Incidental Registration.
(a) If the Company at any time proposes to register for its own
account or for the account of a selling shareholder, securities under the 1933
Act on a form and in a manner that would permit registration of Registrable
Securities for sale to the public under the 1933 Act, it will each such time
give prompt written notice to all Holders of Registrable Securities of its
intention to do so, describing such securities and specifying the form and
manner and the other relevant facts involved in such proposed registration
(including, without limitation, whether or not such registration will be in
connection with an underwritten offering of its Common
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Stock and, if so, the identity of the managing underwriter and whether such
offering will be pursuant to a "best efforts" or "firm commitment"
underwriting). Upon the written request of any such Holder of Registrable
Securities delivered to the Company within 20 days after such notice shall have
been given to such Holder (which request shall specify the Registrable
Securities intended to be disposed of by such Holder and the intended method of
disposition thereof), the Company will use its best efforts to effect the
registration under the 1933 Act, as expeditiously as is reasonable, of all
Registrable Securities that the Company has been so requested to register by
the Holders of Registrable Securities, to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as aforesaid) of
the Registrable Securities so to be registered; provided, however, that:
(i) if, at any time after giving such written notice of its
intention to register any of such securities and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such securities, the
Company may, at its election, give written notice of such determination to
each Holder of Registrable Securities that has requested to register
Registrable Securities and thereupon the Company shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses in
connection therewith to the extent provided in Section 2.2(b));
(ii) if the registration so proposed by the Company involves an
underwritten offering of the securities to be registered and the managing
underwriter thereof advises the Company that, in its opinion, the number of
securities proposed to be included in such offering by the Company and the
number of shares of Registrable Securities proposed to be included in such
offering by the Holder or Holders thereof should be limited due to market
conditions, the Company may require, by written notice to each such
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Holder that, to the extent necessary to meet such limitation on the number of
shares of Registrable Securities that the Holders are permitted to sell, all
Holders of Registrable Securities proposing to sell shares of Registrable
Securities in such offering shall share pro rata in the number of shares of
Registrable Securities to be excluded from such offering, such sharing to be
based on the respective numbers of shares of Registrable Securities as to which
registration has been requested by such Holders. To the extent any
Registerable Securities are required to be excluded from such underwritten
offering (the "Excluded Securities"), such Excluded Securities shall
nevertheless be included in such registration for sale to the public (but shall
not be a part of the securities sold to the underwriter of such offering) and
the Holders shall agree not to offer or sell the Excluded Securities for a
period of 90 days following the effective date of any such registration;
provided further, that such 90 day period shall be reduced to such shorter
period as shall be necessary to enable the Holder to exercise the Warrant and
sell the underlying warrant shares prior to any redemption of the Warrant
pursuant to the terms thereof.
(iii) the Company shall not be obligated to effect any
registration of Registrable Securities under this Section 2.2 that is
incidental to the registration of any of its securities in connection with any
merger, acquisition, exchange offer, dividend reinvestment plan or stock option
or other employee benefit plan.
(iv) the company shall maintain the effectiveness of any
registration of Registerable Securities effected pursuant to this Section 2.2
until the later of (i) such time as the Warrants are no longer outstanding, or
(ii) a Holder has disposed of its Registerable Securities pursuant to such
registration, or (iii) nine (9) months from the effective date of such
registration.
(b) The Company will pay all Registration Expenses in connection with
each registration of Registrable Securities effected by it pursuant to this
Section 2.2.
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SECTION 2.3 Registration Procedures.
(a) If and whenever the Company is required to use its best efforts
to effect the registration of any Registrable Securities under the 1933 Act as
provided in Section 2.1 and 2.2, the Company will as expeditiously as is
reasonable:
(i) subject to the terms and conditions of this
Agreement, use its best efforts to cause such registration statement to become
effective;
(ii) prepare and file with the Commission such
amendments (including post-effective amendments) and supplements to such
registration statement and the prospectus used in connection therewith as may
be necessary to keep such registration statement effective and to comply with
the provisions of the 1933 Act with respect to the disposition of all
Registrable Securities and other securities covered by such registration
statement until the earlier of (A) such time as all such Registrable Securities
and other securities have been disposed of in accordance with the intended
methods of disposition by the seller or sellers thereof set forth in such
registration statement and (B) the expiration of 270 days from the date such
registration statement first becomes effective;
(iii) furnish to each seller of such Registrable
Securities such number of conformed copies of such registration statement and
of each such amendment and supplement thereto (in each case including all
exhibits), such number of copies of the prospectus included in such
registration statement (including each preliminary prospectus and any summary
prospectus), in conformity with the requirements of the 1933 Act, such
documents incorporated by reference in such registration statement or
prospectus, and such other documents, as such seller may reasonably request in
order to facilitate the sale or disposition of such Registrable Securities;
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(iv) use its best efforts to register or qualify all
Registrable Securities and other securities covered by such registration
statement under such other securities or "blue sky" laws of such jurisdictions
as each seller shall reasonably request, and do any and all other acts and
things that may be necessary to enable such seller to consummate the
disposition in such jurisdictions of its Registrable Securities covered by such
registration statement, except that the Company shall not for any such purpose
be required to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified, or to subject itself to taxation
in respect of doing business in any such jurisdiction, or to consent to general
service of process in any such jurisdiction;
(v) immediately notify each seller of Registrable
Securities covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the 1933 Act, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state any material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing or if it is necessary to amend or supplement such
prospectus to comply with law, and at the request of any such seller prepare
and furnish to such seller a reasonable number of copies of a supplement to or
an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such Registrable Securities or securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing and shall otherwise comply in all material respects with law and so
that such prospectus, as amended or supplemented, will comply with law;
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(vi) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security Holders, as soon as reasonably practicable, an earnings or financial
statement which shall satisfy the provisions of Section 11(a) of the 1933 Act;
(vii) use its best efforts to list such securities
(including the Warrants) on NASDAQ and each securities exchange on which shares
of Common Stock are then listed, if such securities are not already so listed
and if such listing is then permitted under the rules of such exchange, and
provide a transfer agent and registrar for such Registrable Securities not
later than the effective date of such registration statement; and
(viii) issue to any underwriter to which any Holder of
Registrable Securities may sell such Registrable Securities in connection with
any such registration (and to any direct or indirect transferee of any such
underwriter) certificates evidencing shares of Common Stock or Warrants
without any restrictive legends. The Company may require each seller of
Registrable Securities as to which any registration is being effected to
furnish the Company with such information regarding such seller and the
distribution of such securities as the Company may from time to time reasonably
request in writing and as shall be required by law or by the Commission in
connection therewith.
(b) If requested by the underwriters for any underwritten offering of
Registrable Securities on behalf of a Holder or Holders of Registrable
Securities, the Company will enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such representations
and warranties by the Company and such other terms and conditions as are
customarily contained in underwriting agreements with respect to secondary
distributions, including, without limitation, indemnities to the effect and to
the extent provided in Section 2.5.
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(c) If any registration shall be in connection with an underwritten
public offering, each Holder of Registrable Securities agrees (whether or not
such Holder has registered Shares in such offering), if so required by the
managing underwriters, not to effect any public sale or distribution (including
any sale pursuant to Rule 144) of Registrable Securities (other than as part of
such underwritten public offering) within 7 days prior to the effective date of
the registration statement with respect to such underwritten public offering or
120 days after the effective date of such registration statement (which 120-day
period shall be extended to 180 days at the request of the managing underwriter
selected by the Company).
(d) The Company agrees, if so required by the managing underwriters
in connection with an underwritten offering of Registrable Securities, not to
effect any public sale or distribution of any of its equity securities or
securities convertible into or exchangeable or exercisable for any of such
equity securities during the 7 days prior to and the 120 days after the
effective date of any registration statement with respect to such underwritten
public offering, except as part of such underwritten offering or except in
connection with a stock option plan, stock purchase plan, savings or similar
plan, or an acquisition, merger or exchange offer.
(e) It is understood that in any underwritten offering of Registrable
Securities in addition to the shares (the "initial shares") the underwriters
have committed to purchase, the underwriting agreement may grant the
underwriters an option to purchase a number of additional shares (the "option
shares") equal to up to 15% of the initial shares (or such other maximum amount
as the National Association of Securities Dealers, Inc. may then permit),
solely to cover over-allotments. Shares proposed to be sold by the Company and
the Holders shall be allocated between initial shares and option shares as
agreed or, in the absence of
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agreement, pro rata in relation to the number of initial shares sold by each.
SECTION 2.4. Preparation; Reasonable Investigation.
In connection with the preparation and filing of each registration
statement registering Registrable Securities under the 1933 Act, the Company
will give the Holders of Registrable Securities on whose behalf such
Registrable Securities are to be so registered and their underwriters, if any,
and their respective counsel and accountants, the opportunity to participate in
the preparation of such registration statement, each prospectus included
therein or filed with the Commission, and each amendment thereof or supplement
thereto, and will give each of them such access to its books and records and
such opportunities to discuss the business of the Company with its officers and
the independent public accountants who have issued a report on its financial
statements as shall be necessary, in the opinion of such Holders and such
underwriters or their respective counsel, to conduct a reasonable investigation
within the meaning of the 1933 Act. Without limiting the foregoing, each
registration statement, prospectus, amendment, supplement or any other document
filed with respect to a registration under this Agreement shall be subject to
review and reasonable approval by the holders registering Registrable
Securities in such registration and by their counsel.
SECTION 2.5. Indemnification.
(a) In the event of any registration of any Registerable Securities
under the 1933 Act, the Company will, and hereby does, indemnify and hold
harmless, the seller of any Registrable Securities covered by such registration
statement, its directors and officers, each other Person who participates as
an underwriter in the offering or sale of such securities, each officer and
director of each such underwriter, and each other Person, if any, who controls
such seller or any such underwriter within the meaning
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of Section 15 of the 1933 Act or Section 20 of the 1934 Act, against any
losses, claims, damages, liabilities and expenses, including legal and other
expenses incurred in investigating and defending any such claim, joint or
several, to which such seller or any such director or officer or participating
or controlling Person may become subject under the 1933 Act or otherwise,
insofar as such losses, claims, damages, liabilities or expenses (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
1933 Act, any preliminary prospectus, final prospectus or summary prospectus
included therein, or any amendment or supplement thereto, or any document
incorporated by reference therein, (ii) any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and the Company will reimburse such
seller, and each such director, officer, underwriter and controlling Person for
any legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding or (iii) any violation of any rule or regulation promulgated under
the 1933 Act or any other applicable federal or state securities law and
relating to any action or inaction of the Company in connection with such
registration; provided, however, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage, liability (or action
or proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company for use in the
preparation thereof by such seller or underwriter, as the case may be. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such seller
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or any such director, officer, underwriter or controlling Person and shall
survive the transfer of such securities by such seller.
(b) The Company may require, as a condition to including any
Registrable Securities in any registration statement filed pursuant to this
Agreement, that the Company shall have received an undertaking satisfactory to
it from (i) the prospective seller of such securities, to indemnify and hold
harmless the Company in the same manner and to the same extent as set forth in
Section 2.5(a) to the extent that the Company incurs any loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arising out
of or based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company for use in the preparation thereof by such prospective seller, except
that any such prospective seller shall not in any event be liable to the
Company pursuant thereto for an amount in excess of the net proceeds of sale of
such prospective seller's Registrable Securities so to be sold) the Company,
each such underwriter of such securities, each officer and director of each
such underwriter and each other Person, if any, who controls the Company or
any such underwriter within the meaning of Section 15 of the 1933 Act or
Section 20 of the 1934 Act, and (ii) each such underwriter of such securities,
to indemnify and hold harmless (in the same manner and to the same extent as
set forth in Section 2.5(a)) the Company, each officer and director of the
Company, each prospective seller, each officer and director of each prospective
seller (and, if such prospective seller is a portfolio or investment fund, its
investment advisors and the directors and officers thereof) and each other
Person, if any, who controls the Company or any such prospective seller within
the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act, with
respect to any statement in or omission from such registration statement, any
preliminary prospectus, final prospectus or summary prospectus included
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therein, or any amendment or supplement thereto, if such statement or omission
was made in reliance upon and in conformity with written information furnished
by such prospective seller or such underwriter, as the case may be, to the
Company for use in the preparation of such registration statement, preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or any such director, officer
or controlling Person and shall survive the transfer of such securities by such
seller.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding (including any governmental
investigation) involving a claim referred to in Section 2.5(a) or (b), such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding provisions of this Section 2.5, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of such
claim (in which case, the indemnifying party shall not be liable for the fees
and expenses of more than one counsel for all sellers of Registrable
Securities, or more than one counsel for the underwriters in connection with
any one action or separate but similar or related actions), the indemnifying
party will be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, to the extent
that it may wish with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party will
not be liable to such
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indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof. The indemnifying party shall
not, without the consent of the indemnified party, settle or compromise any
claim or consent to the entry of any judgment which settlement, compromise or
judgment would materially and adversely affect the indemnified party other than
as a result of money damages or other money payments; provided, that, if the
indemnified party shall fail or refuse to consent to such settlement,
compromise or judgment proposed by the indemnifying party and approved by the
person asserting such claim, and a judgment thereafter shall be entered or a
settlement or compromise thereafter shall be effected on terms less favorable
in the aggregate to the indemnified party than the settlement, compromise or
judgment so proposed, the indemnifying party shall have no liability with
respect to money or other damages in excess of those provided for in the
settlement, compromise or judgment so proposed or any costs or expenses related
to such claim arising after the date such settlement, compromise or judgment
was so proposed.
SECTION 2.6. Contribution.
If the indemnification provided for in Section 2.5 is unavailable to the
indemnified party or parties in respect of any losses, claims, damages or
liabilities referred to therein, then each such indemnified party and the
Company shall contribute to the amount of such losses, claims, damages or
liabilities (a) as between the Company and the Holders of Registrable
Securities covered by a registration statement, on the one hand, and the
underwriters, on the other, in such proportion as is appropriate to reflect the
relative benefits received by the Company and such Holders, on the one hand,
and the underwriters, on the other, from the offering of the Registrable
Securities, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits but also
the relative fault of the Company and such Holders, on the one hand,
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and of the underwriters, on the other, in connection with the statements or
omissions that resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations, and (b) as between the Company,
on the one hand, and each Holder of Registrable Securities covered by a
registration statement, on the other, in such proportion as is appropriate to
reflect the relative fault of the Company and of each such Holder in connection
with such statements or omissions, as well as any other relevant equitable
considerations. The relative benefits received by the Company and such
Holders, on the one hand, and the underwriters, on the other, shall be deemed
to be in the same proportion as the total proceeds from the offering (net of
underwriting discounts and commissions but before deducting expenses) received
by the Company and such Holders bear to the total underwriting discounts and
commissions received by the underwriters. The relative fault of the Company
and such Holders, on the one hand, and of the underwriters, on the other, shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company and
such Holders or by the underwriters. The relative fault of the Company, on the
one hand, and of each such Holder, on the other, shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact relates to information supplied by such party, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company and the Holders of Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this Section 2.6
were determined by pro rata allocation (even if the underwriters were treated
as one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in the next
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities referred to
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in the next preceding paragraph shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this Section 2.6, no
underwriter shall be required to contribute any amount in excess of the amount
by which the total price at which the Registrable Securities underwritten by it
and distributed to the public were offered to the public exceeds the amount of
any damages that such underwriter has otherwise paid by reason of such untrue
or alleged untrue statement or omission or alleged omission, and no Holder of
Registrable Securities shall be required to contribute any amount in excess of
the amount by which the total price at which the Registrable Securities of such
Holder were offered to the public exceeds the amount of any damages that such
Holder has otherwise paid by reason of such untrue or alleged untrue statement
or omission or alleged omission. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Each Holder's obligation to contribute pursuant
to this Section 2.5 is several in the proportion that the proceeds of the
offering received by such Holder bears to the total proceeds of the offering
received by all Holders and not joint.
SECTION 2.7 Nominees of Beneficial Owners.
In the event that any Registrable Securities are held by a nominee for
the beneficial owner thereof, the beneficial owner thereof may, at its
election, be treated as the Holder of such Registrable Securities for purposes
of any request or other action by any Holder or Holders of Registrable
Securities pursuant to this Agreement or any determination of any number or
percentage of shares of Registrable Securities held by any Holder or Holders of
Registrable Securities contemplated by this Agreement. If the beneficial owner
of any Registrable Securities so elects, the
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Company may require assurances reasonably satisfactory to it of such owner's
beneficial ownership of such Registrable Securities.
ARTICLE III
Miscellaneous
SECTION 3.1. Termination. This right of the Agent and the Holders to
request a Demand Registration pursuant to Section 2.1 and the right of the
Holders to request to be included in a registration pursuant to Section 2.2
shall terminate on the fifth anniversary of the effective date of this
Agreement.
SECTION 3.2. Representations. Each of the parties hereto represents
that this Agreement has been duly authorized, executed and delivered by it and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms.
SECTION 3.3. Certain Remedies. Without intending to limit the remedies
available to any of the parties hereto, each of the parties hereto agrees that
damages at law will be an insufficient remedy in the event such party violates
the terms hereof and each of the parties hereto further agrees that each of the
other parties hereto may apply for and have injunctive or other equitable
relief in any court of competent jurisdiction to restrain the breach or
threatened breach of, or otherwise specifically to enforce, any of such party's
agreements set forth herein.
SECTION 3.4. Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any such term may be waived (either generally or
in a particular instance and either retroactively or prospectively) only with
the written consent of the Company and a majority in interest of the holders of
the Registrable Securities. Each Holder shall be bound by any amendment or
waiver authorized by this Section 3.4, whether or not such Holder shall have
consented thereto.
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SECTION 3.5. Notices. All notices and other communications provided
for herein shall be in writing and shall be delivered by telecopy, by hand or
sent by certified or registered mail, return receipt requested, postage
prepaid, addressed, if to any Holder, to such Holder at such address as such
Holder shall have specified in writing to the party giving any such notice or
sending any such communication), and, if to the Company, to Multimedia Games,
Inc., 7335 South Lewis Avenue, Tulsa, Oklahoma 74136, Attention: Vice
President-Finance, (or to such other address as the Company shall have
specified in writing to the party giving any such notice or sending any such
communication). All such notices shall be conclusively deemed to be received
and shall be effective, (i) if sent by hand delivery, upon receipt, (ii) if
sent by telecopy, upon dispatch thereof, or (iii) if sent by registered or
certified mail, on the third day after the day on which such notice is mailed.
SECTION 3.6. Benefit; Successors and Assigns. Except as otherwise
provided herein, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns; provided, however, that this Agreement shall not inure to the benefit
of any Permitted Transferee unless such Permitted Transferee shall have
executed and delivered to the Company an executed counterpart of this Agreement
and shall have agreed to be bound hereunder in the same manner and to the same
extent as Holder is bound hereunder. Holder may not assign any of its rights
hereunder to any Person other than a Permitted Transferee that has complied
with the requirements of the preceding sentence in all respects. Nothing in
this Agreement either express or implied is intended to confer on any person
other than the parties hereto and their respective successors and permitted
assigns, any rights, remedies or obligations under or by reason of this
Agreement.
SECTION 3.7 Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement or where any provision hereof is
validly asserted as a defense, the successful
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party shall be entitled to recover reasonable attorneys' fees and expenses in
addition to any other available remedy.
SECTION 3.8. Miscellaneous. This Agreement sets forth the entire
agreement and understanding among the parties hereto, and supersedes all prior
agreements and understandings, relating to the subject matter hereof. All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement, regardless of any investigation made by any party
hereto or on such party's behalf. This Agreement shall be construed and
enforced in accordance with and governed by the law of the State of Oklahoma
without regard to the conflict of laws provisions thereof. The headings in
this Agreement are for purposes of reference only and shall not limit or
otherwise affect the meaning hereof. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized signatories thereunto duly
authorized as of the day and year first above written.
MULTIMEDIA GAMES, INC.
By:
---------------------------------------
HOLDER
By:
---------------------------------------
Address:
WALSH, MANNING SECURITIES, INC.
By:
---------------------------------------
Address:
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EXHIBIT 10.15
MULTIMEDIA GAMES, INC.
1996 STOCK INCENTIVE PLAN
SECTION 1. GENERAL PURPOSE OF PLAN; DEFINITIONS.
The name of this plan is the Multimedia Games, Inc. 1996 Stock Incentive
Plan (the "Plan"). The Plan was adopted by the Board on August ___, 1996. The
purpose of the Plan is to enable the Company to attract and retain highly
qualified personnel who will contribute to the Company's success by their
ability, ingenuity and industry and to provide incentives to the participating
officers, employees, directors, consultants and advisors that are linked
directly to increases in stockholder value and will therefore inure to the
benefit of all stockholders of the Company.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(1) "Administrator" means the Board, or if the Board does not
administer the Plan, the Committee in accordance with Section 2.
(2) "Board" means the Board of Directors of the Company.
(3) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, or any successor thereto.
(4) "Committee" means the Committee of the Board designated from time
to time by the Board to be the Administrator and that is comprised entirely of
persons qualifying as "nonemployee directors" in accordance with Rule
16b-3(b)(3) as promulgated by the Securities and Exchange Commission (the
"Commission") under the Securities Exchange Act of 1934 (the "Act") to be
effective as of August 15, 1996, and as such Rule may be amended from time to
time, or any successor definition adopted by the Commission. If at any time
the
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Board shall not administer the Plan, then the functions of the Board specified
in the Plan shall be exercised by the Committee.
(5) "Company" means Multimedia Games, Inc., a Delaware corporation
(or any successor corporation).
(6) "Deferred Stock" means an award made pursuant to Section 7 below
of the right to receive Stock at the end of a specified deferral period.
(7) "Disability" means the inability of a Participant to perform
substantially his duties and responsibilities to the Company by reason of a
physical or mental disability or infirmity (i) for a continuous period of six
months, or (ii) at such earlier time as the Participant submits medical
evidence satisfactory to the Company that he has a physical or mental
disability or infirmity which will likely prevent him from returning to the
performance of his work duties for six months or longer. The date of such
Disability shall be on the last day of such six-month period or the day on
which the Participant submits such satisfactory medical evidence, as the case
may be.
(8) "Effective Date" shall mean the date provided pursuant to Section
11.
(9) "Eligible Employee" means an employee of the Company eligible to
participate in the Plan pursuant to Section 4.
(10) "Fair Market Value" means, as of any given date, with respect to
any awards granted hereunder, at the discretion of the Administrator and
subject to such limitations as the Administrator may impose, (A) if the Stock
is publicly traded, the closing sale price of the Stock on such date as
reported in the Wall Street Journal, or the average of the closing price of the
Stock on each day on which the Stock was traded over a period-of up to twenty
trading days immediately prior to such date, (B) the fair market value of the
Stock as determined in accordance with a method prescribed in the
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agreement evidencing any award hereunder, or (C) the fair market value of the
Stock as otherwise determined by the Administrator in the good faith exercise
of its discretion.
(11) "Incentive Stock Option" means any Stock Option intended to be
designated as an "incentive stock option" within the meaning of Section 422 of
the Code.
(12) "Limited Stock Appreciation Right" means a Stock Appreciation
Right that can be exercised only in the event of a "Change of Control" (as
defined in the award evidencing such Limited Stock Appreciation Right).
(13) "Non-Qualified Stock Option" means any Stock Option that is not
an Incentive Stock Option, including any Stock Option that provides (as of the
time such option is granted) that it will not be treated as an Incentive Stock
Option.
(14) "Parent Corporation" means any corporation (other the Company) in
an unbroken chain of corporations ending with the Company, if each of the
corporations in the chain (other than the Company) owns stock possessing 50% or
more of the combined voting power of all classes of stock in one of the other
corporations in the chain.
(15) "Participant" means any Eligible Employee, consultant or advisor
to the Company selected by the Administrator, pursuant to the Administrator's
authority in Section 2 below, to receive grants of Stock Options, Stock
Appreciation Right, Limited Stock Appreciation Rights, Restricted Stock awards,
Deferred Stock awards, Performance Shares or any combination of the foregoing.
(16) "Performance Share" means an award of shares of Stock pursuant to
Section 7 that is subject to restrictions based upon the attainment of
specified performance objectives.
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(17) "Restricted Stock" means an award granted pursuant to Section 7
of shares of Stock subject to certain restrictions.
(18) "Stock" means the Common Stock, $0.01 par value, of the Company.
(19) "Stock Appreciation Right" means the right pursuant to an award
granted under Section 6 to receive an amount equal to the difference between
(A) the Fair Market Value, as of the date such Stock Appreciation Right or
portion thereof is surrendered, of the shares of Stock covered by such right or
such portion thereof, and (B) the aggregate exercise price of such right or
such portion thereof.
(20) "Stock Option" means any option to purchase shares of Stock
granted pursuant to Section 5.
(21) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company, if each of the
corporations (other than the last corporation) in the unbroken chain owns stock
possessing 50% or more of the total combined voting power of all classes of
stock in one of the other corporations in the chain.
SECTION 2. ADMINISTRATION.
The Plan shall be administered in accordance with the requirements of
Rule 16b-3 of the Act (but only to the extent necessary to maintain
qualification of the Plan under Rule 16b-3 of the Act) by the Board or by the
Committee which shall be appointed by the Board and which shall serve at the
pleasure of the Board.
The Administrator shall have the power and authority to grant to
Eligible Employees, consultants and advisors to the Company, pursuant to the
terms of the Plan: (a) Stock Options, (b) Stock-Appreciation Rights or Limited
Stock Appreciation Rights, (c) Restricted Stock,
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(d) Performance Shares, (e) Deferred Stock or (f) any combination of the
foregoing.
In particular, the Administrator shall have the authority:
(a) to select those employees of the Company who shall be
Eligible Employees;
(b) to determine whether and to what extent Stock Options,
Stock Appreciation Rights, Limited Stock Appreciation Rights, Restricted Stock,
Deferred Stock, Performance Shares or a combination of the foregoing, are to be
granted hereunder to Eligible Employees, consultants and advisors to the
Company;
(c) to determine the number of shares to be covered by each
such award granted hereunder;
(d) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any award granted hereunder (including, but not
limited to, (x) the restrictions applicable to Restricted or Deferred Stock
awards and the conditions under which restrictions applicable to such
Restricted or Deferred Stock shall lapse, and (y) the performance goals and
periods applicable to the award of Performance Shares); and
(e) to determine the terms and conditions, not inconsistent
with the terms of the Plan, which shall govern all written instruments
evidencing the Stock Options, Stock Appreciation Rights, Limited Stock
Appreciation Rights, Restricted Stock, Deferred Stock, Performance Shares or
any combination of the foregoing.
The Administrator shall have the authority, in its discretion, to adopt,
alter and repeal such administrative rules, guidelines and practices governing
the Plan as it shall from time to time deem advisable; to interpret the terms
and provisions of the Plan and any
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award issued under the Plan (and any agreements relating thereto); and to
otherwise supervise the administration of the Plan.
All decisions made by the Administrator pursuant to the provisions of
the Plan shall be final and binding on all persons, including the Company and
the Participants.
SECTION 3. STOCK SUBJECT TO PLAN.
The total number of shares of Stock reserved and available for issuance
under the Plan shall be the sum of (i) 275,000, plus (ii) ten percent (10%) of
the number of shares of Stock issued after September 1, 1996, and on or prior
to December 31, 2000. Such shares may consist, in whole or in part, of
authorized and unissued shares or treasury shares.
To the extent that (i) a Stock Option expires or is otherwise terminated
without being exercised, or (ii) any shares of Stock subject to any Restricted
Stock, Deferred Stock or Performance Share award granted hereunder are
forfeited, such shares shall again be available for issuance in connection with
future awards under the Plan. If any shares of Stock have been pledged as
collateral for indebtedness incurred by a Participant in connection with the
exercise of a Stock Option and such shares are returned to the Company in
satisfaction of such indebtedness, such shares shall again be available for
issuance in connection with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend or other change in corporate structure
affecting the Stock, a substitution or adjustment shall be made in (i) the
aggregate number of shares reserved for issuance under the Plan, (ii) the kind,
number and option price of shares subject to outstanding Stock Options granted
under the Plan, and (iii) the kind, number and purchase price of shares
issuable pursuant to awards of Restricted Stock, Deferred Stock and Performance
Shares,
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as may be determined by the Administrator, in its sole discretion. Such other
substitutions or adjustments shall be made as may be determined by the
Administrator, in its sole discretion. An adjusted option price shall also be
used to determine the amount payable by the Company upon the exercise of any
Stock Appreciation Right or Limited Stock Appreciation Right associated with
any Stock Option. In connection with any event described in this paragraph,
the Administrator may provide, in its discretion, for the cancellation of any
outstanding awards and payment in cash or other property therefor.
SECTION 4. ELIGIBILITY.
Officers (including officers who are directors of the Company),
employees of the Company, and consultants and advisors to the Company who are
responsible for or contribute to the management, growth and/or profitability of
the business of the Company shall be eligible to be granted Stock Options,
Stock Appreciation Rights, Limited Stock Appreciation Rights, Restricted Stock
awards, Deferred Stock awards or Performance Shares hereunder. The
Participants under the Plan shall be selected from time to time by the
Administrator, in its sole discretion, from among the Eligible Employees,
consultants and advisors to the Company recommended by the senior management of
the Company, and the Administrator shall determine, in its sole discretion, the
number of shares covered by each award.
SECTION 5. STOCK OPTIONS.
Stock Options may be granted alone or in addition to other awards
granted under the Plan. Any Stock Option granted under the Plan shall be in
such form as the Administrator may from time to time approve, and the
provisions of Stock Option awards need not be the same with respect to each
optionee. Recipients of Stock Options shall enter into a subscription and/or
award agreement with the Company, in such form as the Administrator shall
determine which agreement shall set forth, among other things, the exercise
price of
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the option, the term of the option and provisions regarding exercisability of
the option granted thereunder.
The Stock Options granted under the Plan may be of two types: (i)
Incentive Stock Options and (ii) Non-Qualified Stock Options.
The Administrator shall have the authority to grant any Eligible
Employee Incentive Stock Options, Non-Qualified Stock Options, or both types of
Stock Options (in each case with or without Stock Appreciation Rights or
Limited Stock Appreciation Rights). Consultants and advisors may only be
granted Non-Qualified Stock Options (with or without Stock Appreciation Rights
or Limited Stock Appreciation Rights). To the extent that any Stock Option
does not qualify as an Incentive Stock Option, it shall constitute a separate
Non-Qualified Stock Option. More than one option may be granted to the same
optionee and be outstanding concurrently hereunder.
Stock Options granted under the Plan shall be subject to the following
terms and conditions and shall contain such additional terms and conditions,
not inconsistent with the terms of the Plan, as the Administrator shall deem
desirable:
(1) Option Price. The option price per share of Stock purchasable
under a Stock Option shall be determined by the Administrator in its sole
discretion at the time of grant but shall not, (i) in the case of Incentive
Stock Options, be less than 100% of the Fair Market Value of the Stock on such
date, (ii) in the case of Non-Qualified Stock Options, be less than 85% of the
Fair Market Value of the Stock on such date, and (iii) in any event, be less
than the par value of the Stock. If an employee owns or is deemed to own (by
reason of the attribution rules applicable under Section 425(d) of the Code)
more than 10% of the combined voting power of all classes of stock of the
Company or any Parent Corporation and an Incentive Stock Option is granted to
such employee, the option price of such Incentive Stock Option (to the extent
required by the Code at the time of grant) shall be no less than 110% of the
Fair Market
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Value of the Stock on the date such Incentive Stock Option is granted.
(2) Option Term. The term of each Stock Option shall be fixed by the
Administrator, but no Stock Option shall be exercisable more than ten years
after the date such Stock Option is granted; provided, however, that if an
employee owns or is deemed to own (by reason of the attribution rules of
Section 425(d) of the Code) more than 10% of the combined voting power of all
classes of stock of the Company or any Parent Corporation and an Incentive
Stock Option is granted to such employee, the term of such Incentive Stock
Option (to the extent required by the Code at the time of grant) shall be no
more than five years from the date of grant.
(3) Exercisability. Stock Options shall be exercisable at such time
or times and subject to such terms and conditions as shall be determined by the
Administrator at or after grant. The Administrator may provide, in its
discretion, that any Stock Option shall be exercisable only in installments,
and the Administrator may waive such installment exercise provisions at any
time in whole or in part based on such factors as the Administrator may
determine, in its sole discretion.
(4) Method of Exercise. Subject to Section 5(3) above, Stock Options
may be exercised in whole or in part at any time during the option period, by
giving written notice of exercise to the Company satisfying the number of
shares to be purchased, accompanied by payment in full of the purchase price in
cash or its equivalent as determined by the Administrator. As determined by
the Administrator, in its sole discretion, payment in whole or in part may also
be made in the form of unrestricted Stock already owned by the optionee, or, in
the case of the exercise of a Non-Qualified Stock Option, in the form of
Restricted Stock or Performance Shares subject to an award hereunder (based, in
each case, on the Fair Market Value of the Stock on the date the option is
exercised); provided, however, that in the case of an Incentive Stock Option,
the right to make payment in the
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form of already owned shares may be authorized only at the time of grant. If
payment of the option exercise price of a Non-Qualified Stock Option is made in
whole or in part in the form of Restricted Stock or Performance Shares, the
shares received upon the exercise of such Stock Option (to the extent of the
number of shares of Restricted Stock or Performance Shares surrendered upon
exercise of such Stock Option) shall be restricted in accordance with the
original terms of the Restricted Stock or Performance Share award in question,
except that the Administrator may direct that such restrictions shall apply
only to that number of shares equal to the number of shares surrendered upon
the exercise of such option. An optionee shall generally have the rights to
dividends and any other rights of a stockholder with respect to the Stock
subject to the option only after the optionee has given written notice of
exercise, has paid in full for such shares, and, if requested, has given the
representation described in paragraph (1) of Section 10.
The Administrator may require the voluntary surrender of all or a
portion of any Stock Option granted under the Plan as a condition precedent to
the grant of a new Stock Option. Subject to the provisions of the Plan, such
new Stock Option shall be exercisable at the price, during such period and on
such other terms and conditions as are specified by the Administrator at the
time the new Stock Option is granted. Upon their surrender, Stock Options shall
be canceled and the shares previously subject to such canceled Stock Options
shall again be available for grants of Stock Options and other awards
hereunder.
(5) Loans. The Company may make loans available to Stock Option
holders in connection with the exercise of outstanding options granted under
the Plan, as the Administrator, in its discretion, may determine. Such loans
shall (i) be evidenced by promissory notes entered into by the Stock Option
holders in favor of the Company, (ii) be subject to the terms and conditions
set forth in this Section 5(5) and such other terms and conditions, not
inconsistent with the Plan, as the Administrator shall determine, (iii) bear
interest, if
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any, at such rate as the Administrator shall determine, and (iv) be subject to
Board approval (or to approval by the Administrator to the extent the Board may
delegate such authority). In no event may the principal amount of any such
loan exceed the sum of (x) the exercise price less the-par value of the shares
of Stock covered by the option, or portion thereof, exercised by the holder,
and (y) any federal, state, and local income tax attributable to such exercise.
The initial term of the loan, the schedule of payments of principal and
interest (if any) under the loan, the extent to which the loan is to be with or
without recourse against the holder with respect to principal or interest and
the conditions upon which the loan will become payable in the event of the
holder's termination of employment shall be determined by the Administrator.
Unless the Administrator determines otherwise, when a loan is made, shares of
Stock having a Fair Market Value at least equal to the principal amount of the
loan shall be pledged by the holder to the Company as security for payment of
the unpaid balance of the loan, and such pledge shall be evidenced by a pledge
agreement, the terms of which shall be determined by the Administrator, in its
discretion; provided, however, that each loan shall comply with all applicable
laws, regulations and rules of the Board of Governors of the Federal Reserve
System and any other governmental agency having jurisdiction.
(6) Non-transferability of Options. Unless otherwise determined by
the Administrator, and subject to such limitations on transferability as may be
required in Rule 16b-3, no Stock Option shall be transferable by the optionee,
and all Stock Options shall be exercisable, during the optionee's lifetime,
only by the optionee.
(7) Termination of Employment or Service. If an optionee's
employment with or service as a director of or consultant or advisor to the
Company terminates by reason of death, Disability or for any other reason, the
Stock Option may thereafter be exercised to the extent provided in the
applicable subscription or award agreement, or as otherwise determined by the
Administrator.
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(8) Annual Limit on Incentive Stock Options. To the extent that the
aggregate Fair Market Value (determined as of the date the Incentive Stock
Option is granted) of shares of Stock with respect to which Incentive Stock
Options granted to an Optionee under this Plan and all other option plans of
the Company or its Parent Corporation become exercisable for the first time by
the Optionee during any calendar year exceeds $100,000, such Stock Options
shall be treated as Non-Qualified Stock Options.
SECTION 6. STOCK APPRECIATION RIGHTS AND LIMITED STOCK APPRECIATION RIGHTS.
(1) Grant and Exercise. Stock Appreciation Rights and Limited Stock
Appreciation Rights may be granted either alone ("Free Standing Rights") or in
conjunction with all or part of any Stock Option granted under the Plan
("Related Rights"). In the case of a Non-Qualified Stock Option, Related
Rights may be granted either at or after the time of the grant of such Stock
Option. In the case of an Incentive Stock Option, Related Rights may be
granted only at the time of the grant of the Incentive Stock Option.
A Related Right or applicable portion thereof granted in conjunction
with a given Stock Option shall terminate and no longer be exercisable upon the
termination or exercise of the related Stock Option, except that, unless
otherwise provided by the Administrator at the time of grant, a Related Right
granted with respect to less than the full number of shares covered by a
related Stock Option shall only be reduced if and to the extent that the number
of shares covered by the exercise or termination of the related Stock Option
exceeds the number of shares not covered by the Related Right.
A Related Right may be exercised by an optionee, in accordance with
paragraph (2) of this Section 6, by surrendering the applicable portion of the
related Stock Option. Upon such exercise and surrender, the optionee shall be
entitled to receive an amount determined in the manner prescribed in paragraph
(2) of this Section
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6. Stock Options which have been so surrendered, in whole or in part, shall no
longer be exercisable to the extent the Related Rights have been so exercised.
(2) Terms and Conditions. Stock Appreciation Rights shall be subject
to such terms and conditions, not inconsistent with the provisions of the Plan,
as shall be determined from time to time by the Administrator, including the
following:
(a) Stock Appreciation Rights that are Related Rights
("Related Stock Appreciation Rights") shall be exercisable only at such time or
times and to the extent that the Stock Options to which they relate shall be
exercisable in accordance with the provisions of Section 5 and this Section 6
of the Plan; provided, however, that no Related Stock Appreciation Right shall
be exercisable during the first six months of its term, except that this
additional limitation shall not apply in the event of death or Disability of
the optionee prior to the expiration of such six-month period.
(b) Upon the exercise of a Related Stock Appreciation Right,
an optionee shall be entitled to receive up to, but not more than, an amount in
cash or that number of shares of Stock (or in some combination of cash and
shares of Stock) equal in value to the excess of the Fair Market Value of one
share of Stock as of the date of exercise over the option price per share
specified in the related Stock Option multiplied by the number of shares of
Stock in respect of which the Related Stock Appreciation Right is being
exercised, with the Administrator having the right to determine the form of
payment.
(c) Related Stock Appreciation Rights shall be transferable or
exercisable only when and to the extent that the underlying Stock Option would
be transferable or exercisable under paragraph (6) of Section 5 of the Plan.
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(d) Upon the exercise of a Related Stock Appreciation Right,
the Stock Option or part thereof to which such Related Stock Appreciation Right
is related shall be deemed to have been exercised for the purpose of the
limitation set forth in Section 3 of the Plan on the number of shares of Stock
to be issued under the Plan, but only to the extent of the number of shares
issued under the Related Stock Appreciation Right.
(e) A Related Stock Appreciation Right granted in connection
with an Incentive Stock Option may be exercised only if and when the Fair
Market Value of the Stock subject to the Incentive Stock Option exceeds the
exercise price of such Stock Option.
(f) Stock Appreciation Rights that are Free Standing Rights
("Free Standing Stock Appreciation Rights") shall be exercisable at such time
or times and subject to such terms and conditions as shall be determined by the
Administrator at or after grant; provided, however, that no Free Standing Stock
Appreciation Right shall be exercisable during the first six months of its
term, except that this limitation shall not apply in the event of death or
disability of the recipient of the Free Standing Stock Appreciation Right prior
to the expiration of such six-month period.
(g) The term of each Free Standing Stock Appreciation Right
shall be fixed by the Administrator, but no Free Standing Stock Appreciation
Right shall be exercisable more than ten years after the date such right is
granted.
(h) Upon the exercise of a Free Standing Stock Appreciation
Right, a recipient shall be entitled to receive up to, but not more than, an
amount in cash or that number of shares of Stock (or any combination of cash or
shares of Stock) equal in value to the excess of the Fair Market Value of one
share of Stock as of the date of exercise over the price per share specified in
the Free Standing Stock Appreciation Right (which price shall be no less than
100% of the Fair Market Value of the Stock on the date of grant)
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multiplied by the number of shares of Stock in respect to which the right is
being exercised, with the Administrator having the right to determine the form
of payment.
(i) Free Standing Stock Appreciation Rights shall be
transferable or exercisable only when and to the extent that a Stock Option
would be transferable or exercisable under paragraph (6) of Section 5 of the
Plan.
(j) In the event of the termination of employment or service
of a Participant who has been granted one or more Free Standing Stock
Appreciation Rights, such rights shall be exercisable at such time or times and
subject to such terms and conditions as shall be determined by the
Administrator at or after grant.
(k) Limited Stock Appreciation Rights may only be exercised
within the 30-day period following a "Change of Control" (as defined by the
Administrator in the agreement evidencing such Limited Stock Appreciation
Right) and, with respect to Limited Stock Appreciation Rights that are Related
Rights ("Related Limited Stock Appreciation Rights"), only to the extent that
the Stock Options to which they relate shall be exercisable in accordance with
the provisions of Section 5 and this Section 6 of the Plan; provided, however,
that no Related Limited Stock Appreciation Right shall be exercisable during
the first six months of its term, except that this additional limitation shall
not apply in the event of death or Disability of the optionee prior to the
expiration of such six-month period.
(l) Upon the exercise of a Limited Stock Appreciation Right,
the recipient shall be entitled to receive an amount in cash equal in value to
the excess of the "Change of Control Price" (as defined in the agreement
evidencing such Limited Stock Appreciation Right) of one share of Stock as of
the date of exercise over (A) the option price per share specified in the
related Stock Option, or (B) in the case of a Limited Stock Appreciation Right
which is a Free
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Standing Stock Appreciation Right, the price per share specified in the Free
Standing Stock Appreciation Right, such excess to be multiplied by the number
of shares in respect of which the Limited Stock Appreciation Right shall have
been exercised.
SECTION 7. RESTRICTED STOCK, DEFERRED STOCK AND PERFORMANCE SHARES.
(1) General. Restricted Stock, Deferred Stock or Performance Share
awards may be issued either alone or in addition to other awards granted under
the Plan. The Administrator shall determine the Eligible Employees,
consultants and advisors to whom, and the time or times at which, grants of
Restricted Stock, Deferred Stock or Performance Share awards shall be made; the
number of shares to be awarded; the price, if any, to be paid by the recipient
of Restricted Stock, Deferred Stock or Performance Share awards; the Restricted
Period (as defined in paragraph (3) hereof) applicable to Restricted Stock or
Deferred Stock awards; the performance objectives applicable to Performance
Share or Deferred Stock awards; the date or dates on which restrictions
applicable to such Restricted Stock or Deferred Stock awards shall lapse during
such Restricted Period, and all other conditions of the Restricted Stock,
Deferred Stock and Performance Share awards. The Administrator may also
condition the grant Restricted Stock, Deferred Stock awards or Performance
Shares upon the exercise of Stock Options, or upon such other criteria as the
Administrator may determine in its sole discretion. The provisions of
Restricted Stock, Deferred Stock or Performance Share awards need not be the
same with respect to each recipient. In the discretion of the Administrator,
loans may be made to Participants in connection with the purchase of Restricted
Stock under substantially the same terms and conditions as provided in Section
5(5) with respect to the exercise of stock options.
(2) Awards and Certificates. The prospective recipient of a
Restricted Stock, Deferred Stock or Performance Share award shall not have any
rights with respect to such award, unless and until such
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recipient has executed an agreement evidencing the award (a "Restricted Stock
Award Agreement," "Deferred Stock Award Agreement" or "Performance Share Award
Agreement," as appropriate) and delivered a fully executed copy thereof to the
Company, within a period of sixty days (or such other period as the
Administrator may specify) after the award date. Except as otherwise provided
below in this Section 7(2), (i) each Participant who is awarded Restricted
Stock or Performance Shares shall be issued a stock certificate in respect of
such shares of Restricted Stock or Performance Shares; and (ii) such
certificate shall be registered in the name of the Participant, and shall bear
an appropriate legend referring to the terms, conditions, and restrictions
applicable to such award.
The Company may require that the stock certificates evidencing
Restricted Stock or Performance Share awards hereunder be held in the custody
of the Company until the restrictions thereon shall have lapsed, and that, as a
condition of any Restricted Stock award or Performance Share award, the
Participant shall have delivered a stock power, endorsed in blank, relating to
the Stock covered by such award.
With respect to Deferred Stock awards, at the expiration of the
Restricted Period, stock certificates in respect of such shares of Deferred
Stock shall be delivered to the participant, or his legal representative, in a
number equal to the number of shares of Stock covered by the Deferred Stock
award.
(3) Restrictions and Conditions. The Restricted Stock, Deferred
Stock and Performance Share awards granted pursuant to this Section 7 shall be
subject to the following restrictions and conditions.
(a) Subject to the provisions of the Plan and the Restricted
Stock Award Agreement, Deferred Stock Award Agreement or Performance Share
Award Agreement, as appropriate, governing such award, during such period as
may be set by the Administrator
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commencing on the grant date (the "Restricted Period"), the Participant shall
not be permitted to sell, transfer, pledge or assign shares of Restricted
Stock, Performance Shares or Deferred Stock awarded under the Plan; provided,
however, that the Administrator may, in its sole discretion, provide for the
lapse of such restrictions in installments and may accelerate or waive such
restrictions in whole or in part based on such factors and such circumstances
as the Administrator may determine, in its sole discretion, including, but not
limited to, the attainment of certain performance related goals, the
Participant's termination of employment or service, death or Disability or the
occurrence of a "Change of Control" as defined in the agreement evidencing such
award.
(b) Except as provided in paragraph (3)(a) of this Section 7,
the Participant shall generally have, with respect to the shares of Restricted
Stock or Performance Shares, all of the rights of a stockholder with respect to
such stock during the Restricted Period. The Participant shall generally not
have the rights of a stockholder with respect to stock subject to Deferred
Stock awards during the Restricted Period; provided, however, that dividends
declared during the Restricted Period with respect to the number of shares
covered by a Deferred Stock award shall be paid to the Participant.
Certificates for shares of unrestricted Stock shall be delivered to the
Participant promptly after, and only after, the Restricted Period shall expire
without forfeiture in respect of such shares of Restricted Stock, Performance
Shares or Deferred Stock, except as the Administrator, in its sole discretion,
shall otherwise determine.
(c) The rights of holders of Restricted Stock, Deferred Stock
and Performance Share awards upon termination of employment or service for any
reason during the Restricted Period shall be set forth in the Restricted Stock
Award Agreement, Deferred Stock Award Agreement or Performance Share Award
Agreement, as appropriate, governing such awards.
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SECTION 8. AMENDMENT AND TERMINATION.
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made that would impair the rights of a
Participant under any award theretofore granted without such Participant's
consent.
The Administrator may amend the terms of any award theretofore granted,
prospectively or retroactively, but, subject to Section 3 above, no such
amendment shall impair the rights of any holder without his or her consent.
SECTION 9. UNFUNDED STATUS OF PLAN.
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments not yet made to a Participant by
the Company, nothing contained herein shall give any such Participant any
rights that are greater than those of a general creditor of the Company.
SECTION 10. GENERAL PROVISIONS.
(1) The Administrator may require each person purchasing shares
pursuant to a Stock Option to represent to and agree with the Company in
writing that such person is acquiring the shares without a view to distribution
thereof. The certificates for such shares may include any legend which the
Administrator deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions as the
Administrator may deem advisable under the rules, regulations, and other
requirements of the Commission, any stock exchange upon which the Stock is then
listed, and any applicable federal or state securities law, and the
Administrator may cause a legend or legends
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to be placed on any such certificates to make appropriate reference to such
restrictions.
(2) Nothing contained in the Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to stockholder
approval if such approval is required; and such arrangements may be either
generally applicable or applicable only in specific cases. The adoption of the
Plan shall not confer upon any employee, director, consultant or advisor of the
Company any right to continued employment or service with the Company, as the
case may be, nor shall it interfere in any way with the right of the Company to
terminate the employment or service of any of its employees, directors,
consultants or advisors at any time.
(3) Each Participant shall, no later than the date as of which the
value of an award first becomes includible in the gross income of the
Participant for federal income tax purposes, pay to the Company, or make
arrangements satisfactory to the Administrator regarding payment of, any
federal, state, or local taxes of any kind required by law to be withheld with
respect to the award. The obligations of the Company under the Plan shall be
conditional on the making of such payments or arrangements, and the Company
shall, to the extent permitted by law, have the right to deduct any such taxes
from any payment of any kind otherwise due to the Participant.
(4) No member of the Board or the Administrator, nor any officer or
employee of the Company acting on behalf of the Board or the Administrator,
shall be personally liable for any action, determination, or interpretation
taken or made in good faith with respect to the Plan, and all members of the
Board or the Administrator and each and any officer or employee of the Company
acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company in respect of any such action,
determination or interpretation.
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SECTION 11. EFFECTIVE DATE OF PLAN.
The Plan became effective (the "Effective Date") on August __, 1996;
provided that, the Plan shall become effective with respect to Incentive Stock
Options on the date the Company's stockholders formally approve the Plan.
SECTION 12. TERM OF PLAN.
No Stock Option, Stock Appreciation Right, Limited Stock Appreciation
Right, Restricted Stock, Deferred Stock or Performance Share award shall be
granted pursuant to the Plan on or after the tenth anniversary of the Effective
Date, but awards theretofore granted may extend beyond that date.
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EXHIBIT 10.16
UNIT PURCHASE AGREEMENT
THIS UNIT PURCHASE AGREEMENT (this "Agreement"), entered into as of
August 14, 1996, by and among TV Games, Inc. ("Seller"), a Delaware corporation
wholly owned by Multimedia Games, Inc. ("MMG"), AGN Venturer L.L.C., a Delaware
limited liability company (the "Company") and each other person signatory
hereto (each a "Buyer" and collectively the "Buyers").
W I T N E S S E T H:
WHEREAS, Seller owns one hundred (100) membership units representing a
one hundred percent ownership interest in the Company (the "Units");
WHEREAS, after the conversion of American Gaming Network, JV, a New York
general partnership into American Gaming Network, L.P., a New York limited
partnership, and the merger of American Gaming Network, L.P. into American
Gaming Network, L.L.C., the Company owns fifty one percent (51%) of American
Gaming Network, L.L.C. ("AGN");
WHEREAS, the Company is liable for a certain promissory note in the
principal amount of four hundred thousand dollars ($400,000) payable to Graff
Pay-Per-View, Inc., a Delaware corporation ("Graff")(the "$400,000 Graff
Note");
WHEREAS, the Company was liable for a certain promissory note in the
principal amount of one hundred thousand dollars ($100,000) payable to Graff
(the "$100,000 Graff Note");
WHEREAS, MMG advanced $100,000 to the Company for the payment of the
$100,000 Graff Note which was paid in full on July 25, 1996 (the "MMG
Advance");
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WHEREAS, the MMG Advance remains a continuing obligation of the Company
to MMG;
WHEREAS, AGN is liable for a certain promissory note in the principal
amount of three hundred thirty six thousand dollars ($336,000) payable to MMG
(the "$336,000 MMG Note"); and
WHEREAS, Seller desires to sell and Buyers desire to purchase the Units,
for the consideration and upon the terms and conditions set forth in this
Agreement;
NOW, THEREFORE, for and in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
agree as follows:
ARTICLE I
DEFINITIONS
1.1 For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
"Affiliate" shall have the meaning prescribed by Rule 12b-2 of the
regulations promulgated pursuant to the Securities Exchange Act of 1934, as
amended.
"Business Day" shall mean any day other than a Saturday, Sunday, Federal
holiday or a day on which the banks in New York are required or permitted by
law to be closed.
"Capital Expenditures" shall mean, for any period, all expenditures
during such period for equipment, fixed assets, real property or improvements,
or for replacements or substitutions therefor or additions thereto, that have a
useful life of more than one year (other than expenditures for replacements and
substitutions
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for such equipment, fixed assets, real property or improvements from the
proceeds of insurance.)
"Claim" shall mean any demand, claim, action or cause of action based on
any Loss.
"Closing" shall mean the closing referred to in Section 3.01 of this
Agreement.
"Commercial Efforts" shall mean such efforts as shall not require the
performing party (i) to do any act that is unreasonable under the
circumstances, (ii) to make any capital contribution not expressly contemplated
hereunder, (iii) to amend or waive any rights under this Agreement, or (iv) to
incur or expend any funds other than reasonable out-of-pocket expenses incurred
in satisfying its obligation hereunder, including the fees, expenses and
disbursements of accountants, counsel and other professionals.
"Graff Purchase Agreement" shall mean the Purchase Agreement dated June
25, 1996, by and among MMG, Seller, the Company, Graff, American Gaming
Network, Inc., Cable Video Store, Inc. and American Gaming Network JV.
"Lien" shall mean any mortgage, pledge, security interest, lien, charge,
encumbrance, equity, claim, option, tenancy, right or restriction on transfer
of any nature whatsoever.
"Loss" shall mean any loss, damage, liability, cost, assessment or
expense including, without limitation, any interest, fine, court cost and
reasonable investigation cost, penalty and attorneys' and expert witnesses'
fees, disbursements and expenses, after taking into account any insurance
proceeds actually received by or paid on behalf of any party incurring a Loss
which are not required to be remitted by such party to any other party pursuant
to the terms hereof.
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"Person" shall mean an individual, a partnership, a joint venture, a
corporation, an association, a trust, an individual retirement account or any
other entity or organization, including a government or any department or
agency thereof.
ARTICLE II
PURCHASE AND SALE
2.1 Purchase and Sale. Upon the terms and subject to the conditions of
this Agreement, at the Closing on the Closing Date Buyers will purchase the
Units from Seller and Seller will sell all right, title and interest in the
Units to Buyers.
2.2 Purchase Price. In consideration of the sale of the Units, at the
Closing:
(a) Buyers will contribute (or agree to contribute) to the capital of
the Company, five hundred thousand dollars ($500,000.00)(the "Cash Amount").
The portion of the Cash Amount each Buyer shall be responsible for is set forth
on Exhibit A attached hereto; and
(b) Each Buyer will execute and deliver to Seller a personal guaranty,
in substantially the form attached hereto as Exhibit B, agreeing to guaranty
the principal portion of the $336,000 MMG Note and not interest; provided that
the individual liability for each Buyer shall not exceed the product of (x),
the number of Units purchased by such Buyer pursuant to this Agreement,
multiplied by (y) three thousand three hundred sixty (3,360) (collectively, the
"Guaranties").
2.3 Application of Cash Amount. Buyers agree to cause the Company to
apply the proceeds from the Cash Amount at Closing as follows:
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(a) Four hundred thousand dollars ($400,000.00) of the Cash Amount shall
be contributed within thirty (30) days from the Closing Date to the capital of
AGN, for the business purposes of AGN; and
(b) One hundred thousand dollars ($100,000) of the Cash Amount shall be
used to pay at Closing the MMG Advance.
ARTICLE III
CLOSING
3.1 Closing. Subject to Section 8 hereof, the Closing of the sale and
purchase of the Units shall take place at 10:00 A.M., local Oklahoma time on
August 14, 1996 or at such other date and time as the parties hereto may
mutually agree (the "Closing Date"). The Closing shall be by facsimile (
original execution copies to follow).
3.2 Deliveries at Closing.
(a) At Closing, Seller shall deliver or cause to be delivered the
following:
(i) the Units, together with an assignment separate from
certificate executed in blank in form and substance satisfactory
to Buyers;
(ii) a put/call agreement pertaining to the Units in
substantially the form attached hereto as Exhibit C (the
"Put/Call Agreement");
(iii) a right of first refusal agreement pertaining to the Units
in substantially the form attached hereto as Exhibit D (the
"Right of First Refusal Agreement");
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(iv) a registration rights agreement pertaining to the MMG Shares
(as defined in the Put/Call Agreement)in substantially the form
attached hereto as Exhibit E (the "Registration Rights
Agreement"); and
(v) such other documents and instruments as reasonably may be
requested by Buyers not less than five business days prior to the
Closing.
(b) At Closing, Buyers shall deliver or cause to be delivered the
following:
(i) $100,000 of the Cash Amount, by wire transfer to an account
designated by Seller;
(ii) the Guaranties;
(iii) the Put/Call Agreement;
(iv) the Right of First Refusal Agreement; and
(v) such other documents and instruments as reasonably may be
requested by Seller not less than five business days prior to the
Closing.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF SELLER
Seller hereby represents and warrants to Buyers as follows:
4.1 Organization; Qualification; Authority. Seller represents it is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the power and authority to make, execute,
deliver and perform this Agreement
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and to incur and perform the obligations provided for herein, all of which have
been duly authorized by all necessary and proper corporate action, including
shareholder action. Neither the execution, delivery and performance of this
Agreement by Seller nor the consummation by Seller of the transactions
contemplated hereby conflict with or will result in any breach or default of
any provision of the Certificate of Incorporation or Bylaws of Seller. This
Agreement has been duly and validly executed and delivered by the duly
authorized officers of Seller and constitutes the valid, legally binding and
enforceable obligations of Seller in accordance with the terms of this
Agreement.
4.2 Title to Units. Seller has and will transfer to Buyers at the
Closing (to each Buyer in such amounts as are specified in writing to Seller
prior to the Closing), good and valid title to the Units, free and clear of all
Liens. There are no outstanding options, warrants or other rights or
agreements to purchase or sell the Units. The Units constitute, and upon
completion of the transaction contemplated hereby the Buyers will acquire, the
entirety of Seller's ownership interest in the Company. The Units constitute
all outstanding interests in the income and losses of the Company. The Company
has not entered into any agreements to issue any interest in the income and
losses of the Company.
4.3 Conflicting Agreements; No Liens. Neither the execution or
delivery of this Agreement nor the fulfillment of or compliance with the terms
or provisions hereof will result in a breach of the terms, conditions or
provisions of or constitute, whether or not with the giving of notice or lapse
of time, or both, a default under, or result in a violation of, any agreement,
contract, instrument, order, judgment or decree to which Seller is a party or
by which the Seller or the Units are bound, or violate any provision of any
applicable law, statute, rule or regulation or any order, decree, writ or
injunction of any court or governmental body or result in creation or
imposition of any Lien.
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4.4 Status of the Company. The Company is duly organized, validly
existing and in good standing as a limited liability company under the laws of
the State of Delaware and has all powers and all governmental licenses,
authorizations, consents and approvals required to own its own property and
assets and carry on its business as now conducted and has been duly qualified
and is in good standing in every jurisdiction in which the failure to be so
qualified and/or in good standing is likely to have a material adverse effect
on the business, operations, properties or assets of the Company (a "Material
Adverse Effect"). Attached hereto as Exhibit F is a true, correct and complete
copy of the limited liability operating agreement of the Company.
4.5 Status of AGN. AGN is duly organized, validly existing and in good
standing as a limited liability company under the laws of the State of Delaware
and has all powers and all governmental licenses, authorizations, consents and
approvals required to own its property and assets and carry on its business as
now conducted and has been duly qualified and in good standing in every
jurisdiction in which the failure to be so qualified and/or in good standing is
likely to have a Material Adverse Effect. AGN owns all of the assets, rights
and obligations of American Gaming Network, L.P., a New York limited
partnership, and of American Gaming Network, JV, a New York general
partnership, free and clear of all Liens. The Company currently owns 51% of
the outstanding membership units in AGN and Seller owns 49% of the membership
units in AGN. The membership units held by the Company and TVG in AGN
constitute all outstanding interests in the income and losses of AGN and there
are no outstanding options, warrants or other rights or agreements to purchase
or sell such membership units, except as set forth in the limited liability
company agreement for AGN, a true, correct and complete copy of which is
attached hereto as Exhibit G and except as set forth in the Put/Call Agreement.
AGN has not entered into any agreement to issue any interests in the income and
losses of AGN except as provided in its limited liability company agreement.
AGN has no outstanding indebtedness except (i) trade payables incurred in the
ordinary
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course of business which shall not exceed $50,000 as of the Closing Date, (ii)
the $336 MMG Note, a true and complete copy of which is attached hereto as
Exhibit H and (iii) a guaranty of the $400,000 Graff Note (the "Graff
Guaranty").
4.6 Indebtedness of the Company and AGN. Upon the payment to MMG of the
MMG Advance, the Company shall have no outstanding indebtedness except the
$400,000 Graff Note, a true, complete and correct copy of which is attached
hereto as Exhibit I. As of the Closing Date, Graff shall have no Claim or
potential Claim against AGN or the Company with respect to the $100,000 Graff
Note. Furthermore, as of the Closing Date, and after giving effect to the
payment required in Section 2.3(b) herein, neither the Company nor AGN shall
have any obligations to (i) Graff or its Affiliates except the $400,000 Graff
Note and the MMG Retained Contract Rights as defined in the Graff Purchase
Agreement or (ii) MMG or its Affiliates except as set forth in the $336,000 MMG
Note, and the limited liability company agreement of AGN.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYERS
Each Buyer hereby represents and warrants, severally and not jointly, as
follows:
5.1 Authorization. Each Buyer has full power and authority to enter
into this Agreement and this Agreement constitutes a valid and legally binding
obligation of each Buyer.
5.2 Purchase Entirely for Own Account. The Units to be purchased by
each Buyer will be acquired for investment for the Buyer's own account, not as
a nominee or agent, and not with a view
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to Buyer's distribution of any part thereof; and each Buyer has no present
intention of selling, granting any participation in, or otherwise distributing
the same. Each Buyer does not have any contract, undertaking, agreement or
arrangement with any person to sell, transfer or grant participations to such
person or to any third person with respect to any of the Units.
5.3 Reliance Upon Investors' Representations. Each Buyer understands
that the Units have not been registered under the Securities Act on the basis
that the sale provided for in this Agreement is exempt from registration under
the Securities Act pursuant to Section 4(2) thereof, and that the Seller's
reliance on such exemption is predicated on Buyer's representations set forth
herein.
5.4 Receipt of Information. Each Buyer believes he has received all
the information which he considers necessary or appropriate for deciding
whether to purchase the Units. Each Buyer further represents that he has had
an opportunity to ask questions and receive answers from the Company and Seller
and their respective officers regarding the terms and conditions of the
offering of the Units and the business, properties, prospects, and financial
condition of the Company and to obtain additional information necessary to
verify the accuracy of any information furnished to or to which the Buyer
otherwise had access.
5.5 Restricted Securities. Each Buyer understands that he must bear
the economic risk of an investment in the Units for an indefinite period of
time, that there is no established market for the Units and that it is not
anticipated that any public market for the Units will develop in the future.
Each Buyer understands that the Units may not be sold, transferred, or
otherwise disposed of without registration under the Securities Act or an
exemption therefrom, and that in the absence of an effective registration
statement covering the Units or an available exemption from registration, the
Units must be held indefinitely. In particular,
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each Buyer is aware that the Units may not be sold pursuant to Rule 144
promulgated under the Securities Act unless all of the conditions of that Rule
are met. Among the conditions for use of Rule 144 is the availability of
current information to the public about the Company. Such information is not
now available and the Company has no present plans to make such information
available.
5.6 Conflicting Agreement. Neither the execution or delivery of this
Agreement nor the fulfillment of or compliance with the terms or provisions
hereof will result in a breach of the terms, conditions or provisions of, or
constitute, whether or not with the giving of notice or lapse of time, or both,
a default under, or result in a violation of, any agreement, contract,
instrument, order, judgment or decree to which the Buyer is a party or by which
such Buyer is bound, or violate any provision of any applicable law, statute,
rule or regulation or any order, decree, writ or injunction of any court or
governmental body.
5.7 Accredited Investor. Each Buyer is an "accredited investor" as
such term is defined in Rule 501 promulgated under the Securities Act of 1933,
as amended.
ARTICLE VI
COVENANTS OF THE PARTIES
6.1 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby will be paid by the party
incurring such costs and expenses, whether or not the transactions contemplated
hereby are consummated; provided however, that Seller shall pay all reasonable
legal fees and expenses incurred by Buyers in connection with this Agreement.
6.2 Further Assurances. Subject to the terms and conditions of this
Agreement, each of the parties hereto will use its Commercial
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Efforts to take, or cause to be taken, all action, and to do, or cause to be
done, all things necessary under applicable laws and regulations to consummate
the transactions contemplated by this Agreement. On and from time to time
after the Closing Date, without further consideration, Seller will, at its own
expense, execute and deliver such documents to Buyers as Buyers may reasonably
request in order to consummate the transactions contemplated by the Agreement.
On and from time to time after the Closing Date, without further consideration,
Buyers will, at their own expense, execute and deliver such documents to Seller
as Seller may reasonably request in order to consummate the transactions
contemplated by this Agreement.
6.3 Filing. The parties shall promptly make, or cause to be made, all
such filings and submissions under laws and regulations applicable to such
party, if any, as may be required for the consummation of the transactions
contemplated hereby. The parties hereto will coordinate and cooperate with one
another in exchanging such information and reasonable assistance as may be
requested in connection with all of the foregoing.
6.4 Transfer Taxes. Seller shall pay the cost of any conveyance, deed,
transfer, excise, stamp, sales, use, recording or similar taxes or fees,
arising out of the sale, transfer, conveyance or assignment of the Units as
contemplated hereby. The covenants contained in this Section 6.4 shall survive
the Closing Date until fully discharged.
6.5 Brokers Fee's. Seller and Buyers each hereby represent that
neither party has paid or agreed to pay any brokerage commissions or finder's
fees or employed any broker or finder in connection with any transaction
contemplated by this Agreement.
6.6 Amendment of Limited Liability Company Agreement of AGN. Seller
and Buyers agree that the limited liability company agreement of AGN shall be
amended after the Closing Date and that each party shall negotiate the terms
and conditions of such amendment in good
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faith. The parties agree that the amendments will specifically include
provisions providing for the following:
(i) a management committee comprised of six(6) members, three (3)of whom
shall be chosen by Seller and three (3) of whom shall be chosen by the Company;
(ii) tag along rights of the Company (x) in the event of a sale by
Seller of Seller's interest in AGN and (y) in the event of sale by MMG of MMG's
interest in Seller; and
(ii) a majority vote of the management committee of AGN before the
management committee of AGN may cause or authorize AGN to:
(a) create or incur any debt, or become liable as a surety,
guarantor, accommodation endorser or otherwise for or upon the
obligation of any other Person in excess of $50,000 during any
single fiscal year of AGN;
(b) create, assume or suffer to exist any Lien on any of the
assets of AGN, or upon or with respect to any proceeds therefrom,
or assign any accounts receivable or other right to receive
income or proceeds;
(c) acquire a "business" (as described by the Securities and
Exchange Commission in Regulation S-X, Rule 11-01(d)) of another
Person whether by purchase of substantially all of the assets of
a "business" or by purchasing securities of a "business";
(d) sell, or consolidate or merge, a "business" (as described by
the Securities and Exchange Commission in Regulation S-X, Rule
11-01(d)) of AGN to or with another Person;
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(e) enter into a transaction with an Affiliate;
(f) make Capital Expenditures in excess of $25,000 individually
or $100,000 in the aggregate for any fiscal year of AGN;
(g) pay dividends or make any distributions to any holder of
membership units in AGN except payments of indemnity under the
limited liability company agreement of AGN;
(h) appoint or remove the chief executive officer, chief
operating officer, chief financial officer and/or any other
officers of AGN;
(i) invest resources of AGN in excess of $50,000 for any
individual game project; and
(j) sell, transfer or issue any membership units of AGN except to
an investor in the Company.
6.7 Interest on $400,000 Graff Note. Seller hereby agrees to pay any
and all interest owing to Graff on the $400,000 Graff Note at the times and
pursuant to the other terms of the Graff Note, provided that Seller shall in no
other way be liable for the $400,000 Graff Note. Such payments shall be
recorded as a liability of the Company to Seller payable solely out of cash
distributions, if any, made by AGN in respect of the membership units of AGN
owned by the Company.
6.8 K-1. Seller hereby agrees to timely prepare (or cause to be
prepared) the K-1 filing for members of the Company and to pay any reasonable
expense associated with the preparation thereof.
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ARTICLE VII
CLOSING CONDITIONS
7.1 Conditions to Each Party's Obligations. The respective obligations
of the parties to consummate the transactions contemplated by this Agreement
shall be subject to each of the following conditions.
(a) No party or the Units shall be subject to any order,
judgment, decree or injunction of a court of competent jurisdiction or
governmental body, agency or official nor any applicable law or regulation or
executive order which prevents consummation of the transactions contemplated
hereby on the terms described herein.
(b) All filings required by applicable law shall have been made
and all consents thereunder with respect to the transactions contemplated by
this Agreement shall have been obtained.
7.2 Conditions to the Obligations of Seller. The obligation of the
Seller to consummate the transaction contemplated hereby shall be further
subject to the fulfillment on or prior to the Closing Date of each of the
following conditions:
(a) Buyers shall have performed and complied in all material
respects with the agreements contained in this Agreement required to be
performed and complied with by it at or prior to the Closing Date.
(b) The representations and warranties of the Buyers set forth
in this Agreement shall be true and correct in all material respects as of the
date made and as of the Closing Date as though made at and as of the Closing
Date (except as otherwise contemplated by this Agreement).
7.3 Conditions to the Obligations of Buyers. The obligation of Buyers
to consummate the transactions contemplated hereby shall be
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further subject to the fulfillment on or prior to the Closing of each of the
following conditions:
(a) Seller shall have performed and complied in all material
respects with the agreements contained in this Agreement required to be
performed and complied with by it at or prior to the Closing Date.
(b) The representations and warranties of Seller set forth in
this Agreement shall be true and correct in all material respects as of the
date made and as of the Closing Date as though made at and as of the Closing
Date (except as otherwise contemplated by this Agreement).
ARTICLE VIII
TERMINATION
8.1 Termination. This Agreement may be terminated at any time prior to
the Closing:
(a) By mutual written consent of all parties to this Agreement.
(b) By written notice by Seller or Buyers to the other party if
the Closing shall not have occurred on or before 5:00 p.m., local time in
Tulsa, Oklahoma, on August 14, 1996, unless such failure to occur is due to the
failure of the party seeking to terminate this Agreement to perform in all
material respects each of its obligations under this Agreement required to be
performed by it or its affiliate at or before the Closing Date.
(c) By Buyers if there has been a material violation or breach
by Seller of any agreement, representation or warranty contained in this
Agreement which has rendered the satisfaction of
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any condition to the obligations of Buyers specified in Section 7.3 impossible
and such violation or breach has not been waived by the Buyers or cured by
Seller within 15 days after written notice to Seller of such violation or
breach.
(d) By Seller if there has been a material violation or breach
by any of Buyers of any agreement, representation or warranty contained in this
Agreement which has rendered the satisfaction of any condition to the
obligations of the Seller specified in Section 7.2 impossible and such
violation or breach has not been waived by Seller or cured by Buyers within 15
days after written notice to Buyers of such violation or breach.
8.2 Procedure and Effect of Termination.
(a) In the event of termination of this Agreement pursuant to
Section 8.1, this Agreement shall terminate, and in each case the transactions
contemplated hereby shall be abandoned, without further action by any of the
parties hereto, and there shall be no liability on the part of the parties,
except as set forth in Section 6.1, which Section shall survive the termination
of this Agreement.
(b) If this Agreement is terminated as provided in Section 8.1,
all filings, applications and other submissions made pursuant to this Agreement
shall, to the extent practicable, be withdrawn from the agency or other person
to which they were made.
ARTICLE IX
SURVIVAL AND INDEMNIFICATION
9.1 Survival. The representations, warranties, covenants and
agreements of the parties hereto shall survive the execution and delivery
hereof and the delivery of all of the documents executed in connection herewith
and shall continue in full force and effect after
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the date hereof and after the Closing Date for a period of one (1) year, except
that (i) the representation and warranty of the parties contained in Section
4.1, Section 4.2 and Section 5.1, respectively, shall survive without
limitation or until the expiration of any applicable statute of limitations,
and (ii) any covenants or agreements contained herein or made pursuant hereto
which by their terms are to be performed after Closing shall survive until
fully discharged, including, without limitation, the covenants of Seller set
forth in Sections 6.7 and 6.8. The date until which the representations,
warranties, covenants and agreements of the parties hereto survive, as set
forth herein, is known as the "Expiration Date". From and after the Expiration
Date, no party shall be under any liability whatsoever with respect to any such
representation or warranty or any obligation or liability based upon such
representation or warranty, except for breaches as to which a party shall have
given notice (specifying, with reasonable particularity, facts establishing
such breach) to the other party or parties prior to the applicable Expiration
Date and the representations, warranties and covenants specified in clauses (i)
and (ii) above. The respective representations and warranties contained herein
or in any certificates delivered pursuant to this Agreement prior to or at the
Closing shall not be deemed waived or otherwise affected by any investigation
made by any party hereto.
9.2 Indemnification. Subject to the limitation set forth in Section
9.1:
(a) Seller hereby agrees to indemnify, defend and hold harmless
each Buyer and any subsidiary or Affiliate of any Buyer, and any officer,
director, stockholder, employee, representative or agent of any thereof and
their respective successors and assigns from and against all Losses and Claims
based upon, arising out of or resulting from, any breach of any representation
or warranty of Seller that survives the Closing as provided in Section 9.1 and
any covenant or agreement of Seller contained in this Agreement.
-18-
<PAGE> 19
(b) Each Buyer, severally and not jointly, hereby agrees to
indemnify, defend and hold harmless Seller and any subsidiary or Affiliate of
Seller, and any officer, director, stockholder, employee, representative or
agent of any thereof and their respective successors and assigns, from and
against all Losses and Claims based upon, arising out of or resulting from, any
breach of any representation or warranty of such Buyer that survives the
Closing as provided in Section 9.1 and any covenant or agreement of such Buyer
contained in this Agreement.
9.3 Notice of Claim. If any party hereto has suffered or incurred any
Loss or Claim, whether pursuant to an administrative proceeding, action at law,
suit in equity, or otherwise is instituted which, if decided adversely to a
party, would result in such party suffering or incurring any Loss, such party
shall give prompt written notice to the party against which a Claim for
indemnification may be made pursuant to this Agreement ("indemnifying party"),
setting forth: (a) the facts or events, in reasonable detail which indicate
that such party has suffered or incurred such Loss, (b) the Section or Sections
of this Agreement (in addition to this Article IX) under which such party has
suffered or incurred such Loss, (c) the amount of such Loss(estimated, if
necessary) or, in the case of a Claim, such party's then good faith estimate of
the reasonably foreseeable estimated amount of its claim for indemnification
for such Loss, and (d) the method of computation of the amount of such Loss,
any of which information shall be promptly amended by such party when its
knowledge of the facts or events and any resulting liability so warrant. No
party shall be liable for indemnification pursuant to Section 9.2 unless notice
of claim for such indemnification has been given in accordance with this
Section 9.3 and on or prior to the Expiration Date, if applicable.
9.4 Defense of Claim. The indemnifying party shall have the right to
conduct and control, at its expense and through counsel of its own choosing,
the defense of any Claim, action or suit, but the indemnified party may, at its
election, participate in the defense of
-19-
<PAGE> 20
such Claim, action or suit at its sole cost and expense; provided that if (a)
the indemnifying party shall fail to defend any such Claim, (b) the
indemnifying party and indemnified party mutually agree or (c) the named
parties to such Claim,(including any impeded parties) include both the
indemnifying party and the indemnified party and representation of both parties
by the same counsel would be inappropriate due to actual or potential differing
interests between them, then the indemnified party may defend, through counsel
of its own choosing, such Claim and settle such Claim, and recover from the
indemnifying party the amount of any settlement to which the indemnifying party
consents or of any resulting judgment and the costs and expenses of such
defense, provided that the indemnified party shall not compromise or settle any
Claim without the prior written consent of the indemnifying party, which
consent will not be unreasonably withheld, continued or delayed.
ARTICLE X
MISCELLANEOUS PROVISIONS
10.1 Amendment and Modification. This Agreement may be amended,
modified or supplemented only by a subsequent written agreement of the Seller
and Buyers.
10.2 Waiver of Compliance. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the party entitled to
the benefits thereof only by a written instrument signed by the party granting
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
10.3 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally
-20-
<PAGE> 21
or by facsimile or three days after mailed by registered or certified mail
(return receipt requested), postage prepaid or one Business Day after mailed by
reputable overnight courier, to each Seller and the Company at the addresses
set forth below their signature on the signature page to this Agreement and to
the Buyers if sent to Lawrence Kaplan at GV Capital Corp., 150 Vanderbilt Motor
Parkway, Suite 311, Hauppauge, New York 11788, who is hereby designated as
agent of the Buyers upon whom notice and process against the Buyers may be
served (or at such other address for a party as shall be specified by like
notice; provided, however, that notices of a change of address shall be
effective only upon receipt thereof).
10.4 Assignment. This Agreement may not be assigned, in whole or in
part, by the parties hereto without the prior written consent of the parties,
except as set forth on Exhibit A.
10.5 Governing Law. This Agreement shall be governed by the laws of
the State of Delaware, without reference to principles of conflicts of law
which require that the substantive laws of another jurisdiction apply.
10.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
10.7 Interpretation. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
10.8 Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall be construed in all respects as if
such invalid or unenforceable provision were omitted. All provisions of this
Agreement shall be enforced to the full extent permitted by law.
-21-
<PAGE> 22
10.9 No Third-Party Beneficiaries. Nothing contained in this
Agreement, expressed or implied, is intended or shall be construed to confer
upon or give to any Person other than the parties hereto and their successors
or permitted assigns, any rights or remedies under or by reason of this
Agreement.
10.10 Entire Agreement. This Agreement, including the documents,
schedules, certificates and instruments referred to herein, is the entire
agreement and understanding of the parties hereto in respect of the
transactions contemplated by this Agreement. There are no restrictions,
promises, representations, warranties, covenants or undertakings, other than
those expressly set forth or referred to herein or therein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to the transactions contemplated hereby.
10.11 Parties in Interest. All the terms and provisions of this
Agreement shall be binding upon and inure to the benefit of and be enforceable
by the respective successors and assigns of the parties hereto, whether so
expressed or not.
10.12 Consent to Jurisdiction and Venue. The parties hereto agree that
any legal or equitable action for claims arising out of, or to enforce the
terms of, this Agreement may be brought in the State of New York and any court
within such state shall have personam jurisdiction over the parties and venue
of the action shall be appropriate in such court.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-22-
<PAGE> 23
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
TV Games, Inc.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
7535 South Lewis, Suite 302
Tulsa, Oklahoma
Attn: Gordon Graves
Fax: (918) 494-0177
Phone: (800) 726-2464
AGN Venturer L.L.C.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
7535 South Lewis, Suite 302
Tulsa, Oklahoma
Attn: Gordon Graves
Fax: (918) 494-0177
"BUYERS"
OK Association Pension Plan
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Address:
G-V Capital Corp.
150 Vanderbilt Motor Parkway
Suite 311
Hauppague, New York 11788
Fax: (516) 273-0047
Phone: (516) 273-0058
------------------------------
Name: Larry Kaplan
-23-
<PAGE> 24
Address:
G-V Capital Corp.
150 Vanderbilt Motor Parkway
Suite 311
Hauppague, New York 11788
Fax: (516) 273-0047
Phone: (516) 273-0058
------------------------------
Name: Stanley Kaplan
Address:
Gro-Vest Management, Inc.
150 Vanderbilt Motor Parkway
Suite 311
Hauppauge, New York, 11788
Fax: (516) 273-0047
Phone: (516) 273-0058
------------------------------
Name: Michael Miller
Address:
485 Madison Avenue
Suite 1100
New York, New York 10022
Fax: (212) 207-4976
Phone: (212) 207-4400
------------------------------
Name: Gordon Graves
Address:
Multimedia Games, Inc.
7335 South Lewis
Suite 204
Tulsa, Oklhaoma 74136
Fax: (918) 494-0177
Phone: (800) 726-2464
Castletownbere Associates,
L.L.C.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
-24-
<PAGE> 25
Address:
Walsh Manning Securities, Inc.
90 Broad Street
New York, New York 10004
Fax: (212) 482-0809
Phone (800) 553-3290
Attention: Frank Skelly
------------------------------
Name: Kenneth Orr
Address:
First Cambridge
375 Park Avenue
New York, New York 10152
Fax: (212) 753-6450
Phone (212) 935-5000
Alliance Capital Corp.
By:
--------------------------
Name:
------------------------
Title:
-----------------------
Address:
4 Fox Meadow
Lloyd Harbor, NY 11743
Fax: (516) 271-7721
Phone: (516) 271-1651
Attention: Ken Greene
The Holding Company
By:
--------------------------
Name:
-------------------------
Title:
-----------------------
Address:
2 North LaSalle
Suite 2200
Chicago, Illinois 60602
Fax: (312) 269-1747
Phone: (312) 269-1700
Attention: Burton W. Kanter
------------------------------
Name: Rich Pollack
-25-
<PAGE> 26
Address:
Walsh Manning Securities, Inc.
90 Broad Street, Suite 16
New York, New York, 10004
Fax: (212) 482-0809
Phone: (800) 553-3290
Jericho Capital Corp.
By:
--------------------------
Name:
-------------------------
Title:
-----------------------
Baystate Development Trust
By:
--------------------------
Name:
-------------------------
Title:
-----------------------
-26-
<PAGE> 1
EXHIBIT 10.17
RIGHT OF FIRST REFUSAL AGREEMENT
THIS RIGHT OF FIRST REFUSAL AGREEMENT (the "Agreement"), dated as of
August 14, 1996, by and among AGN Venturer L.L.C., a Delaware limited liability
company ("Venturer"), Multimedia Games, Inc., a Texas corporation ("MMG") and
the membership unit holders of Venturer which are signatory hereto (each a
"Member" and collectively, the "Members").
W I T N E S S E T H:
WHEREAS, pursuant to a certain Unit Purchase Agreement dated August 14,
1996, it is a condition precedent to the obligation of TV Games, Inc., a wholly
owned Delaware subsidiary of MMG, to sell its membership units in Venturer
(individually a "Unit" and collectively the "Units") that Venturer and MMG have
entered into this Agreement; and
WHEREAS, the parties wish to provide for certain "right of first
refusal" rights with respect to the Units of Venturer.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
1.1 Definitions. For the purposes of this Agreement the following terms
have the following meanings:
"Affiliate", with respect to any Person, means any other Person
directly or indirectly controlling, controlled by or under common
control with, such Person. For purposes of this definition, "control"
(including with correlative meanings, the terms "controlling",
"controlled by" or "under common control with"), as used with respect to
any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities or by
contract or otherwise.
-1-
<PAGE> 2
"Business Day" shall mean any day other than a Saturday, Sunday,
Federal holiday or a day on which the banks in New York are required or
permitted by law to be closed.
"Debt" shall mean evidence of an installment purchase obligation
given or tendered by a Third Party (or by MMG) as consideration for all
or a portion of the Offered Units.
"Effective Date" shall mean the day and year first above written.
"Lien" shall mean any mortgage, pledge, security interest, lien,
charge, encumbrance, equity, claim, option, tenancy, right or
restriction on transfer of any nature whatsoever.
"Person" means an individual, a partnership, a joint venture, a
corporation, an association, a trust, an individual retirement account
or any other entity or organization, including a government or any
department or agency thereof.
"Permitted Encumbrance" means any lien, security interest, pledge
or similar claim given or granted by a Member to a bank or recognized
financial institution.
"Permitted Transfer" means (a) a Sale of Units between any Member
who is a natural person and such Member's spouse or children, or a trust
for the benefit of such Member, or such Member's spouse or children,
provided that with respect to any Sale to such a trust, the Member
retains, as trustee or by some other means, the sole authority to vote
such Units; (b) a Sale of Units between any Member who is a natural
person and such Member's guardian or conservator and, upon the death of
such Member, such Member's executor, administrator and heirs; (c) a Sale
of Units between any Member and an Affiliate of such Member; or (d) a
Permitted Encumbrance. No Permitted Transfer
-2-
<PAGE> 3
shall be effective unless and until the transferee of the Units so
transferred executes and delivers to MMG an executed counterpart of this
Agreement and agrees to be bound hereunder in the same manner and to the
same extent as the Member from whom the Units were transferred. From
and after the date on which a Permitted Transfer becomes effective, the
Permitted Transferee of the Units so transferred shall have the same
rights, and shall be bound by the same obligations, under this Agreement
as the transferor of such Units.
"Permitted Transferee" means any person or entity who shall have
acquired and who shall hold Units pursuant to a Permitted Transfer.
"Public Offering" means an underwritten public offering of equity
securities of Venturer pursuant to an effective registration statement
under the 1933 Act.
"Sale" means any sale, assignment, transfer, distribution
(whether by a partnership to any of its partners or otherwise) or other
disposition of Units or of a participation therein, whether or not for
value.
"Third Party" means any Person other than the Prospective Seller
(as defined herein) or MMG.
ARTICLE II
Restrictions on Transfer
2.1. Restrictions on Transfer. Each Member agrees that it will not,
directly or indirect, make any Sale or create or incur or assume any Lien with
respect to any Units held by such Member other than (a) any Sale to a Permitted
Transferee or (b) any Sale solely for cash and/or Debt that is made in
compliance with the procedures, and subject to the limitations set forth in
Article III herein.
-3-
<PAGE> 4
ARTICLE III
Right of First Refusal
3.1 Priority of Right of Refusal. The parties hereto agree that the
right of first refusal granted pursuant to this Agreement is the first right of
refusal for the sale of any Units and that this Agreement has priority over any
right of refusal found in the limited liability company agreement of Venturer
or in any other agreement to which Venturer or the Members are a party.
3.2 Right of First Refusal. (a) If any Member receives from or
otherwise negotiates with a Third Party a bona fide offer to purchase for cash
and/or Debt (an "Offer") any of the Units owned or held by such Member, and
such Member intends to pursue a Sale of such Units to such Third Party, such
Member (the "Prospective Seller") shall provide MMG written notice of such
Offer (an "Offer Notice"). The Offer Notice shall identify the Third Party
making the Offer, the number of Units with respect to which the Prospective
Seller has such an Offer (the "Offered Units"), the price per Unit, delineating
the amount of cash and/or Debt, at which a sale is proposed to be made (the
"Offer Price"), and all the other material terms and conditions of the Offer.
(b) The receipt of an Offer Notice by MMG from a Prospective Seller
shall constitute an offer by such Prospective Seller to sell to MMG the Offered
Units at the Offer Price for an equivalent amount in cash and/or Debt and
otherwise on terms and conditions no less favorable to the Prospective Seller
than as described in the Offer Notice. Such offer shall be irrevocable for 10
days after receipt of such Offer Notice by MMG (the "Acceptance Period").
During the Acceptance Period, MMG shall have the right to accept such offer as
to all of the Offered Units by giving a written notice of acceptance (the
"Notice of Acceptance") to the Prospective Seller prior to the expiration of
the Acceptance Period.
-4-
<PAGE> 5
(c) If MMG so accepts the Prospective Seller's offer, MMG will purchase
for cash and/or Debt from the Prospective Seller, and the Prospective Seller
will sell to MMG, the Offered Units. The price per Unit to be paid by MMG
shall be the Offer Price specified in the Offer Notice.
(d) The consummation of any such purchase by and sale to MMG shall take
place on such date, not later than 10 days after the Acceptance Period, as MMG
and the Prospective Seller shall select. Upon the consummation of such
purchase and sale, the Prospective Seller shall (i) deliver to MMG
certificates, if any, evidencing the Offered Units purchased and sold duly
endorsed in blank or accompanied by written instruments of transfer in form
reasonably satisfactory to MMG duly executed by the Prospective Seller and (ii)
assign all its rights under this Agreement with respect to the Offered Units
purchased and sold pursuant to an instrument of assignment reasonably
satisfactory to MMG.
(e) In the event that (i) the Prospective Seller shall not have
received the Notice of Acceptance for the Offered Units upon the expiration of
the Acceptance Period or (ii) MMG shall have given a Notice of Acceptance to
the Prospective Seller but shall have failed to consummate, other than as a
result solely of the fault of the Prospective Seller, a purchase of the Offered
Units with respect to which such Notice of Acceptance was given within the
Acceptance Period, such Prospective Seller shall have the right to reject any
or all Notices of Acceptance theretofore received from MMG, and nothing in this
Section 3.2 shall limit the right of the Prospective Seller to make a sale of
the Offered Units so long as all the Offered Units that are sold or otherwise
disposed of by the Prospective Seller (which number of Offered Units shall be
not less than the number of Offered Units specified in such Offer Notice) are
sold for cash and/or Debt (A) within 60 days after the date of receipt of such
Offer Notice by MMG, (B) at an amount not less than the Offer Price included in
such Offer Notice and (C) to the Third Party making the Offer on the material
economic terms set forth in the Offer.
-5-
<PAGE> 6
(f) In the event that the Prospective Seller shall not have sold the
Offered Units before the expiration of the 60-day period in accordance with
paragraph (e) above, then the provisions of this Section 3.2 shall be
reinstated as to the Offered Units as if an Offer Notice had not been
delivered.
(g) Offered Units sold in accordance with all the terms and
conditions of this Agreement shall continue to be subject to this Agreement and
MMG's right of first refusal, and, upon MMG's request, the Third Party who
purchases such Offered Units shall execute an acknowledgment to such effect.
(h) Anything in this Section 3.2 to the contrary notwithstanding, the
provisions of this Section 3.2 will not be applicable to sales of Units
pursuant to a Public Offering.
ARTICLE IV
Miscellaneous
4.1 Termination. This Agreement shall terminate on the earlier of (a)
the tenth anniversary of the execution and delivery hereof or (b) by mutual
written consent of all parties to the Agreement.
4.2 Representations. Each of the parties hereto represents that this
Agreement has been duly authorized, executed and delivered by it and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms.
4.3 Certain Remedies. Without intending to limit the remedies
available to any of the parties hereto, each of the parties hereto agrees that
damages at law will be an insufficient remedy in the event such party violates
the terms hereof and each of the parties hereto further agrees that each of the
other parties hereto may apply for and have injunctive or other equitable
relief in any court of
-6-
<PAGE> 7
competent jurisdiction to restrain the breach or threatened breach of, or
otherwise specifically to enforce, any of such party's agreements set forth
herein.
4.4 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any such term may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of all parties to the Agreement.
4.5 Notices. All notices and other communications provided for herein
shall be in writing and shall be delivered by telecopy, sent by reputable
overnight courier, by hand or sent by certified or registered mail, return
receipt requested, postage prepaid, addressed, if to any Member, to such Member
at its address set forth below its signature to this Agreement (or to such
other address as such Member shall have specified in writing to the party
giving any such notice or sending any such communication). All such notices
shall be conclusively deemed to be received and shall be effective, (i) if sent
by hand delivery, upon receipt, (ii) if sent by telecopy ,upon dispatch
thereof, answerback received or (iii) if sent by registered or certified mail,
on the third day after the day on which such notice is mailed or(iv) if sent by
overnight courier on the Next Business Day after the day on which such notice
was sent.
4.6 Benefit; Successors and Assigns. Except as otherwise provided
herein, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors and permitted assigns. This
Agreement may not be assigned without the prior written consent of the
nonassigning parties. Nothing in this Agreement either express or implied is
intended to confer on any person other than the parties hereto and their
respective successors and permitted assigns, any rights, remedies or
obligations under or by reason of this Agreement.
4.7 Miscellaneous. This Agreement sets forth the entire agreement and
understanding among the parties hereto, and supersedes
-7-
<PAGE> 8
all prior agreements and understandings, relating to the subject matter hereof.
All representations and warranties contained herein shall survive the execution
and delivery of this Agreement, regardless of any investigation made by any
party hereto or on such party's behalf. This Agreement shall be construed and
enforced in accordance with and governed by the law of the State of Delaware
without giving effect to principals of conflicts of laws. The headings in this
Agreement are for purposes of reference only and shall not limit or otherwise
affect the meaning hereof. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized signatories thereunto duly
authorized as of the day and year first above written.
MULTIMEDIA GAMES, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
7535 South Lewis, Suite 302
Tulsa, Oklahoma
Attn: Gordon Graves
Fax: (918) 494-0177
AGN VENTURER L.L.C.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
7535 South Lewis, Suite 302
Tulsa, Oklahoma
Attn: Gordon Graves
Fax: (918) 494-0177
-8-
<PAGE> 9
"BUYERS"
OK Associates Pension Trust
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Address:
150 Vanderbilt Motor Parkway
Suite 311
Hauppague, New York 11788
Fax: (516) 273-0047
Phone: (516) 273-0058
---------------------------------------
Name: Larry Kaplan
Address:
G-V Capital Corp.
150 Vanderbilt Motor Parkway
Suite 311
Hauppague, New York 11788
Fax: (516) 273-0047
Phone: (516) 273-0058
-9-
<PAGE> 10
---------------------------------------
Name: Stanley Kaplan
Address:
Gro-Vest Management, Inc.
150 Vanderbilt Motor Parkway
Suite 311
Hauppague, New York, 11788
Fax: (516) 273-0047
Phone: (516) 273-0058
---------------------------------------
Name: Michael Miller
Address:
485 Madison Avenue
Suite 1100
New York, New York 10022
Fax: (212) 207-4976
Phone: (212) 207-4400
---------------------------------------
Name: Gordon Graves
Address:
Multimedia Games, Inc.
7335 South Lewis
Suite 204
Tulsa, Oklhaoma 74136
Fax: (918) 494-0177
Phone: (800) 726-2464
-10-
<PAGE> 11
Alliance Capital Investment
Corp.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Address:
4 Fox Meadow
Lloyd Harbor, NY 11743
Fax: (516) 271-7721
Phone: (516) 271-1651
Attention: Ken Greene
The Holding Company
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Address:
2 North LaSalle
Suite 2200
Chicago, Illinois 60602
Fax: (312) 269-1747
Phone: (312) 269-1700
Attention: Burton W. Kanter
-11-
<PAGE> 12
Jericho Capital Corp.
By:
-----------------------------------
Name:
----------------------------------
Title:
--------------------------------
Address:
11 Stewart Avenue
Huntington, NY 11743
(516) 271-1643
Baystate Development Trust
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
Address:
210 Dartmouth Street
Pawtucket, RI 02860
(401) 729-4576
-12-
<PAGE> 1
EXHIBIT 10.18
PUT/CALL AGREEMENT
THIS PUT/CALL AGREEMENT (the "Agreement"), dated as of August 14, 1996,
by and between AGN Venturer L.L.C., a Delaware limited liability company
("Venturer") and Multimedia Games, Inc., a Texas corporation ("MMG").
W I T N E S S E T H:
WHEREAS, Venturer and MMG, through its wholly owned subsidiary TV Games,
Inc., a Delaware corporation ("TV Games"), each own membership units in
American Gaming Network, L.L.C. (individually a "Unit" and collectively the
"Units"), a Delaware limited liability company ("AGN"); and
WHEREAS, the parties wish to provide for certain "put" and "call" rights
with respect to the Units.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
1.1 Definitions. For the purposes of this Agreement the following terms
have the following meanings:
"Affiliate", with respect to any Person, means any other Person
directly or indirectly controlling, controlled by or under common
control with, such Person. For purposes of this definition, "control"
(including with correlative meanings, the terms "controlling",
"controlled by" or "under common control with"), as used with respect to
any Person, shall mean the possession, directly or indirectly, of the
power to direct or cause the direction of the management and policies of
such Person, whether through the ownership of voting securities or by
contract or otherwise.
-1-
<PAGE> 2
"Business Day" shall mean any day other than a Saturday, Sunday,
Federal holiday or a day on which the banks in New York are required or
permitted by law to be closed.
"Effective Date" shall mean August 14, 1996.
"Graff Note" shall mean that certain promissory note of Venturer
in the principal amount of four hundred thousand dollars ($400,000)
payable to Graff Pay-Per-View, Inc., a Delaware corporation.
"Lien" shall mean any mortgage, pledge, security interest, lien,
charge, encumbrance, equity, claim, option, tenancy, right or
restriction on transfer of any nature whatsoever.
"MMG Shares" shall mean a certain number of shares of Common
Stock of MMG, $.01 par value, equal to the sum of (i) two hundred twenty
eight thousand six hundred sixty seven (278,667) shares of Common Stock,
plus (ii) that number of shares of Common Stock determined by dividing
the Paid Principal by three (3).
"Paid Principal" shall mean the amount of principal, excluding
interest, which Venturer has actually paid in cash to the holder of the
Graff Note pursuant to the terms of the Graff Note. "Paid Principal"
does not include any payment of principal on the Graff Note made by AGN
or MMG or any of MMG's Affiliates, whether such payment is made
pursuant to the Graff Note, a guaranty of the Graff Note or otherwise.
"Person" shall mean an individual, a partnership, a joint
venture, a corporation, an association, a trust, an individual
retirement account or any other entity or organization, including a
government or any department or agency thereof.
-2-
<PAGE> 3
ARTICLE II
Call Right
2.1 Call Option. During the one (1) year period following the first
anniversary of the Effective Date (the "Call Option Period"), MMG shall have
the right, but not the obligation, to purchase (the "Call Option"), and
Venturer shall be required to sell, fifty percent (50%), no more and no less,
of Venturer's right, title and interest in AGN (collectively, the "Call
Units") upon delivery of written notice (the "Call Notice") to Venturer of
MMG's intent to exercise its Call Option.
2.2 Purchase Price. In consideration of the sale of the Call Units, at
the Closing MMG shall deliver the MMG Shares to Venturer or, at Venturer's
election, to the members of Venturer in proportion to their respective
interests in Venturer.
2.3 Closing. The closing of any purchase of the Call Units by MMG
shall take place at 10:00 A.M., local Oklahoma time, on the tenth (10th)
Business Day after the date of the Call Notice (the "Call Closing"). At the
Call Closing, Venturer shall deliver to MMG the Call Units, free and clear of
all Liens, and MMG shall deliver to Venturer or Venturer's members, as the case
may be, the MMG Shares, free and clear of all Liens. MMG represents and
warrants to Venturer and its members that the MMG Shares shall be duly
authorized, validly issued and non-assessable, when issued pursuant to this
Agreement. All of the foregoing deliveries will be deemed to be made
simultaneously and none shall be deemed completed until all have been
completed.
2.4 Failure to Exercise Call Option. Failure of MMG to exercise its
Call Option pursuant to this Article II within the Call Option Period shall in
no way be deemed a waiver by TV Games of any of its rights with regard to the
Call Units as provided for in the limited liability company agreement of AGN.
2.5 Rights Prior Transfer of Call Units. Notwithstanding anything set
forth in this Article II to the contrary, Venturer shall retain all right,
title and interest in the Call Units (including, without limitation, all rights
to vote the Call Units and to receive
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distributions thereon) until the consideration therefor has been delivered to
Venturer in accordance with the terms of this Article II.
2.6 Effect of State and Federal Law. Notwithstanding any provisions
set forth in this Article II to the contrary, Venturer shall not be obligated
to sell the Call Units if upon MMG's exercise of the Call Option, the delivery
of the MMG Shares would not be in compliance with all applicable Federal and
state securities laws. In such event, the Call Option Period shall be extended
for an additional six (6) months. MMG shall take all commercially reasonable
actions to enable MMG to issue the MMG Shares in compliance with such Federal
and state securities laws, whether pursuant to a registration statement
covering the MMG shares or pursuant to an exemption from such registration
requirements. MMG agrees to pay all costs and expenses associated with the
registration of the MMG Shares, including reasonable attorney's fees; provided
that if the delivery of the MMG Shares would not be deemed an exempt
transaction under Federal and state securities laws solely by reason of
Venturer or, if applicable, its members failing to be an "accredited investor"
as defined in Rule 501 under the Securities Act of 1933, as amended (the
"Act"), Venturer or, if applicable, its members agree to pay all such costs and
expenses.
ARTICLE III
Put Right
3.1 Put Option. During the one (1) year period following the first
anniversary of the Effective Date (the "Put Option Period"), Venturer shall
have the right, but not the obligation, to cause MMG to purchase (the "Put
Option"), and MMG shall purchase, all of Venturer's right, title and interest
in AGN, no more and no less, (collectively, the "Put Units") upon delivery of
written notice (the "Put Notice") to MMG of Venturer's intent to exercise its
Put Option.
3.2 Purchase Price. In consideration of the sale of the Put Units, at
the Closing MMG shall deliver the MMG Shares to Venturer
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or, at Venturer's election, to the members of Venturer in proportion to their
respective interests in Venturer.
3.3 Closing. The closing of any purchase of the Put Units by MMG shall
take place at 10:00 A.M., local Oklahoma time, on the tenth (10th) Business Day
after the date of the Put Notice (the "Put Closing"). At the Put Closing,
Venturer shall deliver to MMG the Put Units, free and clear of all Liens, and
MMG shall deliver to Venturer or Venturer's members, as the case may be, the
MMG Shares, free and clear of all Liens. MMG represents and warrants to
Venturer and its members that the MMG Shares shall be duly authorized, validly
issued and non-assessable, when issued pursuant to this Agreement. All of the
foregoing deliveries will be deemed to be made simultaneously and none shall be
deemed completed until all have been completed.
3.4 Failure to Exercise Put Option. Failure of Venturer to exercise
its Put Option pursuant to this Article III within the Put Option Period shall
in no way be deemed a waiver of Venturer of any of its rights with regard to
the Put Units as provided for in the limited liability company agreement of
AGN.
3.5 Rights Prior Transfer of Put Units. Notwithstanding anything set
forth in this Article III to the contrary, Venturer shall retain all right,
title and interest in the Put Units (including, without limitation, all rights
to vote the Put Units and to receive distributions thereon) until the
consideration therefor has been delivered to the Venturer in accordance with
the terms of this Article III.
3.6 Effect of State and Federal Law. Notwithstanding any provisions
set forth in this Article III to the contrary, MMG shall not be obligated to
purchase the Put Units if the delivery of the MMG Shares would not be deemed an
exempt transaction under Federal and state securities laws solely by reason of
Venturer or, if applicable, its members failing to be an "accredited investor"
as defined in Rule 501 of the Act.
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ARTICLE IV
Miscellaneous
4.1 Termination. This Agreement shall terminate on the earlier of (a)
the tenth anniversary of the execution and delivery hereof, (b) the
consummation of a transaction pursuant to Article II hereof, (c) the
consummation of a transaction pursuant to Article III hereof or (d) by mutual
written consent of MMG and Venturer.
4.2 Representations. Each of the parties hereto represents that this
Agreement has been duly authorized, executed and delivered by it and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms.
4.3 Certain Remedies. Without intending to limit the remedies
available to any of the parties hereto, each of the parties hereto agrees that
damages at law will be an insufficient remedy in the event such party violates
the terms hereof and each of the parties hereto further agrees that each of the
other parties hereto may apply for and have injunctive or other equitable
relief in any court of competent jurisdiction to restrain the breach or
threatened breach of, or otherwise specifically to enforce, any of such party's
agreements set forth herein.
4.4 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any such term may be waived (either generally or in a
particular instance and either retroactively or prospectively) only with the
written consent of both MMG and Venturer.
4.5 Transfer of MMG Shares. If the MMG Shares are not registered under
the Act, Venturer and, if applicable, Venturer's members agree that the MMG
Shares may not be sold, transferred, assigned, hypothecated or otherwise
disposed of until a registration statement with respect thereto is declared
effective under the Act or MMG receives an opinion of counsel reasonably
satisfactory to counsel
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to MMG that an exemption from the registration requirements of the Act is
available. Unless such a registration statement is effective, the MMG Shares
may be transferred only to a Person, who at the time of transfer, is reasonably
believed to be an "accredited investor" as defined in Rule 501 of the Act (a
"Permitted Transferee").
Each certificate for the MMG Shares shall bear a legend substantially
similar to the following:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT") AND MAY NOT BE OFFERED OR SOLD EXCEPT (1) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (2) UPON THE
DELIVERY BY THE HOLDER TO THE COMPANY OF AN OPINION OF COUNSEL
REASONABLY SATISFACTORY TO COUNSEL FOR THE COMPANY, STATING THAT
AN EXEMPTION FROM REGISTRATION UNDER THE ACT IS AVAILABLE.
4.6 Notices. All notices and other communications provided for herein
shall be in writing and shall be delivered by telecopy, by hand, by reputable
overnight courier or sent by certified or registered mail, return receipt
requested, postage prepaid, addressed, if to any Stockholder, to such
Stockholder at its address set forth below its signature to this Agreement (or
to such other address as such Stockholder shall have specified in writing to
the party giving any such notice or sending any such communication). All such
notices shall be conclusively deemed to be received and shall be effective, (i)
if sent by hand delivery, upon receipt, (ii) if sent by telecopy ,upon dispatch
thereof, answerback received or (iii) if sent by registered or certified mail,
on the third day after the day on which such notice is mailed or (iv) if sent
by overnight courier, on the next Business Day after the day on which such
notice was sent.
4.7 Benefit; Successors and Assigns. Except as otherwise provided
herein, this Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors
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and permitted assigns. This Agreement may not be assigned without the prior
written consent of the nonassigning party. Nothing in this Agreement either
express or implied is intended to confer on any person other than the parties
hereto, Venturer's members and their respective successors and permitted
assigns, any rights, remedies or obligations under or by reason of this
Agreement.
4.8 Miscellaneous. This Agreement sets forth the entire agreement and
understanding among the parties hereto, and supersedes all prior agreements and
understandings, relating to the subject matter hereof. All representations and
warranties contained herein shall survive the execution and delivery of this
Agreement, regardless of any investigation made by any party hereto or on such
party's behalf. This Agreement shall be construed and enforced in accordance
with and governed by the law of the State of Delaware without giving effect to
principals of conflicts of laws. The headings in this Agreement are for
purposes of reference only and shall not limit or otherwise affect the meaning
hereof. This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized signatories thereunto duly
authorized as of the day and year first above written.
Multimedia Games, Inc.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
7535 South Lewis, Suite 302
Tulsa, Oklahoma
Attn: Gordon Graves
Fax: (918) 494-0177
AGN Venturer L.L.C.
By:
-----------------------------------
Name:
---------------------------------
Title:
---------------------------------
Address:
c/o G-V Capital Corp.
150 Vanderbilt Motor Parkway
Suite 311
Hauppague, New York 11788
Fax: (516) 273-0047
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<PAGE> 1
EXHIBIT 10.19
MULTIMEDIA GAMES, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
August 14, 1996, by and between MULTIMEDIA GAMES, INC., a Texas corporation
(the "Company"), and each Holder (as such term is defined below),
W I T N E S S E T H:
WHEREAS, AGN Venturer L.L.C., a Delaware limited liability company
("AGN"), has entered into a Put/Call Agreement of even date herewith (the
"Put/Call Agreement") with the Company pursuant to which AGN may acquire from
the Company shares of the Company's Common Stock (each a "Share" and
collectively the "Shares") pursuant to the exercise of the "Call Option" or the
"Put Option" as defined therein; and
WHEREAS, the Company is willing to register the Registerable Securities
(as hereinafter defined) under the 1933 Act upon the terms and conditions
contained in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
For the purposes of this Agreement, the following terms have the
following meanings:
"Affiliate", with respect to any Person, means any other Person
directly or indirectly controlling, controlled by or under common
control with, such Person. For purposes of this
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definition, "control" (including with correlative meanings, the terms
"controlling", "controlled by" or "under common control with"), as used
with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the
management and policies of such Person, whether through the ownership of
voting securities or by contract or otherwise.
"Beneficial owner" or "beneficially own" has the meaning given
such term in Rule 13d-3 under the 1934 Act.
"Business Day" means any day, excluding Saturday, Sunday and any
other day on which commercial banks in New York, New York are authorized
or required by law to close.
"Commission" means the Securities and Exchange Commission, and
any successor commission or agency having similar powers.
"Common Stock" means the shares of Common Stock, $.01 par value,
of the Company.
"Holder" means AGN, any Permitted Transferee of AGN (and any
subsequent Permitted Transferee) that, in each case, holds Registrable
Securities.
"1933 Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Permitted Transferee" means any Member of AGN and any other
Person that shall be the "Permitted Transferee" of Registerable
Securities in accordance with the terms of the Put/Call Agreement;
provided that, in each case such Person shall have executed and
delivered to the Company an executed counterpart of this Agreement and
shall have agreed to be bound
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hereunder in the same manner and to the same extent as the Holder is
bound hereunder.
"Person" means an individual, a partnership, a joint venture, a
corporation, an association, a trust, an individual retirement account
or any other entity or organization, including a government or any
department or agency thereof.
"Registrable Securities" means the Shares. Registrable Securities
shall cease to be Registrable Securities when (i) a registration
statement (other than a registration statement on Form S-8) with respect
to the sale of the Shares shall have become effective under the 1933 Act
and the Shares shall have been disposed of under such registration
statement, (ii) they shall have been distributed to the public pursuant
to Rule 144, (iii) they shall have been otherwise transferred or
disposed of other than to a Permitted Transferee, (iv) any transfer or
disposition of them to the public shall not require their registration
or qualification under the 1933 Act or any similar state law then in
force, or (v) they shall have ceased to be outstanding.
"Registration Expenses" means all out-of-pocket expenses incident
to the Company's performance of or compliance with Article II of this
Agreement, including, without limitation, all registration and filing
fees (including filing fees with respect to the National Association of
Securities Dealers, Inc.), all fees and expenses of complying with state
securities or "blue sky" laws (including reasonable fees and
disbursements of underwriters' counsel in connection with any "blue sky"
memorandum or survey), all printing expenses, all listing fees, all
registrars' and transfer agents' fees, the fees and disbursements of
counsel for the Company and of its independent public accountants,
including the expenses of any special audits and/or "cold comfort"
letters required by or incident to such performance and compliance;
provided that, "Registration Expenses" shall not include underwriting
discounts and
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commissions and applicable transfer taxes, if any, with respect to the
Shares and any fees and disbursements of counsel retained by the Holders
of Registrable Securities being registered, which shall be borne by the
sellers of the Registrable Securities being registered in all cases.
"Rule 144" means Rule 144 (or any successor provision) under the
1933 Act.
"Rule 144 Transaction" means any sale of Shares made in reliance
upon Rule 144 (as in effect on the date hereof) that complies with
paragraphs (e), (f) and (g) thereof (as in effect on the date hereof),
regardless of whether at the time of such Sale the seller is entitled to
rely upon paragraph (k) of Rule 144 in connection with the Sale of such
Shares.
"Shares" means the shares of Common Stock acquired or that may
acquired pursuant to the Put/Call Agreement. Shares shall also mean any
equity securities received in exchange for or with respect to such
Common Stock by way of merger, consolidation, exchange, stock dividend
or reorganization or recapitalization involving the Company in which the
Company is the surviving or resulting entity.
ARTICLE II
Registration Rights
SECTION 2.1 Registration Upon Demand.
(a) At any time after the date of acquisition of the Shares pursuant to
the Put/Call Agreement, the Holders of a majority in interest of the
Registrable Securities held by all Holders then outstanding may at any time
make a written demand of the Company for registration with the Commission under
and in accordance with the provisions of the 1933 Act of all or part of their
Registrable Securities (a "Demand Registration"); provided, however, that,
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subject to Section 2.1(c) below, the Company need only effect one Demand
Registration. Such request shall specify the aggregate number of the
Registrable Securities proposed to be sold and shall also specify the intended
method of disposition thereof. Within ten (10) days after receipt of such
request, the Company shall give written notice (the "Notice") of such
registration request to all other Holders stating that the Company will include
in such registration all Registrable Securities as to which the Company has
received written requests for inclusion therein within twenty (20) Business
Days after the giving of the Notice. Each Notice shall also specify the number
of Registrable Securities requested to be registered and the intended method of
disposition thereof. Within five (5) Business Days after the expiration of
such twenty (20) Business Days, the Company will notify all the Holders to be
included in such registration of the other Holders and the number of
Registrable Securities requested to be included therein.
(b) Participation by Other Parties. No Person other than a Holder shall
be permitted to offer any securities under any Demand Registration unless (x)
such Person is entitled to exercise "piggyback" or incidental registration
rights pursuant to an existing contractual commitment with the Company and (y)
if such contractual commitments permit, the Holders participating in such
Demand Registration and their underwriters, if any, in their sole discretion,
determine that such Demand Registration can accommodate such additional
participation.
(c) Effective Registration and Expenses. (i) The Company shall file a
registration statement within 120 days of expiration of the 20 Business Days
referenced in Section 2.1(a) and shall use its best efforts to cause any
registration made pursuant to this Section 2.1 to be declared effective as soon
as possible; provided that, the Holders of a majority in interest of the
Registrable Securities may, by written notice to the Company prior to such
registration being declared effective, withdraw such demand and shall continue
to have the right to make one future demand pursuant to this Section 2.1. A
registration will not count as a Demand Registration until it has
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become effective and until the earlier of (i) one (1) year from the effective
date of such registration, or (i) such time as all of the Registrable
Securities requested to be included by the Holders in such registration have
actually been sold thereunder. The Company shall pay all Registration Expenses
in connection with a registration made pursuant to this Section 2.1, whether or
not such registration becomes effective or Registrable Securities are sold
thereunder.
(ii) Subject to Section 2.1(c)(iii) below, in the event the Company
fails to file a registration statement within the 120 day period referred to in
Section 2.1(c)(i) above (the "Filing Deadline"), the Company shall issue to
each holder of Registerable Securities one-tenth (1/10th) of a share of Common
Stock for each Share held by such holder for no additional consideration. In
the event the Company fails to file a registration statement after the Filing
Deadline, the Company shall issue to each holder of Registerable Securities for
no additional consideration, one-tenth (1/10th) of a share of Common Stock for
each Share held by such holder for each additional 120 day period (without
proration) that the Company fails to file a registration statement. In the
event of the delay of the filing of a registration statement due to a
Disadvantageous Condition (as defined below), the Filing Deadline and the
subsequent 120 day periods referred to in this Section 2.1(c)(ii) shall be
automatically extended and reimposed until such Disadvantageous Condition no
longer exists.
(iii) Anything to the contrary in this Section 2.1(c) notwithstanding,
if the Board of Directors of the Company determines that, in its judgment, it
would (because of the existence of, or in anticipation of, any acquisition
involving the Company or any financing activity, or the unavailability for
reasons substantially beyond the Company's control of any required financial
statements, or any other event or condition of similar significance to the
Company) be significantly disadvantageous (a "Disadvantageous Condition") to
the Company for such a registration statement to be filed or to become
effective, the Company shall, notwithstanding any other provision of this
Section 2.1, be entitled, upon the giving of a
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written notice (a "Delay Notice") to such effect to each holder of Registrable
Securities included or to be included in such registration statement, to cause
such registration statement to be withdrawn or, in the event no registration
statement has yet been filed, to delay the filing of any such registration
statement, until, in the judgment of the Board of Directors, such
Disadvantageous Condition no longer exists (notice of which the Company shall
promptly deliver to the holders of Registrable Securities with respect to which
any such registration statement has been filed, or was to have been filed). No
registration statement filed and subsequently withdrawn by reason of any
existing or anticipated Disadvantageous Condition as hereinabove provided shall
count as a Demand Registration.
(d) Selection of Underwriters. If any Demand Registration is an
underwritten offering, the Holders holding a majority of the Registrable
Securities to be registered by the Holders may, at their option, select and
obtain the investment banker or bankers and managing underwriter or
underwriters that will administer the offering, such investment banker or
bankers and managing underwriter or underwriters to be reasonably satisfactory
to the Company.
SECTION 2.2. Incidental Registration.
(a) If the Company at any time proposes to register for its own account
or for the account of a selling shareholder, securities under the 1933 Act on a
form and in a manner that would permit registration of Registrable Securities
for sale to the public under the 1933 Act, it will, at each such time, give
prompt written notice to all Holders of Registrable Securities of its intention
to do so, describing such securities and specifying the form and manner and the
other relevant facts involved in such proposed registration (including, without
limitation, whether or not such registration will be in connection with an
underwritten offering of its Common Stock and, if so, the identity of the
managing underwriter and whether such offering will be pursuant to a "best
efforts" or "firm commitment" underwriting). Each Holder of Registerable
Securities hereby agrees to include all
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the Registerable Securities held by such Holder in such registration statement
and the Company will use its best efforts to effect the registration under the
1933 Act, as expeditiously as is reasonable, of all such Registrable Securities
to the extent requisite to permit the disposition (in accordance with the
intended methods thereof as aforesaid) of the Registrable Securities so to be
registered; provided, however, that:
(i) if, at any time after giving such written notice of its
intention to register any of such securities and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such securities, the
Company may, at its election, give written notice of such determination to
each Holder of Registrable Securities and thereupon the Company shall be
relieved of its obligation to register any Registrable Securities in connection
with such registration (but not from its obligation to pay the Registration
Expenses in connection therewith to the extent provided in Section 2.1(c));
(ii) if the registration so proposed by the Company involves an
underwritten offering of the securities to be registered and the managing
underwriter thereof advises the Company that, in its opinion, the number of
securities proposed to be included in such offering by the Company and the
number of shares of Registrable Securities proposed to be included in such
offering by the Holder or Holders thereof should be limited due to market
conditions, the Company may require, by written notice to each such Holder,
that, to the extent necessary to meet such limitation on the number of shares
of Registrable Securities that the Holders are permitted to sell, all Holders
of Registrable Securities proposing to sell shares of Registrable Securities in
such offering shall share pro rata in the number of shares of Registrable
Securities to be excluded from such offering, such sharing to be based on the
respective numbers of shares of Registrable Securities held by such Holders.
To the extent any Registerable Securities are required to be excluded from such
underwritten offering (the "Excluded Securities"), such Excluded
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Securities shall nevertheless be included in such registration for sale to the
public (but shall not be a part of the securities sold to the underwriter of
such offering) and the Holders shall agree not to offer or sell the Excluded
Securities for a period of 90 days following the effective date of any such
registration;
(iii) the Company shall not be obligated to effect any
registration of Registrable Securities under this Section 2.2 that is
incidental to the registration of any of its securities in connection with any
merger, acquisition, exchange offer, dividend reinvestment plan or stock option
or other employee benefit plan.
(b) The Company will pay all Registration Expenses in connection with
each registration of Registrable Securities effected by it pursuant to this
Section 2.2, whether or not such registration becomes effective or Registerable
Securities are sold thereunder.
SECTION 2.3 Registration Procedures.
(a) If and whenever the Company is required to use its best efforts to
effect the registration of any Registrable Securities under the 1933 Act as
provided in Section 2.1 and 2.2, the Company will as expeditiously as is
reasonable:
(i) subject to the terms and conditions of this Agreement, use
its best efforts to cause such registration statement to become effective;
(ii) prepare and file with the Commission such amendments
(including post-effective amendments) and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary
to keep such registration statement effective and to comply with the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities and other securities covered by such registration statement until
the earlier of (A) such time as all such Registrable Securities and other
securities have been disposed of in accordance with the intended
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methods of disposition by the seller or sellers thereof set forth in such
registration statement and (B) the expiration of one year from the date such
registration statement first becomes effective;
(iii) furnish to each seller of such Registrable Securities such
number of conformed copies of such registration statement and of each such
amendment and supplement thereto (in each case including all exhibits), such
number of copies of the prospectus included in such registration statement
(including each preliminary prospectus and any summary prospectus), in
conformity with the requirements of the 1933 Act, such documents incorporated
by reference in such registration statement or prospectus, and such other
documents, as such seller may reasonably request in order to facilitate the
sale or disposition of such Registrable Securities;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement under
such other securities or "blue sky" laws of such jurisdictions as each seller
shall reasonably request, and do any and all other acts and things that may be
necessary to enable such seller to consummate the disposition in such
jurisdictions of its Registrable Securities covered by such registration
statement, except that the Company shall not for any such purpose be required
to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified, or to subject itself to taxation
in respect of doing business in any such jurisdiction, or to consent to general
service of process in any such jurisdiction;
(v) immediately notify each seller of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the circumstances
then existing or if it is necessary to amend or
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supplement such prospectus to comply with law, and at the request of any such
seller prepare and furnish to such seller a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that,
as thereafter delivered to the purchasers of such Registrable Securities or
securities, such prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing and shall otherwise comply in all material respects
with law and so that such prospectus, as amended or supplemented, will comply
with law;
(vi) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security holders, as soon as reasonably practicable, an earnings or financial
statement which shall satisfy the provisions of Section 11(a) of the 1933 Act;
(vii) use its best efforts to list such securities on NASDAQ and
each securities exchange on which shares of Common Stock are then listed, if
such securities are not already so listed and if such listing is then permitted
under the rules of such exchange, and provide a transfer agent and registrar
for such Registrable Securities not later than the effective date of such
registration statement; and
(viii) issue to any underwriter to which any Holder of
Registrable Securities may sell such Registrable Securities in connection with
any such registration (and to any direct or indirect transferee of any such
underwriter) certificates evidencing shares of Common Stock without any
restrictive legends. The Company may require each seller of Registrable
Securities as to which any registration is being effected to furnish the
Company with such information regarding such seller and the distribution of
such securities as the Company may from time to time reasonably request in
writing and as shall be required by law or by the Commission in connection
therewith.
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(b) If requested by the underwriters for any underwritten offering of
Registrable Securities on behalf of a Holder or Holders of Registrable
Securities, the Company will enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such representations
and warranties by the Company and such other terms and conditions as are
customarily contained in underwriting agreements with respect to secondary
distributions, including, without limitation, indemnities to the effect and to
the extent provided in Section 2.5.
(c) If any registration shall be in connection with an underwritten
public offering, each Holder of Registrable Securities agrees (whether or not
such Holder has registered Shares in such offering), if so required by the
managing underwriters, not to effect any public sale or distribution (including
any sale pursuant to Rule 144) of Registrable Securities (other than as part of
such underwritten public offering) within 7 days prior to the effective date of
the registration statement with respect to such underwritten public offering or
90 days after the effective date of such registration statement.
(d) The Company agrees, if so required by the managing underwriters in
connection with an underwritten offering of Registrable Securities, not to
effect any public sale or distribution of any of its equity securities or
securities convertible into or exchangeable or exercisable for any of such
equity securities during the 7 days prior to and the 120 days after the
effective date of any registration statement with respect to such underwritten
public offering, except as part of such underwritten offering or except in
connection with a stock option plan, stock purchase plan, savings or similar
plan, or an acquisition, merger or exchange offer.
(e) It is understood that in any underwritten offering of Registrable
Securities in addition to the shares (the "initial shares") the underwriters
have committed to purchase, the underwriting agreement may grant the
underwriters an option to purchase a number of additional shares (the "option
shares") equal to
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up to 15% of the initial shares (or such other maximum amount as the National
Association of Securities Dealers, Inc. may then permit), solely to cover
over-allotments. Shares proposed to be sold by the Company and the Holders
shall be allocated between initial shares and option shares as agreed or, in
the absence of agreement, pro rata in relation to the number of initial shares
sold by each.
SECTION 2.4. Preparation; Reasonable Investigation.
In connection with the preparation and filing of each registration
statement registering Registrable Securities under the 1933 Act, the Company
will give the Holders of Registrable Securities on whose behalf such
Registrable Securities are to be so registered and their underwriters, if any,
and their respective counsel and accountants, the opportunity to participate in
the preparation of such registration statement, each prospectus included
therein or filed with the Commission, and each amendment thereof or supplement
thereto, and will give each of them such access to its books and records and
such opportunities to discuss the business of the Company with its officers and
the independent public accountants who have issued a report on its financial
statements as shall be necessary, in the opinion of such Holders and such
underwriters or their respective counsel, to conduct a reasonable investigation
within the meaning of the 1933 Act. Without limiting the foregoing, each
registration statement, prospectus, amendment, supplement or any other document
filed with respect to a registration under this Agreement shall be subject to
review and reasonable approval by the holders registering Registrable
Securities in such registration and by their counsel.
SECTION 2.5. Indemnification.
(a) In the event of any registration of any Registerable Securities
under the 1933 Act, the Company will, and hereby does, indemnify and hold
harmless, the seller of any Registrable Securities covered by such registration
statement, its directors and officers, each other Person who participates as
an underwriter in the offering or sale of such securities, each officer and
director of each such
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underwriter, and each other Person, if any, who controls such seller or any
such underwriter within the meaning of Section 15 of the 1933 Act or Section 20
of the 1934 Act, against any losses, claims, damages, liabilities and expenses,
including legal and other expenses incurred in investigating and defending any
such claim, joint or several, to which such seller or any such director or
officer or participating or controlling Person may become subject under the
1933 Act or otherwise, insofar as such losses, claims, damages, liabilities or
expenses (or actions or proceedings in respect thereof) arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any material
fact contained in any registration statement under which such securities were
registered under the 1933 Act, any preliminary prospectus, final prospectus or
summary prospectus included therein, or any amendment or supplement thereto, or
any document incorporated by reference therein, (ii) any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Company will
reimburse such seller, and each such director, officer, underwriter and
controlling Person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding or (iii) any violation of any rule or
regulation promulgated under the 1933 Act or any other applicable federal or
state securities law and relating to any action or inaction of the Company in
connection with such registration; provided, however, that the Company shall
not be liable in any such case to the extent that any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arises out of
or is based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company expressly for use in the preparation thereof by such seller or
underwriter, as the case may be. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of such seller or
any such
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director, officer, underwriter or controlling Person and shall survive the
transfer of such securities by such seller.
(b) The Company may require, as a condition to including any
Registrable Securities in any registration statement filed pursuant to this
Agreement, that the Company shall have received an undertaking satisfactory to
it from (i) the prospective seller of such securities, to indemnify and hold
harmless the Company in the same manner and to the same extent as set forth in
Section 2.5(a) to the extent that the Company incurs any loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense arising out
of or based upon an untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement, any such preliminary
prospectus, final prospectus, summary prospectus, amendment or supplement in
reliance upon and in conformity with written information furnished to the
Company expressly for use in the preparation thereof by such prospective
seller, except that any such prospective seller shall not in any event be
liable to the Company pursuant thereto for an amount in excess of the net
proceeds of sale of such prospective seller's Registrable Securities so to be
sold) the Company, each such underwriter of such securities, each officer and
director of each such underwriter and each other Person, if any, who controls
the Company or any such underwriter within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act, and (ii) each such underwriter of such
securities, to indemnify and hold harmless (in the same manner and to the same
extent as set forth in Section 2.5(a)) the Company, each officer and director
of the Company, each prospective seller, each officer and director of each
prospective seller (and, if such prospective seller is a portfolio or
investment fund, its investment advisors and the directors and officers
thereof) and each other Person, if any, who controls the Company or any such
prospective seller within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act, with respect to any statement in or omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus included therein, or any amendment or supplement thereto, if such
statement or omission was made in reliance upon and in conformity
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with written information furnished by such prospective seller or such
underwriter, as the case may be, to the Company for use in the preparation of
such registration statement, preliminary prospectus, final prospectus, summary
prospectus, amendment or supplement. Such indemnity shall remain in full force
and effect regardless of any investigation made by or on behalf of the Company
or any such director, officer or controlling Person and shall survive the
transfer of such securities by such seller.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding (including any governmental
investigation) involving a claim referred to in Section 2.5(a) or (b), such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding provisions of this Section 2.5, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of such
claim (in which case, the indemnifying party shall not be liable for the fees
and expenses of more than one counsel for all sellers of Registrable
Securities, or more than one counsel for the underwriters in connection with
any one action or separate but similar or related actions), the indemnifying
party will be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, to the extent
that it may wish with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the defense thereof.
The indemnifying party shall not, without the consent of the indemnified party,
settle or compromise any claim or
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consent to the entry of any judgment which settlement, compromise or judgment
would materially and adversely affect the indemnified party other than as a
result of money damages or other money payments; provided, that, if the
indemnified party shall fail or refuse to consent to such settlement,
compromise or judgment proposed by the indemnifying party and approved by the
person asserting such claim, and a judgment thereafter shall be entered or a
settlement or compromise thereafter shall be effected on terms less favorable
in the aggregate to the indemnified party than the settlement, compromise or
judgment so proposed, the indemnifying party shall have no liability with
respect to money or other damages in excess of those provided for in the
settlement, compromise or judgment so proposed or any costs or expenses related
to such claim arising after the date such settlement, compromise or judgment
was so proposed.
SECTION 2.6. Contribution.
If the indemnification provided for in Section 2.5 is unavailable to the
indemnified party or parties in respect of any losses, claims, damages or
liabilities referred to therein, then each such indemnified party and the
Company shall contribute to the amount of such losses, claims, damages or
liabilities (a) as between the Company and the Holders of Registrable
Securities covered by a registration statement, on the one hand, and the
underwriters, on the other, in such proportion as is appropriate to reflect the
relative benefits received by the Company and such Holders, on the one hand,
and the underwriters, on the other, from the offering of the Registrable
Securities, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits but also
the relative fault of the Company and such Holders, on the one hand, and of the
underwriters, on the other, in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations, and (b) as between the Company, on the one
hand, and each Holder of Registrable Securities covered by a registration
statement, on the other, in such proportion as is appropriate to reflect the
relative fault of the Company and of each
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such Holder in connection with such statements or omissions, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and such Holders, on the one hand, and the underwriters, on the other,
shall be deemed to be in the same proportion as the total proceeds from the
offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company and such Holders bear to the total
underwriting discounts and commissions received by the underwriters. The
relative fault of the Company and such Holders, on the one hand, and of the
underwriters, on the other, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the omission or alleged omission to state a material fact relates to
information supplied by the Company and such Holders or by the underwriters.
The relative fault of the Company, on the one hand, and of each such Holder, on
the other, shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact relates to information
supplied by such party, and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company and the Holders of Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this Section 2.5
were determined by pro rata allocation (even if the underwriters were treated
as one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in the next
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the next
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 2.5, no underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities underwritten by it and
distributed to the public were offered to the public exceeds the
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amount of any damages that such underwriter has otherwise paid by reason of
such untrue or alleged untrue statement or omission or alleged omission, and no
Holder of Registrable Securities shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities of such Holder were offered to the public exceeds the amount of any
damages that such Holder has otherwise paid by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933
Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. Each Holder's obligation to contribute
pursuant to this Section 2.5 is several in the proportion that the proceeds of
the offering received by such Holder bears to the total proceeds of the
offering received by all sellers (including the Company) of securities in such
offering, and not joint.
SECTION 2.7 Nominees of Beneficial Owners.
In the event that any Registrable Securities are held by a nominee for
the beneficial owner thereof, the beneficial owner thereof may, at its
election, be treated as the Holder of such Registrable Securities for purposes
of any request or other action by any Holder or Holders of Registrable
Securities pursuant to this Agreement or any determination of any number or
percentage of shares of Registrable Securities held by any Holder or Holders of
Registrable Securities contemplated by this Agreement. If the beneficial owner
of any Registrable Securities so elects, the Company may require assurances
reasonably satisfactory to it of such owner's beneficial ownership of such
Registrable Securities.
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ARTICLE III
Miscellaneous
SECTION 3.1. Termination. This Agreement shall terminate on the tenth
anniversary of the execution and delivery hereof.
SECTION 3.2. Representations. Each of the parties hereto represents
that this Agreement has been duly authorized, executed and delivered by it and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms.
SECTION 3.3. Certain Remedies. Without intending to limit the remedies
available to any of the parties hereto, each of the parties hereto agrees that
damages at law will be an insufficient remedy in the event such party violates
the terms hereof and each of the parties hereto further agrees that each of the
other parties hereto may apply for and have injunctive or other equitable
relief in any court of competent jurisdiction to restrain the breach or
threatened breach of, or otherwise specifically to enforce, any of such party's
agreements set forth herein.
SECTION 3.4. Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any such term may be waived (either generally or
in a particular instance and either retroactively or prospectively) only with
the written consent of the Company and a majority in interest of the holders of
the Registrable Securities. Each Holder shall be bound by any amendment or
waiver authorized by this Section 3.4, whether or not such Holder shall have
consented thereto.
SECTION 3.5. Notices. All notices and other communications provided
for herein shall be in writing and shall be delivered by telecopy, by hand or
sent by certified or registered mail, return receipt requested, postage
prepaid, addressed, if to any Holder, to such Holder at such address as such
Holder shall have specified in writing to the party giving any such notice or
sending any such
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communication), and, if to the Company, to Multimedia Games, Inc., 7335 South
Lewis Avenue, Tulsa, Oklahoma 74136, Attention: Vice President-Finance, (or to
such other address as the Company shall have specified in writing to the party
giving any such notice or sending any such communication). All such notices
shall be conclusively deemed to be received and shall be effective, (i) if sent
by hand delivery, upon receipt, (ii) if sent by telecopy, upon dispatch
thereof, or (iii) if sent by registered or certified mail, on the third day
after the day on which such notice is mailed.
SECTION 3.6. Benefit; Successors and Assigns. Except as otherwise
provided herein, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns; provided, however, that this Agreement shall not inure to the benefit
of any Permitted Transferee unless such Permitted Transferee shall have
executed and delivered to the Company an executed counterpart of this Agreement
and shall have agreed to be bound hereunder in the same manner and to the same
extent as Holder is bound hereunder. Holder may not assign any of its rights
hereunder to any Person other than a Permitted Transferee that has complied
with the requirements of the preceding sentence in all respects. Nothing in
this Agreement either express or implied is intended to confer on any person
other than the parties hereto and their respective successors and permitted
assigns, any rights, remedies or obligations under or by reason of this
Agreement.
SECTION 3.7 Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement or where any provision hereof is
validly asserted as a defense, the successful party shall be entitled to
recover reasonable attorneys' fees and expenses in addition to any other
available remedy.
SECTION 3.8. Miscellaneous. This Agreement sets forth the entire
agreement and understanding among the parties hereto, and supersedes all prior
agreements and understandings, relating to the subject matter hereof. All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement,
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regardless of any investigation made by any party hereto or on such party's
behalf. This Agreement shall be construed and enforced in accordance with and
governed by the law of the State of Oklahoma without regard to the conflict of
laws provisions thereof. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized signatories thereunto duly
authorized as of the day and year first above written.
MULTIMEDIA GAMES, INC.
By:
--------------------------------------
AGN VENTURER L.L.C.
By:
---------------------------------------
Address:
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EXHIBIT 10.20
LIMITED LIABILITY COMPANY AGREEMENT
OF
AGN VENTURERS L.L.C.
THIS LIMITED LIABILITY COMPANY AGREEMENT (the "Agreement"), dated as of
July 15, 1996, by and among AGN Venturers L.L.C., a limited liability company
formed pursuant to the laws of the State of Delaware (the "Company"), TV Games
Inc., a Delaware corporation and any parties who become bound hereby pursuant
to the terms of this Agreement.
In consideration of the covenants, conditions and agreements contained
herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth below:
"Additional Member" shall mean a Person admitted as a Member pursuant to
Article IX of this Agreement.
"Affiliate" shall mean, with respect to any Person, any other Person
that, directly or indirectly, controls, is controlled by or is under common
control with, the Person in question.
"Assets" shall mean all rights and ownership interests of the Company.
"Assumed Tax Rate" shall mean forty three percent (43%) for combined
Federal, State and local taxes, as
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the same shall be adjusted from time to time as necessary to reflect changes in
(i) the maximum Federal income tax rate for individuals and (ii) the maximum
State and local income tax rate for individuals residing in Tulsa, Oklahoma.
"Capital Account" shall mean the capital account maintained for each
Member pursuant to Article VII hereof.
"Capital Expenditures" shall mean, for any period, all expenditures
during such period for equipment, fixed assets, real property or improvements,
or for replacements or substitutions therefor or additions thereto, that have a
useful life of more than one year (other than expenditures for replacements and
substitutions for such equipment, fixed assets, real property or improvements
from the proceeds of insurance).
"Claim" shall mean any demand, claim, action or cause of action based on
any Loss.
"Closing Date" shall mean June ___, 1996.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company Expenses" shall mean all amounts of expense, loss, amortization
or depreciation which are deductible from the Company's gross income for
federal income tax purposes and all amounts of expense described in Section
705(a)(2)(B) of the Code.
"Company Minimum Gain" shall have the meaning as set forth in Section
1.704-2(d) of the Treasury Regulations.
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"Company Nonrecourse Liabilities" shall mean nonrecourse liabilities (or
portions thereof) of the Company for which no Member bears the economic risk of
loss.
"Contributed Capital" shall mean, with respect to each Member, any cash,
cash equivalents or the value of other property that a Member contributes to
the Company pursuant to Section 6.1 of this Agreement, in each case as the same
may from time to time be adjusted as provided in this Agreement.
"Debt" shall mean, without duplication, (a) all unpaid obligations
(including principal, interest, fees and charges) for borrowed money, (b) all
unpaid obligations evidenced by bonds, debentures, notes or other similar
instruments, (c) all unpaid obligations to pay the deferred purchase price of
property or services, except trade accounts payable arising in the ordinary
course of business, (d) all obligations as lessee under capital leases, and (e)
all Debt of others secured by a Lien on any asset of the Company, whether or
not such Debt is assumed by the Company.
"Delaware Law" shall mean the Delaware Limited Liability Company Act, as
amended from time to time, or any successor statute or statutes.
"Fair Market Value" shall mean (i) such value as is determined in good
faith by the Management Committee and delivered in writing to each Member, or
(ii) if such valuation by the Management Committee is objected to by a majority
of the Members and written notice of such (the "Objection Notice") is given
within twenty (20) business days after the receipt by such holders of the
Management Committee's valuation, which Objection Notice to be valid shall
state the valuation proposed by the objecting party, such value as is
determined by mutual agreement among the Management Committee and the majority
of the Members, or (iii) if no such mutual agreement is reached in a twenty
(20) business day period following the receipt of the Objection Notice, such
value as is determined in good faith in a written report to the Company by an
appraisal or investment banking
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firm of recognized national standing selected by the Management Committee from
a list of three such firms submitted by a majority of the Members that, in each
case, are independent of the Company, any Member and any of their respective
Affiliates. The cost and expense of such independent appraisal or investment
banking firm shall be paid or shared by the Company and/or the objecting party
in an amount determined by the extent to which the valuation of the Management
Committee and the objecting party is sustained (e.g., if the Management
Committee proposes a valuation of $5 per Membership Unit, the objecting party
proposes $10 per Membership Unit and the independent firm determines $6 to be
the Fair Market Value, then the Company shall pay 20% and the objecting party
80% of such cost and expense. The "Fair Market Value," to be determined shall
be the price at which a willing seller under no compulsion to sell would sell
in a private transaction to an unaffiliated third party under no compulsion to
buy.
"Fiscal Year" shall mean the fiscal year of the Company, which shall end
on each December 31.
"GAAP" shall mean the generally accepted accounting principles used in
the preparation of the financial records with respect to all periods presented
thereby, applied on a consistent basis for all such periods and in accordance
with past practice.
"Lien" shall mean any mortgage, pledge, security interest, lien, charge,
encumbrance, equity, claim, option, tenancy, right or restriction on transfer
of any nature whatsoever.
"Loss" shall mean any loss, damage, liability, cost, assessment and
expense including, without limitation, any interest, fine, court cost and
reasonable investigation cost, penalty and attorneys' and expert witnesses'
fees, disbursements and expenses, after taking into account any insurance
proceeds actually received by or paid on behalf of any party incurring a Loss.
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"Majority Vote of the Members" shall mean the affirmative vote of the
holders of a majority of the Outstanding Membership Units held by the Members.
"Management Committee" shall mean the Management Committee established
pursuant to this Agreement and having the rights and powers set forth herein.
"Member" shall mean those Persons executing this Agreement as Members of
the Company on the signature pages hereto.
"Member Nonrecourse Debt" shall have the meaning as set forth in Section
1.752-1(a)(2) of the Treasury Regulations.
"Member Nonrecourse Debt Minimum Gain" shall mean an amount, with
respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that
would result if such Member Nonrecourse Debt were treated as a nonrecourse
liability, determined in accordance with Section 1.704-2(i)(3) of the Treasury
Regulations.
"Member Nonrecourse Deductions" shall have the meaning set forth in
Section 1.752-3(a) of the Treasury Regulations.
"Membership Unit" shall mean units which reflect ownership rights in the
Company.
"Minimum Distribution" shall mean a distribution made to a Member
pursuant to Section 8.1 of this Agreement in an amount equal to the product
obtained by multiplying the Taxable Income allocated to such Member for the
applicable Fiscal Year for which a Minimum Distribution is being made by the
Assumed Tax Rate.
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"Net Income" shall mean the excess of (i) the Company's gross income
(determined for federal income tax purposes but including income which is
exempt from federal income tax) over (ii) the sum of the Company's Expenses.
"Net Loss" shall mean the excess of the amount above described in clause
(ii) of Net Income over the amount above described in clause (i) of Net Income.
"Outstanding" shall mean the number of Membership Units issued by the
Company as shown on the Company's books and records, less any Membership Units
held by the Company.
"Permitted Encumbrances" shall mean (i) Liens for taxes or assessments
not yet due or not yet delinquent or, if delinquent, that are being and will be
contested in good faith in the normal course of business for which adequate
cash reserves have been set aside by the Company; (ii) easements,
rights-of-way, servitudes, permits, surface leases and other rights in respect
to surface operations, conditions, covenants or other restrictions and
easements for streets, alleys, highways, pipelines, telephone lines, power
lines, railways and other easements and rights-of-way, on, over or in respect
to any properties, provided that such easements, etc., shall not have a
materially adverse effect on the ownership, use, operation or value of such
properties; (iii) Liens, contracts, agreements, instruments and obligations
pertaining to any properties which do not and will not interfere materially
with the ownership, use, operation or value of such properties; (iv) title
defects and other minor irregularities in title with respect to any properties,
to the extent such matters do not and will not interfere materially with the
ownership, use, operation or value of such properties; (v) the terms and
conditions of all leases, agreements, orders, instruments and other matters
included in the Purchase Agreement; and (vi) rights reserved to or vested in
any municipality, governmental, statutory or public authority to control or
regulate any properties in any manner.
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"Permitted Investments" shall mean (a) the maintenance of funds from
time to time on deposit in an account or accounts with banking institutions
subject to supervision under the laws of the United States or any State thereof
and having a combined capital and surplus of at least $500,000,000, in each
case regardless of whether such funds on deposit are in excess of federal
deposit insured limits, (b) the maintenance of funds from time to time on
deposit in an account or accounts with a banking institution not meeting the
capital and surplus requirements of clause (a) above, provided that the amount
on deposit with such institution is not in excess of federal deposit insurance
limits, and (c) investments in (i) obligations issued or unconditionally
guaranteed by the United States or any agency thereof, which are readily
marketable (ii) commercial paper with a rating of at least "Prime-1" by Moody's
Investors Services, Inc., "A-1" by Standard & Poor's Corporation or "D-1" by
Duff & Phelps Inc., which commercial paper has a maturity at the time of
issuance thereof of not greater than one year, or (iii) certificates of deposit
of any commercial bank, but only if the aggregate amount of certificates of
deposit in any one bank (other than the Bank or a banking institution meeting
all of the requirements of clause (a)(iii) above as to which the following
limitation shall not apply) does not exceed the then applicable maximum amount
of federal deposit insurance.
"Person" shall mean an individual, a partnership, a joint venture, a
corporation, an association, a trust, an individual retirement account or any
other entity or organization, including a government or any department or
agency thereof.
"Purchase Agreement" shall mean that agreement so captioned, by and
among the Company, TV Games, Inc., a Texas corporation and wholly owned
subsidiary of Multimedia Games, Inc. ("MMG"), NEWCO, a Delaware limited
liability company and wholly owned subsidiary of MMG, American Gaming Network,
Inc. ("AGNI"), a Delaware corporation and wholly owned subsidiary of Cable
Video Store, Inc., a [Delaware] corporation and wholly owned subsidiary of
Graff Pay-Per-View, Inc., a Delaware corporation and American Gaming
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Network, JV, a joint venture formed pursuant to the general partnership laws of
the State of New York comprised of the Company and AGNI, as ventures dated June
___, 1996, as the same may from time to time be amended.
"Senior Debt" shall mean any Debt which by its terms requires that a
Note be subordinated thereto.
"Subsidiary" shall mean any corporation or similar business entity of
which more that fifty percent (50%) of the issued and outstanding securities
having ordinary voting power for the election of directors is owned or
controlled, directly or indirectly, by the Company.
"Taxable Income" shall mean the excess of (i) the Company's gross income
determined for federal income tax purposes over (ii) the sum of all amounts of
expense, loss, amortization or depreciation which are deductible from the
Company's gross income for federal income tax purposes.
"Taxes" shall mean all taxes, levies or other like assessments, charges
or fees, including, without limitation, income, gross receipts, real or
personal property, withholding, asset, sales, use, license, payroll,
transaction, capital, business, corporation, employment, net worth and
franchise taxes, or other governmental taxes imposed by or payable to the
United States of America or any State, local or foreign governmental entity,
whether computed on a separate, consolidated, unitary, combined or any other
basis; and in each instance such term shall include any interest, penalties or
additions to tax attributable to any such Tax.
"Third Party" shall mean, with respect to any Member, any other Person,
other than the Company or any Affiliate of such Member.
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"Treasury Regulation" shall mean the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
ARTICLE II
THE COMPANY AND ITS BUSINESS
2.1 Formation. The Members do hereby associate themselves for the
purpose of organizing and conducting a limited liability company pursuant to
the provisions of Delaware Law and this Agreement.
2.2 Firm Name. The name of the Company shall be AGN Venturers L.L.C.
All properties of the Company shall be held, all contracts shall be made, all
instruments and documents shall be executed and all acts of the Company shall
be done, in the name of AGN Venturers L.L.C. The Management Committee shall
cause to be filed on behalf of the Company such limited liability company
certificate or assumed or fictitious name certificate or similar instruments as
may from time to time be required by applicable law.
2.3 Filings. Upon the request of the Management Committee, each
Member shall at the expense of the Company promptly execute and deliver all
such certificates and other instruments conforming hereto as shall be necessary
for the Company to accomplish all filing, recording, publishing and other acts
appropriate to comply with all requirements for the formation and operation of
a limited liability company under the laws of all jurisdictions where the
Company shall propose to conduct business. Prior to conducting business in a
jurisdiction where the Company proposes to conduct business the Company shall,
to the fullest extent possible to establish limited liability for each Member
under the laws of such jurisdiction and otherwise to comply with the laws of
such jurisdiction, cause the
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Company to comply with all requirements for the registration, qualification or
reformation of the Company to conduct business as a limited liability company
in such jurisdiction. Thereafter, the Company shall continue to comply with
all requirements necessary to maintain the limited liability of each Member in
each jurisdiction where the Company does business.
2.4 Term. The Company shall be formed and commence upon the later of
(i) the filing for record of an initial certificate of formation with the
Secretary of State of the State of Delaware in accordance with Delaware Law and
(ii) the execution of this Agreement by the Members, and shall continue for a
period of forty (40) years or until sooner terminated as hereinafter provided
in this Agreement.
2.5 Purposes of the Company. Subject to the terms hereof, the purposes
of the Company shall be to (i) consummate the transactions contemplated by the
Purchase Agreement, (ii) own and operate the Assets to the fullest extent
permitted under applicable law, (iii) conduct any lawful business permitted by
Delaware Law and the laws of any jurisdiction in which the Company may do
business, and (iv) take all such other actions and to engage in such other
businesses as may be incidental to or in furtherance of any of the foregoing as
the Management Committee may determine to be necessary or desirable or to be in
the best interests of the Company.
2.6 Powers of the Company. The Company shall be empowered to do any
and all acts and things necessary, appropriate, proper, advisable, incidental
to or convenient for the furtherance and accomplishment of the purposes and
business of the Company described in Section 2.5 and for the protection and
benefit of the Company.
2.7 Compliance with Applicable Laws and Rules. No business or
activities shall be conducted by the Company that are or would be forbidden by,
or contrary to, any applicable law or to the rules or regulations lawfully
promulgated thereunder.
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2.8 Principal Office, Registered Office and Registered Agent. The
principal office of the Company shall be at AGN Venturers L.L.C.,7335 South
Lewis, Suite 204, Tulsa, Oklahoma, but other or additional places of business
within and without the State of Oklahoma may be selected from time to time by
the Management Committee upon notice to each Member. The registered office of
the Company in the State of Delaware shall be located at The Corporation Trust
Center, 1209 Orange Street, New Castle County, Wilmington, Delaware 19801 and
the registered agent for service of process on the Company in the State of
Delaware at such registered office shall be The Corporation Trust Company.
ARTICLE III
MANAGEMENT OF COMPANY BUSINESS;
MANAGEMENT COMMITTEE; MEETINGS; OFFICERS
3.1 Management and Control; Management Committee. Except as otherwise
specifically set forth in this Agreement, including without limitation Section
3.2 hereof, management, operation and policy decisions of the Company shall be
vested exclusively in the Management Committee, which shall have the power, on
behalf and in the name of the Company, to cause the Company to carry out any
and all of the business and purposes of the Company and to perform or cause to
be performed all acts and enter into and perform or cause to be performed all
contracts and other undertakings which the Management Committee may deem
necessary or advisable or incidental thereto.
3.2 Certain Required Consents. Notwithstanding any other provision of
this Agreement, the Management Committee may not, without a Majority Vote of
the Members, cause or authorize the Company to:
(a) Purchase all or substantially all of the assets or business of any
other Person.
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(b) Sell all or substantially all of its assets to, or consolidate or
merge with, any other Person.
(c) Engage in any business activities or operations other than as set
forth in Section 2.5 hereof.
(d) Amend, modify or terminate this Agreement or any of the terms and
provisions hereof, waive compliance with or enforcement of any of such terms
and provisions, agree to or permit any such amendment, modification,
termination or waiver, or breach, violate or be in default under any of the
foregoing agreements.
(e) Authorize or issue (whether by split-up, recombination,
reclassification or otherwise) any interest in the Net Income or Net Loss of
the Company, or any security convertible into or representing the right to
purchase or acquire any such interest, other than the issuance of Membership
Units as provided in Section 4.1 hereof.
3.3 Number and Term of Office. (a) The authorized number of members
of the Management Committee shall be one (1) which shall be elected by a
Majority Vote of the Members. The initial member of the Management Committee
shall be ________________.
(b) Members of the Management Committee, including the initial member,
shall hold office until the member's successor shall have been duly elected and
shall qualify or until the member shall die or resign or shall have been
removed in the manner hereinafter provided in Section 3.4(b). Nominations of
persons to serve as members of the Management Committee must be submitted to
the Secretary of the Company in a writing signed by a Member not less than ten
(10) days prior to the meeting of Members at which the member of the Management
Committee shall be elected.
3.4 Resignations and Removals. (a) Members of the Management Committee
may resign at any time by giving written notice to the Management Committee or
to the Secretary of the Company. Any such resignation shall take effect at the
time specified therein, or, if
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the time be not specified, it shall take effect immediately upon its receipt;
and unless otherwise specified therein, the acceptance of such resignation
shall not be necessary to make it effective.
(b) Members of the Management Committee may be removed for any reason
by a Majority Vote of the Members.
3.5 Vacancies. Any vacancy in the Management Committee, whether
because of death, resignation, removal or any other cause, shall be filled by a
Majority Vote of the Members at a special meeting of the Members called for
such purpose. The member of the Management Committee so chosen to fill a
vacancy shall hold office until his successor shall have been elected and shall
qualify or until he shall resign or shall have been removed.
3.6 Place of Meeting, Etc. The Management Committee may hold any of
its meetings at such place or places within or without the State of Delaware as
the Management Committee may from time to time by resolution designate or as
shall be designated by the person or persons calling the meeting or in the
notice or a waiver of notice of any such meeting.
3.7 Annual Organizational Meeting. The Management Committee shall meet
as soon as practicable after each annual election of members of the Management
Committee and notice of such meeting shall not be required.
3.8 Regular Meetings. Regular meetings of the Management Committee may
be held at such times as the Management Committee shall from time to time by
resolution determine. If any day fixed for a regular meeting shall be a legal
holiday at the place where the meeting is to be held, then the meeting shall be
held at the same hour and place on the next succeeding business day not a legal
holiday. Except as provided by law, notice of regular meetings need not be
given.
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3.9 Special Meetings. Special meetings of the Management Committee may
be called at any time by the member of the Management Committee, to be held at
the principal office of the Company, or at such other place or places, within
or without the State of Delaware, as the member of the Management Committee
shall designate.
3.10 Quorum and Manner of Acting. Except as otherwise provided in this
Agreement or by law, the presence of a majority of the then authorized and
required number of members of the Management Committee shall be required to
constitute a quorum for the transaction of business at any meeting of the
Management Committee. All matters shall be decided at any such meeting, a
quorum being present, by the affirmative votes of a majority of the members of
the Management Committee present. In the absence of a quorum, a majority of
members of the Management Committee present at any meeting may adjourn the same
from time to time until a quorum shall be present. Notice of any adjourned
meeting need not be given. The Management Committee shall act only as a
committee and no individual member thereof shall have the authority, as such,
to act for and on behalf of the Company.
3.11 Action by Consent. Any action required or permitted to be taken
at any meeting of the Management Committee or of any committee thereof may be
taken without a meeting if a written consent thereto is signed by all members
of the Management Committee or of such committee, as the case may be, and such
written consent is filed with the minutes of proceedings of the Management
Committee or committee.
3.12 Compensation. No stated salary need be paid members of the
Management Committee, as such, for their services, but, by resolution of the
Management Committee, reasonable expenses of attendance, if any, may be allowed
for attendance at each regular or special meeting of the Management Committee;
provided that, nothing herein contained shall be construed to preclude any
member of the Management Committee from serving the Company in any other
capacity and receiving compensation therefor.
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3.13 Committees. The Management Committee may designate one or more
committees. Any such committee, to the extent provided in the resolution of
the Management Committee, and except as otherwise limited by law, shall have
and may exercise all the powers and authority of the Management Committee in
the management of the business and affairs of the Company. Any such committee
shall keep written minutes of its meetings and report the same to the
Management Committee at the next regular meeting of the Management Committee.
3.14 Officers of the Management Committee. The Management Committee
shall have a Chairman of the Management Committee and may, at the discretion of
the Management Committee, have a Vice Chairman. The Chairman of the Management
Committee and the Vice Chairman shall be appointed from time to time by the
Management Committee and shall have such powers and duties as shall be
designated by the Management Committee.
3.15 Officers of the Company. The Management Committee shall designate
one or more persons to act as the Chief Executive Officer, President, Chief
Financial Officer, Treasurer and Secretary of the Company. The Company may
also have, at the discretion of the Management Committee, a Chief Operating
Officer, one or more Vice Presidents or Assistant Vice Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers and such other officers
as may be appointed in accordance with the provisions of Section 3.17 below.
One person may hold two or more offices, except that the Secretary may not also
hold the office of President or Chief Executive Officer.
3.16 Election. The officers of the Company, except such officers as
may be appointed in accordance with the provisions of Section 3.17 or Section
3.19 of this Article, shall be chosen annually by the Management Committee, and
each shall hold office until such officer shall resign or shall be removed or
otherwise disqualified to serve, or such officer's successor shall be elected
and qualified.
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3.17 Subordinate Officers, etc. The Management Committee may appoint
such other officers as the business of the Company may require, each of whom
shall have such authority and perform such duties as the Management Committee
may from time to time specify, and shall hold office until such officer shall
resign or shall be removed or otherwise disqualified to serve, or such
officer's successor shall be elected and qualified.
3.18 Removal and Resignation. Any officer may be removed, either with
or without cause, by the Management Committee at any regular or special meeting
thereof or by any officer upon whom such power of removal may be conferred by
the Management Committee.
Any officer may resign at any time by giving written notice to the
Management Committee, the Chairman of the Management Committee, the President
or the Secretary of the Company. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein; and
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
3.19 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled by the election of
the Management Committee at any meeting thereof.
3.20 Chairman of the Management Committee. The Chairman of the
Management Committee shall, subject to the control of the Management Committee,
serve a general oversight, planning and policy making function, shall preside
at all meetings of Members and at all meetings of the Management Committee, and
shall perform such other functions as determined from time to time by the
Management Committee.
3.21 Chief Executive Officer. The Chief Executive Officer of the
Company shall, subject to the control of the Management Committee, have general
supervision, direction and control of the
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business and affairs of the Company. In the absence of the Chairman of the
Management Committee, the Chief Executive Officer shall preside at all meetings
of Members. The Chief Executive Officer shall have the general powers and
duties of management usually vested in the chief executive officer of a
corporation, and shall have such other powers and duties with respect to the
administration of the business and affairs of the Company as may from time to
time be assigned by the Management Committee.
3.22 President. The President shall exercise and perform such powers
and duties with respect to the administration of the business and affairs of
the Company as may from time to time be assigned to such officer by the Chief
Executive Officer (unless the President is also the Chief Executive Officer) or
by the Management Committee. In the absence or disability of the Chief
Executive Officer, the President shall perform all of the duties of the Chief
Executive Officer and when so acting shall have all of the powers and be
subject to all the restrictions upon the Chief Executive Officer.
3.23 Vice Presidents. The Vice Presidents shall exercise and perform
such powers and duties with respect to the administration of the business and
affairs of the Company as may from time to time be assigned to each of them by
the President or by the Chief Executive Officer or by the Management Committee.
In the absence or disability of the President, the Vice Presidents, in order of
their rank as fixed by the Management Committee, or if not ranked, the Vice
President designated by the Management Committee, shall perform all of the
duties of the President and when so acting shall have all of the powers of and
be subject to all the restrictions upon the President.
3.24 The Chief Financial Officer and Treasurer. The Chief Financial
Officer and Treasurer shall keep and maintain, or cause to be kept and
maintained, adequate and correct accounts of the properties and business
transactions of the Company, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, surplus and Membership Units.
The books of account
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shall at all reasonable times be open to inspection by any Management Committee
Representative.
The Chief Financial Officer and Treasurer shall deposit all moneys and
other valuables in the name and to the credit of the Company with such
depositories as may be designated by the Management Committee. Such officer
shall disburse the funds of the Company as may be ordered by the Management
Committee, shall render to the President, to the Chief Executive Officer, and
to the Management Committee, whenever they request it, an account of all of
transactions as Chief Financial Officer and Treasurer and of the financial
condition of the Company, and shall have such other powers and perform such
other duties as may be prescribed by the Management Committee or the Chief
Executive Officer or the President.
3.25 Secretary. The Secretary shall keep, or cause to be kept, a book
of minutes at the principal office of the Company, or such other place as the
Management Committee may order, of all meetings of the Management Committee and
Members, with the time and place of holding, whether regular or special, and if
special, how authorized and the notice thereof given, the names of those
present at meetings of the Management Committee, the number of Membership Units
present or represented at Members' meetings and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office
of the Company or at the office of the Company's transfer agent, a Membership
Unit register, or a duplicate Membership Unit register, showing the names of
the Members and their addresses; the number and Classes of Membership Units
held by each; the number and date of certificates, if any, issued for the same;
and the number and date of cancellation of every certificate surrendered for
cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the Members and of the Management Committee required by this
Agreement or by law to be given, and shall keep the seal of the Company in safe
custody, and shall have such other powers and
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perform such other duties as may be prescribed by the Management Committee, the
Chief Executive Officer or the President. If for any reason the Secretary
shall fail to give notice of any special meeting of the Management Committee or
of the Members called by one or more of the persons permitted to do so in this
Agreement, then any such permitted person may give notice of any such special
meeting.
3.26 Compensation. The compensation of the officers of the Company
shall be fixed from time to time by the Management Committee. None of such
officers shall be prevented from receiving such compensation by reason of the
fact that such officer is also a Management Committee Representative. Nothing
contained herein shall preclude any officer from serving the Company, or any
Affiliate of the Company, in any other capacity and receiving proper
compensation therefor.
3.27 Execution of Contracts. Except as otherwise provided in this
Agreement, the Management Committee may authorize any officer or officers,
agent or agents, to enter into any contract or execute any instrument in the
name and on behalf of the Company, and such authority may be general or
confined to specific instances; and unless so authorized by the Management
Committee or by this Agreement, no officer, Member, agent or employee shall
have any power or authority to bind the Company by any contract or engagement
or to pledge its credit or to render it liable for any purpose or in any
amount.
3.28 Checks, Drafts, Etc. All checks, drafts or other orders for
payment of money, notes or other evidence of indebtedness, issued in the name
of or payable to the Company, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the Management Committee. Each such person shall give such bond,
if any, as the Management Committee may require.
3.29 Deposits. Subject to Section 3.2(e) hereof, all funds of the
Company not otherwise employed shall be deposited from time to
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time to the credit of the Company in such banks, trust companies or other
depositories as the Management Committee may select, or as may be selected by
any officer or officers, assistant or assistants, agent or agents, or attorney
or attorneys of the Company to whom such power shall have been delegated by the
Management Committee. For the purpose of deposit and for the purpose of
collection for the account of the Company, the Chief Executive Officer, the
President, any Vice President or the Chief Financial Officer and Treasurer (or
any other officer or officers, assistant or assistants, agent or agents, or
attorney or attorneys of the Company who shall from time to time be determined
by the Management Committee) may endorse, assign and deliver checks, drafts and
other orders for the payment of money which are payable to the order of the
Company.
3.30 General and Special Bank Accounts. The Management Committee may
from time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the
Management Committee may select or as may be selected by any officer or
officers, assistant or assistants, agent or agents, or attorney or attorneys of
the Company to whom such power shall have been delegated by the Management
Committee. The Management Committee may make such special rules and
regulations with respect to such bank accounts, not inconsistent with the
provisions of this Agreement, as it may deem expedient.
ARTICLE IV
AUTHORIZATION OF MEMBERSHIP UNITS;
RIGHTS AND DUTIES OF MEMBERS;
MEETINGS OF MEMBERS; VOTING
4.1 Authorization of Membership Units; Characteristic of Membership
Units. The Company is hereby authorized to issue five (5) Membership Units in
exchange for the initial contribution as provided in Section 6.1 of this
Agreement. Each Membership Unit has (i) equal governance rights with every
other Membership Unit and in matters
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subject to a vote of the Members has one vote and (ii) subject to Section 4.2,
each Membership Unit has equal rights with every other Membership Unit with
respect to sharing of profits and losses and with respect to distributions.
4.2 Participation of Membership Units in Net Income and Net Loss. Each
Membership Unit shall participate in the Net Income and Net Loss of the Company
in the proportion that such Unit bears to the total number of Membership Units
outstanding.
4.3 Annual Meetings. Annual meetings of the Members of the Company for
the purpose of electing the members of the Management Committee and for the
transaction of such other proper business as may come before such meetings may
be held at such time, date and place as the Management Committee shall
determine by resolution.
4.4 Special Meetings. Special meetings of the Members of the Company
for any purpose or purposes may be called at any time by the Management
Committee, or by a committee of the Management Committee which has been duly
designated by the Management Committee and whose powers and authority, as
provided in a resolution of the Management Committee or in this Agreement,
include the power to call such meetings, but such special meetings may not be
called by any other Person or Persons.
4.5 Place of Meetings. All meetings of the Members shall be held at
such places, within or without the State of Delaware, as may from time to time
be designated by the person or persons calling the respective meeting and
specified in the respective notices or waivers of notice thereof.
4.6 Notice of Meetings. Except as otherwise required by law, notice of
each meeting of the Members, whether annual or special, shall be given not less
than fifteen (15) nor more than sixty (60) days before the date of the meeting
to each Member of record entitled to vote at such meeting by delivering a
written notice thereof to such Member personally, or by depositing such notice
in the United
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States mail, in a postage prepaid envelope, directed to such Member at the post
office address furnished by such Member to the Secretary of the Company for
such purpose or, if such Member shall not have furnished to the Secretary the
address for such purpose, then at such Member's post office address last known
to the Secretary. Except as otherwise expressly required by law, no
publication of any notice of a meeting of the Members shall be required. Every
notice of a meeting of the Members shall state the place, date and hour of the
meeting, and, in the case of a special meeting, shall also state the purpose or
purposes for which the meeting is called. Notice of any meeting of Members
shall not be required to be given to any Member who shall have waived such
notice and such notice shall be deemed waived by any Member who shall attend
such meeting in person or by proxy, except as a Member who shall attend such
meeting for the express purpose of objecting, at the beginning of the meeting,
to the transaction of any business because the meeting is not lawfully called
or convened. Except as otherwise expressly required by law, notice of any
adjourned meeting of the Members need not be given if the time and place
thereof are announced at the meeting at which the adjournment is taken.
4.7 Quorum. The holders of record of a majority of Membership Units of
the Company, present in person or by proxy, shall constitute a quorum for the
transaction of business at any meeting of the Members of the Company or any
adjournment thereof. In the absence of a quorum at any meeting or any
adjournment thereof, a majority of Unit Membership holders actually present in
person or by proxy or, in the absence therefrom of all the Members, any officer
entitled to preside at, or to act as secretary of, such meeting, may adjourn
such meeting from time to time. At any such adjourned meeting at which a
quorum is present any business may be transacted which might have been
transacted at the meeting as originally called.
4.8 Voting. (a) Each Member shall, at each meeting of the Members, be
entitled to one vote per Membership Unit as held by such Member in person or by
proxy on the matter in question and which
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shall have been held by such Member and registered in such Member's name on the
books of the Company:
(i) on the date fixed pursuant to Section 4.9 of this Agreement
as the record date for the determination of Members entitled to notice
of and to vote at such meeting, or
(ii) if no such record date shall have been so fixed, then (1)
at the close of business on the day next preceding the day on which
notice of the meeting shall be given or (2) if notice of the meeting
shall be waived, at the close of business on the day next preceding the
day on which the meeting shall be held.
(b) Membership Units owned, directly or indirectly, by the Company,
shall neither be entitled to vote nor be counted for quorum purposes. Persons
holding Membership Units of the Company in a fiduciary capacity shall be
entitled to vote such stock. Persons whose Membership Units are pledged shall
be entitled to vote such Membership Units.
(c) Any such voting rights may be exercised by the Member entitled
thereto in person or by proxy appointed by an instrument in writing, subscribed
by such Member or by such Member's attorney thereunto authorized and delivered
to the secretary of the meeting. The attendance at any meeting of a Member who
may theretofore have given a proxy shall not have the effect of revoking the
same.
(d) At any meeting of the Members all matters, except as otherwise
provided in this Agreement or by law, shall be decided by the vote of holders
of a majority of Membership Units present in person or by proxy and entitled to
vote thereat and thereon, a quorum being present.
(e) Any action required or permitted to be taken at any regular or
special meeting of the Members of the Company may be taken without a meeting,
without prior notice and without a vote, if a
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written consent thereto is signed by Members holding Units representing not
less than the minimum interest in the Net Income and Net Loss of the Company
that would be necessary to authorize or take such action at a meeting at which
all Units entitled to vote thereon were present and voted, and such written
consent is filed with the minutes of proceedings of the Members.
4.9 Fixing Date for Determination of Members of Record. In order that
the Company may determine the Members entitled to notice of or to vote at any
meeting of Members or any adjournment thereof, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled
to exercise any rights in respect of any other change, conversion or exchange
of Membership Units or for the purpose of any other lawful action the
Management Committee may fix, in advance, a record date, which shall not be
more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action. If in any
case involving the determination of Members for any purpose other than notice
of or voting at a meeting of Members the Management Committee shall not fix
such a record date, the record date for determining Members for such purpose
shall be the close of business on the day on which the Management Committee
shall adopt the resolution relating thereto. A determination of Members
entitled to notice of or to vote at a meeting of Members shall apply to any
adjournment of such meeting; provided, that the Management Committee may fix a
new record date for the adjourned meeting.
ARTICLE V
BOOKS AND RECORDS
5.1 Books of Account. At all times during the continuance of the
Company, the Company shall keep or cause to be kept, true and complete books of
account utilizing the GAAP method of accounting, on the basis of the Company's
Fiscal Year.
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5.2 Availability of Books of Account. All of the books of account
referred to in Section 5.1 hereof, together with an executed copy of this
Agreement and the Certificate of Formation of the Company, and any amendments
thereto, shall at all times be maintained at the principal office of the
Company, and shall be open to the inspection and examination of each Member or
its representative at such Member's expense during reasonable business hours.
5.3 Annual Reports and Other Statements. (a) The Company shall cause
to be prepared, and shall deliver to each Member as soon as practical, but in
any event on or before the 90th day following the end of the Company's Fiscal
Year, an unaudited, end of the year, balance sheet and preliminary statement of
income and loss of the Company, certified by the Chief Financial Officer.
(b) The Company shall cause to be prepared, and shall deliver to each
Member as soon as practical, but in any event on or before the 90th day
following the end of the Company's Fiscal Year, a statement of such Member's
Capital Account as of the end of such Fiscal Year, a statement indicating such
Member's share of the Company's Net Income or Net Loss for such Fiscal Year,
and other items relevant for Federal income tax purposes, all of which shall
be certified by the Chief Financial Officer.
5.4 Tax Matters Partner. (a) TV Games, Inc. is hereby designated as
the Tax Matters Partner of the Company within the meaning of Section 6231 of
the Code. Each Member, by the execution of this Agreement, consents to such
designation.
(b) To the extent and in the manner provided by applicable law and
regulations, the Tax Matters Partner shall furnish the name, address, profits
interest and taxpayer identification number of each Member, including any
successor or Additional Member, to the Internal Revenue Service, and shall keep
each Member informed of the administrative and judicial proceedings for the
adjustment at the Company level of any item required to be taken into account
by a Member for income tax purposes (such an administrative proceeding
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referred to hereinafter as a "tax audit" and such a judicial proceeding
referred to hereinafter as "judicial review"). If the Tax Matters Partner, on
behalf of the Company, receives a notice with respect to a tax audit from the
Internal Revenue Service, the Tax Matters Partner shall promptly forward a copy
of such notice to the Members or former Members who hold or held interests in
the profits or losses of the Company for any taxable year to which the notice
relates.
(c) The Tax Matters Partner is hereby authorized, but not required:
(1) subject to pre-approval by the Management Committee, to
enter into any settlement with the Internal Revenue Service with respect
to any tax audit or judicial review;
(2) in the event that a notice of a final administrative
adjustment (a "final adjustment") is mailed to the Tax Matters Partner,
to seek judicial review of such final adjustment;
(3) to intervene in any action brought by any other Member for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the
Internal Revenue Service at any time and, if any part of such request is
not allowed by the Internal Revenue Service, to file a petition for
judicial review with respect to such request;
(5) to enter into an agreement with the Internal Revenue Service
to extend the period for assessing any tax which is attributable to any
item required to be taken into account by a Member for tax purposes, or
an item affected by such item; and
(6) to take any other action on behalf of the Members in
connection with any administrative or judicial tax proceeding to
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the extent permitted or required by applicable law or regulations.
(d) The Tax Matters Partner shall have no obligation to provide funds
for the purpose of contesting any tax audit or final adjustment, intervening in
any action, or seeking an administrative adjustment or judicial review. The
taking of any action and the incurring of any expense by the Tax Matters
Partner in connection with any such proceeding, except to the extent required
by law, is a matter in the sole discretion of the Tax Matters Partner and the
provisions on limitation of liability of the members of the Management
Committee set forth in Article XI hereof shall be fully applicable to the Tax
Matters Partner in its capacity as such; provided, that in any event the Tax
Matters Partner shall always act in the best interests of the Members.
ARTICLE VI
CAPITAL CONTRIBUTIONS
6.1 Capital Contributions. On or before the Closing Date the Member
listed on Exhibit A shall contribute ___________________ (______________) cash,
in immediately available U.S. funds, for each Membership Unit set forth
opposite such Member's name on Exhibit A hereto.
6.2 Advances, Etc. Except as otherwise provided in this Agreement, no
Member shall be entitled to withdraw any part of his Capital Account or to
receive any distribution from the Company and no Member shall be obligated or
entitled to make any additional Capital Contributions to the Company. Loans by
a Member to the Company shall not (i) be considered as a contribution to the
capital of the Company; (ii) increase the Capital Account of the lending
Member; (iii) entitle the lending Member to an increase in its share of the
income of the Company; or (iv) subject the lending Member to any greater
portion of any losses which the Company may sustain. The
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amount of any such loan shall be a debt due from the Company to such Member.
6.3 Additional Capital Contributions. Any Member may, with the prior
Majority Vote of the Members, make additional capital contributions to the
Company upon terms and conditions approved by such Majority Vote of the
Members.
6.4 Return of Capital Contribution. Except as otherwise expressly
provided in this Agreement, no Member shall have the right to demand of the
Company the return of all or any part of any contribution to the capital of the
Company until the Company has been dissolved and terminated and then only to
the extent provided in Article X hereof, and no Member shall have the right to
demand or receive property other than cash in return for its contribution.
ARTICLE VII
CAPITAL ACCOUNTS; ALLOCATIONS
7.1 Capital Accounts. A Capital Account shall be maintained for each
Member. Such Account shall be credited with (i) such Member's Contributed
Capital and (ii) any Net Income (or items thereof), and income and gain
described in Treasury Regulation Section 1.704-1(b)(2)(iv)(g) (exclusive of
income described in Treasury Regulation Section 1.704-1(b)(4)(i)) and (iii) the
fair market value of property hereafter contributed to the Company by such
Member (net of liabilities secured by such contributed property that the
Company is considered to assume or take subject to under Section 752 of the
Code). Such Account shall be reduced by (i) any cash distribution to such
Member pursuant to Article VIII or XI hereof and the fair market value of any
other property distributed thereto pursuant to either such Article (net of any
liability secured thereby which such Member is considered to assume or take
subject to under Section 752 of the Code), and (ii) any Net Loss (or item
thereof), and loss or deduction described in Treasury Regulation Section
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1.704-1(b)(2)(iv)(g) (exclusive of amounts described in Treasury Regulation
Section 1.704-1(b)(4)(i) or (iii)). Such Capital Account shall be otherwise
credited, reduced and maintained in accordance with Treasury Regulation Section
1.704-1(b). Except as otherwise provided in this Agreement, whenever it is
necessary to determine the Capital Account of any Member for purposes of this
Agreement, the Capital Account of such Member shall be determined after giving
effect to all prior distributions and to all allocations under this Article VII
in respect of transactions effected prior to or on the date as of which such
determination is to be made.
7.2 Allocations. (a) After giving effect to the special allocations
set forth in Section 7.2(b) and 7.2(c), the Net Income and Net Loss of the
Company shall be allocated to the Members in accordance Section 4.2.
(b) The following special allocations shall be made in the following
order:
(i) Company Minimum Gain Chargeback. Except as otherwise
provided in Treasury Regulation Section 1.704-2(f), notwithstanding any
other provision of this Section 7.2, if there is a net decrease in
Company Minimum Gain during any Fiscal Year, each Member shall be
specially allocated items of Company income and gain for such Fiscal
Year (and, if necessary, subsequent Fiscal Years) in an amount equal to
such Member's share of the net decrease in Company Minimum Gain,
determined in accordance with Treasury Regulations Section 1.704-2(g).
Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each
Member pursuant thereto. This Section 7.2(c)(i) is intended to comply
with the minimum gain chargeback requirement of the Treasury Regulations
Section 1.704-1(f) and shall be interpreted consistently therewith.
(ii) Member Minimum Gain Chargeback. Except as otherwise
provided in Section 1.704-1(i)(4) of the Treasury Regulations,
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notwithstanding any other provision of this Section 7.2, if there is a
net decrease in Member Nonrecourse Debt Minimum Gain attributable to a
Member Nonrecourse Debt during any Fiscal Year, each Member who has a
share of the Member Nonrecourse Debt Minimum Gain attributable to such
Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of
the Treasury Regulations, shall be specially allocated items of Company
income and gain for such Fiscal Year (and, if necessary, subsequent
Fiscal Years) in an amount equal to such share of the net decrease in
Member Nonrecourse Debt Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Treasury Regulations
Section 1.704-2(i)(4). Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. This Section 7.2(c)(ii) is
intended to comply with the minimum gain chargeback requirement in
Section 1.704-2(i)(4) of the Treasury Regulations and shall be
interpreted consistently therewith.
(iii) Partner Nonrecourse Deductions. Any Member Nonrecourse
Deductions for any Fiscal Year shall be specially allocated to the
Member who bears the economic risk of loss with respect to the Member
Nonrecourse Debt to which such Member Nonrecourse Deductions are
attributable in accordance with Treasury Regulations Section 1.704-
2(i)(1).
(iv) Code Section 754 Adjustment. To the extent an adjustment
to the adjusted tax basis of any Company asset pursuant to Code Section
734(b) or Code Section 743(b) is required, pursuant to Treasury
Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Treasury Regulations
Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining
Capital Accounts as the result of a distribution to a Member in complete
liquidation of his interest in the Company, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain
(if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis) and such
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gain or loss shall be specially allocated to the Members in accordance
with their interests in the Company in the event Treasury Regulations
Section 1.704-1(b)(2)(iv)(m)(2) applies, or to the Members to whom such
distribution was made in the event Treasury Regulations Section 1.704-
1(b)(2)(iv)(m)(4) applies.
(v) Code Section 704(c). In accordance with Code Section 704(c)
and the Treasury Regulations thereunder, income, gain, loss and
deduction with respect to any property contributed by a Member to the
Company shall, solely for tax purposes, be allocated among the Members
so as to take account of any variation between the adjusted basis of
such property to the Company for federal income tax purposes and its
fair market value as of the date of contribution.
(c) The allocations set forth in Sections 7.2(b) hereof (the
"Regulatory Allocations") are intended to comply with certain requirements of
the Treasury Regulations. It is the intent of the Members that, to the extent
possible, all Regulatory Allocations shall be offset either with other
Regulatory Allocations or with special allocations of other items of Company
income, gain, loss, or deduction pursuant to this Section 7.2(d). Therefore,
notwithstanding any other provision of this Section 7.2 (other than the
Regulatory Allocations), the Company shall make such offsetting special
allocations of Company income, gain, loss, or deduction in whatever manner
appropriate so that, after such offsetting allocations are made, each Member
Capital Account balance is, to the extent possible, equal to the Capital
Account balance such Member would have had if the Regulatory Allocations were
not part of the Agreement and all Company items were allocated pursuant to
Section 7.2(a) hereof. In exercising this discretion under this Section
7.2(c), the Company shall take into account future Regulatory Allocations that,
although not yet made, are likely to offset other Regulatory Allocations
previously made.
7.3 Varying Interests. All allocations pursuant to Section 7.2 hereof
shall take due account of increases and decreases
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in the number of Membership Units owned by each Member during the Fiscal Year.
7.4. Transferred Interests. In the event all or a portion of an
interest in the Company is transferred in accordance with the terms of this
Agreement, the transferee shall succeed to the Capital Account of the
transferor to the extent it relates to the transferred interest.
7.5 Distributions in Kind. The amount by which the fair market value
of any property to be distributed in kind to the Members pursuant to Article
VIII or XI hereof exceeds or is less than the adjusted basis of such property
for federal income tax purposes shall, to the extent not otherwise recognized
to the Company, be taken into account in computing gain or loss of the Company
for purposes of crediting or charging the Capital Accounts of, and distributing
proceeds to, the Members under Articles VII, VIII or XI hereof.
7.6 Composition of Net Income or Loss. Net Income or Net Loss shall
be determined for each Fiscal Year (or for any portion thereof as may be
required by Section 7.3 hereof). For federal income tax purposes each item of
income, gain, loss or deduction which enters into the calculation of Net Income
or Net Loss shall be allocated in the same proportions as such Net Income or
Net Loss is allocated pursuant to Section 7.2 hereof.
7.7 Authority of Management Committee to Vary Allocations. It is the
intent of the Members that each Member's allocable share of income, gain, loss,
deduction, or credit (or item thereof) (hereinafter, "Tax Items") shall be
determined and allocated in accordance with this Article VII to the fullest
extent permitted by Section 704(b) of the Code. The Management Committee is
authorized and directed to allocate Tax Items arising in any Fiscal Year
differently than otherwise provided for in this Article VII to the extent that
allocating Tax Items in the manner provided for in Article VII, in the opinion
of tax counsel or the accountants to the
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Company, would cause the determinations and allocations of each Member's
distributive share of Tax Items not to be permitted by Section 704(b) of the
Code and Treasury Regulations promulgated thereunder.
7.8. Partnership Treatment for Income Tax Purposes. The Members are
aware of the income tax consequences of the allocations made by this Article
VII and hereby agree to be bound by the provisions of this Article VII in
reporting their share of the Company's Net Income and Net Loss for income tax
purposes.
ARTICLE VIII
DISTRIBUTIONS
8.1 Minimum Distributions. In general, Company income will be
retained, first, to repay Company debt, pay Company Expenses and to provide
working capital and, thereafter, to make Minimum Distributions to the Members.
After providing for the satisfaction of any current debts and other obligations
of the Company and the setting up of any reserves for Company liabilities,
contingent or otherwise, deemed necessary or appropriate by the Management
Committee in its sole discretion, the Company shall make the Minimum
Distribution to each Member according to Section 8.2.
8.2 Estimated Tax Payments. The Company shall determine as of March
31, May 31, August 31 and November 30 (hereinafter referred to as a
"Determination Date") the estimated amount of tax required to be paid by a
Member in respect of such Member's share of Taxable Income in order to avoid a
penalty under Section 6655 of the Code (and any comparable provision of a
State) on such Taxable Income for the year date through the fiscal period
ending nearest to the Determination Date in accordance with the provisions of
this Agreement. The Company shall pay over to each Member the amount so
determined, less any prior estimated payments made, within fifteen (15) days
following such Determination Date.
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8.3 Final Tax Payment. At the time of delivery of the report referred
to in Section 5.3(b) hereof, the Company shall compute the required Minimum
Distribution for the applicable Fiscal Year. To the extent the estimated tax
payments made to a Member pursuant to Section 8.2 hereof are less than the
amount of the required Minimum Distribution, the Company shall pay each Member
such difference. The extent the estimated tax payments made to a Member
pursuant to Section 8.2 hereof are more than the amount of the required Minimum
Distribution, each Member shall pay the Company such difference.
ARTICLE IX
TRANSFERS OF MEMBERSHIP UNITS
9.1 Assignment of Membership Units by Members. (a) Except as
otherwise expressly provided in this Section 9.1, no Member shall transfer
(whether by gift, court order, operation of law, or otherwise) all or any part
of a Membership Unit to any person unless such transfer is made in accordance
with the terms and provisions of Section 9.1(b) hereof. Any transferee
pursuant to this Section 9.1 shall take and hold the transferred interest
subject to this Agreement and to all other obligations and restrictions upon
the transferor Member, shall observe and comply with this Agreement and with
such obligations and restrictions and shall, unless such transferee is a Member
or is admitted as an Additional Member pursuant to Section 9.3 hereof, as a
condition of transfer, execute and deliver to the Company an agreement, in form
and substance satisfactory to the Management Committee in its sole discretion,
pursuant to which such transferee agrees to be bound by all of the terms and
provisions of this Agreement. Any attempted transfer in violation of this
Section 9.1(a) shall be null and void.
(b) A Member may transfer Membership Units only as follows (and any
Person to whom a Membership Unit is permitted to be transferred in accordance
with this Section 9.1(b) is herein called a "Permitted Transferee"):
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(1) Upon death by will or by the laws of intestate distribution.
(2) With consent after a majority vote of the Management
Committee, which consent may be granted or withheld in the sole and
absolute discretion of the Management Committee. The failure to
exercise the rights of first refusal set forth in Section 9.8 hereof
shall not be deemed to be the giving of such consent.
(3) In compliance with the provisions of Sections 9.8 and 9.9
hereof.
9.2 When Transfers Binding on Company. No transfer of all or any part
of a Membership Unit by Member permitted to be made under this Agreement shall
be binding upon the Company unless and until a duplicate original of the
instrument of transfer, duly executed and acknowledged by the transferor, has
been delivered to the Company.
9.3 Additional Members. Permitted Transferees of a Member shall be
admitted to the Company as an Additional Member and shall participate in Net
Income and Net Loss of the Company on the same basis as the transferor Member.
9.4 Costs to Additional Members. As a condition further to those
described in Section 9.1 hereof to the admission of any Additional Member, such
Additional Member shall, if required by the Management Committee in its sole
discretion, pay all reasonable expenses actually incurred in connection with
such admission as a Member.
9.5 Election to Adjust Tax Basis. The Management Committee may, but
shall not be required to, cause the Company to make an election, or to revoke
any such election previously made, under Section 754 of the Code to adjust the
basis of Company property under Sections 734 and 743 of the Code. Any Member
requesting that such
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election be made in the context of a transaction to which Section 743 of the
Code would apply shall reimburse the Company for any additional accounting
costs resulting from such election.
9.6 Distributions and Allocations in Respect to Transferred Interests.
If any Membership Units are sold, assigned, or transferred during any
accounting period in compliance with the provisions of this Section 9, Net
Income, Net Loss, each item thereof, and all other items attributable to the
transferred interest for such period shall be divided and allocated between the
transferor and the transferee by taking into account their varying interests
during the period in accordance with Code Section 706(d), using any conventions
permitted by law and selected by the Management Committee. All distributions
on or before the date of such transfer shall be made to the transferor, and all
distributions thereafter shall be made to the transferee.
9.7 Legends. The Company shall be entitled to affix to each
certificate evidencing outstanding Membership Units that is issued to any
Member a legend in substantially the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO REGISTRATION OF
TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE COMPANY
UNLESS SUCH TRANSFER IS MADE IN CONNECTION WITH AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH ACT DOES NOT APPLY.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE THE RIGHTS, PRIVILEGES
AND PREFERENCES AND ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS
SET FORTH IN A LIMITED LIABILITY COMPANY AGREEMENT DATED AS OF JANUARY
15, 1996, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES
OF THE
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COMPANY. NO REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE MADE ON
THE BOOKS OF THE COMPANY UNLESS AND UNTIL SUCH RESTRICTIONS SHALL HAVE
BEEN COMPLIED WITH."
9.8 Right of First Refusal. (a) If any Member receives from or
otherwise negotiates with a Third Party a bona fide offer to purchase for cash
(for purposes of this Section 9.8, an "Offer") any of the Membership Units
owned or held by such Member, and such Member intends to pursue a sale of such
Membership Units to such Third Party, such Member (for purposes of this
Section 9.8, the "Prospective Seller") shall provide the Company and each of
the other Members (for purposes of this Section 9.8, the "Remaining Members")
written notice of such Offer (for purposes of this Section 9.8, an "Offer
Notice"). The Offer Notice shall identify the Third Party making the Offer,
the number of Membership Units with respect to which the Prospective Seller has
such an Offer (for purposes of this Section 9.8, the "Offered Membership
Units"), the cash price per Membership Unit at which a sale is proposed to be
made (for purposes of this Section 9.8, the "Offer Price"), and all the other
material terms and conditions of the Offer. The number of Membership Units
which may become Offered Membership Units shall be limited to two Membership
Units per Member, per year unless increased by the Management Committee in its
sole discretion.
(b) The receipt of an Offer Notice by each Remaining Member and the
Company from a Prospective Seller shall constitute an offer by the Prospective
Seller to sell to each Remaining Member and the Company the Offered Membership
Units at the Offer Price in cash. Such offer shall be irrevocable for 20
business days after receipt of the Offer Notice by each Remaining Member and
for two additional five (5) business day periods thereafter as hereinafter
provided. During such 20 business day period, each Remaining Member and the
Company shall, subject to the priorities set forth in the next succeeding
paragraph, have the right to accept such offer as to all or a portion of the
Offered Membership Units by giving a written notice of acceptance (for purposes
of this Section 9.8, the "Notice of
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Acceptance") to the Prospective Seller prior to the expiration of such 20
business day period. If after expiration of such 20 business day period the
Prospective Seller shall not have received Notices of Acceptance for all the
Offered Membership Units, the Prospective Seller shall thereupon notify each
Accepting Party (as hereinafter defined) by telecopy or personal delivery of
such fact and shall provide each Accepting Party an opportunity, during a
period of five (5) business days from the date such notice is so given, to
submit an additional Notice of Acceptance of any such Offered Membership Units.
For purposes of this Section 9.8, any Remaining Member submitting a Notice of
Acceptance pursuant to this Section 9.8 is herein called an "Accepting Party."
Each Remaining Member and the Company shall be entitled to accept the
offer from the Prospective Seller in the following order of priority:
(i) first, the Company shall be entitled to accept such offer for any or
all of the Offered Membership Units.
(ii) second, to the extent the Company shall not have accepted such
offer for all the Offered Membership Units, each Remaining Member shall be
entitled to accept such offer for not more than a portion of the Offered
Membership Units determined on a pro rata basis based on the ratio of the
interest in the Net Income and Net Loss represented by the Membership Units
then owned by such Remaining Member to the total interest in the Net Income and
Net Loss represented by all Membership Units then outstanding (other than the
Offered Membership Units); and
(iii) third, to the extent that any Offered Membership Units remain
after application of clause (i) and (ii) above, each Accepting Party shall then
be entitled to purchase such remaining Offered Membership Units on a pro rata
basis based upon the ratio that the interest in the Net Income and Net Loss
represented by the Membership Units owned by each Accepting Party exercising
its rights pursuant to this clause (iii) bears to the interest in the Net
Income and Net
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Loss represented by the Membership Units owned by all Accepting Parties
exercising their rights pursuant to this clause (iii).
If the Company or any Remaining Member so accepts the Prospective Seller's
offer, each Accepting Party will purchase for cash from the Prospective Seller,
and the Prospective Seller will sell to each Accepting Party, such number of
Offered Membership Units as to which each Accepting Party shall have accepted
the Prospective Seller's offer. The price per Membership Unit to be paid by
each Accepting Party shall be the Offer Price specified in the Offer Notice.
The Notice of Acceptance shall specify (i) such Accepting Party's acceptance of
the Prospective Seller's offer and (ii) the number of Offered Membership Units
to be purchased by such Accepting Party.
(c) The consummation of any purchase by any Accepting Party shall take
place on such date, not later than 10 days after the expiration of the 20
business day period referred to in Section 9.8(b) above (or, if applicable, the
expiration of the additional five (5) business day period referred to in
Section 9.8(b) above), as such Accepting Party and the Prospective Seller shall
select. Upon the consummation of such purchase and sale, the Prospective
Seller shall (i) deliver to the Accepting Party certificates evidencing the
Offered Membership Units so purchased, duly endorsed in blank or accompanied by
written instruments of transfer in form satisfactory to such Accepting Party
and duly executed by the Prospective Seller, and (ii) assign all its rights
under this Agreement with respect to the Offered Membership Units so purchased
pursuant to an instrument of assignment reasonably satisfactory to such
Accepting Party.
(d) In the event that (i) each Remaining Member and the Company shall
have received an Offer Notice from a Prospective Seller but the Prospective
Seller shall not have received Notices of Acceptance as to all the Offered
Membership Units, or (ii) an Accepting Party shall have failed to consummate,
other than as a result of the fault of the Prospective Seller, the purchase of
the Offered Membership Units to be purchased by such Accepting Party (and
another Accepting Party or Parties does not purchase such Membership Units),
the Prospective
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Seller shall have the right to reject any or all Notices of Acceptance
theretofore received and nothing in this Section 9.8 shall limit the right of
the Prospective Seller to make a sale of the Offered Membership Units so long
as all the Offered Membership Units that are sold or otherwise disposed of by
the Prospective Seller (which number of Offered Membership Units shall be not
less than the number of Offered Membership Units specified in Offer Notice) are
sold for cash (A) within 60 days after the date of receipt of the Offer Notice
by each Remaining Member, (B) at a price not less than the Offer Price included
in the Offer Notice, (C) to the Third Party making the Offer, and (D) the
Number of Offered Membership Units does not exceed two per Member, per year,
unless increased by the Management Committee.
(e) In the event that the Prospective Seller shall not have sold the
Offered Membership Units before the expiration of the 60-day period in
accordance with paragraph (d) above, then the provisions of this Section 9.8
shall be reinstated as to the Offered Membership Units as if an Offer Notice
had not been delivered and such Prospective Seller shall not give another Offer
Notice for a period of 120 days from the earlier of the date the transactions
contemplated herein were terminated or such 60-day period.
(f) The provisions of this Section 9.8 shall apply to any proposed sale
pursuant to Section 9.9 and any notice given pursuant to Section 9.9 shall
first be deemed an Offer Notice pursuant to this Section 9.8. The provisions
of this Section 9.8 shall not be applicable to (i) any sale or transfer made
pursuant to Section 9.1(b)(1).
9.9 Provisions Relating to Put Right. (a) If any Member, for any
reason whatsoever, wishes to sell its Membership Units to the Company, the
Company shall be obligated (the "Put Option"), by delivery of written notice to
the Company (the "Put Notice"), to cause the Company to purchase, and the
Company shall purchase, all Membership Units which the Member desires to sell
(collectively, the "Put Securities") as and to the extent specified in the Put
Notice,
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at a price per Membership Unit equal to the Fair Market Value thereof;
provided, however, that each Member may exercise his Put Option upon no more
than [two (2) Membership Units] per year, unless otherwise determined by the
Management Committee in its sole discretion. Notwithstanding the foregoing, in
the event of the death of any Person holding Membership Units which were
validly acquired pursuant to this Agreement, the decedents estate shall have
until thirty (30) days after the appointment of an executor or administrator of
such deceased Person's estate or affairs to exercise the Put Option pursuant to
this Section 9.9.
(b) The closing of the purchase of any Put Securities by the Company
pursuant to this Section 9.9 shall take place at the principal office of the
Company not less than one hundred eighty (180) days after the delivery of the
Put Notice. At any closing pursuant to this Section 9.9, the Company shall
deliver, against delivery of certificates duly endorsed and stock powers
representing the Membership Units specified in the Put Notice, a certified
check or checks payable to the order of such Person selling Put Securities as
specified in the Put Notice, in an amount equal to the lessor of Contributed
Capital used as consideration for the purchase of the Put Securities (the
"Initial Contribution") or the Fair Market Value of the Put Securities. To the
extent, if any, that the Fair Market Value of the Put Securities exceeds the
Initial Contribution of the Put Securities (the "Remaining Value"), the
Management Committee shall pay the Remaining Value of the Put Securities,
either by (i) a certified check or checks payable to the order of such Person
selling Put Securities as specified in the Put Notice, (ii) issuance to such
Member of a promissory note of the Company, dated the date of the closing of
the purchase of Put Securities, bearing interest on such principal amount at
the rate of ten percent (10%) per annum, payable in arrears semi-annually,
subordinated to any Senior Debt and secured by the Put Securities, or (iii) any
combination thereof as determined, in its sole discretion, by the Management
Committee.
(c) Notwithstanding any provisions set forth in this Section 9.9 to the
contrary, the Company shall not be obligated to repurchase
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Membership Units under this Section 9.9 if at the time of the proposed cash
payment the Company is, or would be upon delivery of such cash payment and as a
consequence thereof, in default under or otherwise in violation of the terms of
any loan or credit agreements to which the Company is a party or by which the
Company and its assets is bound. In such event, the Company shall, in lieu of
such cash payment for the Initial Contribution or the Remaining Value, issue a
promissory note equal to the Fair Market Value of the Put Securities upon the
terms as provided in Section 9.9(b) above. The Company shall pay such
promissory note if and to the extent the Company will not as a consequence of
such payment be in violation of the terms of any such loan or credit
agreements.
9.10 Certificates for Membership Units. Every owner of a Membership
Unit shall be entitled to have a certificate or certificates, to be in such
form as the Management Committee shall prescribe, certifying the number of
Membership Units owned by such Member. The certificates representing
Membership Units shall be numbered in the order in which they shall be issued
and shall be signed in the name of the Company by the President, or a Vice
President, and by the Secretary or an Assistant Secretary or by the Treasurer
or an Assistant Treasurer. Any or all of the signatures on the certificates
may be a facsimile. In case any officer, transfer agent or registrar who has
signed, or whose facsimile signature has been placed upon, any such certificate
shall thereafter have ceased to be such officer, transfer agent or registrar
before such certificate is issued, such certificate may nevertheless be issued
by the Company with the same effect as though the person who signed such
certificate, or whose facsimile signature shall have been placed thereupon,
were such officer, transfer agent or registrar at the date of issue. A record
shall be kept of the respective names of the Persons owning the Membership
Units represented by such certificates, the number of Membership Units
represented by such certificates, respectively, and the respective dates
thereof, and in case of cancellation, the respective dates of cancellation.
Every certificate surrendered to the Company for exchange or transfer shall be
canceled, and no new certificate or certificates shall be issued
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in exchange for any existing certificate until such existing certificate shall
have been so canceled, except in cases of lost or mutilated certificates as
provided for in Section 9.11 below. The person in whose name Membership Units
stand on the books of the Company shall be deemed the owner thereof for all
purposes as regards the Company. Certificates shall be issued for fractional
Membership Units.
9.11 Lost, Stolen, Destroyed, and Mutilated Certificates. In any case
of loss, theft, destruction, or mutilation of any certificate of Membership
Units, another may be issued in its place upon proof of such loss, theft,
destruction, or mutilation and upon the giving of a bond of indemnity to the
Company in such form and in such sum as the Management Committee may direct;
provided, however, that a new certificate may be issued without requiring any
bond when, in the judgment of the Management Committee, it is proper to do so.
ARTICLE X
DISSOLUTION AND TERMINATION OF COMPANY;
LIQUIDATION AND DISTRIBUTION OF ASSETS
10.1 Dissolution and Termination. The Company shall be dissolved upon
the earliest of:
(a) the fortieth anniversary of the date hereof;
(b) 90 days after the death, retirement, resignation, expulsion,
bankruptcy or dissolution of any Member, or the entry of a decree of
judicial dissolution under Section 18-802 of the Delaware Law, unless
the action described in Section 10.2 hereof shall have been taken;
(c) the date as of which all or substantially all of the assets
of the Company shall have been distributed or converted to cash or its
equivalent; or
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(d) at any time, upon the majority vote in favor of such
dissolution by the Management Committee.
Upon dissolution, the Company shall wind up its affairs and shall be liquidated
and a certificate of cancellation of the Company, as required by law, shall be
filed.
10.2 Continuation of Company. The business of the Company shall be
continued after an event described in Section 10.1(b) hereof if within 90 days
after any such event a Majority Vote of (acting together and not as a
separate Class) shall elect in writing that the business of the Company should
be continued.
10.3 Distribution upon Liquidation. Upon any dissolution of the
Company, each of the following shall be accomplished within the period
described in Treasury Regulation Section 1.704-1(b)(2)(ii)(b):
(i) the Company shall prepare a statement setting forth the
assets and liabilities of the Company as of the date of termination, and
such statement shall be furnished to all of the Members;
(ii) the assets of the Company shall be liquidated as promptly
as possible, but in an orderly and businesslike manner so as not to
involve undue sacrifice;
(iii) Company funds shall be applied to the payment and
discharge of the claims of creditors (including Members who are
creditors) in the order of priority provided by law or to the
establishment or increase of reserves therefor;
(iv) the Company Net Income and Net Loss for the final Fiscal
Year shall be allocated, and the Members' Capital Accounts shall be
credited or charged in accordance with the terms of this Agreement; and
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(v) the balance of any remaining cash and other assets shall be
distributed to the Members in accordance with their respective Capital
Accounts.
ARTICLE XI
INDEMNIFICATION
11.1 Actions, Etc. Other Than by or in the Right of the Company. The
Company shall indemnify any Person (herein, together with any Affiliates of
such Person, an "Indemnified Person") who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative (other
than an action by or in the right of the Company) by reason of the fact that
the Indemnified Person is or was a Member, a Management Committee
Representative, an officer, an employee or an agent of the Company, or is or
was serving at the request of the Company as a director, officer, employee or
agent of another Person or other enterprise or as a member of any committee or
similar body, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by the
Indemnified Person in connection with such action, suit or proceeding if the
Indemnified Person acted in good faith and in a manner the Indemnified Person
reasonably believed to be in or not opposed to, the best interests of the
Company, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe such conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or upon
a plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the Indemnified Person did not act in good faith and in a
manner which the Indemnified Person reasonably believed to be in, or not
opposed to, the best interests of the Company, and, with respect to any
criminal action or proceeding, that the Indemnified Person had reasonable cause
to believe that such conduct was unlawful.
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11.2 Actions, Etc., by or in the Right of the Company. The Company
shall indemnify any Indemnified Person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the Company to procure a judgment in its favor by reason of the
fact that the Indemnified Person is or was a Member, a Management Committee
Representative, an officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another Person or other enterprise, or as a member of any committee or
similar body, against expenses (including attorneys' fees) actually and
reasonably incurred by the Indemnified Person in connection with the defense or
settlement of such action or suit if the Indemnified Person acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests of the Company, except that no indemnification shall be made in
respect of any claim, issue or matter as to which the Indemnified Person shall
have been adjudged to be liable for negligence or misconduct in the performance
of the Indemnified Person's duty to the Company unless and only to the extent
that the Court of Chancery or the court in which such action or suit was
brought shall determine upon application that, despite the adjudication of
liability but in view of all the circumstances of the case, the Indemnified
Person is fairly and reasonably entitled to indemnity for such expenses which
the Court of Chancery or such other court shall deem proper.
11.3 Determination of Right of Indemnification. Any indemnification
under Section 11.1 or 11.2 (unless ordered by a court) shall be made by the
Company only as authorized in the specific case upon a determination that
indemnification of the Indemnified Person is proper in the circumstances
because the Indemnified Person has met the applicable standard of conduct set
forth in Section 11.1 and 11.2. Such determination shall be made (i) by the
Management Committee by a majority vote of a quorum consisting of members who
were not parties to such action, suit or proceeding, or (ii) if such a quorum
is not obtainable, or, even if obtainable, a quorum of disinterested members of
the Management Committee so
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directs, by independent legal counsel in a written opinion, or (iii) by a
Majority Vote of the Members.
11.4 Indemnification Against Expenses of Successful Party.
Notwithstanding the provisions of Section 11.1 or 11.2, to the extent that an
Indemnified Person has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Section 11.1 or 11.2, or in
defense of any claim, issue or matter therein, the Indemnified Person shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by the Indemnified Person in connection therewith.
11.5 Advance of Expenses. Expenses incurred in defending a civil or
criminal action, suit or proceeding referred to in Section 11.1 or 11.2 shall
be paid by the Company in advance of the final disposition of such action, suit
or proceeding as authorized by the Management Committee in the specific case
upon receipt of an undertaking by or on behalf of the Indemnified Person to
repay such amount unless it shall ultimately be determined that the Indemnified
Person is entitled to be indemnified by the Company as authorized in this
Article.
11.6 Other Rights and Remedies. The indemnification provided by
Section 11.1 and 11.2 shall not be deemed exclusive and is declared expressly
to be nonexclusive of any other rights to which one seeking indemnification may
be entitled under any agreement, vote of Members or of disinterested members of
the Management Committee or otherwise, both as to action in an Indemnified
Person's official capacity and as to action in another capacity while holding
such office, and shall continue as to an Indemnified Person who has ceased to
be a Member, Management Committee Representative, officer, employee or agent of
the Company and shall inure to the benefit of the heirs, executors and
administrators of such an Indemnified Person.
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ARTICLE XII
MISCELLANEOUS
12.1 Further Assurances. Each party to this Agreement agrees to
execute, acknowledge, deliver, file and record such further certificates,
amendments, instruments and documents, and to do all such other acts and
things, as may be required by law, or as may be necessary or advisable to carry
out the intents and purposes of this Agreement.
12.2 Amendments. This Agreement may be amended Majority Vote of the
Members; provided, that no such amendment shall be made without the consent of
all Members if the effect of any such amendment would be to (i) increase any
Member's personal liability; (ii) change any Members' right and interest in the
Net Income, Net Loss or distributions from the Company; (iii) change any
Member's rights upon liquidation of the Company; or (iv) cause the Company to
be treated for tax purposes as an association taxable as a corporation.
12.3 Notices. Unless otherwise specified in this Agreement, all
notices, demands, elections, requests or other communications that any party to
this Agreement may desire or be required to give hereunder shall be in writing
(which shall include telecopier, telegram or cable) and shall be deemed to have
been duly given or made upon the transmittal thereof by telecopier, answerback
received, or the delivery thereof to the telegraph office, or on receipt
following the deposit thereof in the mails or when delivered by hand, in each
case to the person to whom notice is being given, addressed as follows:
(a) to the Company, at the principal place of business of the
Company or at such other address as may be designated by the Company
upon written notice to the Members;
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(b) to each Member at the address set forth beneath the
signature of such Member on the signature pages to this Agreement, or at
such other address as may be designated by written notice to the Company
as provided in this Section; and
(c) to any person who hereafter becomes an Additional Member, at
such address as may be designated by it by written notice to the
Company.
12.4 Headings and Captions. All headings and captions contained in
this Agreement are for convenience only and shall not be deemed a part of this
Agreement.
12.5 Variations of Pronouns. All pronouns and all variations thereof
shall be deemed to refer to the masculine, feminine or neuter, singular or
plural, as the identity of the person or entity may require.
12.6 Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one agreement.
12.7 Governing Law. This Agreement is made pursuant to the provisions
of the Delaware Law and shall be construed accordingly.
12.8 Successors and Assigns. This Agreement shall be binding upon the
parties hereto and their respective successors, executors, administrators,
legal representatives, heirs and assigns and shall inure to the benefit of the
parties hereto and, except as otherwise provided herein, their respective
successors, executors, administrators, legal representatives, heirs and
assigns.
12.9 Waiver of Right of Partition. Each of the Members does hereby
agree to and does hereby irrevocably waive (a) any right it may have, whether
by statute or by rule of law, to cause any asset of the Company to be
partitioned or to file a complaint or to institute any proceeding at law, or in
equity, to cause any asset to be
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partitioned, or to complete a sale of all or any part of the assets of the
Company, and (b) any right to take any action which otherwise may be available
to such Member for the purpose of severing its relation with the Company or its
interest in the assets of the Company from the interest of the other Members
other than any rights such Member may have pursuant to the terms of this
Agreement, throughout the term of the Company and during the period of its
liquidation following any dissolution.
12.10 Entire Agreement. This Agreement and the other documents
contemplated herein constitutes the entire agreement of the Members with
respect to the transactions contemplated hereby and supersedes all prior oral
or written agreements and understandings.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the ____ day of June, 1996.
AGN Venturers L.L.C.
By:
--------------------------------------
ADDRESS:
TV Games, Inc.
By:
--------------------------------------
ADDRESS:
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EXHIBIT 10.21
LIMITED LIABILITY COMPANY AGREEMENT
OF
AMERICAN GAMING NETWORK L.L.C.
THIS LIMITED LIABILITY COMPANY AGREEMENT (the "Agreement"), dated as of
July 20, 1996, by and among American Gaming Network L.L.C., a limited liability
company formed pursuant to the laws of the State of Delaware (the "Company"),
and Mike Howard, an individual residing in Tulsa, Oklahoma.
In consideration of the covenants, conditions and agreements contained
herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
As used in this Agreement, the following terms shall have the meanings
set forth below:
"Additional Member" shall mean a Person admitted as a Member pursuant to
Article IX of this Agreement.
"Affiliate" shall mean, with respect to any Person, any other Person
that, directly or indirectly, controls, is controlled by or is under common
control with, the Person in question.
"Assets" shall mean all rights and ownership interests of the Company.
"Capital Account" shall mean the capital account maintained for each
Member pursuant to Article VII hereof.
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"Claim" shall mean any demand, claim, action or cause of action based on
any Loss.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Company Expenses" shall mean all amounts of expense, loss, amortization
or depreciation which are deductible from the Company's gross income for
federal income tax purposes and all amounts of expense described in Section
705(a)(2)(B) of the Code.
"Company Minimum Gain" shall have the meaning as set forth in Section
1.704-2(d) of the Treasury Regulations.
"Company Nonrecourse Liabilities" shall mean nonrecourse liabilities (or
portions thereof) of the Company for which no Member bears the economic risk of
loss.
"Contributed Capital" shall mean, with respect to each Member, any cash,
cash equivalents or the value of other property that a Member contributes to
the Company pursuant to Section 6.1 of this Agreement, in each case as the same
may from time to time be adjusted as provided in this Agreement.
"Delaware Law" shall mean the Delaware Limited Liability Company Act, as
amended from time to time, or any successor statute or statutes.
"Fair Market Value" shall mean (i) such value as is determined in good
faith by the Management Committee and delivered in writing to each Member, or
(ii) if such valuation by the Management Committee is objected to by a majority
of the Members and written notice of such (the "Objection Notice") is given
within twenty (20) business days after the receipt by such holders of the
Management Committee's valuation, which Objection Notice to be valid
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shall state the valuation proposed by the objecting party, such value as is
determined by mutual agreement among the Management Committee and the majority
of the Members, or (iii) if no such mutual agreement is reached in a twenty
(20) business day period following the receipt of the Objection Notice, such
value as is determined in good faith in a written report to the Company by an
appraisal or investment banking firm of recognized national standing selected
by the Management Committee from a list of three such firms submitted by a
majority of the Members that, in each case, are independent of the Company, any
Member and any of their respective Affiliates. The cost and expense of such
independent appraisal or investment banking firm shall be paid or shared by the
Company and/or the objecting party in an amount determined by the extent to
which the valuation of the Management Committee and the objecting party is
sustained (e.g., if the Management Committee proposes a valuation of $5 per
Membership Unit, the objecting party proposes $10 per Membership Unit and the
independent firm determines $6 to be the Fair Market Value, then the Company
shall pay 20% and the objecting party 80% of such cost and expense. The "Fair
Market Value," to be determined shall be the price at which a willing seller
under no compulsion to sell would sell in a private transaction to an
unaffiliated third party under no compulsion to buy.
"Fiscal Year" shall mean the fiscal year of the Company, which shall end
on each September 30.
"GAAP" shall mean the generally accepted accounting principles used in
the preparation of the financial records with respect to all periods presented
thereby, applied on a consistent basis for all such periods and in accordance
with past practice.
"Liquidation Value" shall mean an amount equal to the amount which the
Terminated Member would have received had the Company been dissolved under
Section 9.3 herein and its Assets disposed of at Fair Market Value and
following
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satisfaction of all the Terminated Member's obligations to the Company.
"Loss" shall mean any loss, damage, liability, cost, assessment and
expense including, without limitation, any interest, fine, court cost and
reasonable investigation cost, penalty and attorneys' and expert witnesses'
fees, disbursements and expenses, after taking into account any insurance
proceeds actually received by or paid on behalf of any party incurring a Loss.
"Majority Vote of the Members" shall mean the affirmative vote of the
holders of a majority of the Outstanding Membership Units held by the Members.
"Management Committee" shall mean the Management Committee established
pursuant to this Agreement and having the rights and powers set forth herein.
"Member" shall mean those Persons executing this Agreement as Members of
the Company on the signature pages hereto and each Additional Member.
"Member Nonrecourse Debt" shall have the meaning as set forth in Section
1.752-1(a)(2) of the Treasury Regulations.
"Member Nonrecourse Debt Minimum Gain" shall mean an amount, with
respect to each Member Nonrecourse Debt, equal to the Company Minimum Gain that
would result if such Member Nonrecourse Debt were treated as a nonrecourse
liability, determined in accordance with Section 1.704-2(i)(3) of the Treasury
Regulations.
"Member Nonrecourse Deductions" shall have the meaning set forth in
Section 1.752-3(a) of the Treasury Regulations.
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"Membership Unit" shall mean units which reflect ownership rights in the
Company.
"Net Income" shall mean the excess of (i) the Company's gross income
(determined for federal income tax purposes but including income which is
exempt from federal income tax) over (ii) the sum of the Company's Expenses.
"Net Loss" shall mean the excess of the amount above described in clause
(ii) of Net Income over the amount above described in clause (i) of Net Income.
"Outstanding" shall mean the number of Membership Units issued by the
Company as shown on the Company's books and records, less any Membership Units
held by the Company.
"Person" shall mean an individual, a partnership, a joint venture, a
corporation, an association, a trust, an individual retirement account or any
other entity or organization, including a government or any department or
agency thereof.
"Remaining Members" shall mean (i) where used in Section 8.8 hereof, are
Members other than a Prospective Seller, and (ii) when used in Section 9.2
hereof, all Members of the Company who are not Terminated Members.
"Subsidiary" shall mean any corporation or similar business entity of
which more that fifty percent (50%) of the issued and outstanding securities
having ordinary voting power for the election of directors is owned or
controlled, directly or indirectly, by the Company.
"Taxable Income" shall mean the excess of (i) the Company's gross income
determined for federal income tax purposes over (ii) the sum of all amounts of
expense, loss, amortization or depreciation which are deductible from the
Company's gross income for federal income tax purposes.
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"Taxes" shall mean all taxes, levies or other like assessments, charges
or fees, including, without limitation, income, gross receipts, real or
personal property, withholding, asset, sales, use, license, payroll,
transaction, capital, business, corporation, employment, net worth and
franchise taxes, or other governmental taxes imposed by or payable to the
United States of America or any State, local or foreign governmental entity,
whether computed on a separate, consolidated, unitary, combined or any other
basis; and in each instance such term shall include any interest, penalties or
additions to tax attributable to any such Tax.
"Terminated Member" shall mean a Member as to which an event described
in Section 9.1(b) has occurred.
"Third Party" shall mean, with respect to any Member, any other Person,
other than the Company or any Affiliate of such Member.
"Treasury Regulation" shall mean the Income Tax Regulations, including
Temporary Regulations, promulgated under the Code, as such regulations may be
amended from time to time (including corresponding provisions of succeeding
regulations).
ARTICLE II
THE COMPANY AND ITS BUSINESS
2.1 Formation. The Members do hereby associate themselves for the
purpose of organizing and conducting a limited liability company pursuant to
the provisions of Delaware Law and this Agreement.
2.2 Firm Name. The name of the Company shall be American Gaming
Network L.L.C. All properties of the Company shall be held, all contracts
shall be made, all instruments and documents shall be executed and all acts of
the Company shall be done, in the name of
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American Gaming Network L.L.C. The Management Committee shall cause to be
filed on behalf of the Company such limited liability company certificate or
assumed or fictitious name certificate or similar instruments as may from time
to time be required by applicable law.
2.3 Filings. Upon the request of the Management Committee, each
Member shall at the expense of the Company promptly execute and deliver all
such certificates and other instruments conforming hereto as shall be necessary
for the Company to accomplish all filing, recording, publishing and other acts
appropriate to comply with all requirements for the formation and operation of
a limited liability company under the laws of all jurisdictions where the
Company shall propose to conduct business. Prior to conducting business in a
jurisdiction where the Company proposes to conduct business the Company shall,
to the fullest extent possible to establish limited liability for each Member
under the laws of such jurisdiction and otherwise to comply with the laws of
such jurisdiction, cause the Company to comply with all requirements for the
registration, qualification or reformation of the Company to conduct business
as a limited liability company in such jurisdiction. Thereafter, the Company
shall continue to comply with all requirements necessary to maintain the
limited liability of each Member in each jurisdiction where the Company does
business.
2.4 Term. The Company shall be formed and commence upon the later of
(i) the filing for record of an initial certificate of formation with the
Secretary of State of the State of Delaware in accordance with Delaware Law and
(ii) the execution of this Agreement by the Members, and shall continue for a
period of forty (40) years or until sooner terminated as hereinafter provided
in this Agreement.
2.5 Purposes of the Company. Subject to the terms hereof, the purposes
of the Company shall be to (i) own and operate the Assets to the fullest extent
permitted under applicable law, (ii) conduct any lawful business permitted by
Delaware Law and the laws of any jurisdiction in which the Company may do
business, and (iiii) take all such other actions and to engage in such other
businesses as may
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be incidental to or in furtherance of any of the foregoing as the Management
Committee may determine to be necessary or desirable or to be in the best
interests of the Company.
2.6 Powers of the Company. The Company shall be empowered to do any
and all acts and things necessary, appropriate, proper, advisable, incidental
to or convenient for the furtherance and accomplishment of the purposes and
business of the Company described in Section 2.5 and for the protection and
benefit of the Company.
2.7 Compliance with Applicable Laws and Rules. No business or
activities shall be conducted by the Company that are or would be forbidden by,
or contrary to, any applicable law or to the rules or regulations lawfully
promulgated thereunder.
2.8 Principal Office, Registered Office and Registered Agent. The
principal office of the Company shall be at American Gaming Network L.L.C.,7335
South Lewis, Suite 204, Tulsa, Oklahoma, but other or additional places of
business within and without the State of Oklahoma may be selected from time to
time by the Management Committee upon notice to each Member. The registered
office of the Company in the State of Delaware shall be located at The
Corporation Trust Center, 1209 Orange Street, New Castle County, Wilmington,
Delaware 19801 and the registered agent for service of process on the Company
in the State of Delaware at such registered office shall be The Corporation
Trust Company.
ARTICLE III
MANAGEMENT OF COMPANY BUSINESS;
MANAGEMENT COMMITTEE; MEETINGS; OFFICERS
3.1 Management and Control; Management Committee. Except as otherwise
specifically set forth in this Agreement, including without limitation Section
3.2 hereof, management, operation and policy decisions of the Company shall be
vested exclusively in the
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Management Committee, which shall have the power, on behalf and in the name of
the Company, to cause the Company to carry out any and all of the business and
purposes of the Company and to perform or cause to be performed all acts and
enter into and perform or cause to be performed all contracts and other
undertakings which the Management Committee may deem necessary or advisable or
incidental thereto.
3.2 Certain Required Consents. Notwithstanding any other provision of
this Agreement, the Management Committee may not, without a Majority Vote of
the Members, cause or authorize the Company to:
(a) Purchase all or substantially all of the assets or business of any
other Person.
(b) Sell all or substantially all of its assets to, or consolidate or
merge with, any other Person.
(c) Engage in any business activities or operations other than as set
forth in Section 2.5 hereof.
(d) Amend, modify or terminate this Agreement or any of the terms and
provisions hereof, waive compliance with or enforcement of any of such terms
and provisions, agree to or permit any such amendment, modification,
termination or waiver, or breach, violate or be in default under any of the
foregoing agreements.
(e) Authorize or issue (whether by split-up, recombination,
reclassification or otherwise) any interest in the Net Income or Net Loss of
the Company, or any security convertible into or representing the right to
purchase or acquire any such interest, other than the issuance of Membership
Units as provided in Section 4.1 hereof.
3.3 Number and Term of Office. (a) The authorized number of members
of the Management Committee shall be one (1) which shall be
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elected by a Majority Vote of the Members. The initial member of the
Management Committee shall be Mike Howard.
(b) Members of the Management Committee, including the initial member,
shall hold office until the member's successor shall have been duly elected and
shall qualify or until the member shall die or resign or shall have been
removed in the manner hereinafter provided in Section 3.4(b). Nominations of
persons to serve as members of the Management Committee must be submitted to
the Secretary of the Company in a writing signed by a Member not less than ten
(10) days prior to the meeting of Members at which the member of the Management
Committee shall be elected.
3.4 Resignations and Removals. (a) Members of the Management Committee
may resign at any time by giving written notice to the Management Committee or
to the Secretary of the Company. Any such resignation shall take effect at the
time specified therein, or, if the time be not specified, it shall take effect
immediately upon its receipt; and unless otherwise specified therein, the
acceptance of such resignation shall not be necessary to make it effective.
(b) Members of the Management Committee may be removed for any reason
by a Majority Vote of the Members.
3.5 Vacancies. Any vacancy in the Management Committee, whether
because of death, resignation, removal or any other cause, shall be filled by a
Majority Vote of the Members at a special meeting of the Members called for
such purpose. The member of the Management Committee so chosen to fill a
vacancy shall hold office until his successor shall have been elected and shall
qualify or until he shall resign or shall have been removed.
3.6 Place of Meeting, Etc. The Management Committee may hold any of
its meetings at such place or places within or without the State of Delaware as
the Management Committee may from time to time by resolution designate or as
shall be designated by the person or
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persons calling the meeting or in the notice or a waiver of notice of any such
meeting.
3.7 Annual Organizational Meeting. The Management Committee shall meet
as soon as practicable after each annual election of members of the Management
Committee and notice of such meeting shall not be required.
3.8 Regular Meetings. Regular meetings of the Management Committee may
be held at such times as the Management Committee shall from time to time by
resolution determine. If any day fixed for a regular meeting shall be a legal
holiday at the place where the meeting is to be held, then the meeting shall be
held at the same hour and place on the next succeeding business day not a legal
holiday. Except as provided by law, notice of regular meetings need not be
given.
3.9 Special Meetings. Special meetings of the Management Committee may
be called at any time by the member of the Management Committee, to be held at
the principal office of the Company, or at such other place or places, within
or without the State of Delaware, as the member of the Management Committee
shall designate.
3.10 Quorum and Manner of Acting. Except as otherwise provided in this
Agreement or by law, the presence of a majority of the then authorized and
required number of members of the Management Committee shall be required to
constitute a quorum for the transaction of business at any meeting of the
Management Committee. All matters shall be decided at any such meeting, a
quorum being present, by the affirmative votes of a majority of the members of
the Management Committee present. In the absence of a quorum, a majority of
members of the Management Committee present at any meeting may adjourn the same
from time to time until a quorum shall be present. Notice of any adjourned
meeting need not be given. The Management Committee shall act only as a
committee and no individual member thereof shall have the authority, as such,
to act for and on behalf of the Company.
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3.11 Action by Consent. Any action required or permitted to be taken
at any meeting of the Management Committee or of any committee thereof may be
taken without a meeting if a written consent thereto is signed by all members
of the Management Committee or of such committee, as the case may be, and such
written consent is filed with the minutes of proceedings of the Management
Committee or committee.
3.12 Compensation. No stated salary need be paid members of the
Management Committee, as such, for their services, but, by resolution of the
Management Committee, reasonable expenses of attendance, if any, may be allowed
for attendance at each regular or special meeting of the Management Committee;
provided that, nothing herein contained shall be construed to preclude any
member of the Management Committee from serving the Company in any other
capacity and receiving compensation therefor.
3.13 Committees. The Management Committee may designate one or more
committees. Any such committee, to the extent provided in the resolution of
the Management Committee, and except as otherwise limited by law, shall have
and may exercise all the powers and authority of the Management Committee in
the management of the business and affairs of the Company. Any such committee
shall keep written minutes of its meetings and report the same to the
Management Committee at the next regular meeting of the Management Committee.
3.14 Officers of the Management Committee. The Management Committee
shall have a Chairman of the Management Committee and may, at the discretion of
the Management Committee, have a Vice Chairman. The Chairman of the Management
Committee and the Vice Chairman shall be appointed from time to time by the
Management Committee and shall have such powers and duties as shall be
designated by the Management Committee.
3.15 Officers of the Company. The Management Committee may designate
one or more persons to act as the Chief Executive Officer, President, Chief
Financial Officer, Treasurer and Secretary of the Company. The Company may
also have a Chief Operating Officer, one or
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more Vice Presidents or Assistant Vice Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers and such other officers as may be
appointed in accordance with the provisions of Section 3.17 below. One person
may hold two or more offices, except that the Secretary may not also hold the
office of President or Chief Executive Officer.
3.16 Election. The officers of the Company, except such officers as
may be appointed in accordance with the provisions of Section 3.17 or Section
3.19 of this Article, shall be chosen annually by the Management Committee, and
each shall hold office until such officer shall resign or shall be removed or
otherwise disqualified to serve, or such officer's successor shall be elected
and qualified.
3.17 Subordinate Officers, etc. The Management Committee may appoint
such other officers as the business of the Company may require, each of whom
shall have such authority and perform such duties as the Management Committee
may from time to time specify, and shall hold office until such officer shall
resign or shall be removed or otherwise disqualified to serve, or such
officer's successor shall be elected and qualified.
3.18 Removal and Resignation. Any officer may be removed, either with
or without cause, by the Management Committee at any regular or special meeting
thereof or by any officer upon whom such power of removal may be conferred by
the Management Committee.
Any officer may resign at any time by giving written notice to the
Management Committee, the Chairman of the Management Committee, the President
or the Secretary of the Company. Any such resignation shall take effect at the
date of the receipt of such notice or at any later time specified therein; and
unless otherwise specified therein, the acceptance of such resignation shall
not be necessary to make it effective.
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3.19 Vacancies. A vacancy in any office because of death, resignation,
removal, disqualification or any other cause shall be filled by the election of
the Management Committee at any meeting thereof.
3.20 Chairman of the Management Committee. The Chairman of the
Management Committee shall, subject to the control of the Management Committee,
serve a general oversight, planning and policy making function, shall preside
at all meetings of Members and at all meetings of the Management Committee, and
shall perform such other functions as determined from time to time by the
Management Committee.
3.21 Chief Executive Officer. The Chief Executive Officer of the
Company shall, subject to the control of the Management Committee, have general
supervision, direction and control of the business and affairs of the Company.
In the absence of the Chairman of the Management Committee, the Chief Executive
Officer shall preside at all meetings of Members. The Chief Executive Officer
shall have the general powers and duties of management usually vested in the
chief executive officer of a corporation, and shall have such other powers and
duties with respect to the administration of the business and affairs of the
Company as may from time to time be assigned by the Management Committee.
3.22 President. The President shall exercise and perform such powers
and duties with respect to the administration of the business and affairs of
the Company as may from time to time be assigned to such officer by the Chief
Executive Officer (unless the President is also the Chief Executive Officer) or
by the Management Committee. In the absence or disability of the Chief
Executive Officer, the President shall perform all of the duties of the Chief
Executive Officer and when so acting shall have all of the powers and be
subject to all the restrictions upon the Chief Executive Officer.
3.23 Vice Presidents. The Vice Presidents shall exercise and perform
such powers and duties with respect to the administration of
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the business and affairs of the Company as may from time to time be assigned to
each of them by the President or by the Chief Executive Officer or by the
Management Committee. In the absence or disability of the President, the Vice
Presidents, in order of their rank as fixed by the Management Committee, or if
not ranked, the Vice President designated by the Management Committee, shall
perform all of the duties of the President and when so acting shall have all of
the powers of and be subject to all the restrictions upon the President.
3.24 The Chief Financial Officer and Treasurer. The Chief Financial
Officer and Treasurer shall keep and maintain, or cause to be kept and
maintained, adequate and correct accounts of the properties and business
transactions of the Company, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, surplus and Membership Units.
The books of account shall at all reasonable times be open to inspection by any
Management Committee Representative.
The Chief Financial Officer and Treasurer shall deposit all moneys and
other valuables in the name and to the credit of the Company with such
depositories as may be designated by the Management Committee. Such officer
shall disburse the funds of the Company as may be ordered by the Management
Committee, shall render to the President, to the Chief Executive Officer, and
to the Management Committee, whenever they request it, an account of all of
transactions as Chief Financial Officer and Treasurer and of the financial
condition of the Company, and shall have such other powers and perform such
other duties as may be prescribed by the Management Committee or the Chief
Executive Officer or the President.
3.25 Secretary. The Secretary shall keep, or cause to be kept, a book
of minutes at the principal office of the Company, or such other place as the
Management Committee may order, of all meetings of the Management Committee and
Members, with the time and place of holding, whether regular or special, and if
special, how authorized and the notice thereof given, the names of those
present at meetings
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of the Management Committee, the number of Membership Units present or
represented at Members' meetings and the proceedings thereof.
The Secretary shall keep, or cause to be kept, at the principal office
of the Company or at the office of the Company's transfer agent, a Membership
Unit register, or a duplicate Membership Unit register, showing the names of
the Members and their addresses; the number and Classes of Membership Units
held by each; the number and date of certificates, if any, issued for the same;
and the number and date of cancellation of every certificate surrendered for
cancellation.
The Secretary shall give, or cause to be given, notice of all the
meetings of the Members and of the Management Committee required by this
Agreement or by law to be given, and shall keep the seal of the Company in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the Management Committee, the Chief Executive Officer or the
President. If for any reason the Secretary shall fail to give notice of any
special meeting of the Management Committee or of the Members called by one or
more of the persons permitted to do so in this Agreement, then any such
permitted person may give notice of any such special meeting.
3.26 Compensation. The compensation of the officers of the Company
shall be fixed from time to time by the Management Committee. None of such
officers shall be prevented from receiving such compensation by reason of the
fact that such officer is also a Management Committee Representative. Nothing
contained herein shall preclude any officer from serving the Company, or any
Affiliate of the Company, in any other capacity and receiving proper
compensation therefor.
3.27 Execution of Contracts. Except as otherwise provided in this
Agreement, the Management Committee may authorize any officer or officers,
agent or agents, to enter into any contract or execute any instrument in the
name and on behalf of the Company, and such authority may be general or
confined to specific instances; and
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unless so authorized by the Management Committee or by this Agreement, no
officer, Member, agent or employee shall have any power or authority to bind
the Company by any contract or engagement or to pledge its credit or to render
it liable for any purpose or in any amount.
3.28 Checks, Drafts, Etc. All checks, drafts or other orders for
payment of money, notes or other evidence of indebtedness, issued in the name
of or payable to the Company, shall be signed or endorsed by such person or
persons and in such manner as, from time to time, shall be determined by
resolution of the Management Committee. Each such person shall give such bond,
if any, as the Management Committee may require.
3.29 Deposits. Subject to Section 3.2(e) hereof, all funds of the
Company not otherwise employed shall be deposited from time to time to the
credit of the Company in such banks, trust companies or other depositories as
the Management Committee may select, or as may be selected by any officer or
officers, assistant or assistants, agent or agents, or attorney or attorneys of
the Company to whom such power shall have been delegated by the Management
Committee. For the purpose of deposit and for the purpose of collection for
the account of the Company, the Chief Executive Officer, the President, any
Vice President or the Chief Financial Officer and Treasurer (or any other
officer or officers, assistant or assistants, agent or agents, or attorney or
attorneys of the Company who shall from time to time be determined by the
Management Committee) may endorse, assign and deliver checks, drafts and other
orders for the payment of money which are payable to the order of the Company.
3.30 General and Special Bank Accounts. The Management Committee may
from time to time authorize the opening and keeping of general and special bank
accounts with such banks, trust companies or other depositories as the
Management Committee may select or as may be selected by any officer or
officers, assistant or assistants, agent or agents, or attorney or attorneys of
the Company to whom such power shall have been delegated by the Management
Committee. The
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Management Committee may make such special rules and regulations with respect
to such bank accounts, not inconsistent with the provisions of this Agreement,
as it may deem expedient.
ARTICLE IV
AUTHORIZATION OF MEMBERSHIP UNITS;
RIGHTS AND DUTIES OF MEMBERS;
MEETINGS OF MEMBERS; VOTING
4.1 Authorization of Membership Units; Characteristic of Membership
Units. The Company is hereby authorized to issue one hundred (100) Membership
Units in exchange for the initial contribution as provided in Section 6.1 of
this Agreement. Each Membership Unit has (i) equal governance rights with
every other Membership Unit and in matters subject to a vote of the Members has
one vote and (ii) subject to Section 4.2, each Membership Unit has equal rights
with every other Membership Unit with respect to sharing of profits and losses
and with respect to distributions.
4.2 Participation of Membership Units in Net Income and Net Loss. Each
Membership Unit shall participate in the Net Income and Net Loss of the Company
in the proportion that such Unit bears to the total number of Membership Units
outstanding.
4.3 Annual Meetings. Annual meetings of the Members of the Company for
the purpose of electing the members of the Management Committee and for the
transaction of such other proper business as may come before such meetings may
be held at such time, date and place as the Management Committee shall
determine by resolution.
4.4 Special Meetings. Special meetings of the Members of the Company
for any purpose or purposes may be called at any time by the Management
Committee, or by a committee of the Management Committee which has been duly
designated by the Management Committee and whose powers and authority, as
provided in a resolution of the Management
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Committee or in this Agreement, include the power to call such meetings, but
such special meetings may not be called by any other Person or Persons.
4.5 Place of Meetings. All meetings of the Members shall be held at
such places, within or without the State of Delaware, as may from time to time
be designated by the person or persons calling the respective meeting and
specified in the respective notices or waivers of notice thereof.
4.6 Notice of Meetings. Except as otherwise required by law, notice of
each meeting of the Members, whether annual or special, shall be given not less
than fifteen (15) nor more than sixty (60) days before the date of the meeting
to each Member of record entitled to vote at such meeting by delivering a
written notice thereof to such Member personally, or by depositing such notice
in the United States mail, in a postage prepaid envelope, directed to such
Member at the post office address furnished by such Member to the Secretary of
the Company for such purpose or, if such Member shall not have furnished to the
Secretary the address for such purpose, then at such Member's post office
address last known to the Secretary. Except as otherwise expressly required by
law, no publication of any notice of a meeting of the Members shall be
required. Every notice of a meeting of the Members shall state the place, date
and hour of the meeting, and, in the case of a special meeting, shall also
state the purpose or purposes for which the meeting is called. Notice of any
meeting of Members shall not be required to be given to any Member who shall
have waived such notice and such notice shall be deemed waived by any Member
who shall attend such meeting in person or by proxy, except as a Member who
shall attend such meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. Except as otherwise expressly
required by law, notice of any adjourned meeting of the Members need not be
given if the time and place thereof are announced at the meeting at which the
adjournment is taken.
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4.7 Quorum. The holders of record of a majority of Membership Units of
the Company, present in person or by proxy, shall constitute a quorum for the
transaction of business at any meeting of the Members of the Company or any
adjournment thereof. In the absence of a quorum at any meeting or any
adjournment thereof, a majority of Unit Membership holders actually present in
person or by proxy or, in the absence therefrom of all the Members, any officer
entitled to preside at, or to act as secretary of, such meeting, may adjourn
such meeting from time to time. At any such adjourned meeting at which a
quorum is present any business may be transacted which might have been
transacted at the meeting as originally called.
4.8 Voting. (a) Each Member shall, at each meeting of the Members, be
entitled to one vote per Membership Unit as held by such Member in person or by
proxy on the matter in question and which shall have been held by such Member
and registered in such Member's name on the books of the Company:
(i) on the date fixed pursuant to Section 4.9 of this Agreement
as the record date for the determination of Members entitled to notice
of and to vote at such meeting, or
(ii) if no such record date shall have been so fixed, then (1)
at the close of business on the day next preceding the day on which
notice of the meeting shall be given or (2) if notice of the meeting
shall be waived, at the close of business on the day next preceding the
day on which the meeting shall be held.
(b) Membership Units owned, directly or indirectly, by the Company,
shall neither be entitled to vote nor be counted for quorum purposes. Persons
holding Membership Units of the Company in a fiduciary capacity shall be
entitled to vote such stock. Persons whose Membership Units are pledged shall
be entitled to vote such Membership Units.
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(c) Any such voting rights may be exercised by the Member entitled
thereto in person or by proxy appointed by an instrument in writing, subscribed
by such Member or by such Member's attorney thereunto authorized and delivered
to the secretary of the meeting. The attendance at any meeting of a Member who
may theretofore have given a proxy shall not have the effect of revoking the
same.
(d) At any meeting of the Members all matters, except as otherwise
provided in this Agreement or by law, shall be decided by the vote of holders
of a majority of Membership Units present in person or by proxy and entitled to
vote thereat and thereon, a quorum being present.
(e) Any action required or permitted to be taken at any regular or
special meeting of the Members of the Company may be taken without a meeting,
without prior notice and without a vote, if a written consent thereto is signed
by Members holding Units representing not less than the minimum interest in the
Net Income and Net Loss of the Company that would be necessary to authorize or
take such action at a meeting at which all Units entitled to vote thereon were
present and voted, and such written consent is filed with the minutes of
proceedings of the Members.
4.9 Fixing Date for Determination of Members of Record. In order that
the Company may determine the Members entitled to notice of or to vote at any
meeting of Members or any adjournment thereof, or entitled to receive payment
of any dividend or other distribution or allotment of any rights, or entitled
to exercise any rights in respect of any other change, conversion or exchange
of Membership Units or for the purpose of any other lawful action the
Management Committee may fix, in advance, a record date, which shall not be
more than sixty (60) nor less than ten (10) days before the date of such
meeting, nor more than sixty (60) days prior to any other action. If in any
case involving the determination of Members for any purpose other than notice
of or voting at a meeting of Members the Management Committee shall not fix
such a record date, the record date for determining Members for such purpose
shall be the close of business
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on the day on which the Management Committee shall adopt the resolution
relating thereto. A determination of Members entitled to notice of or to vote
at a meeting of Members shall apply to any adjournment of such meeting;
provided, that the Management Committee may fix a new record date for the
adjourned meeting.
ARTICLE V
BOOKS AND RECORDS
5.1 Books of Account. At all times during the continuance of the
Company, the Company shall keep or cause to be kept, true and complete books of
account utilizing the GAAP method of accounting, on the basis of the Company's
Fiscal Year.
5.2 Availability of Books of Account. All of the books of account
referred to in Section 5.1 hereof, together with an executed copy of this
Agreement and the Certificate of Formation of the Company, and any amendments
thereto, shall at all times be maintained at the principal office of the
Company, and shall be open to the inspection and examination of each Member or
its representative at such Member's expense during reasonable business hours.
5.3 Annual Reports and Other Statements. (a) The Company shall cause
to be prepared, and shall deliver to each Member as soon as practical, but in
any event on or before the 90th day following the end of the Company's Fiscal
Year, an unaudited, end of the year, balance sheet and preliminary statement of
income and loss of the Company, certified by the Chief Financial Officer.
(b) The Company shall cause to be prepared, and shall deliver to each
Member as soon as practical, but in any event on or before the 90th day
following the end of the Company's Fiscal Year, a statement of such Member's
Capital Account as of the end of such Fiscal Year, a statement indicating such
Member's share of the Company's Net Income or Net Loss for such Fiscal Year,
and other
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items relevant for Federal income tax purposes, all of which shall be
certified by the Chief Financial Officer.
5.4 Tax Matters Partner. (a) Mike Howard is hereby designated as the
Tax Matters Partner of the Company within the meaning of Section 6231 of the
Code. Each Member, by the execution of this Agreement, consents to such
designation.
(b) To the extent and in the manner provided by applicable law and
regulations, the Tax Matters Partner shall furnish the name, address, profits
interest and taxpayer identification number of each Member, including any
successor or Additional Member, to the Internal Revenue Service, and shall keep
each Member informed of the administrative and judicial proceedings for the
adjustment at the Company level of any item required to be taken into account
by a Member for income tax purposes (such an administrative proceeding referred
to hereinafter as a "tax audit" and such a judicial proceeding referred to
hereinafter as "judicial review"). If the Tax Matters Partner, on behalf of
the Company, receives a notice with respect to a tax audit from the Internal
Revenue Service, the Tax Matters Partner shall promptly forward a copy of such
notice to the Members or former Members who hold or held interests in the
profits or losses of the Company for any taxable year to which the notice
relates.
(c) The Tax Matters Partner is hereby authorized, but not required:
(1) subject to pre-approval by the Management Committee, to
enter into any settlement with the Internal Revenue Service with respect
to any tax audit or judicial review;
(2) in the event that a notice of a final administrative
adjustment (a "final adjustment") is mailed to the Tax Matters Partner,
to seek judicial review of such final adjustment;
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(3) to intervene in any action brought by any other Member for
judicial review of a final adjustment;
(4) to file a request for an administrative adjustment with the
Internal Revenue Service at any time and, if any part of such request is
not allowed by the Internal Revenue Service, to file a petition for
judicial review with respect to such request;
(5) to enter into an agreement with the Internal Revenue Service
to extend the period for assessing any tax which is attributable to any
item required to be taken into account by a Member for tax purposes, or
an item affected by such item; and
(6) to take any other action on behalf of the Members in
connection with any administrative or judicial tax proceeding to the
extent permitted or required by applicable law or regulations.
(d) The Tax Matters Partner shall have no obligation to provide funds
for the purpose of contesting any tax audit or final adjustment, intervening in
any action, or seeking an administrative adjustment or judicial review. The
taking of any action and the incurring of any expense by the Tax Matters
Partner in connection with any such proceeding, except to the extent required
by law, is a matter in the sole discretion of the Tax Matters Partner and the
provisions on limitation of liability of the members of the Management
Committee set forth in Article XI hereof shall be fully applicable to the Tax
Matters Partner in its capacity as such; provided, that in any event the Tax
Matters Partner shall always act in the best interests of the Members.
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ARTICLE VI
CAPITAL CONTRIBUTIONS
6.1 Capital Contributions. On or before the Closing Date the Member
listed on Exhibit A shall contribute ten dollars ($10.00) cash, in immediately
available U.S. funds, for each Membership Unit set forth opposite such Member's
name on Exhibit A hereto.
6.2 Advances, Etc. Except as otherwise provided in this Agreement, no
Member shall be entitled to withdraw any part of his Capital Account or to
receive any distribution from the Company and no Member shall be obligated or
entitled to make any additional Capital Contributions to the Company. Loans by
a Member to the Company shall not (i) be considered as a contribution to the
capital of the Company; (ii) increase the Capital Account of the lending
Member; (iii) entitle the lending Member to an increase in its share of the
income of the Company; or (iv) subject the lending Member to any greater
portion of any losses which the Company may sustain. The amount of any such
loan shall be a debt due from the Company to such Member.
6.3 Additional Capital Contributions. Any Member may, with the prior
Majority Vote of the Members, make additional capital contributions to the
Company upon terms and conditions approved by such Majority Vote of the
Members.
6.4 Return of Capital Contribution. Except as otherwise expressly
provided in this Agreement, no Member shall have the right to demand of the
Company the return of all or any part of any contribution to the capital of the
Company until the Company has been dissolved and terminated and then only to
the extent provided in Article IX hereof, and no Member shall have the right to
demand or receive property other than cash in return for its contribution.
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ARTICLE VII
CAPITAL ACCOUNTS; ALLOCATIONS
7.1 Capital Accounts. A Capital Account shall be maintained for each
Member. Such Account shall be credited with (i) such Member's Contributed
Capital and (ii) any Net Income (or items thereof), and income and gain
described in Treasury Regulation Section 1.704-1(b)(2)(iv)(g) (exclusive of
income described in Treasury Regulation Section 1.704-1(b)(4)(i)) and (iii) the
fair market value of property hereafter contributed to the Company by such
Member (net of liabilities secured by such contributed property that the
Company is considered to assume or take subject to under Section 752 of the
Code). Such Account shall be reduced by (i) any cash distribution to such
Member pursuant to Article X hereof and the fair market value of any other
property distributed thereto pursuant to either such Article (net of any
liability secured thereby which such Member is considered to assume or take
subject to under Section 752 of the Code), and (ii) any Net Loss (or item
thereof), and loss or deduction described in Treasury Regulation Section
1.704-1(b)(2)(iv)(g) (exclusive of amounts described in Treasury Regulation
Section 1.704-1(b)(4)(i) or (iii)). Such Capital Account shall be otherwise
credited, reduced and maintained in accordance with Treasury Regulation Section
1.704-1(b). Except as otherwise provided in this Agreement, whenever it is
necessary to determine the Capital Account of any Member for purposes of this
Agreement, the Capital Account of such Member shall be determined after giving
effect to all prior distributions and to all allocations under this Article VII
in respect of transactions effected prior to or on the date as of which such
determination is to be made.
7.2 Allocations. (a) After giving effect to the special allocations
set forth in Section 7.2(b) and 7.2(c), the Net Income and Net Loss of the
Company shall be allocated to the Members in accordance Section 4.2.
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(b) The following special allocations shall be made in the following
order:
(i) Company Minimum Gain Chargeback. Except as otherwise
provided in Treasury Regulation Section 1.704-2(f), notwithstanding any
other provision of this Section 7.2, if there is a net decrease in
Company Minimum Gain during any Fiscal Year, each Member shall be
specially allocated items of Company income and gain for such Fiscal
Year (and, if necessary, subsequent Fiscal Years) in an amount equal to
such Member's share of the net decrease in Company Minimum Gain,
determined in accordance with Treasury Regulations Section 1.704-2(g).
Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to each
Member pursuant thereto. This Section 7.2(c)(i) is intended to comply
with the minimum gain chargeback requirement of the Treasury Regulations
Section 1.704-1(f) and shall be interpreted consistently therewith.
(ii) Member Minimum Gain Chargeback. Except as otherwise
provided in Section 1.704-1(i)(4) of the Treasury Regulations,
notwithstanding any other provision of this Section 7.2, if there is a
net decrease in Member Nonrecourse Debt Minimum Gain attributable to a
Member Nonrecourse Debt during any Fiscal Year, each Member who has a
share of the Member Nonrecourse Debt Minimum Gain attributable to such
Nonrecourse Debt, determined in accordance with Section 1.704-2(i)(5) of
the Treasury Regulations, shall be specially allocated items of Company
income and gain for such Fiscal Year (and, if necessary, subsequent
Fiscal Years) in an amount equal to such share of the net decrease in
Member Nonrecourse Debt Minimum Gain attributable to such Member
Nonrecourse Debt, determined in accordance with Treasury Regulations
Section 1.704-2(i)(4). Allocations pursuant to the previous sentence
shall be made in proportion to the respective amounts required to be
allocated to each Partner pursuant thereto. This Section 7.2(c)(ii) is
intended to comply with the minimum gain chargeback requirement
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in Section 1.704-2(i)(4) of the Treasury Regulations and shall be
interpreted consistently therewith.
(iii) Partner Nonrecourse Deductions. Any Member Nonrecourse
Deductions for any Fiscal Year shall be specially allocated to the
Member who bears the economic risk of loss with respect to the Member
Nonrecourse Debt to which such Member Nonrecourse Deductions are
attributable in accordance with Treasury Regulations Section 1.704-
2(i)(1).
(iv) Code Section 754 Adjustment. To the extent an adjustment
to the adjusted tax basis of any Company asset pursuant to Code Section
734(b) or Code Section 743(b) is required, pursuant to Treasury
Regulations Section 1.704-1(b)(2)(iv)(m)(2) or Treasury Regulations
Section 1.704-1(b)(2)(iv)(m)(4), to be taken into account in determining
Capital Accounts as the result of a distribution to a Member in complete
liquidation of his interest in the Company, the amount of such
adjustment to the Capital Accounts shall be treated as an item of gain
(if the adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis) and such gain or loss shall be
specially allocated to the Members in accordance with their interests in
the Company in the event Treasury Regulations Section 1.704-
1(b)(2)(iv)(m)(2) applies, or to the Members to whom such distribution
was made in the event Treasury Regulations Section 1.704-
1(b)(2)(iv)(m)(4) applies.
(v) Code Section 704(c). In accordance with Code Section 704(c)
and the Treasury Regulations thereunder, income, gain, loss and
deduction with respect to any property contributed by a Member to the
Company shall, solely for tax purposes, be allocated among the Members
so as to take account of any variation between the adjusted basis of
such property to the Company for federal income tax purposes and its
fair market value as of the date of contribution.
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(c) The allocations set forth in Sections 7.2(b) hereof (the
"Regulatory Allocations") are intended to comply with certain requirements of
the Treasury Regulations. It is the intent of the Members that, to the extent
possible, all Regulatory Allocations shall be offset either with other
Regulatory Allocations or with special allocations of other items of Company
income, gain, loss, or deduction pursuant to this Section 7.2(d). Therefore,
notwithstanding any other provision of this Section 7.2 (other than the
Regulatory Allocations), the Company shall make such offsetting special
allocations of Company income, gain, loss, or deduction in whatever manner
appropriate so that, after such offsetting allocations are made, each Member
Capital Account balance is, to the extent possible, equal to the Capital
Account balance such Member would have had if the Regulatory Allocations were
not part of the Agreement and all Company items were allocated pursuant to
Section 7.2(a) hereof. In exercising this discretion under this Section
7.2(c), the Company shall take into account future Regulatory Allocations that,
although not yet made, are likely to offset other Regulatory Allocations
previously made.
7.3 Varying Interests. All allocations pursuant to Section 7.2 hereof
shall take due account of increases and decreases in the number of Membership
Units owned by each Member during the Fiscal Year.
7.4. Transferred Interests. In the event all or a portion of an
interest in the Company is transferred in accordance with the terms of this
Agreement, the transferee shall succeed to the Capital Account of the
transferor to the extent it relates to the transferred interest.
7.5 Distributions in Kind. The amount by which the fair market value
of any property to be distributed in kind to the Members pursuant to Article X
hereof exceeds or is less than the adjusted basis of such property for federal
income tax purposes shall, to the extent not otherwise recognized to the
Company, be taken into account in computing gain or loss of the Company for
purposes of crediting or
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charging the Capital Accounts of, and distributing proceeds to, the Members
under Articles VII or X hereof.
7.6 Composition of Net Income or Loss. Net Income or Net Loss shall
be determined for each Fiscal Year (or for any portion thereof as may be
required by Section 7.3 hereof). For federal income tax purposes each item of
income, gain, loss or deduction which enters into the calculation of Net Income
or Net Loss shall be allocated in the same proportions as such Net Income or
Net Loss is allocated pursuant to Section 7.2 hereof.
7.7 Authority of Management Committee to Vary Allocations. It is the
intent of the Members that each Member's allocable share of income, gain, loss,
deduction, or credit (or item thereof) (hereinafter, "Tax Items") shall be
determined and allocated in accordance with this Article VII to the fullest
extent permitted by Section 704(b) of the Code. The Management Committee is
authorized and directed to allocate Tax Items arising in any Fiscal Year
differently than otherwise provided for in this Article VII to the extent that
allocating Tax Items in the manner provided for in Article VII, in the opinion
of tax counsel or the accountants to the Company, would cause the
determinations and allocations of each Member's distributive share of Tax Items
not to be permitted by Section 704(b) of the Code and Treasury Regulations
promulgated thereunder.
7.8. Partnership Treatment for Income Tax Purposes. The Members are
aware of the income tax consequences of the allocations made by this Article
VII and hereby agree to be bound by the provisions of this Article VII in
reporting their share of the Company's Net Income and Net Loss for income tax
purposes.
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ARTICLE VIII
TRANSFERS OF MEMBERSHIP UNITS
8.1 Assignment of Membership Units by Members. (a) Except as
otherwise expressly provided in this Section 8.1, no Member shall transfer
(whether by gift, court order, operation of law, or otherwise) all or any part
of a Membership Unit to any person unless such transfer is made in accordance
with the terms and provisions of Section 8.1(b) hereof. Any transferee
pursuant to this Section 8.1 shall take and hold the transferred interest
subject to this Agreement and to all other obligations and restrictions upon
the transferor Member, shall observe and comply with this Agreement and with
such obligations and restrictions and shall, unless such transferee is a Member
or is admitted as an Additional Member pursuant to Section 8.3 hereof, as a
condition of transfer, execute and deliver to the Company an agreement, in form
and substance satisfactory to the Management Committee in its sole discretion,
pursuant to which such transferee agrees to be bound by all of the terms and
provisions of this Agreement. Any attempted transfer in violation of this
Section 8.1(a) shall be null and void.
(b) A Member may transfer Membership Units only as follows (and any
Person to whom a Membership Unit is permitted to be transferred in accordance
with this Section 8.1(b) is herein called a "Permitted Transferee"):
(1) Upon death by will or by the laws of intestate distribution.
(2) To a Person other than a Third Party with consent after a
majority vote of the Management Committee, which consent may be granted
or withheld in the sole and absolute discretion of the Management
Committee.
(3) To a Third Party in compliance with the provisions of
Section 8.8 hereof and with written consent after a majority
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vote of the Management Committee, which consent may be granted or
withheld in the sole and absolute discretion of the Management
Committee. The failure to exercise the rights of first refusal set
forth in Section 8.8 hereof shall not be deemed to be the giving of such
consent.
8.2 When Transfers Binding on Company. No transfer of all or any part
of a Membership Unit by Member permitted to be made under this Agreement shall
be binding upon the Company unless and until a duplicate original of the
instrument of transfer, duly executed and acknowledged by the transferor, has
been delivered to the Company.
8.3 Additional Members. Permitted Transferees of a Member shall be
admitted to the Company as an Additional Member and shall participate in Net
Income and Net Loss of the Company on the same basis as the transferor Member.
8.4 Costs to Additional Members. As a condition further to those
described in Section 8.1 hereof to the admission of any Additional Member, such
Additional Member shall, if required by the Management Committee in its sole
discretion, pay all reasonable expenses actually incurred in connection with
such admission as a Member.
8.5 Election to Adjust Tax Basis. The Management Committee may, but
shall not be required to, cause the Company to make an election, or to revoke
any such election previously made, under Section 754 of the Code to adjust the
basis of Company property under Sections 734 and 743 of the Code. Any Member
requesting that such election be made in the context of a transaction to which
Section 743 of the Code would apply shall reimburse the Company for any
additional accounting costs resulting from such election.
8.6 Distributions and Allocations in Respect to Transferred Interests.
If any Membership Units are sold, assigned, or transferred during any
accounting period in compliance with the provisions of this Section 9, Net
Income, Net Loss, each item
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thereof, and all other items attributable to the transferred interest for such
period shall be divided and allocated between the transferor and the transferee
by taking into account their varying interests during the period in accordance
with Code Section 706(d), using any conventions permitted by law and selected
by the Management Committee. All distributions on or before the date of such
transfer shall be made to the transferor, and all distributions thereafter
shall be made to the transferee.
8.7 Legends. The Company shall be entitled to affix to each
certificate evidencing outstanding Membership Units that is issued to any
Member a legend in substantially the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO REGISTRATION OF
TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE COMPANY
UNLESS SUCH TRANSFER IS MADE IN CONNECTION WITH AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH ACT DOES NOT APPLY.
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE THE RIGHTS, PRIVILEGES
AND PREFERENCES AND ARE SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER AS
SET FORTH IN A LIMITED LIABILITY COMPANY AGREEMENT DATED AS OF JANUARY
15, 1996, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL EXECUTIVE OFFICES
OF THE COMPANY. NO REGISTRATION OF TRANSFER OF SUCH SECURITIES WILL BE
MADE ON THE BOOKS OF THE COMPANY UNLESS AND UNTIL SUCH RESTRICTIONS
SHALL HAVE BEEN COMPLIED WITH."
8.8 Right of First Refusal. (a) If any Member receives from or
otherwise negotiates with a Third Party a bona fide offer to purchase for cash
(for purposes of this Section 8.8, an "Offer") any
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of the Membership Units owned or held by such Member, and such Member intends
to pursue a sale of such Membership Units to such Third Party, such Member (for
purposes of this Section 8.8, the "Prospective Seller") shall provide the
Company and each of the other Members (for purposes of this Section 8.8, the
"Remaining Members") written notice of such Offer (for purposes of this Section
8.8, an "Offer Notice"). The Offer Notice shall identify the Third Party
making the Offer, the number of Membership Units with respect to which the
Prospective Seller has such an Offer (for purposes of this Section 8.8, the
"Offered Membership Units"), the cash price per Membership Unit at which a sale
is proposed to be made (for purposes of this Section 8.8, the "Offer Price"),
and all the other material terms and conditions of the Offer. The number of
Membership Units which may become Offered Membership Units shall be limited to
two Membership Units per Member, per year unless increased by the Management
Committee in its sole discretion.
(b) The receipt of an Offer Notice by each Remaining Member and the
Company from a Prospective Seller shall constitute an offer by the Prospective
Seller to sell to each Remaining Member and the Company the Offered Membership
Units at the Offer Price in cash. Such offer shall be irrevocable for 20
business days after receipt of the Offer Notice by each Remaining Member and
for two additional five (5) business day periods thereafter as hereinafter
provided. During such 20 business day period, each Remaining Member and the
Company shall, subject to the priorities set forth in the next succeeding
paragraph, have the right to accept such offer as to all or a portion of the
Offered Membership Units by giving a written notice of acceptance (for purposes
of this Section 8.8, the "Notice of Acceptance") to the Prospective Seller
prior to the expiration of such 20 business day period. If after expiration of
such 20 business day period the Prospective Seller shall not have received
Notices of Acceptance for all the Offered Membership Units, the Prospective
Seller shall thereupon notify each Accepting Party (as hereinafter defined) by
telecopy or personal delivery of such fact and shall provide each Accepting
Party an opportunity, during a period of five (5) business days from the date
such notice is so given, to submit an
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additional Notice of Acceptance of any such Offered Membership Units. For
purposes of this Section 8.8, any Remaining Member submitting a Notice of
Acceptance pursuant to this Section 8.8 is herein called an "Accepting Party."
Each Remaining Member and the Company shall be entitled to accept the
offer from the Prospective Seller in the following order of priority:
(i) first, the Company shall be entitled to accept such offer for any or
all of the Offered Membership Units.
(ii) second, to the extent the Company shall not have accepted such
offer for all the Offered Membership Units, each Remaining Member shall be
entitled to accept such offer for not more than a portion of the Offered
Membership Units determined on a pro rata basis based on the ratio of the
interest in the Net Income and Net Loss represented by the Membership Units
then owned by such Remaining Member to the total interest in the Net Income and
Net Loss represented by all Membership Units then outstanding (other than the
Offered Membership Units); and
(iii) third, to the extent that any Offered Membership Units remain
after application of clause (i) and (ii) above, each Accepting Party shall then
be entitled to purchase such remaining Offered Membership Units on a pro rata
basis based upon the ratio that the interest in the Net Income and Net Loss
represented by the Membership Units owned by each Accepting Party exercising
its rights pursuant to this clause (iii) bears to the interest in the Net
Income and Net Loss represented by the Membership Units owned by all Accepting
Parties exercising their rights pursuant to this clause (iii).
If the Company or any Remaining Member so accepts the Prospective Seller's
offer, each Accepting Party will purchase for cash from the Prospective Seller,
and the Prospective Seller will sell to each Accepting Party, such number of
Offered Membership Units as to which each Accepting Party shall have accepted
the Prospective Seller's
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offer. The price per Membership Unit to be paid by each Accepting Party shall
be the Offer Price specified in the Offer Notice. The Notice of Acceptance
shall specify (i) such Accepting Party's acceptance of the Prospective Seller's
offer and (ii) the number of Offered Membership Units to be purchased by such
Accepting Party.
(c) The consummation of any purchase by any Accepting Party shall take
place on such date, not later than 10 days after the expiration of the 20
business day period referred to in Section 8.8(b) above (or, if applicable, the
expiration of the additional five (5) business day period referred to in
Section 8.8(b) above), as such Accepting Party and the Prospective Seller shall
select. Upon the consummation of such purchase and sale, the Prospective
Seller shall (i) deliver to the Accepting Party certificates evidencing the
Offered Membership Units so purchased, duly endorsed in blank or accompanied by
written instruments of transfer in form satisfactory to such Accepting Party
and duly executed by the Prospective Seller, and (ii) assign all its rights
under this Agreement with respect to the Offered Membership Units so purchased
pursuant to an instrument of assignment reasonably satisfactory to such
Accepting Party.
(d) In the event that (i) each Remaining Member and the Company shall
have received an Offer Notice from a Prospective Seller but the Prospective
Seller shall not have received Notices of Acceptance as to all the Offered
Membership Units, or (ii) an Accepting Party shall have failed to consummate,
other than as a result of the fault of the Prospective Seller, the purchase of
the Offered Membership Units to be purchased by such Accepting Party (and
another Accepting Party or Parties does not purchase such Membership Units),
the Prospective Seller shall have the right to reject any or all Notices of
Acceptance theretofore received and nothing in this Section 8.8 shall limit the
right of the Prospective Seller to make a sale of the Offered Membership Units
so long as all the Offered Membership Units that are sold or otherwise disposed
of by the Prospective Seller (which number of Offered Membership Units shall be
not less than the number of Offered Membership Units specified in Offer Notice)
are sold for cash (A) within 60 days after the date of receipt of the
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Offer Notice by each Remaining Member, (B) at a price not less than the Offer
Price included in the Offer Notice, (C) to the Third Party making the Offer,
and (D) the Number of Offered Membership Units does not exceed two per Member,
per year, unless increased by the Management Committee.
(e) In the event that the Prospective Seller shall not have sold the
Offered Membership Units before the expiration of the 60-day period in
accordance with paragraph (d) above, then the provisions of this Section 8.8
shall be reinstated as to the Offered Membership Units as if an Offer Notice
had not been delivered and such Prospective Seller shall not give another Offer
Notice for a period of 120 days from the earlier of the date the transactions
contemplated herein were terminated or such 60-day period.
8.9 Certificates for Membership Units. Every owner of a Membership
Unit shall be entitled to have a certificate or certificates, to be in such
form as the Management Committee shall prescribe, certifying the number of
Membership Units owned by such Member. The certificates representing
Membership Units shall be numbered in the order in which they shall be issued
and shall be signed in the name of the Company by the President, or a Vice
President, and by the Secretary or an Assistant Secretary or by the Treasurer
or an Assistant Treasurer. Any or all of the signatures on the certificates
may be a facsimile. In case any officer, transfer agent or registrar who has
signed, or whose facsimile signature has been placed upon, any such certificate
shall thereafter have ceased to be such officer, transfer agent or registrar
before such certificate is issued, such certificate may nevertheless be issued
by the Company with the same effect as though the person who signed such
certificate, or whose facsimile signature shall have been placed thereupon,
were such officer, transfer agent or registrar at the date of issue. A record
shall be kept of the respective names of the Persons owning the Membership
Units represented by such certificates, the number of Membership Units
represented by such certificates, respectively, and the respective dates
thereof, and in case of cancellation, the respective dates of cancellation.
Every
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certificate surrendered to the Company for exchange or transfer shall be
canceled, and no new certificate or certificates shall be issued in exchange
for any existing certificate until such existing certificate shall have been so
canceled, except in cases of lost or mutilated certificates as provided for in
Section 8.10 below. The person in whose name Membership Units stand on the
books of the Company shall be deemed the owner thereof for all purposes as
regards the Company. Certificates shall be issued for fractional Membership
Units.
8.10 Lost, Stolen, Destroyed, and Mutilated Certificates. In any case
of loss, theft, destruction, or mutilation of any certificate of Membership
Units, another may be issued in its place upon proof of such loss, theft,
destruction, or mutilation and upon the giving of a bond of indemnity to the
Company in such form and in such sum as the Management Committee may direct;
provided, however, that a new certificate may be issued without requiring any
bond when, in the judgment of the Management Committee, it is proper to do so.
ARTICLE IX
DISSOLUTION AND TERMINATION OF COMPANY;
LIQUIDATION AND DISTRIBUTION OF ASSETS
9.1 Dissolution and Termination. The Company shall be dissolved upon
the earliest of:
(a) the fortieth anniversary of the date hereof;
(b) 90 days after the death, retirement, resignation, expulsion,
bankruptcy or dissolution of any Member, or the entry of a decree of
judicial dissolution under Section 18-802 of the Delaware Law, unless
the action described in Section 9.2 hereof shall have been taken;
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(c) the date as of which all or substantially all of the assets
of the Company shall have been distributed or converted to cash or its
equivalent; or
(d) at any time, upon the majority vote in favor of such
dissolution by the Management Committee.
Upon dissolution, the Company shall wind up its affairs and shall be liquidated
and a certificate of cancellation of the Company, as required by law, shall be
filed.
9.2 Continuation of Company. The business of the Company shall be
continued after an event described in Section 9.1(b) hereof if within 90 days
after any such event (i) all of the Members (including any Person that becomes
an Additional Member in respect of the interest of a Terminated Member) elect
in writing that the business of the Company should be continued, or (ii) a
majority of the Remaining Members shall elect in writing that the business of
the Company should be continued. In the event all of the Members elect to
continue the business of the Company pursuant to clause (i) above, such
continuation shall include the interest of the Terminated Member and the
Company shall not be obligated to pay to the Terminated Member the Liquidation
Value of the Terminated Member's interest in the Company. In the event the
Remaining Members elect to continue the business of the Company pursuant to
clause (ii) above, such continuation shall not include the interest of the
Terminated Member and the Company shall pay to the Terminated Member, in full
and complete settlement of the Terminated Member's interest in the Company, an
amount equal to the Liquidation Value of the Terminated Member's interest in
the Company. Such amount shall be paid in cash or in the form of a promissory
note, or in any combination thereof, as determined by the management committee
in its sole discretion. Any promissory note so issued shall bear interest at
the Prime Interest Rate.
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9.3 Distribution upon Liquidation. Upon any dissolution of the
Company, each of the following shall be accomplished within the period
described in Treasury Regulation Section 1.704-1(b)(2)(ii)(b):
(i) the Company shall prepare a statement setting forth the
assets and liabilities of the Company as of the date of termination, and
such statement shall be furnished to all of the Members;
(ii) the assets of the Company shall be liquidated as promptly
as possible, but in an orderly and businesslike manner so as not to
involve undue sacrifice;
(iii) Company funds shall be applied to the payment and
discharge of the claims of creditors (including Members who are
creditors) in the order of priority provided by law or to the
establishment or increase of reserves therefor;
(iv) the Company Net Income and Net Loss for the final Fiscal
Year shall be allocated, and the Members' Capital Accounts shall be
credited or charged in accordance with the terms of this Agreement; and
(v) the balance of any remaining cash and other assets shall be
distributed to the Members in accordance with their respective Capital
Accounts.
ARTICLE X
INDEMNIFICATION
10.1 Actions, Etc. Other Than by or in the Right of the Company. The
Company shall indemnify any Person (herein, together with any Affiliates of
such Person, an "Indemnified Person") who was or is a party or is threatened to
be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil,
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criminal, administrative or investigative (other than an action by or in the
right of the Company) by reason of the fact that the Indemnified Person is or
was a Member, a Management Committee Representative, an officer, an employee or
an agent of the Company, or is or was serving at the request of the Company as
a director, officer, employee or agent of another Person or other enterprise or
as a member of any committee or similar body, against expenses (including
attorneys' fees), judgments, fines and amounts paid in settlement actually and
reasonably incurred by the Indemnified Person in connection with such action,
suit or proceeding if the Indemnified Person acted in good faith and in a
manner the Indemnified Person reasonably believed to be in or not opposed to,
the best interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe such conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order, settlement,
conviction, or upon a plea of nolo contendere or its equivalent, shall not, of
itself, create a presumption that the Indemnified Person did not act in good
faith and in a manner which the Indemnified Person reasonably believed to be
in, or not opposed to, the best interests of the Company, and, with respect to
any criminal action or proceeding, that the Indemnified Person had reasonable
cause to believe that such conduct was unlawful.
10.2 Actions, Etc., by or in the Right of the Company. The Company
shall indemnify any Indemnified Person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action or suit by or
in the right of the Company to procure a judgment in its favor by reason of the
fact that the Indemnified Person is or was a Member, a Management Committee
Representative, an officer, employee or agent of the Company, or is or was
serving at the request of the Company as a director, officer, employee or agent
of another Person or other enterprise, or as a member of any committee or
similar body, against expenses (including attorneys' fees) actually and
reasonably incurred by the Indemnified Person in connection with the defense or
settlement of such action or suit if the Indemnified Person acted in good faith
and in a manner he reasonably believed to be in, or not opposed to, the best
interests
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of the Company, except that no indemnification shall be made in respect of any
claim, issue or matter as to which the Indemnified Person shall have been
adjudged to be liable for negligence or misconduct in the performance of the
Indemnified Person's duty to the Company unless and only to the extent that the
Court of Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but in
view of all the circumstances of the case, the Indemnified Person is fairly and
reasonably entitled to indemnity for such expenses which the Court of Chancery
or such other court shall deem proper.
10.3 Determination of Right of Indemnification. Any indemnification
under Section 10.1 or 10.2 (unless ordered by a court) shall be made by the
Company only as authorized in the specific case upon a determination that
indemnification of the Indemnified Person is proper in the circumstances
because the Indemnified Person has met the applicable standard of conduct set
forth in Section 10.1 and 10.2. Such determination shall be made (i) by the
Management Committee by a majority vote of a quorum consisting of members who
were not parties to such action, suit or proceeding, or (ii) if such a quorum
is not obtainable, or, even if obtainable, a quorum of disinterested members of
the Management Committee so directs, by independent legal counsel in a written
opinion, or (iii) by a Majority Vote of the Members.
10.4 Indemnification Against Expenses of Successful Party.
Notwithstanding the provisions of Section 10.1 or 10.2, to the extent that an
Indemnified Person has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Section 10.1 or 10.2, or in
defense of any claim, issue or matter therein, the Indemnified Person shall be
indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by the Indemnified Person in connection therewith.
10.5 Advance of Expenses. Expenses incurred in defending a civil or
criminal action, suit or proceeding referred to in Section 10.1 or 10.2 shall
be paid by the Company in advance of the final
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disposition of such action, suit or proceeding as authorized by the Management
Committee in the specific case upon receipt of an undertaking by or on behalf
of the Indemnified Person to repay such amount unless it shall ultimately be
determined that the Indemnified Person is entitled to be indemnified by the
Company as authorized in this Article.
10.6 Other Rights and Remedies. The indemnification provided by
Section 10.1 and 10.2 shall not be deemed exclusive and is declared expressly
to be nonexclusive of any other rights to which one seeking indemnification may
be entitled under any agreement, vote of Members or of disinterested members of
the Management Committee or otherwise, both as to action in an Indemnified
Person's official capacity and as to action in another capacity while holding
such office, and shall continue as to an Indemnified Person who has ceased to
be a Member, Management Committee Representative, officer, employee or agent of
the Company and shall inure to the benefit of the heirs, executors and
administrators of such an Indemnified Person.
ARTICLE XI
MISCELLANEOUS
11.1 Further Assurances. Each party to this Agreement agrees to
execute, acknowledge, deliver, file and record such further certificates,
amendments, instruments and documents, and to do all such other acts and
things, as may be required by law, or as may be necessary or advisable to carry
out the intents and purposes of this Agreement.
11.2 Amendments. This Agreement may be amended by a Majority Vote of
the Members; provided, that no such amendment shall be made without the consent
of all Members if the effect of any such amendment would be to (i) increase any
Member's personal liability; (ii) change any Members' right and interest in the
Net Income, Net
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Loss or distributions from the Company; (iii) change any Member's rights upon
liquidation of the Company; or (iv) cause the Company to be treated for tax
purposes as an association taxable as a corporation.
11.3 Notices. Unless otherwise specified in this Agreement, all
notices, demands, elections, requests or other communications that any party to
this Agreement may desire or be required to give hereunder shall be in writing
(which shall include telecopier, telegram or cable) and shall be deemed to have
been duly given or made upon the transmittal thereof by telecopier, answerback
received, or the delivery thereof to the telegraph office, or on receipt
following the deposit thereof in the mails or when delivered by hand, in each
case to the person to whom notice is being given, addressed as follows:
(a) to the Company, at the principal place of business of the
Company or at such other address as may be designated by the Company
upon written notice to the Members;
(b) to each Member at the address set forth beneath the
signature of such Member on the signature pages to this Agreement, or at
such other address as may be designated by written notice to the Company
as provided in this Section; and
(c) to any person who hereafter becomes an Additional Member, at
such address as may be designated by it by written notice to the
Company.
11.4 Headings and Captions. All headings and captions contained in
this Agreement are for convenience only and shall not be deemed a part of this
Agreement.
11.5 Variations of Pronouns. All pronouns and all variations thereof
shall be deemed to refer to the masculine, feminine or neuter, singular or
plural, as the identity of the person or entity may require.
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11.6 Counterparts. This Agreement may be executed in counterparts,
each of which shall constitute an original and all of which, when taken
together, shall constitute one agreement.
11.7 Governing Law. This Agreement is made pursuant to the provisions
of the Delaware Law and shall be construed accordingly.
11.8 Successors and Assigns. This Agreement shall be binding upon the
parties hereto and their respective successors, executors, administrators,
legal representatives, heirs and assigns and shall inure to the benefit of the
parties hereto and, except as otherwise provided herein, their respective
successors, executors, administrators, legal representatives, heirs and
assigns.
11.9 Waiver of Right of Partition. Each of the Members does hereby
agree to and does hereby irrevocably waive (a) any right it may have, whether
by statute or by rule of law, to cause any asset of the Company to be
partitioned or to file a complaint or to institute any proceeding at law, or in
equity, to cause any asset to be partitioned, or to complete a sale of all or
any part of the assets of the Company, and (b) any right to take any action
which otherwise may be available to such Member for the purpose of severing its
relation with the Company or its interest in the assets of the Company from the
interest of the other Members other than any rights such Member may have
pursuant to the terms of this Agreement, throughout the term of the Company and
during the period of its liquidation following any dissolution.
11.10 Entire Agreement. This Agreement and the other documents
contemplated herein constitutes the entire agreement of the Members with
respect to the transactions contemplated hereby and supersedes all prior oral
or written agreements and understandings.
11.11 Future Members. While the Company will initially consist of a
sole Member, Mike Howard, this Agreement has been written in contemplation that
there will be multiple Members of the Company shortly after the formation of
the Company.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the ____ day of July, 1996.
American Gaming Network L.L.C.
By:
--------------------------------------
ADDRESS:
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Mike Howard
ADDRESS:
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Exhibit A
American Gaming Network L.L.C.
Limited Liability Company Agreement
<TABLE>
<CAPTION>
Member Number of Membership Units
- ------ --------------------------
<S> <C>
Mike Howard one (1)
</TABLE>
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EXHIBIT 10.22
CERTIFICATE OF MERGER
OF
AMERICAN GAMING NETWORK, L.P.
INTO
AMERICAN GAMING NETWORK, L.L.C.
American Gaming Network, L.L.C., a limited liability company organized
under the Delaware Limited Liability Company Act (the "Act"), for the purpose
of merger with other entities pursuant to Section 18-209 of the Act, hereby
certifies that:
1. The name and jurisdiction of formation or organization of each of
the domestic limited liability companies or other business entities that are
constituent entities are:
<TABLE>
<CAPTION>
Name Jurisdiction
---- ------------
<S> <C>
American Gaming Network, L.P. New York
American Gaming Network, L.L.C. Delaware
</TABLE>
2. An agreement of merger has been approved and executed by each
domestic limited liability company or other business entity which is a
constituent entity.
3. The name of the surviving domestic limited liability company is
American Gaming Network, L.L.C.
4. The agreement of merger is on file at the following place of
business of the surviving domestic limited liability:
American Gaming Network, L.L.C.
7535 South Lewis, Suite 302
Tulsa, Oklahoma
Attn: Gordon Graves or Larry Montgomery
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5. A copy of the agreement of merger will be furnished by American
Gaming Network, L.L.C. on request and without cost, to any member of any
domestic limited liability company or any person holding an interest in another
business entity which is a constituent entity.
IN WITNESS WHEREOF, this Certificate of Merger has been duly executed as
of the ____ day of July, 1996, and is being filed in accordance with Section
18-209 of the Act by an authorized person of the surviving domestic limited
liability company.
American Gaming Network, L.L.C.
By:
--------------------------------------
, Authorized Person
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EXHIBIT 10.23
GUARANTY
(individual)
WHEREAS, American Gaming Network L.L.C., a Delaware limited liability
company (the "Company"), is indebted to Multimedia Games, Inc., a Texas
corporation ("Creditor");
WHEREAS, this guaranty is being executed and delivered in order to
induce TV Games, Inc., a Delaware corporation and a wholly owned subsidiary of
Creditor ("TVG"), to enter into a certain Unit Purchase Agreement dated the
14th day of August, 1996, by and between TVG, AGN Venturer L.L.C., a Delaware
limited liability company ("Venturer"), and the Buyers (as defined therein)
(the "Unit Purchase Agreement");
WHEREAS, TVG has required this guaranty to be delivered as a condition
precedent to the TVG's obligations under the Unit Purchase Agreement; and
WHEREAS, the undersigned is a Buyer of "Units" under the Unit Purchase
Agreement ("Guarantor");
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, Guarantor hereby agrees with Creditor as
follows:
1. As used throughout this guaranty, the term "Company" shall
include, without limitation, the Company, the Company as a debtor-in-
possession, and any receiver, trustee, liquidator, conservator, custodian, or
similar party hereafter appointed for the Company or all or substantially all
of its assets pursuant to any liquidation, conservatorship, bankruptcy,
moratorium, rearrangement, receivership, insolvency, reorganization, or other
similar laws from time to time in effect affecting the rights of creditors
generally.
2. The term "Guaranteed Indebtedness," as used herein, includes: (a)
all principal indebtedness of the Company to Creditor arising out of that
certain Promissory Note, dated the 28th day of June, 1996 in the principal
amount of $336,000.00 (the "Note"), bearing interest at the rate of 10.5% per
annum and maturing on the 30th day of June, 1998; provided that Guaranteed
Indebtedness shall not include interest on the Note and (b) any and all costs,
reasonable attorneys' fees, and expenses incurred by Creditor by reason of the
Company's default in payment of the foregoing principal indebtedness.
Notwithstanding anything in this guaranty to the contrary, the obligation of
the Guarantor under this Guaranty with respect to the Guaranteed Indebtedness
of shall not exceed the product of (x), the
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number of Units in Venturer purchased by Guarantor pursuant to the Unit
Purchase Agreement multiplied by (y) three thousand three hundred sixty
(3,360).
3. This guaranty is a guaranty of payment and performance and not of
collection and Guarantor agrees that, in the event the Company fails to make
such payments in accordance with the terms of the Guaranteed Indebtedness,
Creditor may proceed in the first instance against Guarantor under the terms of
this agreement without first proceeding against or exhausting Creditor's
remedies against the Company. Notwithstanding the preceding sentence, Creditor
shall have no greater right against Guarantor than Creditor would have had
against the Company under the terms of the Guaranteed Indebtedness.
4. Guarantor hereby agrees that its obligations under the terms of
this guaranty shall not be released, diminished, impaired, reduced, or affected
by the occurrence of any one or more of the following events: (a) any partial
release of the liability of Guarantor hereunder; (b) the insolvency,
bankruptcy, or lack of corporate power of the Company; (c) any renewal,
extension, or rearrangement of the payment of any or all of the Guaranteed
Indebtedness, either with or without notice to or consent of Guarantor; or (d)
the unenforceability of all or any part of the Guaranteed Indebtedness against
the Company by reason of the fact that the Guaranteed Indebtedness exceeds the
amount permitted by law, the act of creating the Guaranteed Indebtedness, or
any part thereof, is ultra vires, or the officers creating same acted in excess
of their authority or violated any fiduciary duties in connection therewith.
5. Should Guarantor become insolvent, or fail to pay its debts
generally as they become due, or voluntarily seek, consent to, or acquiesce in
the benefit of any bankruptcy, insolvency or other similar laws, or become a
party to (or be made the subject of) any proceeding provided for by any
bankruptcy, insolvency or other similar laws (other than as a creditor or
claimant) that could suspend or otherwise adversely affect the rights of
Creditor granted hereunder, then, in any such event, the Guaranteed
Indebtedness shall be, as between Guarantor and Creditor, a fully matured, due,
and payable obligation to Creditor (without regard to whether the Company is
then in default under the document or instrument evidencing the indebtedness
guaranteed hereunder or whether such indebtedness, or any part thereof is then
due and owing by the Company to Creditor), and Guarantor shall pay to Creditor
upon demand the estimated amount owing to Creditor by Guarantor in respect of
the contingent claim created hereunder.
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6. Guarantor represents and warrants to Creditor as follows:
(a) This guaranty constitutes the legal, valid, and binding
obligation of Guarantor enforceable against Guarantor in accordance with
its terms.
(b) Guarantor is not, nor will the execution, delivery, and the
performance of and compliance with the terms of this guaranty cause
Guarantor to be, in violation of (i) any laws, or (ii) any indenture,
mortgage, lease, deed of trust, agreement, contract, instrument, or law
to which Guarantor is a party or by which Guarantor or any of
Guarantor's property, assets, or revenue is bound or to which it is
subject.
(c) No order, consent, approval, license, permit, waiver,
exemption, authorization of or validation of, or filing, recording or
registration with (except as heretofore have been obtained or made), or
exemption by, any person, entity or governmental authority is required
to authorize, or is required in connection with, the execution,
delivery, performance, legality, validity, binding effect, or
enforceability of this guaranty.
7. This guaranty is for the benefit of Creditor and Creditor's
successors and assigns, and in the event of an assignment of the Guaranteed
Indebtedness, or any part thereof, the rights and benefits hereunder, to the
extent applicable to the indebtedness so assigned, may be transferred with such
indebtedness. This guaranty is binding not only on Guarantor, but on
Guarantor's successors and assigns.
8. This guaranty shall be construed according to the laws of the
State of Oklahoma.
9. This Agreement embodies the entire agreement between Guarantor
and Creditor and supersedes all prior proposals, agreement and understandings
relating to the subject matter hereof.
10. This guaranty shall expire at such time as the Guaranteed
Indebtedness has been paid in full.
IN WITNESS WHEREOF, Guarantor has executed this guaranty for the benefit
of Creditor as of the 14th day of August, 1996.
GUARANTOR
------------------------------------------
NAME:
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EXHIBIT 10.24
PURCHASE AGREEMENT
THIS PURCHASE AGREEMENT, dated this 25th day of June, 1996 (this
"Agreement"), by and among each of the MMG Parties, each of the Graff Parties
and the Venture (as these and certain other capitalized terms used herein are
defined in Article I hereof),
W I T N E S S E T H:
WHEREAS, on June 28, 1995, TVG and AGNI entered into the Joint Venture
Agreement for the purpose of forming the AGNJV to own and operate the TV
MegaBingo Business, the AGN Charity Hall Bingo Business, the AGN On-Line
Services and the AGN Web Site and to conduct other activities related thereto;
WHEREAS, in connection with the Joint Venture Agreement, (i) MMG issued
to Graff a warrant (the "Initial Warrant") to purchase 175,000 shares of MMG's
Common Stock, $.01 par value, at an exercise price of $2.50 per share, and (ii)
Graff, AGNI, MMG and TVG entered into the Technology Transfer Agreement,
pursuant to which MMG and TVG sold to Graff a one-third interest in the TV
MegaBingo Business Intellectual Property in consideration of the delivery to
MMG of the Graff IP Purchase Note;
WHEREAS, in connection with the Joint Venture Agreement, Graff, AGNI,
MMG and TVG entered into the Side Letter Agreement as later amended by the
Amendment to Side Letter Agreement, pursuant to which (i) MMG sold 100,000
shares of its Common Stock to Graff at $2.75 per share in consideration of the
delivery to MMG of the Graff Stock Purchase Note, (ii) the terms of the Initial
Warrant were amended to reduce the exercise price to $2.25 per share, and (iii)
Graff agreed to (and did) exercise the Initial Warrant (as so amended) and MMG
issued to Graff (A) the Replacement Warrant, and (B) the 175,000 shares of the
Company's Common Stock issuable upon exercise of the Initial Warrant (such
175,000 shares of Common Stock together with the 100,000 shares of Common Stock
referred to in clause (i) of this
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WHEREAS paragraph, being herein collectively called the "MMG Shares");
WHEREAS, subject to the terms of the Joint Venture Agreement, (i) AGNI
agreed to provide financing to the Venture which AGNI discontinued doing in
December 1995, (ii) since December 1995, MMG has advanced $336,000 to the
Venture which is evidenced by the Venture Note;
WHEREAS, pursuant to the December Agreement, MMG accepted the Graff JV
Note as the final payment due by Graff pursuant to Section 1.5 of the Joint
Venture Agreement;
WHEREAS, the parties hereto desire to terminate any and all interests of
Graff and AGNI in the Venture and, in connection therewith, Newco (or its
Permitted Designee) has agreed to purchase all of AGNI's right, title and
interest in the AGNI Venture Interest, and AGNI has agreed to sell its AGNI
Venture Interest to Newco (or its Permitted Designee), upon the terms and
subject to the conditions hereinafter set forth; and
WHEREAS, MMG (or its Permitted Designee) desires to purchase all of the
MMG Shares from Graff and Graff desires to sell all the MMG Shares to MMG (or
its Permitted Designee), upon the terms and subject to the conditions
hereinafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein, the parties hereto, intending to be
legally bound hereby, agree as follows:
ARTICLE I
DEFINITIONS
1.1 For all purposes of this Agreement, except as otherwise expressly
provided or unless the context otherwise requires:
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"Accounts" shall mean all accounts and other rights of AGNI to receive
payments or distributions from the Venture.
"Additional Products" shall mean as such term is defined in the Joint
Venture Agreement.
"Affiliate" shall have the meaning prescribed by Rule 12b-2 of the
regulations promulgated pursuant to the Securities Exchange Act of 1934, as
amended.
"AGN Charity Hall Bingo Business" shall mean as such term is defined in
the Joint Venture Agreement.
"AGNI" shall mean American Gaming Network, Inc., a Delaware corporation
wholly owned by CVS.
"AGNJV" or the "Venture" shall mean American Gaming Network, JV, a joint
venture formed pursuant to the general partnership laws of the State of New
York comprised of TVG and AGNI, as Venturers,
"AGN On-Line Services" shall mean as such term is defined in the Joint
Venture Agreement.
"AGN Web Site" shall mean as such term is defined in the Joint Venture
Agreement.
"AGNI Venture Interest" shall mean all right, title and interest owned
by AGNI in or related to the Venture, including without limitation, all
Contract Rights, all Accounts and all Intellectual Property.
"Amendment to Side Letter Agreement" shall mean the Letter Agreement,
dated September 26, 1995, by and among Graff, AGNI, MMG and TVG that amends the
Side Letter Agreement.
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"Business Day" shall mean any day other than Saturday, Sunday, Federal
holiday or day on which the banks in New York are required or permitted by law
to be closed.
"Claim" shall mean any demand, claim, action or cause of action based on
any Loss.
"Closing" shall mean the closing referred to in Section 4.01 of this
Agreement.
"Commercial Efforts" shall mean such efforts as shall not require the
performing party (i) to do any act that is unreasonable under the
circumstances, (ii) to make any capital contribution not expressly contemplated
hereunder, (iii) to amend or waive any rights under this Agreement, or (iv) to
incur or expend any funds other than reasonable out-of-pocket expenses incurred
in satisfying its obligation hereunder, including the fees, expenses and
disbursements of accountants, counsel and other professionals.
"Contract Rights" shall mean all right, title and interest of the Graff
Parties in and to all contracts, arrangements and agreements relating to the
Venture Business, including without limitation the Joint Venture Agreement, the
Technology Transfer Agreement, the Side Letter Agreement and the December
Agreement; provided that, "Contract Rights" shall not include (i) the rights of
Graff under the Replacement Warrants, (ii) the rights of Graff under the
Registration Rights Agreement,(iii) the rights of Graff, CVS and AGNI under and
pursuant to this Agreement, and (iv) the rights of Graff under each of the
Graves Guaranty, the MMG Guaranty and the Venture Guaranty (each of the rights
referred to in the foregoing clauses (i) through (iv) being herein called the
"Retained Contract Rights").
"CVS" shall mean Cable Video Store, Inc., a Delaware corporation wholly
owned by Graff.
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"December Agreement" shall mean the Letter Agreement, dated December 11,
1995, by and among MMG, TVG, AGNI and Graff.
"GPPV-Developed Products" shall mean as such term is defined in the
Joint Venture Agreement.
"Graff" shall mean Graff Pay-Per-View Inc., a Delaware corporation.
"Graff IP Purchase Note" shall mean the promissory note of Graff in the
principal amount of $500,000.00 payable to MMG and/or TVG, and issued pursuant
to the Technology Transfer Agreement.
"Graff JV Note" shall mean the promissory note of Graff payable to MMG
in the principal amount of $75,000.00 and delivered by Graff pursuant to the
December Agreement.
"Graff Parties" shall mean, individually and collectively as the context
requires, Graff, AGNI and CVS.
"Graff Stock Purchase Note" shall mean the promissory note of Graff
payable to MMG in the original principal amount of $275,000.00 of which
$75,000.00 principal amount has been paid as of the date of this Agreement.
"Graves Guaranty" shall mean the Guaranty (Graves) of Gordon Graves, to
be dated the Closing Date, in substantially the form attached hereto as Exhibit
E.
"Intellectual Property" shall mean:
(i) all of the intellectual property acquired by any Graff Party
from MMG or TVG pursuant to the LOI, the Joint Venture Agreement and the
Technology Transfer Agreement, including without limitation, all
property and assets listed in paragraphs 1 and 2 of Schedule C to the
Joint Venture Agreement, in each
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case to the extent the same has not been effectively transferred and
contributed by the Graff Parties to the Venture; and
(ii) all right, title and interest of AGNI in and to the name
"American Gaming Network, Inc.", and any and all derivations thereof
(including all trade names, trade name licenses and applications, if
any, related thereto).
"Joint Venture Agreement" shall mean the Joint Venture Agreement, dated
June ___, 1995, by and among AGNI and TVG.
"Lien" shall mean any mortgage, pledge, security interest, lien, charge,
encumbrance, equity, claim, option, tenancy, right or restriction on transfer
of any nature whatsoever.
"LOI" shall mean the letter of understanding dated March 15, 1995,
between Graff and MMG.
"Loss" shall mean any loss, damage, liability, cost, assessment and
expense including, without limitation, any interest, fine, court cost and
reasonable investigation cost, penalty and attorneys' and expert witnesses'
fees, disbursements and expenses, after taking into account any insurance
proceeds actually received by or paid on behalf of any party incurring a Loss
which are not required to be remitted by such party to the other party pursuant
to the terms hereof.
"MMG" shall mean Multimedia Games, Inc., a Texas corporation.
"MMG Guaranty" shall mean the Guaranty (MMG) of MMG, to be dated the
Closing Date, in substantially the form attached hereto as Exhibit F.
"MMG Retained Contract Rights" shall mean (i) the rights of MMG under
the Replacement Warrants, (ii) the rights of MMG under the Registration Rights
Agreement,(iii) the rights of the MMG Parties under and pursuant to this
Agreement, (iv) the rights of Gordon
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Graves under the Graves Guaranty, (v) the rights of MMG under the MMG Guaranty,
and (vi) the rights of AGNJV under the Venture Guaranty.
"MMG Parties" shall mean, individually and collectively as the context
requires, MMG, TVG and Newco.
"Newco" shall mean AGN Venturer L.L.C., a Delaware limited liability
company wholly owned by TVG.
"Off-Reservation Bingo Play" shall mean as such term is defined in the
Joint Venture Agreement.
"Person" shall mean an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization, a governmental entity or
any other entity.
"Products" shall mean as such term is defined in the Joint Venture
Agreement.
"Registration Rights Agreement" shall mean in this Agreement and for
purposes of Section 9 of the Replacement Warrant, the Registration Rights
Agreement between MMG and Graff in substantially the form attached hereto as
Exhibit C.
"Replacement Warrant" shall mean the Warrant Certificate (No. W-43),
dated July 31, 1995, issued by MMG to Graff evidencing the right of Graff to
purchase 175,000 shares of MMG's Common Stock at a purchase price of $3.50 per
share.
"Side Letter Agreement" shall mean the Letter Agreement, dated June 28,
1995, by and among Graff, AGNI, MMG and TVG.
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"Technology Transfer Agreement" shall mean the agreement so captioned by
and among Graff, AGNI, MMG and TVG entered into simultaneously with the Joint
Venture Agreement.
"TVG" shall mean TV Games Inc., a Texas corporation wholly owned by MMG.
"TV MegaBingo Business" shall mean as such term is defined in the Joint
Venture Agreement.
"TV MegaBingo Business Intellectual Property" shall mean as such term is
defined in the Technology Transfer Agreement.
"Venture Business" shall mean all business and activities conducted or
contemplated to be conducted by the Venturers pursuant to the Joint Venture
Agreement, including without limitation owning and operating the TV MegaBingo
Business, the AGN Charity Hall Bingo Business, the AGN On-Line Services, and
the AGN Web Site.
"Venture Guaranty" shall mean the Guaranty (Venture) of AGNJV, to be
dated the Closing Date, in substantially the form attached hereto as Exhibit F.
"Venture Note" shall mean the promissory note of the Venture to MMG in
the principal amount of $336,000 which evidences all advances to the Venture
made by MMG and TVG since December 1, 1995, to the Closing Date.
1.2 Plurals; Etc. As used herein, the plural form of any noun shall
include the singular and the singular shall include the plural, unless the
context otherwise requires. Each of the masculine, neuter and feminine forms
of any pronoun shall include all such forms unless the context otherwise
requires.
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ARTICLE II
PURCHASE AND SALE OF AGNI VENTURE INTEREST
2.1 Purchase and Sale. Upon the terms and subject to the conditions of
this Agreement, at the Closing Newco (which for purposes of this Article II
shall include its Permitted Designee) will purchase the AGNI Venture Interest
from AGNI and AGNI will sell all of its right, title and interest in the AGNI
Venture Interest to Newco, free and clear of all Liens.
2.2 Purchase Price. In consideration of Graff's and AGNI's performance
of this Agreement and the sale of the AGNI Venture Interest, at the Closing:
(a) Newco will deliver to AGNI the promissory note of Newco in
the principal amount of ONE HUNDRED THOUSAND DOLLARS ($100,000.00) in
substantially the form attached hereto as Exhibit A (the "Newco A Note"); and
(b) Newco will deliver to AGNI the promissory note of Newco in
the principal amount of FOUR HUNDRED THOUSAND DOLLARS ($400,000.00) in
substantially the form attached hereto as Exhibit B (the "Newco B Note").
ARTICLE III
PURCHASE AND SALE OF MMG SHARES
3.1 Purchase and Sale. Upon the terms and subject to the conditions of
this Agreement, at the Closing MMG (which for purposes of this Article III
shall include its Permitted Designee) will purchase the MMG Shares from Graff
and Graff will sell all right, title and interest in the MMG Shares to MMG,
free and clear of all Liens.
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3.2 Purchase Price. In consideration of the sale of the MMG Shares, at
the Closing:
(a) MMG will deliver to Graff the Graff Stock Purchase Note marked
"canceled" and thereupon the Graff Stock Purchase Note shall be of no further
force or effect and Graff shall have no obligation or liability thereunder
including, without limitation, any obligation to pay principal or accrued
interest thereon; and
(b) MMG will deliver to Graff the Graff IP Purchase Note and the Graff
JV Note, each marked "canceled" and thereupon each of the Graff IP Purchase
Note and the Graff JV Note shall be of no further force or effect and Graff
shall have no obligation or liability thereunder including, without limitation,
any obligation to pay principal or accrued interest thereon.
(c) Notwithstanding the foregoing, MMG may, at its sole option, direct
Graff to sell the MMG Shares to a Permitted Designee for such consideration
(whether in cash or property, or both) as MMG may direct. In such event:
(i) Graff agrees to sell the MMG Shares to such Permitted
Designee for such consideration and to deliver such consideration to MMG
in the same form and amount as received by Graff, without recourse to
Graff and without any representation or warranty of Graff other than as
to Graff's own actions; and
(ii) MMG agrees to accept such consideration in the form
delivered by Graff and, in consideration thereof, to deliver to Graff
each of the Graff Stock Purchase Note, the Graff IP Purchase Note and
the Graff JV Note, each marked "canceled" and thereupon each of the
Graff Stock Purchase Note, the Graff IP Purchase Note and the Graff JV
Note shall be of no further force or effect and Graff shall have no
obligation or liability thereunder including, without limitation, any
obligation to pay principal or accrued interest thereon.
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ARTICLE IV
CLOSING
4.1 Closing. Subject to Section 9.01 hereof, the Closing of the sale
and purchase of the AGNI Venture Interest and the MMG Shares hereunder shall
take place at 10:00 A.M., on the second business day following the receipt by
the Graff Parties of the consent referred to in Section 8.2(d) hereof, or at
such other date and time as the parties hereto may mutually agree. The Closing
shall be conducted by the mutual exchange of documents and instruments
delivered at the respective offices of the parties by overnight courier.
4.2 Deliveries at Closing.
(a) At the Closing, MMG or Newco (or their respective Permitted
Designees), as appropriate, shall deliver or cause to be delivered the
following:
(i) the Newco A Note to AGNI;
(ii) the Newco B Note to AGNI;
(iii) the Graff IP Note marked "canceled" to Graff;
(iv) the Graff Stock Purchase Note marked "canceled" to Graff;
(v) the Graff JV Note marked "canceled" to Graff;
(vi) the Registration Rights Agreement to Graff;
(vii) the MMG Guaranty to Graff;
(viii) the Graves Guaranty to Graff;
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(ix) the Venture Guaranty to Graff; and
(x) such other documents and instruments as reasonably may be
requested by Graff not less than five Business Days prior to the
Closing.
(b) At the Closing, Graff or AGNI, as appropriate, shall deliver or
cause to be delivered the following:
(i) a certificate or certificates evidencing the MMG Shares to
MMG (or its Permitted Designee);
(ii) in the event Section 3.02(c) of this Agreement is
applicable, such consideration as was received by Graff from such
Permitted Designee;
(iii) an assignment of the AGNI Venture Interest, in
substantially the form attached hereto as Exhibit D, to Newco (or its
Permitted Designee);
(iv) evidence of the satisfaction of the condition set forth in
Section 8.2(d); and
(v) such other documents and instruments as reasonably may be
requested by MMG not less than five Business Days prior to the Closing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF GRAFF PARTIES
Each Graff Party hereby represents and warrants, jointly and severally,
to each MMG Party and the Venture as follows:
5.1 Organization; Qualification; Authority. Each Graff Party is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware and each has the
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power and authority to make, execute, deliver and perform this Agreement and to
incur and perform the obligations provided for herein, all of which have been
duly authorized by all necessary and proper corporate action, including
shareholder action. Neither the execution, delivery and performance of this
Agreement by any Graff Party nor the consummation by any Graff Party of the
transactions contemplated hereby conflict with or will result in any breach or
default of any provision of the Certificate of Incorporation or Bylaws of any
Graff Party. This Agreement has been duly and validly executed and delivered
by the duly authorized officers of each Graff Party and constitutes the valid,
legally binding and enforceable obligations of each Graff Party in accordance
with the terms of this Agreement.
5.2 Consents and Approvals; No Violation. Neither the execution,
delivery and performance of this Agreement by any Graff Party (a) requires any
consent, approval, authorization or permit of, or filing with or notification
to, any Person including any governmental or regulatory authority; (b)
constitutes a breach or will result in a default under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or obligation of any kind to which any
Graff Party is a party or by which any Graff Party may be bound; or (c)
violates any order, writ, injunction, judgment, decree, law, statute, rule,
regulation or governmental permit or license applicable to any Graff Party, the
Venture or the Venture Business.
5.3 Title, Etc. AGNI is the sole owner of the AGNI Venture Interest
and has good and valid title thereto, free and clear of all Liens. Graff is
the sole owner of the MMG Shares and has good and valid title thereto, free and
clear of all Liens.
5.4 Venture Property. Each Graff Party has validly and effectively
transferred and contributed to the Venture all property, rights and assets
acquired by any Graff Party from MMG and TVG pursuant to the LOI, the Joint
Venture Agreement and the Technology Transfer Agreement, in each case in such
form and in such condition
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as was received by such Graff Party. Such transfer and contribution was (and
is) made by such Graff Party free and clear of any Liens created or permitted
by any Graff Party but without recourse (except as to such Graff Party's own
actions) and without any representation or warranty as to title or fitness for
use. No Graff Party has or claims any interest in any such property, rights or
assets. The representation and warranty of each Graff Party made in this
Section 5.4 includes, but is not limited to, all right, title and interest of
any Graff Party in and to the following property, rights and assets:
(a) All Products and Additional Products.
(b) All of the property and assets listed in paragraphs 1 and 2
of Schedule C to the Joint Venture Agreement.
(c) All intellectual property created by MMG or TVG for any
Graff Party as work made for hire and any modifications, developments or
enhancements thereto.
(d) All ownership and proprietary rights to Off-Reservation
Bingo Play and any modifications, developments, or enhancements thereto,
including Proxy Play software, telephone order entry software, TV Bingo game
shows, subcontracts for proxy service and TV Bingo market research.
(e) All ownership and proprietary rights to the TV MegaBingo
Business, the AGN Charity Hall Bingo Business, the AGN Web Site and the AGN On-
Line Services, and any modification, developments or enhancements thereto.
(f) All ownership and proprietary rights to TV MegaBingo
Business Intellectual Property and any modifications, developments or
enhancements thereto.
Notwithstanding the foregoing, the MMG Parties and the Venture
acknowledge and agree that the Graff Parties have no further
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obligation to transfer or contribute to the Venture any GPPV-Developed
Products.
5.5 Legal Proceedings, Etc. There is no claim, action, proceeding or
investigation pending or, to the knowledge of any Graff Party, threatened
against or relating to or involving any Graff Party or AGNJV with respect to
the Venture, the Venture Business, the AGNI Venture Interest or the MMG Shares
before any court or governmental or regulatory authority or body or which
questions or challenges the validity of this Agreement or any action taken or
to be taken pursuant to this Agreement or in connection with the transactions
contemplated hereby. No Graff Party or AGNJV is subject to any outstanding
order, writ, judgment, injunction or decree of any court or governmental or
regulatory authority or body.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF MMG Parties
Each MMG Party, jointly and severally, represents and warrants to each
Graff Party as follows:
6.1 Organization; Qualification; Authority. Each MMG Party is a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation and each has the power and authority to
make, execute, deliver and perform this Agreement and to incur and perform the
obligations provided for herein, all of which have been duly authorized by all
necessary and proper corporate action, including shareholder action. Neither
the execution, delivery and performance of this Agreement by any MMG Party nor
the consummation by them of the transactions contemplated hereby conflict with
or will result in any breach or default of any provision of the Certificate of
Incorporation or Bylaws of any MMG Party. This Agreement has been duly and
validly executed and delivered by the duly authorized officers of each MMG
Party and constitutes the valid, legally binding and enforceable obligations of
each of them in accordance with the terms of this Agreement.
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6.2 Consents and Approvals; No Violation. Neither the execution,
delivery and performance of this Agreement by any MMG Party (a) requires any
consent, approval, authorization or permit of, or filing with or notification
to, any Person including any governmental or regulatory authority; (b)
constitutes a breach or will result in a default under any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, license,
contract, agreement or other instrument or obligation of any kind to which MMG
Party is a party or by which any of them may be bound; or (c) violates any
order, writ, injunction, judgment, decree, law, statute, rule, regulation or
governmental permit or license applicable to any Graff Party.
6.3 Legal Proceedings, Etc. There is no claim, action, proceeding or
investigation pending or, to the knowledge of the MMG Parties, threatened
against or relating to the MMG Parties before any court or governmental or
regulatory authority or body or against or involving any MMG Party which
questions or challenges the validity of this Agreement or any action taken or
to be taken by the MMG Parties pursuant to this Agreement or in connection with
the transactions contemplated hereby.
ARTICLE VII
COVENANTS OF THE PARTIES
7.1 Expenses. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby will be paid by the party
incurring such costs and expenses, whether or not the transactions contemplated
hereby are consummated.
7.2 Further Assurances. Subject to the terms and conditions of this
Agreement, each of the parties hereto will use its Commercial Efforts to take,
or cause to be taken, all action, and to do, or cause to be done, all things
necessary under applicable laws and regulations to consummate the transactions
contemplated by this Agreement. On and from time to time after the Closing
Date, without
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further consideration, each Graff Party will, at its own expense, execute and
deliver such documents to the MMG Parties as the MMG Parties may reasonably
request in order to consummate the transactions contemplated by the Agreement.
On and from time to time after the Closing Date, without further consideration,
each MMG Party will, at its own expense, execute and deliver such documents to
the Graff Parties as the Graff Parties may reasonably request in order to
consummate the transactions contemplated by this Agreement.
7.3 Filing.
(a) The MMG Parties promptly will make, or cause to be made, all
such filings and submissions under laws and regulations applicable to the MMG
Parties, if any, as may be required of the MMG Parties for the consummation of
the transactions contemplated hereby. The Graff Parties promptly will make, or
cause to be made, all such filings and submissions under laws and regulations
applicable to the Graff Parties, as may be required of the Graff Parties, for
consummation of the transactions contemplated hereby. The parties hereto will
coordinate and cooperate with one another in exchanging such information and
reasonable assistance as may be requested in connection with all of the
foregoing.
(b) To the extent that the approval, consent or permission of
any governmental entity or other Person is necessary or desirable for the MMG
Parties to obtain in connection with the conduct of the Venture Business after
the Closing, including the issuance of such new permits as may be required for
the MMG Parties to conduct the Venture Business, the Graff Parties shall, at
the MMG Parties's request and expense, reasonably cooperate with the MMG
Parties in obtaining all such approvals, consents or permissions.
7.4 Transfer Taxes. The Graff Parties shall pay the cost of any
conveyance, deed, transfer, excise, stamp, sales, use, recording or similar
taxes or fees, arising out of the sale, transfer, conveyance or assignment of
the AGNI Venture Interest and the MMG
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Shares as contemplated hereby. The covenants contained in this Section 7.4
shall survive the Closing Date until fully discharged.
7.5 Public Announcements. Neither the Graff Parties nor the MMG
Parties shall issue any press release or make any other public disclosure or
announcement concerning the transactions contemplated by this Agreement without
the prior written consent of the other parties hereto as to both the timing and
content of such press release or public disclosure, which consent shall not be
unreasonably withheld; provided that any party may make such disclosure as in
the opinion of counsel to such party is required by applicable law.
7.6 Confidentiality; Absence of Covenant Not To Compete. (a) The Graff
Parties shall hold and shall cause each of their Affiliates to hold in strict
confidence (unless compelled to disclose by judicial or administrative process
or in making any filings with governmental entities with respect to the
transactions contemplated hereby or, in the written reasonable opinion of its
counsel, by other requirements of law) all documents and information concerning
any MMG Party, AGNJV or the Venture Business obtained or furnished to or
acquired or developed by it in connection with the Venture Business and the
transactions contemplated by the Joint Venture Agreement (except to the extent
that such information can be shown to have been (i) previously known by the
party to which it was furnished, (ii) in the public domain through no fault of
such party, or (iii) later lawfully acquired by the party to which it was
furnished from other sources not bound by a confidentiality obligation with
respect to such information), and no Graff Party will use, release or disclose
such information to any other Person, except its auditors and attorneys who
need to know such information in the ordinary course of their representation of
the Graff Parties.
(b) The MMG Parties shall hold and shall cause each of their Affiliates
to hold in strict confidence (unless compelled to disclose by judicial or
administrative process or in making any filings with governmental entities with
respect to the transactions contemplated hereby or, in the written reasonable
opinion of its counsel, by other
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requirements of law) all documents and information concerning any Graff Party
obtained or furnished to or acquired or developed by it in connection with the
Venture Business and the transactions contemplated by the Joint Venture
Agreement (except to the extent that such information can be shown to have been
(i) previously known by the party to which it was furnished, (ii) in the public
domain through no fault of such party, or (iii) later lawfully acquired by the
party to which it was furnished from other sources not bound by a
confidentiality obligation with respect to such information), and no MMG Party
will use, release or disclose such information to any other Person, except its
auditors and attorneys who need to know such information in the ordinary course
of their representation of the MMG Parties.
(c) The Graff Parties acknowledge and agree that, because of the nature
and subject matter of the provisions of Section 7.06(a), it would be
impractical and extremely difficult to determine actual damages in the event of
the breach of any such provisions. Accordingly, if any Graff Party or any
Affiliate of any Graff Party commits a breach, or threatens to commit a breach,
of any matter set forth in Section 7.06(a), MMG shall have the right to have
the provisions of Section 7.06(a) specifically enforced by any court having
equity jurisdiction, it being further acknowledged and agreed by the Graff
Parties that any such breach or threatened breach will cause irreparable injury
to MMG and that an injunction may be issued against the breaching Graff Party
to stop or prevent such breach or threatened breach. If any such action shall
be instituted, the breaching Graff Party agrees to waive, and does hereby waive
to the fullest extent permitted by law, the defense that MMG has an adequate
remedy at law and agrees to interpose no opposition, legal or otherwise, as to
the propriety of pursuing specific performance as a remedy and agrees not to
request any bonding for the issuance of the relief sought.
(d) The MMG Parties acknowledge and agree that, because of the nature
and subject matter of the provisions of Section 7.06(b), it would be
impractical and extremely difficult to determine actual
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damages in the event of the breach of any such provisions. Accordingly, if any
MMG Party or any Affiliate of any MMG Party commits a breach, or threatens to
commit a breach, of any matter set forth in Section 7.06(b), Graff shall have
the right to have the provisions of Section 7.06(b) specifically enforced by
any court having equity jurisdiction, it being further acknowledged and agreed
by the MMG Parties that any such breach or threatened breach will cause
irreparable injury to Graff and that an injunction may be issued against the
breaching MMG Party to stop or prevent such breach or threatened breach. If
any such action shall be instituted, the breaching MMG Party agrees to waive,
and does hereby waive to the fullest extent permitted by law, the defense that
Graff has an adequate remedy at law and agrees to interpose no opposition,
legal or otherwise, as to the propriety of pursuing specific performance as a
remedy and agrees not to request any bonding for the issuance of the relief
sought.
(e) Anything to the contrary contained in this Agreement, the LOI or
the Joint Venture Agreement (or in any other agreement between the parties
whether or not related thereto) notwithstanding, each of the Graff Parties and
each of the MMG Parties and each of their respective Affiliates shall be free
to engage in any business whatsoever including, but not limited to, a business
that competes, directly or indirectly, with the Venture Business or any other
business or activity currently conducted, proposed to be conducted or hereafter
conducted by any such person.
7.7 Releases. (a) In consideration of the promises and payments of the
MMG Parties made in this Agreement, and provided that the Closing shall have
occurred, each of the Graff Parties, for and on behalf of their respective
Affiliates, officers, subsidiaries and affiliated companies, successors and
assigns, hereby release and forever discharge each of the MMG Parties and its
subsidiaries and affiliated companies (including AGNJV), successors and
assigns, and the officers, directors, shareholders, employees and agents of
each of the MMG Parties, and its and their respective officers, directors,
shareholders, employees and agents, including, in each case, any of
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the foregoing in their individual as well as corporate capacities, of and from
all liabilities, obligations, manner of actions, causes of action, suits,
debts, sums of money, accounts, damages, judgments, executions, claims,
counterclaims and demands whatsoever, whether in law, equity or otherwise,
known or unknown, that relate to the period of time on and prior to the Closing
Date including, but not limited to, any claims arising under or with respect to
the Joint Venture Agreement and the other agreements and transactions entered
into in connection therewith; provided that the foregoing release does not
release any right of the Graff Parties under this Agreement or with respect to
any of the other Retained Contract Rights.
(b) In consideration of the promises and payments of the Graff
Parties made in this Agreement, and provided that the Closing shall have
occurred, each of the MMG Parties and the Venture, for and on behalf of their
respective affiliates, officers, subsidiaries and affiliated companies,
successors and assigns, hereby release and forever discharge each of the Graff
Parties and its subsidiaries and affiliated companies, successors and assigns,
and the officers, directors, shareholders, employees and agents of each of the
Graff Parties, and its and their respective officers, directors, shareholders,
employees and agents, including, in each case, any of the foregoing in their
individual as well as corporate capacities, of and from all liabilities,
obligations, manner of actions, causes of action, suits, debts, sums of money,
accounts, damages, judgments, executions, claims, counterclaims and demands
whatsoever, whether in law, equity or otherwise, known or unknown, that relate
to the period of time on and prior to the Closing Date including, but not
limited to, any claims arising under or with respect to the Joint Venture
Agreement and the other agreements and transactions entered into in connection
therewith; provided that the foregoing release does not release any right of
the MMG Parties under this Agreement or with respect to any of the other MMG
Retained Contract Rights.
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ARTICLE VIII
CLOSING CONDITIONS
8.1 Conditions to Each Party's Obligations. The respective obligations
of the parties to consummate the transactions contemplated by this Agreement
shall be subject to each of the following conditions:
(a) No party shall be subject to any order, judgment, decree or
injunction of a court of competent jurisdiction or governmental body, agency or
official nor any applicable law or regulation or executive order which prevents
consummation of the transactions contemplated hereby.
(b) All filings required by applicable law shall have been made
and all consents thereunder with respect to the transactions contemplated by
this Agreement shall have been obtained.
8.2 Conditions to the Obligations of Graff Parties. The obligation of
the Graff Parties to consummate the transaction contemplated hereby shall be
further subject to the fulfillment on or prior to the Closing Date of each of
the following conditions:
(a) Each MMG Party shall have performed and complied in all
material respects with the agreements contained in this Agreement required to
be performed and complied with by it at or prior to the Closing Date.
(b) The representations and warranties of the MMG Parties set
forth in this Agreement shall be true and correct in all material respects as
of the date made and as of the Closing Date as though made at and as of the
Closing Date (except as otherwise contemplated by this Agreement).
(c) The Graff Parties shall have received a certificate, dated
the Closing Date, certifying to the fulfillment of the
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conditions set forth in paragraphs (a) and (b) of this Section 8.2 and signed
on behalf of the MMG Parties by an authorized officer of the MMG Parties.
(d) The Graff Parties shall have received the consent of
Midlantic Bank, N.A., Graff's senior secured lender, to the transactions
contemplated by this Agreement.
8.3 Conditions to the Obligations of the MMG Parties. The obligation of
the MMG Parties to consummate the transactions contemplated hereby shall be
further subject to the fulfillment on or prior to the Closing Date of each of
the following conditions:
(a) Each Graff Party shall have performed and complied in all
material respects with the agreements contained in this Agreement required to
be performed and complied with by it at or prior to the Closing Date.
(b) The representations and warranties of the Graff Parties set
forth in this Agreement shall be true and correct in all material respects as
of the date made and as of the Closing Date as though made at and as of the
Closing Date (except as otherwise contemplated by this Agreement).
(c) The MMG Parties shall have received a certificate, dated the
Closing Date, signed by an authorized officer of Graff Parties certifying to
the fulfillment of the conditions set forth in paragraphs (a) and (b) of this
Section 8.3.
ARTICLE IX
TERMINATION
9.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) By mutual written consent of MMG and Graff.
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(b) By written notice by either MMG or Graff to the other party
if the Closing shall not have occurred on or before 5:00 p.m., local time in
Tulsa, Oklahoma, on July 10, 1996, unless such failure to occur is due to the
failure of the party seeking to terminate this Agreement to perform in all
material respects each of its obligations under this Agreement required to be
performed by it or its affiliate at or before the Closing Date.
(c) By the MMG Parties if there has been a material violation or
breach by any of the Graff Parties of any agreement, representation or warranty
contained in this Agreement which has rendered the satisfaction of any
condition to the obligations of the MMG Parties specified in Section 8.3
impossible and such violation or breach has not been waived by the MMG Parties
or cured by the Graff Parties within 15 days after written notice to the Graff
Parties of such violation or breach.
(d) By the Graff Parties if there has been a material violation
or breach by any of the MMG Parties of any agreement, representation or
warranty contained in this Agreement which has rendered the satisfaction of any
condition to the obligations of the Graff Parties specified in Section 8.2
impossible and such violation or breach has not been waived by the Graff
Parties or cured by the MMG Parties within 15 days after written notice to the
MMG Parties of such violation or breach.
9.2 Procedure and Effect of Termination.
(a) In the event of termination of this Agreement pursuant to
Section 9.1, this Agreement shall terminate, and in each case the transactions
contemplated hereby shall be abandoned, without further action by any of the
parties hereto, and there shall be no liability on the part of the parties,
except as set forth in Section 7.1, which Section shall survive the termination
of this Agreement and except that the foregoing shall not relieve any party
from liability for damages actually incurred as a result of breach by it of
this Agreement.
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(b) If this Agreement is terminated as provided in Section 9.1,
all filings, applications and other submissions made pursuant to this Agreement
shall, to the extent practicable, be withdrawn from the agency or other person
to which they were made.
ARTICLE X
SURVIVAL AND INDEMNIFICATION
10.1 Survival. The representations, warranties, covenants and
agreements of the parties hereto shall survive the execution and delivery
hereof and the delivery of all of the documents executed in connection herewith
and shall continue in full force and effect after the date hereof and after the
Closing Date for a period of one (1) year after the Closing Date, except that
(i) the representation and warranty of the Graff Parties and the MMG Parties
contained in Section 5.1 and Section 6.1, respectively, shall survive without
limitation or until the expiration of any applicable statute of limitations,
and (ii) any covenants or agreements contained herein or made pursuant hereto
which by their terms are to be performed after the Closing Date shall survive
until fully discharged. The date until which the representations, warranties,
covenants and agreements of the parties hereto survive, as set forth herein, is
known as the "Expiration Date". From and after the Expiration Date, no party
shall be under any liability whatsoever with respect to any such representation
or warranty or any obligation or liability based upon such representation or
warranty, except for breaches as to which a party shall have given notice
(specifying, with reasonable particularity, facts establishing such breach) to
the other party or parties prior to the applicable Expiration Date. The
respective representations and warranties contained herein or in any
certificates delivered pursuant to this Agreement prior to or at the Closing
shall not be deemed waived or otherwise affected by any investigation made by
any party hereto.
10.2 Indemnification. Subject to the limitation set forth in Section
10.1:
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(a) Each Graff Party, jointly and severally, hereby agrees to
indemnify, defend and hold harmless each MMG Party and any subsidiary or
Affiliate of any MMG Party, and any officer, director, stockholder, employee,
representative or agent of any thereof and their respective successors and
assigns from and against all Losses and Claims based upon, arising out of or
resulting from, any breach of any representation or warranty of such Graff
Party that survives the Closing as provided in Section 10.1 and any covenant or
agreement of such Graff Party contained in this Agreement.
(b) Each MMG Party, jointly and severally, hereby agrees to
indemnify, defend and hold harmless each Graff Party and any subsidiary or
Affiliate of any Graff Party, and any officer, director, stockholder, employee,
representative or agent of any thereof and their respective successors and
assigns, from and against all Losses and Claims based upon, arising out of or
resulting from, any breach of any representation or warranty of such MMG Party
that survives the Closing as provided in Section 10.1 and any covenant or
agreement of such MMG Party contained in this Agreement.
10.3 Notice of Claim. If any party hereto has suffered or incurred any
Loss or Expense or a third-party claim, whether pursuant to an administrative
proceeding, action at law, suit in equity, or otherwise ("Third-Party Claim")
is instituted which, if decided adversely to a party, would result in such
party suffering or incurring any Loss, such party shall give prompt written
notice to the party against which a claim for indemnification may be made
pursuant to this Agreement ("indemnifying party"), setting forth: (a) the facts
or events, in reasonable detail which indicate that such party has suffered or
incurred such Loss, (b) the Section or Sections of this Agreement (in addition
to this Article X) under which such party has suffered or incurred such Loss
and Expense, (c) the amount of such Loss and Expense (estimated, if necessary)
or, in the case of a Third-Party Claim, such party's then good faith estimate
of the reasonably foreseeable estimated amount of its claim for indemnification
for such Loss and Expense, and (d) the method of computation of the amount of
such Loss and Expense, any of which
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information shall be promptly amended by such party when its knowledge of the
facts or events and any resulting liability so warrant. No party shall be
liable for indemnification pursuant to Section 10.2 unless notice of claim for
such indemnification has been given in accordance with this Section 10.3 and on
or prior to the applicable Expiration Date.
10.4 Defense of Third-Party Claim. The indemnifying party shall have
the right to conduct and control, at its expense and through counsel of its own
choosing, the defense of any Third-Party Claim, action or suit, but the
indemnified party may, at its election, participate in the defense of such
claim, action or suit at its sole cost and expense; provided that if (a) the
indemnifying party shall fail to defend any such claim, action or suit, (b) the
indemnifying party and indemnified party mutually agree or (c) the named
parties to such claim, action or suit (including any impeded parties) include
both the indemnifying party and the indemnified party and representation of
both parties by the same counsel would be inappropriate due to actual or
potential differing interests between them, then the indemnified party may
defend, through counsel of its own choosing, such claim, action or suit and
settle such claim, action or suit, and recover from the indemnifying party the
amount of any settlement to which the indemnifying party consents or of any
resulting judgment and the costs and expenses of such defense, provided that
the indemnified party shall not compromise or settle any third-party claim,
action or suit without the prior written consent of the indemnifying party,
which consent will not be unreasonably withheld, continued or delayed.
ARTICLE XI
MISCELLANEOUS PROVISIONS
11.1 Amendment and Modification. This Agreement may be amended,
modified or supplemented only by a subsequent written agreement of the Graff
Parties and the MMG Parties.
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11.2 Waiver of Compliance. Except as otherwise provided in this
Agreement, any failure of any of the parties to comply with any obligation,
covenant, agreement or condition herein may be waived by the party entitled to
the benefits thereof only by a written instrument signed by the party granting
such waiver, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement or condition shall not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
11.3 Notices. All notices and other communications hereunder shall be
in writing and shall be deemed given if delivered personally or by facsimile or
three days after mailed by registered or certified mail (return receipt
requested), postage prepaid, to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice; provided,
however, that notices of a change of address shall be effective only upon
receipt thereof):
(a) if to The Graff Parties to:
Graff Pay-Per-View Inc.
536 Broadway, 7th Floor
New York, New York 10012
Attention: President
and by telecopy to: (212) 941-4746
(b) if to The MMG Parties, to:
Multimedia Games, Inc.
7335 So. Lewis, Suite 204
Tulsa, Oklahoma 74136
and by telecopy to: (918) 494-0177
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with a copy to:
Hall, Estill, Hardwick, Gable,
Golden & Nelson, P.C.
320 South Boston, Suite 400
Tulsa, Oklahoma 74103-3708
Attention: Larry W. Sandel, Esq.
and by telecopy to: (918) 594-0505
11.4 Assignment. This Agreement may not be assigned, in whole or in
part, by the parties hereto without the prior written consent of the parties;
provided that MMG or Newco, as the case may be, may assign its right to
purchase the MMG Shares or the AGNI Venture Interest to a person and in a
manner that does not involve a public offering (a "Permitted Designee").
11.5 Governing Law. This Agreement shall be governed by the laws of
the State of Oklahoma, without reference to principles of conflicts of law
which require that the substantive laws of another jurisdiction apply.
11.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.7 Interpretation. The article and section headings contained in
this Agreement are solely for the purpose of reference, are not part of the
agreement of the parties and shall not in any way affect the meaning or
interpretation of this Agreement.
11.8 Severability. The invalidity or unenforceability of any
particular provision of this Agreement shall be construed in all respects as if
such invalid or unenforceable provision were omitted. All provisions of this
Agreement shall be enforced to the full extent permitted by law.
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11.9 No Third-Party Beneficiaries. Nothing contained in this Agreement,
expressed or implied, is intended or shall be construed to confer upon or give
to any Person other than the parties hereto and their successors or permitted
assigns, any rights or remedies under or by reason of this Agreement.
11.10 Entire Agreement. This Agreement, including the documents,
schedules, certificates and instruments referred to herein, is the entire
agreement and understanding of the parties hereto in respect of the
transactions contemplated by this Agreement. There are no restrictions,
promises, representations, warranties, covenants or undertakings, other than
those expressly set forth or referred to herein or therein. This Agreement
supersedes all prior agreements and understandings between the parties with
respect to the transactions contemplated hereby.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
day and year first above written.
MULTIMEDIA GAMES, INC.
By:
------------------------------------
TV GAMES, INC.
By:
------------------------------------
AGN VENTURER L.L.C.
By:
------------------------------------
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AMERICAN GAMING NETWORK, INC.
By:
------------------------------------
CABLE VIDEO STORE, INC.
By:
------------------------------------
GRAFF PAY-PER-VIEW, INC.
By:
------------------------------------
AMERICAN GAMING NETWORK, JV.
By:
------------------------------------
Exhibits
- --------
A - Newco A Note
B - Newco B Note
C - Registration Rights Agreement
D - Assignment of AGNI Venture Interest
E - Graves Guaranty
F - MMG Guaranty
G - Venture Guaranty
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EXHIBIT 10.25
MULTIMEDIA GAMES, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of July
11, 1996, by and between MULTIMEDIA GAMES, INC., a Texas corporation (the
"Company"), and GRAFF PAY-PER VIEW INC., a Delaware corporation ("Graff"),
W I T N E S S E T H:
WHEREAS, Graff is the owner of the Registerable Securities which were
acquired by Graff upon the condition that the Company enter into this Agreement
to register the Registerable Securities under the 1933 Act; and
WHEREAS, the Company is willing to register the Registerable Securities
under the 1933 Act upon the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
For the purposes of this Agreement, the following terms have the
following meanings:
"Affiliate", with respect to any Person, means any other Person
directly or indirectly controlling, controlled by or under common
control with, such Person. For purposes of this definition, "control"
(including with correlative meanings, the terms "controlling",
"controlled by" or "under common control with"), as used with respect to
any Person, shall mean the
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possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, whether through
the ownership of voting securities or by contract or otherwise.
"Articles of Incorporation" means the Certificate Articles of
Incorporation of the Company on the date hereof, as amended from time to
time hereafter.
"Beneficial owner" or "beneficially own" has the meaning given
such term in Rule 13d-3 under the 1934 Act.
"Business Day" means any day, excluding Saturday, Sunday and any
other day on which commercial banks in Boston, Massachusetts or New
York, New York are authorized or required by law to close.
"Commission" means the Securities and Exchange Commission, and
any successor commission or agency having similar powers.
"Common Stock" means the shares of Common Stock, $.01 par value,
of the Company.
"Graff Holders" means Graff, so long as it holds Registrable
Securities, and any Permitted Transferee of Graff so long as such
Permitted Transferee continues to hold such Registrable Securities.
"Holder" means any Graff Holder holding Registrable Securities.
"1933 Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
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"Permitted Transferee" means any Affiliate of Graff or any
officer, director or employee of Graff or such Affiliate; provided that,
such Permitted Transferee shall have executed and delivered to the
Company an executed counterpart of this Agreement and shall have agreed
to be bound hereunder in the same manner and to the same extent as Graff
is bound hereunder.
"Person" means an individual, a partnership, a joint venture, a
corporation, an association, a trust, an individual retirement account
or any other entity or organization, including a government or any
department or agency thereof.
"Public Company" means if the Company has Shares registered under
Section 12 of the 1934 Act.
"Registrable Securities" means (a) the shares of Common Stock
issued or issuable upon the exercise of the Warrants (the "Warrant
Shares"); and (b) shares of Common Stock issued or issuable by way of a
stock dividend or stock split or in connection with a combination or
subdivision of shares, reclassification, recapitalization, merger,
consolidation or other reorganization of the Company. Registerable
Securities shall not include the Warrants. Registrable Securities shall
cease to be Registrable Securities when (i) a registration statement
(other than a registration statement on Form S-8) with respect to the
sale of such securities shall have become effective under the 1933 Act
and such securities shall have been disposed of under such registration
statement, (ii) they shall have been distributed to the public pursuant
to Rule 144, (iii) they shall have been otherwise transferred or
disposed of other than to a Permitted Transferee, or (iv) any transfer
or disposition of them to the public shall not require their
registration or qualification under the 1933 Act or any similar state
law then in force, or (v) they shall have ceased to be outstanding.
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"Registration Expenses" means all out-of-pocket expenses incident
to the Company's performance of or compliance with Article II of this
Agreement, including, without limitation, all registration and filing
fees (including filing fees with respect to the National Association of
Securities Dealers, Inc.), all fees and expenses of complying with state
securities or "blue sky" laws (including reasonable fees and
disbursements of underwriters' counsel in connection with any "blue sky"
memorandum or survey), all printing expenses, all listing fees, all
registrars' and transfer agents' fees, the fees and disbursements of
counsel for the Company and of its independent public accountants,
including the expenses of any special audits and/or "cold comfort"
letters required by or incident to such performance and compliance;
provided that, "Registration Expenses" shall not include underwriting
discounts and commissions and applicable transfer taxes, if any, and any
fees and disbursements of counsel retained by the Holders of Registrable
Securities being registered, which shall be borne by the sellers of the
Registrable Securities being registered in all cases.
"Rule 144" means Rule 144 (or any successor provision) under the
1933 Act.
"Rule 144 Transaction" means any sale of Shares made in reliance
upon Rule 144 (as in effect on the date hereof) that complies with
paragraphs (e), (f) and (g) thereof (as in effect on the date hereof),
regardless of whether at the time of such Sale the seller is entitled to
rely upon paragraph (k) of Rule 144 in connection with the Sale of such
Shares.
"Share" means any share of Common Stock and, unless the context
otherwise requires, any Warrant Shares. Share shall also mean any
equity securities received in exchange for or with respect to the Common
Stock by way of merger, consolidation, exchange, stock dividend or
reorganization or recapitalization
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involving the Company in which the Company is the surviving or resulting
entity.
"Warrant" means the Warrant Certificate (No. W-43), dated July
31, 1995, issued by the Company to Graff and evidencing the right of
Graff to purchase 175,000 shares of Common Stock at a purchase price of
$3.50 per share.
ARTICLE II
Registration Rights
SECTION 2.1. Incidental Registration.
(a) If the Company at any time proposes to register for its own account
or otherwise, equity securities under the 1933 Act on a form and in a manner
that would permit registration of Registrable Securities for sale to the public
under the 1933 Act, it will each such time give prompt written notice to all
Holders of Registrable Securities of its intention to do so, describing such
securities and specifying the form and manner and the other relevant facts
involved in such proposed registration (including, without limitation, whether
or not such registration will be in connection with an underwritten offering of
its Common Stock and, if so, the identity of the managing underwriter and
whether such offering will be pursuant to a "best efforts" or "firm commitment"
underwriting). Upon the written request of any such Holder of Registrable
Securities delivered to the Company within 20 days after such notice shall have
been given to such Holder (which request shall specify the Registrable
Securities intended to be disposed of by such Holder and the intended method of
disposition thereof), the Company will use its best efforts to effect the
registration under the 1933 Act, as expeditiously as is reasonable, of all
Registrable Securities that the Company has been so requested to register by
the Holders of Registrable Securities, to the extent requisite to permit the
disposition (in accordance with the intended methods thereof as aforesaid) of
the Registrable Securities so to be registered; provided, however, that:
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(i) if, at any time after giving such written notice of its
intention to register any of such securities and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such securities, the
Company may, at its election, give written notice of such determination to
each Holder of Registrable Securities that has requested to register
Registrable Securities and thereupon the Company shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses in
connection therewith to the extent provided in Section 2.1(b));
(ii) if (A) the registration so proposed by the Company involves
an underwritten offering of the securities so to be registered, to be
distributed by or through one or more underwriters of recognized standing under
underwriting terms appropriate for such a transaction, and (B) the managing
underwriter of such underwritten offering selected by the Company shall advise
the Company that, in its opinion, the number of securities proposed to be
included in such offering and the number of shares of Registrable Securities
proposed to be included in such offering by the Holder or Holders thereof
should be limited due to market conditions, then the Company will promptly
advise each such Holder of Registrable Securities thereof and may require, by
written notice to each such Holder accompanying such opinion, that, to the
extent necessary to meet such limitation on the number of shares of Registrable
Securities that the Holders are permitted to sell, all Holders of Registrable
Securities proposing to sell shares of Registrable Securities in such offering
shall share pro rata in the number of shares of Registrable Securities to be
excluded from such offering, such sharing to be based on the respective numbers
of shares of Registrable Securities as to which registration has been requested
by such Holders;
(iii) if (A) the registration so proposed by the Company (whether
or not underwritten) involves an offering of securities by a holder thereof
that is exercising demand registration rights that entitle such holder to a
preferential right of sale, and
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(B) such holder shall advise the Company that, in its opinion, the number of
securities proposed to be included in such offering by the Company and the
number of shares of Registrable Securities proposed to be included in such
offering by the Holder or Holders thereof should be limited due to market
conditions, then the Company will promptly advise each such Holder of
Registrable Securities thereof and may require, by written notice to each such
Holder accompanying such opinion, that, to the extent necessary to meet such
limitation on the number of shares of Registrable Securities that the Holders
are permitted to sell, all Holders of Registrable Securities proposing to sell
shares of Registrable Securities in such offering shall share pro rata in the
number of shares of Registrable Securities to be excluded from such offering,
such sharing to be based on the respective numbers of shares of Registrable
Securities as to which registration has been requested by such Holders;
(iv) the Company shall not be obligated to effect any
registration of Registrable Securities under this Section 2.1 that is
incidental to the registration of any of its securities in connection with any
merger, acquisition, exchange offer, dividend reinvestment plan or stock option
or other employee benefit plan.
(b) The Company will pay all Registration Expenses in connection with
each registration of Registrable Securities effected by it pursuant to this
Section 2.1.
SECTION 2.2 Registrations on Form S-3.
(a) In addition to the rights provided the Holders of Registrable
Securities in Section 2.2 above, if the registration of Registrable Securities
under the 1933 Act can be effected on Form S-3 (or any similar form having
similar requirements promulgated by the Commission), then upon the written
request of a Holder or Holders of at least thirty percent (30%) of the
Registrable Shares, the Company will notify each Holder or Holders of
Registrable Securities and then shall, as expeditiously as possible, effect
qualification and
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registration under the 1933 Act on Form S-3 of all or such portion of the
Registrable Securities as the Holder or Holders shall specify.
(b) The Company shall not be required to effect more than three (3)
registrations in the aggregate pursuant to this Section 2.2 and not more than
one during any twelve-month period. The Company's obligations under this
Section 2.2 shall expire five (5) years after the date of this Agreement.
SECTION 2.3 Registration Procedures.
(a) If and whenever the Company is required to use its best efforts to
effect the registration of any Registrable Securities under the 1933 Act as
provided in Sections 2.1 and 2.2, the Company will as expeditiously as is
reasonable:
(i) in connection with a request pursuant to Section 2.2, use
its best efforts to prepare and file with the Commission within sixty (60) days
after receipt of such request and use its best efforts to cause such
registration statement to become effective;
(ii) prepare and file with the Commission such amendments
(including post-effective amendments) and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary
to keep such registration statement effective and to comply with the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities and other securities covered by such registration statement until
the earlier of (A) such time as all such Registrable Securities and other
securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such registration
statement and (B) the expiration of 120 days from the date such registration
statement first becomes effective;
(iii) furnish to each seller of such Registrable Securities such
number of conformed copies of such registration statement and of each such
amendment and supplement thereto (in each
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case including all exhibits), such number of copies of the prospectus included
in such registration statement (including each preliminary prospectus and any
summary prospectus), in conformity with the requirements of the 1933 Act, such
documents incorporated by reference in such registration statement or
prospectus, and such other documents, as such seller may reasonably request in
order to facilitate the sale or disposition of such Registrable Securities;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement under
such other securities or "blue sky" laws of such jurisdictions as each seller
shall reasonably request, and do any and all other acts and things that may be
necessary to enable such seller to consummate the disposition in such
jurisdictions of its Registrable Securities covered by such registration
statement, except that the Company shall not for any such purpose be required
to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified, or to subject itself to taxation
in respect of doing business in any such jurisdiction, or to consent to general
service of process in any such jurisdiction;
(v) in the case of a registration pursuant to Section 2.1 that
is an underwritten offering, furnish to each seller of Registrable Securities a
signed counterpart, addressed to such seller, of (l) an opinion of counsel for
the Company, dated the date of the closing under the underwriting agreement,
in substantially the form delivered pursuant to such underwriting agreement,
and (2) a "cold comfort" letter signed by the independent public accountants
who have issued a report on the Company's financial statements included in such
registration statement, in substantially the form delivered pursuant to such
underwritting agreement.
(vi) immediately notify each seller of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in
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effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing or if it
is necessary to amend or supplement such prospectus to comply with law, and at
the request of any such seller prepare and furnish to such seller a reasonable
number of copies of a supplement to or an amendment of such prospectus as may
be necessary so that, as thereafter delivered to the purchasers of such
Registrable Securities or securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not misleading
in the light of the circumstances then existing and shall otherwise comply in
all material respects with law and so that such prospectus, as amended or
supplemented, will comply with law;
(vii) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security Holders, as soon as reasonably practicable, an earnings statement
covering the period of at least 12 months, beginning with the first month of
the first fiscal quarter after the effective date of such registration
statement, which earnings statement shall satisfy the provisions of Section
11(a) of the 1933 Act;
(viii) use its best efforts to list such securities on each
securities exchange on which shares of Common Stock are then listed, if such
securities are not already so listed and if such listing is then permitted
under the rules of such exchange, and provide a transfer agent and registrar
for such Registrable Securities not later than the effective date of such
registration statement; and
(ix) issue to any underwriter to which any Holder of Registrable
Securities may sell such Registrable Securities in connection with any such
registration (and to any direct or indirect
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transferee of any such underwriter) certificates evidencing shares of Common
Stock without any restrictive legends.
The Company may require each seller of Registrable Securities as to
which any registration is being effected to furnish the Company with such
information regarding such seller and the distribution of such securities as
the Company may from time to time reasonably request in writing and as shall be
required by law or by the Commission in connection therewith.
(b) If requested by the underwriters for any underwritten offering of
Registrable Securities on behalf of a Holder or Holders of Registrable
Securities, the Company will enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such representations
and warranties by the Company and such other terms and conditions as are
customarily contained in underwriting agreements with respect to secondary
distributions, including, without limitation, indemnities to the effect and to
the extent provided in Section 2.5.
(c) If any registration pursuant to Section 2.1 shall be in connection
with an underwritten public offering, each Holder of Registrable Securities
agrees (whether or not such Holder has registered Shares in such offering), if
so required by the managing underwriters, not to effect any public sale or
distribution (including any sale pursuant to Rule 144) of Registrable
Securities (other than as part of such underwritten public offering) within 7
days prior to the effective date of the registration statement with respect to
such underwritten public offering or 120 days after the effective date of such
registration statement (which 120-day period shall be extended to 180 days at
the request of the managing underwriter selected by the Company).
(d) The Company agrees, if so required by the managing underwriters in
connection with an underwritten offering of Registrable Securities pursuant to
Section 2.1, not to effect any public sale or distribution of any of its equity
securities or securities convertible into or exchangeable or exercisable for
any of
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such equity securities during the 7 days prior to and the 120 days after the
effective date of any registration statement with respect to such underwritten
public offering, except as part of such underwritten offering or except in
connection with a stock option plan, stock purchase plan, savings or similar
plan, or an acquisition, merger or exchange offer.
(e) It is understood that in any underwritten offering of Registrable
Securities in addition to the shares (the "initial shares") the underwriters
have committed to purchase, the underwriting agreement may grant the
underwriters an option to purchase a number of additional shares (the "option
shares") equal to up to 15% of the initial shares (or such other maximum amount
as the National Association of Securities Dealers, Inc. may then permit),
solely to cover over-allotments. Shares proposed to be sold by the Company,
any other holder of Shares included in such offering and the Holders shall
(subject to any preferential rights as provided in Section 2.1(a)(iii) hereof)
be allocated between initial shares and option shares as agreed or, in the
absence of agreement, pro rata in relation to the number of initial shares sold
by each.
SECTION 2.4. Preparation; Reasonable Investigation.
In connection with the preparation and filing of each registration
statement registering Registrable Securities under the 1933 Act, the Company
will give the Holders of Registrable Securities on whose behalf such
Registrable Securities are to be so registered and their underwriters, if any,
and their respective counsel and accountants, the opportunity to participate in
the preparation of such registration statement, each prospectus included
therein or filed with the Commission, and each amendment thereof or supplement
thereto, and will give each of them such access to its books and records and
such opportunities to discuss the business of the Company with its officers and
the independent public accountants who have issued a report on its financial
statements as shall be necessary, in the opinion of such Holders and such
underwriters or their respective counsel, to conduct a reasonable investigation
within the meaning of
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the 1933 Act. Without limiting the foregoing, each registration statement,
prospectus, amendment, supplement or any other document filed with respect to a
registration under this Agreement shall be subject to review and reasonable
approval by the holders registering Registrable Securities in such registration
and by their counsel.
SECTION 2.5. Indemnification.
(a) In the event of any registration of any equity securities of the
Company under the 1933 Act, the Company will, and hereby does, indemnify and
hold harmless, in the case of any registration statement filed pursuant to
Section 2.1 or 2.2, the seller of any Registrable Securities covered by such
registration statement, its directors and officers, each other Person who
participates as an underwriter in the offering or sale of such securities, each
officer and director of each such underwriter, and each other Person, if any,
who controls such seller or any such underwriter within the meaning of Section
15 of the 1933 Act or Section 20 of the 1934 Act, against any losses, claims,
damages, liabilities and expenses, including legal and other expenses incurred
in investigating and defending any such claim, joint or several, to which such
seller or any such director or officer or participating or controlling Person
may become subject under the 1933 Act or otherwise, insofar as such losses,
claims, damages, liabilities or expenses (or actions or proceedings in respect
thereof) arise out of or are based upon (i) any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the 1933 Act, any preliminary
prospectus, final prospectus or summary prospectus included therein, or any
amendment or supplement thereto, or any document incorporated by reference
therein, (ii) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and the Company will reimburse such seller, and each such director,
officer, underwriter and controlling Person for any legal or any other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, liability, action or proceeding or (iii) any
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violation of any rule or regulation promulgated under the 1933 Act or any other
applicable federal or state securities law and relating to any action or
inaction of the Company in connection with such registration; provided,
however, that the Company shall not be liable in any such case to the extent
that any such loss, claim, damage, liability (or action or proceeding in
respect thereof) or expense arises out of or is based upon an untrue statement
or alleged untrue statement or omission or alleged omission made in such
registration statement, any such preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement in reliance upon and in conformity
with written information furnished to the Company for use in the preparation
thereof by such seller or underwriter, as the case may be. Such indemnity
shall remain in full force and effect regardless of any investigation made by
or on behalf of such seller or any such director, officer, underwriter or
controlling Person and shall survive the transfer of such securities by such
seller.
(b) The Company may require, as a condition to including any
Registrable Securities in any registration statement filed pursuant to Section
2.1 or 2.2, that the Company shall have received an undertaking satisfactory to
it from (i) the prospective seller of such securities, to indemnify and hold
harmless (in the same manner and to the same extent as set forth in Section
2.5(a), except that any such prospective seller shall not in any event be
liable to the Company pursuant thereto for an amount in excess of the net
proceeds of sale of such prospective seller's Registrable Securities so to be
sold) the Company, each such underwriter of such securities, each officer and
director of each such underwriter and each other Person, if any, who controls
the Company or any such underwriter within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act, and (ii) each such underwriter of such
securities, to indemnify and hold harmless (in the same manner and to the same
extent as set forth in Section 2.6(a)) the Company, each officer and director
of the Company, each prospective seller, each officer and director of each
prospective seller (and, if such prospective seller is a portfolio or
investment fund, its investment advisors and the directors and officers
thereof) and each other Person, if any, who controls the
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Company or any such prospective seller within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act, with respect to any statement in or
omission from such registration statement, any preliminary prospectus, final
prospectus or summary prospectus included therein, or any amendment or
supplement thereto, if such statement or omission was made in reliance upon and
in conformity with written information furnished by such prospective seller or
such underwriter, as the case may be, to the Company for use in the preparation
of such registration statement, preliminary prospectus, final prospectus,
summary prospectus, amendment or supplement. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Company or any such director, officer or controlling Person and shall
survive the transfer of such securities by such seller.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding (including any governmental
investigation) involving a claim referred to in Section 2.5(a) or (b), such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding provisions of this Section 2.5, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of such
claim (in which case, the indemnifying party shall not be liable for the fees
and expenses of more than one counsel for all sellers of Registrable
Securities, or more than one counsel for the underwriters in connection with
any one action or separate but similar or related actions), the indemnifying
party will be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, to the extent
that it may wish with counsel reasonably satisfactory to such indemnified
party, and
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after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof. The
indemnifying party shall not, without the consent of the indemnified party,
settle or compromise any claim or consent to the entry of any judgment which
settlement, compromise or judgment would materially and adversely affect the
indemnified party other than as a result of money damages or other money
payments; provided, that, if the indemnified party shall fail or refuse to
consent to such settlement, compromise or judgment proposed by the indemnifying
party and approved by the person asserting such claim, and a judgment
thereafter shall be entered or a settlement or compromise thereafter shall be
effected on terms less favorable in the aggregate to the indemnified party than
the settlement, compromise or judgment so proposed, the indemnifying party
shall have no liability with respect to money or other damages in excess of
those provided for in the settlement, compromise or judgment so proposed or any
costs or expenses related to such claim arising after the date such settlement,
compromise or judgment was so proposed.
SECTION 2.6. Contribution.
If the indemnification provided for in Section 2.5 is unavailable to the
indemnified party or parties in respect of any losses, claims, damages or
liabilities referred to therein, then each such indemnified party and the
Company shall contribute to the amount of such losses, claims, damages or
liabilities (a) as between the Company and the Holders of Registrable
Securities covered by a registration statement, on the one hand, and the
underwriters, on the other, in such proportion as is appropriate to reflect the
relative benefits received by the Company and such Holders, on the one hand,
and the underwriters, on the other, from the offering of the Registrable
Securities, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits but also
the relative fault of the Company and such Holders, on the one hand, and of the
underwriters, on the
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other, in connection with the statements or omissions that resulted in such
losses, claims, damages or liabilities, as well as any other relevant equitable
considerations, and (b) as between the Company, on the one hand, and each
Holder of Registrable Securities covered by a registration statement, on the
other, in such proportion as is appropriate to reflect the relative fault of
the Company and of each such Holder in connection with such statements or
omissions, as well as any other relevant equitable considerations. The
relative benefits received by the Company and such Holders, on the one hand,
and the underwriters, on the other, shall be deemed to be in the same
proportion as the total proceeds from the offering (net of underwriting
discounts and commissions but before deducting expenses) received by the
Company and such Holders bear to the total underwriting discounts and
commissions received by the underwriters. The relative fault of the Company
and such Holders, on the one hand, and of the underwriters, on the other, shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company and
such Holders or by the underwriters. The relative fault of the Company, on the
one hand, and of each such Holder, on the other, shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact relates to information supplied by such party, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company and the Holders of Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this Section 2.6
were determined by pro rata allocation (even if the underwriters were treated
as one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in the next
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the next
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably
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incurred by such indemnified party in connection with investigating or
defending any such action or claim. Notwithstanding the provisions of this
Section 2.6, no underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages that such underwriter has otherwise
paid by reason of such untrue or alleged untrue statement or omission or
alleged omission, and no Holder of Registrable Securities shall be required to
contribute any amount in excess of the amount by which the total price at which
the Registrable Securities of such Holder were offered to the public exceeds
the amount of any damages that such Holder has otherwise paid by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the 1933 Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation. Each Holder's obligation to
contribute pursuant to this Section 2.6 is several in the proportion that the
proceeds of the offering received by such Holder bears to the total proceeds of
the offering received by all Holders and not joint.
SECTION 2.7. Nominees of Beneficial Owners.
In the event that any Registrable Securities are held by a nominee for
the beneficial owner thereof, the beneficial owner thereof may, at its
election, be treated as the Holder of such Registrable Securities for purposes
of any request or other action by any Holder or Holders of Registrable
Securities pursuant to this Agreement or any determination of any number or
percentage of shares of Registrable Securities held by any Holder or Holders of
Registrable Securities contemplated by this Agreement. If the beneficial owner
of any Registrable Securities so elects, the Company may require assurances
reasonably satisfactory to it of such owner's beneficial ownership of such
Registrable Securities.
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ARTICLE III
Miscellaneous
SECTION 3.1. Termination. This Agreement shall terminate on the fifth
anniversary of the execution and delivery hereof.
SECTION 3.2. Representations. Each of the parties hereto represents
that this Agreement has been duly authorized, executed and delivered by it and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms.
SECTION 3.3. Certain Remedies. Without intending to limit the remedies
available to any of the parties hereto, each of the parties hereto agrees that
damages at law will be an insufficient remedy in the event such party violates
the terms hereof and each of the parties hereto further agrees that each of the
other parties hereto may apply for and have injunctive or other equitable
relief in any court of competent jurisdiction to restrain the breach or
threatened breach of, or otherwise specifically to enforce, any of such party's
agreements set forth herein.
SECTION 3.4. Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any such term may be waived (either generally or
in a particular instance and either retroactively or prospectively) only with
the written consent of the Company and a majority in interest of the holders of
the Registrable Securities. Each Holder shall be bound by any amendment or
waiver authorized by this Section 3.4, whether or not such Holder shall have
consented thereto.
SECTION 3.5. Notices. All notices and other communications provided
for herein shall be in writing and shall be delivered by telecopy, by hand or
sent by certified or registered mail, return receipt requested, postage
prepaid, addressed, if to any Holder, to such Holder at such address as such
Holder shall have specified in writing to the party giving any such notice or
sending any such
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<PAGE> 20
communication), and, if to the Company, to Multimedia Games, Inc., 7335 South
Lewis Avenue, Tulsa, Oklahoma 74136, Attention: Vice President-Finance, (or to
such other address as the Company shall have specified in writing to the party
giving any such notice or sending any such communication). All such notices
shall be conclusively deemed to be received and shall be effective, (i) if sent
by hand delivery, upon receipt, (ii) if sent by telecopy, upon dispatch
thereof, or (iii) if sent by registered or certified mail, on the third day
after the day on which such notice is mailed.
SECTION 3.6. Benefit; Successors and Assigns. Except as otherwise
provided herein, this Agreement shall be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and permitted
assigns; provided, however, that this Agreement shall not inure to the benefit
of any Permitted Transferee unless such Permitted Transferee shall have
executed and delivered to the Company an executed counterpart of this Agreement
and shall have agreed to be bound hereunder in the same manner and to the same
extent as Graff is bound hereunder. Graff may not assign any of its rights
hereunder to any Person other than a Permitted Transferee that has complied
with the requirements of the preceding sentence in all respects. Nothing in
this Agreement either express or implied is intended to confer on any person
other than the parties hereto and their respective successors and permitted
assigns, any rights, remedies or obligations under or by reason of this
Agreement.
SECTION 3.7 Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement or where any provision hereof is
validly asserted as a defense, the successful party shall be entitled to
recover reasonable attorneys' fees and expenses in addition to any other
available remedy.
SECTION 3.8. Miscellaneous. This Agreement sets forth the entire
agreement and understanding among the parties hereto, and supersedes all prior
agreements and understandings, relating to the subject matter hereof. All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement,
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regardless of any investigation made by any party hereto or on such party's
behalf. This Agreement shall be construed and enforced in accordance with and
governed by the law of the State of Oklahoma without regard to the conflict of
laws provisions thereof. The headings in this Agreement are for purposes of
reference only and shall not limit or otherwise affect the meaning hereof.
This Agreement may be executed in any number of counterparts, each of which
shall be deemed to be an original, but all of which together shall constitute
one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized signatories thereunto duly
authorized as of the day and year first above written.
MULTIMEDIA GAMES, INC.
By:
--------------------------------------
GRAFF PAY-PER-VIEW INC.
By:
---------------------------------------
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<PAGE> 1
EXHIBIT 10.26
STOCK PURCHASE AGREEMENT
August 5, 1996
Multimedia Games, Inc.
7335 South Lewis Avenue
Suite 204
Tulsa, Oklahoma 74136
Gentlemen:
Each of the persons whose signature appears on the signature page hereof
under the caption "Purchasers" (each a "Purchaser" and collectively, the
"Purchasers"), desire to subscribe for and purchase the number of shares of
Common Stock, $.01 par value, of Multimedia Games, Inc., a Texas corporation
(the "Company") set forth opposite the signature of such Purchaser on the
signature page to this Agreement at a purchase price of $2.75 per Share. The
number of shares so subscribed for are hereinafter called the "Purchased
Shares."
The terms and conditions of the purchase and sale of the Purchased
Shares are set forth below. These include representations and warranties by
the parties which are being relied upon in connection with the transactions
contemplated herein, including representations and warranties by the Purchaser
necessary to enable the Company to satisfy its obligations under applicable
Federal and State securities laws.
NEITHER THIS AGREEMENT AND THE EXHIBITS ANNEXED HERETO (COLLECTIVELY, THE
"OFFERING MATERIALS") NOR THE SECURITIES OFFERED HEREBY HAVE BEEN FILED OR
REGISTERED WITH OR APPROVED BY THE SEC NOR HAS THE SEC PASSED UPON THE ACCURACY
OR ADEQUACY OF THE OFFERING MATERIALS. NO STATE SECURITIES LAW ADMINISTRATOR
HAS PASSED ON OR ENDORSED THE
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<PAGE> 2
MERITS OF THIS OFFERING OR THE ACCURACY OR THE ADEQUACY OF THE OFFERING
MATERIALS. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
THE OFFERING MATERIALS HAVE NOT BEEN REVIEWED BY THE ATTORNEY GENERAL PRIOR TO
ITS ISSUANCE AND USE. THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT
PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE
CONTRARY IS UNLAWFUL.
THE OFFERING MATERIALS DO NOT CONTAIN AN UNTRUE STATEMENT OF A MATERIAL FACT OR
OMIT TO STATE A MATERIAL FACT NECESSARY TO MAKE THE STATEMENTS MADE IN LIGHT OF
THE CIRCUMSTANCES UNDER WHICH THEY WERE MADE, NOT MISLEADING. THEY CONTAIN A
FAIR SUMMARY OF THE MATERIAL TERMS AND DOCUMENTS PURPORTED TO BE SUMMARIZED
HEREIN.
The Purchaser acknowledges having received from the Company the
following:
A. The Company's Annual Report on Form 10-KSB for the fiscal
year ended September 30, 1995, attached hereto as Exhibit A.
B. The Company's Quarterly Report on Form 10-QSB for the six
months ended March 31, 1996, attached hereto as Exhibit B.
C. The Company's press release dated July 2, 1996, issued in
connection with a recent event, attached hereto as Exhibit C.
D. The form of Registration Rights Agreement attached hereto
as Exhibit D.
E. The form of Note to be issued by the Purchaser as
consideration for the Purchased Shares, attached hereto as Exhibit E.
Considering the foregoing, and in consideration of the mutual covenants
and agreements of the parties herein contained, the Purchaser and the Company
do hereby agree as follows:
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<PAGE> 3
1. Sale and Purchase of Purchased Shares. (a) Subject to the terms
and conditions hereof:
(i) the Company will, in reliance upon the representations and
warranties of the Purchaser contained herein, issue and sell the
Purchased Shares to the Purchaser for an aggregate purchase price (the
"Purchase Price") of $2.75 multiplied by the number of Purchased Shares;
and
(ii) the Purchaser will, in reliance upon the representations
and warranties of the Company contained herein, purchase the Purchased
Shares from the Company for the Purchase Price.
(b) The Purchase Price shall be paid by the Purchaser delivering to the
Company the promissory note of the Purchaser in substantially the form attached
hereto as Exhibit E (the "Note") in the principal amount equal to the Purchase
Price.
2. Closing and Closing Date. The Closing shall be at 10:00 A.M.,
local New York time, on the third business day following the satisfaction of
all of the conditions set forth in Section 5 of this Agreement (unless waived
by the party in whose favor the condition runs), or at such other time and date
as is mutually agreed upon between the Purchaser and the Company (the "Closing
Date"). The Closing hereunder shall take place by facsimile (original
execution copies to follow) or by such other means as the parties shall
mutually agree. At the Closing on the Closing Date, the Company will deliver
to the Purchaser the Purchased Shares against payment of the Purchase Price
thereof by delivery of the Note in the principal amount of the Purchase Price.
The Purchased Shares to be delivered to the Purchaser at the Closing will be
registered in the name of the Purchaser as set forth on the signature page of
this Agreement.
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<PAGE> 4
3. Representations and Warranties by the Company. The Company
represents and warrants to the Purchaser that, except as otherwise set forth in
Schedule A hereto:
(a) Organization, Existence, Etc. The Company is a corporation duly
organized and validly existing and in good standing under the laws of the State
of Texas, and has all requisite corporate power and authority to carry on its
business as now conducted, to enter into this Agreement, to issue and sell the
Purchased Shares as contemplated herein and to carry out the other terms and
conditions of this Agreement. Each subsidiary of the Company is a corporation
duly organized and validly existing and in good standing under the laws of the
State of Delaware, and each has all requisite corporate power and authority to
carry on its business as now conducted. The Company and each subsidiary of the
Company is duly qualified to do business and is in good standing in every
jurisdiction in which the ownership, leasing, licensing or use of its property
and assets or the conduct of its business makes such qualification necessary,
except where the failure to be so qualified would not have a material adverse
effect on the Company's business. The Company and each subsidiary has all
consents, authorizations, approvals, orders, permits, licenses and the like
(collectively, the "Permits") from, and has made all filings with, all federal,
state, Indian and local authorities, necessary to own, lease, license and use
its properties and assets and to conduct its business as presently conducted.
All such Permits are in full force and effect and the Company is in compliance
with the terms and conditions thereof and is not in breach or default
thereunder.
(b) Financial Statements.
(i) Since September 30, 1995, the Company has filed all forms,
reports, statements and other documents required to be filed with the
Securities and Exchange Commission (the "SEC"), including, without
limitation, all Annual Reports on Form lO-KSB, all Quarterly Reports on
Form lO-QSB, all Current Reports on Form 8-K, and all required
amendments and supplements thereto
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<PAGE> 5
(collectively the "Company Reports"). The Company Reports, including all
Company Reports filed after the date hereof and prior to the Closing
Date, (A) were or will be prepared in all material respects in
accordance with the requirements of applicable Law (including the Act,
the Securities Exchange Act of 1934, as amended, and the rules and
regulations of the SEC thereunder applicable to such Company Reports),
and (B) did not at the time they were filed, or will not at the time
they are filed, contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary in
order to make the statements therein, in the light of the circumstances
under which they were made, not misleading.
(ii) Each of the consolidated financial statements (including,
in each case, any related notes thereto) contained in the Company
Reports filed prior to or after the date hereof (A) have been or will be
prepared in accordance with the published rules and regulations of the
SEC and generally accepted accounting principles applied on a consistent
basis throughout the periods involved and (B) fairly present or will
fairly present the consolidated financial position of the Company and
its subsidiaries, as the case may be, as of the respective dates thereof
and the consolidated results of operations, changes in stockholders'
equity (deficit) and cash flows for the periods indicated.
(c) No Material Adverse Change. Since the date of the most recent
balance sheet contained in the Company's report on Form 10-QSB for the period
ended March 31, 1996 (the "March 31 Report"), there has not been any change
which has had a material adverse effect on the business or financial condition
of the Company.
(d) Litigation. There is no action, suit, or arbitration proceeding
pending, or to the knowledge of the officers of the Company threatened, against
the Company or its subsidiaries before any court or administrative agency which
is reasonably expected to result in any material adverse change in the business
or condition
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<PAGE> 6
(financial or other) of the Company or its subsidiaries or which questions the
validity of any action taken or to be taken pursuant to or in connection with
this Agreement or the Purchased Shares.
(e) Compliance with Instruments, Etc. Neither the Company nor any
subsidiary is (A) in default under any indenture or material contract or
agreement to which it is a party (and the other contract party or parties are
not in breach or default thereunder), (B) in violation of its charter or by-
laws, or to its knowledge, of any applicable law, (C) in default with respect
to any order, writ, injunction or decree of any court, or (D) in default under
any order, license, regulation or demand of any governmental agency, in each
case where such default or violation might have consequences which would
materially and adversely affect the business or property of the Company and its
subsidiaries (taken as a whole).
(f) Authorization of Agreements. The execution, delivery and
performance of this Agreement by the Company, and the consummation of the
transactions contemplated herein, including the execution, delivery and
performance of the Registration Rights Agreement and the issuance of the
Shares, have been duly authorized by all necessary corporate action. Each of
this Agreement and the Registration Rights Agreement (when executed and
delivered) constitutes the valid and binding obligations of the Company
enforceable against the Company in accordance with their respective terms. The
Shares (when issued and paid for upon delivery of the Note pursuant to the
terms of this Agreement), will be duly authorized, validly issued, fully paid
and nonassessable.
(g) Use of Proceeds. The Company will use the proceeds of the sale of
the Shares for general working capital purposes.
(h) Capitalization; Indebtedness. The authorized capital stock of the
Company consists of (A) 10,000,000 shares of Common Stock, of which 2,734,200
shares of Common Stock are issued and outstanding, 1,507,560 shares of Common
Stock are reserved for issuance upon the exercise of outstanding rights,
options and warrants as described in Part I of Schedule B hereto, and 4,526,366
are reserved for issuance
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<PAGE> 7
pursuant to commitments and expected commitments described in Part II of
Schedule B hereto, and (B) 2,000,000 shares of Preferred Stock, $10 par value,
of which 134,318 shares of Series A Preferred Stock are issued and outstanding.
Except as set forth in Schedule B, there are outstanding no options, warrants
or other rights to subscribe for or acquire any capital stock of the Company or
its subsidiaries. The Company and its subsidiaries have outstanding no
indebtedness for borrowed money other than as set forth in the consolidated
balance sheet as at March 31, 1996 referred to in the March 31 Report or
incurred since such date in the ordinary course of business ($932,720
outstanding at July 19, 1996). Of such shares of issued and outstanding Common
Stock (2,734,200) and shares of Common Stock reserved for issuance upon the
exercise of outstanding rights, options and warrants described in Part I of
Schedule B (1,507,560), 1,642,557 shares have rights that entitle the holder
thereof to include such shares in a Registration Statement filed by the Company
under the Act as described in Part III of Schedule B hereto. The Common Stock
is properly listed on the small cap market of the NASDAQ Stock Market
("NASDAQ") under the symbol MGAM and the Company has received no notice from
NASDAQ that questions the validity of such listing or the eligibility of the
Company to maintain such listing.
(i) Governmental Consent, Etc. No consent, approval or authorization
of, or registration, declaration or filing with, any federal, state, Indian or
local governmental authority is required in connection with the execution and
delivery of this Agreement and none shall be required in connection with the
offer, issue, sale or delivery to the Purchaser of the Purchased Shares or the
carrying out of any other transaction contemplated hereby or thereby.
4. Representations and Warranties by Purchaser. The Purchaser
represents and warrants to the Company that:
(a) Authorization. The Purchaser is duly authorized to enter into this
Agreement and to carry out the terms and conditions of this Agreement.
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<PAGE> 8
(b) Accredited Investor. The Purchaser is an Accredited Investor.
(c) Purchase Entirely for Own Account. The Shares to be purchased by
the Purchaser will be acquired for investment for the Purchaser's own account,
not as a nominee or agent, and not with a view to the Purchaser's distribution
of any part thereof; and the Purchaser has no present intention of selling,
granting any participation in, or otherwise distributing the same. The
Purchaser does not have any contract, undertaking, agreement or arrangement
with any person to sell, transfer or grant participations to such person or to
any third person, with respect to any of the Purchased Shares.
(d) Reliance Upon Investors' Representations. The Purchaser
understands that the Purchased Shares have not been registered under the
Securities Act on the basis that the sale provided for in this Agreement is
exempt from registration under the Securities Act pursuant to Section 4(2)
thereof and that the Company's reliance on such exemption is predicated on the
Purchaser's representations set forth herein.
(e) Receipt of Information. The Purchaser believes it has received all
the information it considers necessary or appropriate for deciding whether to
purchase the Purchased Shares. The Purchaser further represents that it has
had an opportunity to ask questions and receive answers from the Company and
its officers regarding the terms and conditions of the offering of the
Purchased Shares and the business, properties, prospects, and financial
condition of the Company and to obtain additional information necessary to
verify the accuracy of any information furnished to the Purchaser or to which
the Purchaser otherwise had access. Except as contained in this Agreement and
in the information expressly referred to in this Agreement as having been
delivered to the Purchaser, no representations or warranties have been made to
the Purchaser by the Company or any agent, employee or affiliate of the
Company; and in entering into this transaction the Purchaser is not relying on
any
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<PAGE> 9
information other than that contained in this Agreement, or delivered to the
Purchaser pursuant to this Agreement, and the results of the Purchaser's own
independent investigation.
(f) Restricted Securities. The Purchaser understands that it must bear
the economic risk of an investment in the Shares for an indefinite period of
time and that there is a thinly traded public market for the Common Stock. The
Purchaser understands that the Shares may not be sold, transferred, or
otherwise disposed of without registration under the Securities Act or an
exemption therefrom, and that in the absence of an effective registration
statement covering the Shares or an available exemption from registration, the
Shares must be held indefinitely.
(g) Legends. Each certificate evidencing the Shares shall be endorsed
with a legend in substantially the following form, and the Purchaser covenants
that, except to the extent waived by the Company, the Purchaser shall not
transfer the Shares represented by any such certificate without complying with
the restrictions on transfer described in the legend endorsed on such
certificate:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. NO REGISTRATION OF
TRANSFER OF SUCH SECURITIES WILL BE MADE ON THE BOOKS OF THE ISSUER
UNLESS SUCH TRANSFER IS MADE IN CONNECTION WITH AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT OR PURSUANT TO AN EXEMPTION FROM
THE REGISTRATION REQUIREMENTS OF SUCH ACT OR SUCH ACT DOES NOT APPLY.
5. Conditions to Closing. (a) The obligation of the Purchaser to
purchase and pay for the Purchased Shares at the Closing is subject to the
satisfaction of the following conditions:
(i) Representations and Warranties. The representations and
warranties of the Company contained in Section 3 shall be true on and as
of the Closing Date with the same effect as
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<PAGE> 10
though such representations and warranties had been made on and as of
such date.
(ii) Performance. The Company shall have performed and complied
with all agreements and conditions contained herein required to be
performed or complied with by it prior to or at the Closing Date
including, without limitation, the issuance and delivery of the
Purchased Shares to the Purchaser.
(iii) Proceedings. All corporate proceedings to be taken by the
Company in connection with the transactions contemplated hereby and all
documents incident thereto shall be satisfactory in substance and form
to the Purchaser and Purchaser shall receive all such counterpart
originals or certified or other copies of such documents as Purchaser
may reasonably request.
(iv) Registration Rights Agreement. The Company shall have
executed and delivered to the Purchaser the Registration Rights
Agreement.
(v) Certificate. The Company shall have delivered a certificate
signed by its President (or a vice President) and by its Chief
Financial Officer (or Vice President of Finance) as to the matters set
forth in Sections 5(a)(i) and (ii) hereof.
(vi) Legal Opinion. The Purchaser shall have received an opinion
of Hall, Estill, Hardwick, Gable, Golden & Nelson, counsel to the
Company, in form and substance satisfactory to such Purchaser, as to the
matters set forth in the first two sentences of Section 3(a) and the
matters set forth in Section 3(f) of this Agreement.
(b) The obligation of the Company to issue and sell the Purchased
Shares to the Purchaser at the Closing is subject to the satisfaction of the
following conditions:
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<PAGE> 11
(i) Representations and Warranties. The representations and
warranties of the Purchaser contained in Section 4 shall be true on and
as of the Closing Date with the same effect as though such
representations and warranties had been made on and as of such date.
(ii) Performance. The Purchaser shall have performed and
complied with all agreements and conditions contained herein required to
be performed or complied with by it prior to or at the Closing Date
including, without limitation, the delivery of the Note as payment of
the Purchase Price.
6. Acceptance and Rejection of Subscription. The Purchaser
acknowledges and agrees that the subscription of the Purchaser contained in
this Agreement is not binding on the Company until the Company accepts such
subscription, which acceptance is at the sole discretion of the Company and is
to be evidenced by the Company's execution of this Agreement where indicated.
This Agreement shall be of no force or effect unless and until accepted by the
Company.
7. Definitions. The following terms when used in this Agreement or
in any other agreement or instrument entered into in connection with this
Agreement, shall have the meanings indicated below. Unless the context
otherwise requires, all personal pronouns used in this Agreement, whether in
the masculine, feminine or neuter gender, shall include all other genders, and
the plural form of any noun shall include the singular and the singular shall
include the plural.
"Accredited Investor" shall mean as such term is defined in Rule 501
promulgated by the SEC under the Act.
"Common Stock" shall mean the shares of Common Stock, $.01 par value per
share, of the Company.
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<PAGE> 12
"Note" shall mean the promissory note of the Purchaser in substantially
the form attached hereto as Exhibit E.
"Registration Rights Agreement" shall mean the Registration Rights
Agreement in substantially the form attached hereto as Exhibit D.
8. Miscellaneous.
(a) Amendments and Waiver. This Agreement may only be amended or
waived in a written instrument signed by the Company and the Purchaser.
(b) Parties in Interest. This Agreement may not be assigned by either
the Purchaser or the Company without the prior written consent of the other
party hereto. All the terms and provisions of this Agreement shall be binding
upon and inure to the benefit of and be enforceable by the respective
successors and assigns of the parties hereto, whether so expressed or not, and,
in particular, shall inure to the benefit of and be enforceable by the holder
or holders at any time of any of the Notes.
(c) Law Governing. This Agreement shall be governed by and interpreted
under the laws of the State of New York, without regard to the conflict of law
rules thereof.
(d) Notices. Any notice or request herein required or permitted to be
given by the Company shall be given in writing and shall be sent to the
Purchaser at the address set forth on the signature page of this Agreement
unless another address is specified in writing by Purchaser in which case
notice shall be sent to the last known address of the Purchaser furnished to
the Company. Any notice required or permitted to be given to the Company shall
be given to the Company at the address set forth on page 1 of this Agreement,
or at such other address as the Company may designate by written communication
to the Purchaser. All such notices shall be conclusively deemed to be received
and shall be effective, (i) if
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<PAGE> 13
sent by hand delivery, upon receipt, (ii) if sent by telecopy, upon dispatch
thereof, or (iii) if sent by registered or certified mail, on the third day
after the day on which such notice is mailed.
(e) Headings. The headings of the sections and subsections of this
Agreement have been inserted for convenience of reference only and shall in no
way restrict or modify any of the terms or provisions hereof.
(f) Entire Agreement. This Agreement embodies the entire agreement and
understanding between the Purchaser and the Company with respect to the subject
matter hereof and supersedes all prior agreements and understandings relating
to the subject matter hereof.
(g) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall he deemed to
be an original, but such counterparts together shall constitute but one and the
same instrument.
IN WITNESS WHEREOF, the Purchaser has executed this Agreement this __
day of ______________, 1996.
Number of Shares Subscribed INDIVIDUAL PURCHASER:
for:
--------------
------------------------------------------
Signature(s)
------------------------------------------
Print Name(s)
Number of Shares Subscribed ENTITY PURCHASER:
for:
--------------
------------------------------------------
Print Name of Entity
By:
--------------------------------------
------------------------------------------
Print Name and Title of
Person Signing
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<PAGE> 14
------------------------------------------
Social Security Number of
Individual or Tax I.D. Number
of Entity
Address:
------------------------------------------
Number and Street
------------------------------------------
City State Zip Code
Address for notices if different:
------------------------------------------
Number and Street
------------------------------------------
City State Zip Code
The foregoing Stock Purchase
Agreement is hereby accepted
and agreed to as of the
date hereof.
MULTIMEDIA GAMES, INC.
By
----------------------------
EXHIBITS
- --------
A - Form 10-KSB
B - Form 10-QSB
C - Press Release
D - Registration Rights Agreement
E - Note
SCHEDULES
- ---------
A - Company Disclosure
B - Options and Rights
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<PAGE> 1
EXHIBIT 10.27
MULTIMEDIA GAMES, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of
August , 1996, by and between MULTIMEDIA GAMES, INC., a Texas corporation (the
"Company"), and each Holder (as such term is defined below),
W I T N E S S E T H:
WHEREAS, the Holders are purchasing from the Company 275,000 shares of
Common Stock (each a "Share" and collectively the "Shares") pursuant to
separate Stock Purchase Agreements entered into of even date herewith or later
with reference to this Agreement (each a "Stock Purchase Agreement"; and
WHEREAS, the Company is willing to register the Registerable Securities
under the 1933 Act upon the terms and conditions contained in this Agreement.
NOW, THEREFORE, in consideration of the foregoing and the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I
Certain Definitions
For the purposes of this Agreement, the following terms have the
following meanings:
"Affiliate", with respect to any Person, means any other Person
directly or indirectly controlling, controlled by or under common
control with, such Person. For purposes of this definition, "control"
(including with correlative meanings, the terms "controlling",
"controlled by" or "under common control
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<PAGE> 2
with"), as used with respect to any Person, shall mean the possession,
directly or indirectly, of the power to direct or cause the direction of
the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
"Beneficial owner" or "beneficially own" has the meaning given
such term in Rule 13d-3 under the 1934 Act.
"Business Day" means any day, excluding Saturday, Sunday and any
other day on which commercial banks in Boston, Massachusetts or New
York, New York are authorized or required by law to close.
"Commission" means the Securities and Exchange Commission, and
any successor commission or agency having similar powers.
"Common Stock" means the shares of Common Stock, $.01 par value,
of the Company.
"Holder" means the Holder, any Permitted Transferee of a Holder
(and any subsequent Permitted Transferee) that, in each case, holds
Registrable Securities.
"1933 Act" means the Securities Act of 1933, as amended, and the
rules and regulations thereunder.
"1934 Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations thereunder.
"Permitted Transferee" means any Person that (i) shall be the
registered owner of Registerable Securities in accordance with the terms
of the Stock Purchase Agreement, and (ii) shall have executed and
delivered to the Company an executed counterpart of this Agreement and
shall have agreed to be bound hereunder in the same manner and to the
same extent as the Holder is bound hereunder.
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<PAGE> 3
"Person" means an individual, a partnership, a joint venture, a
corporation, an association, a trust, an individual retirement account
or any other entity or organization, including a government or any
department or agency thereof.
"Registrable Securities" means the Shares. Registrable Securities
shall cease to be Registrable Securities when (i) a registration
statement (other than a registration statement on Form S-8) with respect
to the sale of such securities shall have become effective under the
1933 Act and such securities shall have been disposed of under such
registration statement, (ii) they shall have been distributed to the
public pursuant to Rule 144, (iii) they shall have been otherwise
transferred or disposed of other than to a Permitted Transferee, or (iv)
any transfer or disposition of them to the public shall not require
their registration or qualification under the 1933 Act or any similar
state law then in force, or (v) they shall have ceased to be
outstanding.
"Registration Expenses" means all out-of-pocket expenses incident
to the Company's performance of or compliance with Article II of this
Agreement, including, without limitation, all registration and filing
fees (including filing fees with respect to the National Association of
Securities Dealers, Inc.), all fees and expenses of complying with state
securities or "blue sky" laws (including reasonable fees and
disbursements of underwriters' counsel in connection with any "blue sky"
memorandum or survey), all printing expenses, all listing fees, all
registrars' and transfer agents' fees, the fees and disbursements of
counsel for the Company and of its independent public accountants,
including the expenses of any special audits and/or "cold comfort"
letters required by or incident to such performance and compliance;
provided that, "Registration Expenses" shall not include underwriting
discounts and commissions and applicable transfer taxes, if any, and any
fees and disbursements of counsel retained by the Holders of Registrable
Securities being registered, which shall be borne by
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the sellers of the Registrable Securities being registered in all cases.
"Rule 144" means Rule 144 (or any successor provision) under the
1933 Act.
"Rule 144 Transaction" means any Sale of Shares made in reliance
upon Rule 144 (as in effect on the date hereof) that complies with
paragraphs (e), (f) and (g) thereof (as in effect on the date hereof),
regardless of whether at the time of such Sale the seller is entitled to
rely upon paragraph (k) of Rule 144 in connection with the Sale of such
Shares.
"Share" means the shares of Common Stock purchased pursuant to
each Stock Purchase Agreement. Share shall also mean any equity
securities received in exchange for or with respect to such Common Stock
by way of merger, consolidation, exchange, stock dividend or
reorganization or recapitalization involving the Company in which the
Company is the surviving or resulting entity.
ARTICLE II
Registration Rights
SECTION 2.1 Registration Upon Demand.
(a) At any time after six (6) months from the date of this Agreement,
the Holders of a majority in interest of the Registrable Securities held by all
Holders then outstanding may at any time make a written demand of the Company
for registration with the Commission under and in accordance with the
provisions of the 1933 Act of all or part of their Registrable Securities (a
"Demand Registration"); provided, however, that the Company need only effect
one Demand Registration. Such request shall specify the aggregate number of
the Registrable Securities proposed to be sold and shall also specify the
intended method of disposition thereof. Within ten (10) days after
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receipt of such request, the Company shall give written notice (the "Notice")
of such registration request to all other Holders stating that the Company will
include in such registration all Registrable Securities as to which the Company
has received written requests for inclusion therein within twenty (20) Business
Days after the giving of the Notice. Each Notice shall also specify the number
of Registrable Securities requested to be registered and the intended method of
disposition thereof. Within five (5) Business Days after the expiration of
such twenty (20) Business Days, the Company will notify all the Holders to be
included in such registration of the other Holders and the number of
Registrable Securities requested to be included therein.
(b) Participation by Other Parties. No Person other than a Holder shall
be permitted to offer any securities under any Demand Registration unless (x)
such Person is entitled to exercise "piggyback" or incidental registration
rights pursuant to an existing contractual commitment with the Company and (y)
if such contractual commitments permit, the Holders participating in such
Demand Registration and their underwriters, if any, in their sole discretion,
determine that such Demand Registration can accommodate such additional
participation.
(c) Effective Registration and Expenses. The Company shall use its best
efforts to cause any registration made pursuant to this Section 2.1 to be
declared effective as soon as possible; provided that, the Holders of a
majority in interest of the Registrable Securities may, by written notice to
the Company prior to such registration being declared effective, withdraw such
demand without prejudice to any future demand made by such Holders pursuant to
this Section 2.1. A registration will not count as a Demand Registration until
it has become effective and until the earlier of (i) one (1) year from the
effective date of such registration, or (i) such time as all of the Registrable
Securities requested to be included by the Holders in such registration have
actually been sold thereunder. The Company shall pay all Registration Expenses
in connection with a registration made pursuant to this Section 2.1, whether or
not such
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registration becomes effective or Registrable Securities are sold thereunder.
(d) Selection of Underwriters. If any Demand Registration is an
underwritten offering, the Holders holding a majority of the Registrable
Securities to be registered by the Holders may, at their option, select and
obtain the investment banker or bankers and managing underwriter or
underwriters that will administer the offering, such investment banker or
bankers and managing underwriter or underwriters to be reasonably satisfactory
to the Company.
SECTION 2.2. Incidental Registration.
(a) If the Company at any time proposes to register for its own account
or for the account of a selling shareholder, securities under the 1933 Act on a
form and in a manner that would permit registration of Registrable Securities
for sale to the public under the 1933 Act, it will each such time give prompt
written notice to all Holders of Registrable Securities of its intention to do
so, describing such securities and specifying the form and manner and the other
relevant facts involved in such proposed registration (including, without
limitation, whether or not such registration will be in connection with an
underwritten offering of its Common Stock and, if so, the identity of the
managing underwriter and whether such offering will be pursuant to a "best
efforts" or "firm commitment" underwriting). Upon the written request of any
such Holder of Registrable Securities delivered to the Company within 20 days
after such notice shall have been given to such Holder (which request shall
specify the Registrable Securities intended to be disposed of by such Holder
and the intended method of disposition thereof), the Company will use its best
efforts to effect the registration under the 1933 Act, as expeditiously as is
reasonable, of all Registrable Securities that the Company has been so
requested to register by the Holders of Registrable Securities, to the extent
requisite to permit the disposition (in accordance with the intended methods
thereof as aforesaid) of the Registrable Securities so to be registered;
provided, however, that:
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(i) if, at any time after giving such written notice of its
intention to register any of such securities and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such securities, the
Company may, at its election, give written notice of such determination to
each Holder of Registrable Securities that has requested to register
Registrable Securities and thereupon the Company shall be relieved of its
obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses in
connection therewith to the extent provided in Section 2.1(b));
(ii) if the registration so proposed by the Company involves an
underwritten offering of the securities to be registered and the managing
underwriter thereof advises the Company that, in its opinion, the number of
securities proposed to be included in such offering by the Company and the
number of shares of Registrable Securities proposed to be included in such
offering by the Holder or Holders thereof should be limited due to market
conditions, the Company may require, by written notice to each such Holder,
that, to the extent necessary to meet such limitation on the number of shares
of Registrable Securities that the Holders are permitted to sell, all Holders
of Registrable Securities proposing to sell shares of Registrable Securities in
such offering shall share pro rata in the number of shares of Registrable
Securities to be excluded from such offering, such sharing to be based on the
respective numbers of shares of Registrable Securities as to which registration
has been requested by such Holders. To the extent any Registerable Securities
are required to be excluded from such underwritten offering (the "Excluded
Securities"), such Excluded Securities shall nevertheless be included in such
registration for sale to the public (but shall not be a part of the securities
sold to the underwriter of such offering) and the Holders shall agree not to
offer or sell the Excluded Securities for a period of 90 days following the
effective date of any such registration;
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(iii) the Company shall not be obligated to effect any
registration of Registrable Securities under this Section 2.2 that is
incidental to the registration of any of its securities in connection with any
merger, acquisition, exchange offer, dividend reinvestment plan or stock option
or other employee benefit plan.
(b) The Company will pay all Registration Expenses in connection with
each registration of Registrable Securities effected by it pursuant to this
Section 2.2.
SECTION 2.3 Registration Procedures.
(a) If and whenever the Company is required to use its best efforts to
effect the registration of any Registrable Securities under the 1933 Act as
provided in Section 2.1 and 2.2, the Company will as expeditiously as is
reasonable:
(i) subject to the terms and conditions of this Agreement, use
its best efforts to cause such registration statement to become effective;
(ii) prepare and file with the Commission such amendments
(including post-effective amendments) and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary
to keep such registration statement effective and to comply with the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities and other securities covered by such registration statement until
the earlier of (A) such time as all such Registrable Securities and other
securities have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof set forth in such registration
statement and (B) the expiration of 270 days from the date such registration
statement first becomes effective;
(iii) furnish to each seller of such Registrable Securities such
number of conformed copies of such registration statement and of each such
amendment and supplement thereto (in each
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case including all exhibits), such number of copies of the prospectus included
in such registration statement (including each preliminary prospectus and any
summary prospectus), in conformity with the requirements of the 1933 Act, such
documents incorporated by reference in such registration statement or
prospectus, and such other documents, as such seller may reasonably request in
order to facilitate the sale or disposition of such Registrable Securities;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement under
such other securities or "blue sky" laws of such jurisdictions as each seller
shall reasonably request, and do any and all other acts and things that may be
necessary to enable such seller to consummate the disposition in such
jurisdictions of its Registrable Securities covered by such registration
statement, except that the Company shall not for any such purpose be required
to qualify generally to do business as a foreign corporation in any
jurisdiction wherein it is not so qualified, or to subject itself to taxation
in respect of doing business in any such jurisdiction, or to consent to general
service of process in any such jurisdiction;
(v) immediately notify each seller of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the 1933 Act, of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state any material fact required to be stated therein or necessary
to make the statements therein not misleading in the light of the circumstances
then existing or if it is necessary to amend or supplement such prospectus to
comply with law, and at the request of any such seller prepare and furnish to
such seller a reasonable number of copies of a supplement to or an amendment of
such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities or securities, such prospectus shall
not include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or
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necessary to make the statements therein not misleading in the light of the
circumstances then existing and shall otherwise comply in all material respects
with law and so that such prospectus, as amended or supplemented, will comply
with law;
(vi) otherwise use its best efforts to comply with all
applicable rules and regulations of the Commission, and make available to its
security Holders, as soon as reasonably practicable, an earnings or financial
statement which shall satisfy the provisions of Section 11(a) of the 1933 Act;
(vii) use its best efforts to list such securities on NASDAQ and
each securities exchange on which shares of Common Stock are then listed, if
such securities are not already so listed and if such listing is then permitted
under the rules of such exchange, and provide a transfer agent and registrar
for such Registrable Securities not later than the effective date of such
registration statement; and
(viii) issue to any underwriter to which any Holder of
Registrable Securities may sell such Registrable Securities in connection with
any such registration (and to any direct or indirect transferee of any such
underwriter) certificates evidencing shares of Common Stock without any
restrictive legends. The Company may require each seller of Registrable
Securities as to which any registration is being effected to furnish the
Company with such information regarding such seller and the distribution of
such securities as the Company may from time to time reasonably request in
writing and as shall be required by law or by the Commission in connection
therewith.
(b) If requested by the underwriters for any underwritten offering of
Registrable Securities on behalf of a Holder or Holders of Registrable
Securities, the Company will enter into an underwriting agreement with such
underwriters for such offering, such agreement to contain such representations
and warranties by the Company and such other terms and conditions as are
customarily
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contained in underwriting agreements with respect to secondary distributions,
including, without limitation, indemnities to the effect and to the extent
provided in Section 2.5.
(c) If any registration shall be in connection with an underwritten
public offering, each Holder of Registrable Securities agrees (whether or not
such Holder has registered Shares in such offering), if so required by the
managing underwriters, not to effect any public sale or distribution (including
any sale pursuant to Rule 144) of Registrable Securities (other than as part of
such underwritten public offering) within 7 days prior to the effective date of
the registration statement with respect to such underwritten public offering or
120 days after the effective date of such registration statement (which 120-day
period shall be extended to 180 days at the request of the managing underwriter
selected by the Company).
(d) The Company agrees, if so required by the managing underwriters in
connection with an underwritten offering of Registrable Securities, not to
effect any public sale or distribution of any of its equity securities or
securities convertible into or exchangeable or exercisable for any of such
equity securities during the 7 days prior to and the 120 days after the
effective date of any registration statement with respect to such underwritten
public offering, except as part of such underwritten offering or except in
connection with a stock option plan, stock purchase plan, savings or similar
plan, or an acquisition, merger or exchange offer.
(e) It is understood that in any underwritten offering of Registrable
Securities in addition to the shares (the "initial shares") the underwriters
have committed to purchase, the underwriting agreement may grant the
underwriters an option to purchase a number of additional shares (the "option
shares") equal to up to 15% of the initial shares (or such other maximum amount
as the National Association of Securities Dealers, Inc. may then permit),
solely to cover over-allotments. Shares proposed to be sold by the Company and
the Holders shall be allocated between initial shares and
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option shares as agreed or, in the absence of agreement, pro rata in relation
to the number of initial shares sold by each.
SECTION 2.4. Preparation; Reasonable Investigation.
In connection with the preparation and filing of each registration
statement registering Registrable Securities under the 1933 Act, the Company
will give the Holders of Registrable Securities on whose behalf such
Registrable Securities are to be so registered and their underwriters, if any,
and their respective counsel and accountants, the opportunity to participate in
the preparation of such registration statement, each prospectus included
therein or filed with the Commission, and each amendment thereof or supplement
thereto, and will give each of them such access to its books and records and
such opportunities to discuss the business of the Company with its officers and
the independent public accountants who have issued a report on its financial
statements as shall be necessary, in the opinion of such Holders and such
underwriters or their respective counsel, to conduct a reasonable investigation
within the meaning of the 1933 Act. Without limiting the foregoing, each
registration statement, prospectus, amendment, supplement or any other document
filed with respect to a registration under this Agreement shall be subject to
review and reasonable approval by the holders registering Registrable
Securities in such registration and by their counsel.
SECTION 2.5. Indemnification.
(a) In the event of any registration of any Registerable Securities
under the 1933 Act, the Company will, and hereby does, indemnify and hold
harmless, the seller of any Registrable Securities covered by such registration
statement, its directors and officers, each other Person who participates as
an underwriter in the offering or sale of such securities, each officer and
director of each such underwriter, and each other Person, if any, who controls
such seller or any such underwriter within the meaning of Section 15 of the
1933 Act or Section 20 of the 1934 Act, against any losses, claims, damages,
liabilities and expenses, including legal and other expenses
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incurred in investigating and defending any such claim, joint or several, to
which such seller or any such director or officer or participating or
controlling Person may become subject under the 1933 Act or otherwise, insofar
as such losses, claims, damages, liabilities or expenses (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any untrue
statement or alleged untrue statement of any material fact contained in any
registration statement under which such securities were registered under the
1933 Act, any preliminary prospectus, final prospectus or summary prospectus
included therein, or any amendment or supplement thereto, or any document
incorporated by reference therein, (ii) any omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and the Company will reimburse such
seller, and each such director, officer, underwriter and controlling Person for
any legal or any other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, liability, action or
proceeding or (iii) any violation of any rule or regulation promulgated under
the 1933 Act or any other applicable federal or state securities law and
relating to any action or inaction of the Company in connection with such
registration; provided, however, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage, liability (or action
or proceeding in respect thereof) or expense arises out of or is based upon an
untrue statement or alleged untrue statement or omission or alleged omission
made in such registration statement, any such preliminary prospectus, final
prospectus, summary prospectus, amendment or supplement in reliance upon and in
conformity with written information furnished to the Company for use in the
preparation thereof by such seller or underwriter, as the case may be. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such seller or any such director, officer, underwriter
or controlling Person and shall survive the transfer of such securities by such
seller.
(b) The Company may require, as a condition to including any
Registrable Securities in any registration statement filed pursuant
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to this Agreement, that the Company shall have received an undertaking
satisfactory to it from (i) the prospective seller of such securities, to
indemnify and hold harmless the Company in the same manner and to the same
extent as set forth in Section 2.5(a) to the extent that the Company incurs any
loss, claim, damage, liability (or action or proceeding in respect thereof) or
expense arising out of or based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
any such preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company for use in the preparation thereof by such
prospective seller, except that any such prospective seller shall not in any
event be liable to the Company pursuant thereto for an amount in excess of the
net proceeds of sale of such prospective seller's Registrable Securities so to
be sold) the Company, each such underwriter of such securities, each officer
and director of each such underwriter and each other Person, if any, who
controls the Company or any such underwriter within the meaning of Section 15
of the 1933 Act or Section 20 of the 1934 Act, and (ii) each such underwriter
of such securities, to indemnify and hold harmless (in the same manner and to
the same extent as set forth in Section 2.6(a)) the Company, each officer and
director of the Company, each prospective seller, each officer and director of
each prospective seller (and, if such prospective seller is a portfolio or
investment fund, its investment advisors and the directors and officers
thereof) and each other Person, if any, who controls the Company or any such
prospective seller within the meaning of Section 15 of the 1933 Act or Section
20 of the 1934 Act, with respect to any statement in or omission from such
registration statement, any preliminary prospectus, final prospectus or summary
prospectus included therein, or any amendment or supplement thereto, if such
statement or omission was made in reliance upon and in conformity with written
information furnished by such prospective seller or such underwriter, as the
case may be, to the Company for use in the preparation of such registration
statement, preliminary prospectus, final prospectus, summary prospectus,
amendment or supplement. Such indemnity shall remain in full force and effect
regardless of any
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investigation made by or on behalf of the Company or any such director, officer
or controlling Person and shall survive the transfer of such securities by such
seller.
(c) Promptly after receipt by an indemnified party of notice of the
commencement of any action or proceeding (including any governmental
investigation) involving a claim referred to in Section 2.5(a) or (b), such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under the preceding provisions of this Section 2.5, except to the
extent that the indemnifying party is actually prejudiced by such failure to
give notice. In case any such action is brought against an indemnified party,
unless in such indemnified party's reasonable judgment a conflict of interest
between such indemnified and indemnifying parties may exist in respect of such
claim (in which case, the indemnifying party shall not be liable for the fees
and expenses of more than one counsel for all sellers of Registrable
Securities, or more than one counsel for the underwriters in connection with
any one action or separate but similar or related actions), the indemnifying
party will be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, to the extent
that it may wish with counsel reasonably satisfactory to such indemnified
party, and after notice from the indemnifying party to such indemnified party
of its election so to assume the defense thereof, the indemnifying party will
not be liable to such indemnified party for any legal or other expenses
subsequently incurred by the latter in connection with the defense thereof.
The indemnifying party shall not, without the consent of the indemnified party,
settle or compromise any claim or consent to the entry of any judgment which
settlement, compromise or judgment would materially and adversely affect the
indemnified party other than as a result of money damages or other money
payments; provided, that, if the indemnified party shall fail or refuse to
consent to such settlement, compromise or judgment proposed by the
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indemnifying party and approved by the person asserting such claim, and a
judgment thereafter shall be entered or a settlement or compromise thereafter
shall be effected on terms less favorable in the aggregate to the indemnified
party than the settlement, compromise or judgment so proposed, the indemnifying
party shall have no liability with respect to money or other damages in excess
of those provided for in the settlement, compromise or judgment so proposed or
any costs or expenses related to such claim arising after the date such
settlement, compromise or judgment was so proposed.
SECTION 2.6. Contribution.
If the indemnification provided for in Section 2.5 is unavailable to the
indemnified party or parties in respect of any losses, claims, damages or
liabilities referred to therein, then each such indemnified party and the
Company shall contribute to the amount of such losses, claims, damages or
liabilities (a) as between the Company and the Holders of Registrable
Securities covered by a registration statement, on the one hand, and the
underwriters, on the other, in such proportion as is appropriate to reflect the
relative benefits received by the Company and such Holders, on the one hand,
and the underwriters, on the other, from the offering of the Registrable
Securities, or if such allocation is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits but also
the relative fault of the Company and such Holders, on the one hand, and of the
underwriters, on the other, in connection with the statements or omissions that
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations, and (b) as between the Company, on the one
hand, and each Holder of Registrable Securities covered by a registration
statement, on the other, in such proportion as is appropriate to reflect the
relative fault of the Company and of each such Holder in connection with such
statements or omissions, as well as any other relevant equitable
considerations. The relative benefits received by the Company and such
Holders, on the one hand, and the underwriters, on the other, shall be deemed
to be in the same proportion as the total proceeds from the offering (net of
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underwriting discounts and commissions but before deducting expenses) received
by the Company and such Holders bear to the total underwriting discounts and
commissions received by the underwriters. The relative fault of the Company
and such Holders, on the one hand, and of the underwriters, on the other, shall
be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company and
such Holders or by the underwriters. The relative fault of the Company, on the
one hand, and of each such Holder, on the other, shall be determined by
reference to, among other things, whether the untrue or alleged untrue
statement of a material fact relates to information supplied by such party, and
the parties' relative intent, knowledge, access to information and opportunity
to correct or prevent such statement or omission.
The Company and the Holders of Registrable Securities agree that it
would not be just and equitable if contribution pursuant to this Section 2.6
were determined by pro rata allocation (even if the underwriters were treated
as one entity for such purpose) or by any other method of allocation that does
not take account of the equitable considerations referred to in the next
preceding paragraph. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities referred to in the next
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this Section 2.6, no underwriter
shall be required to contribute any amount in excess of the amount by which the
total price at which the Registrable Securities underwritten by it and
distributed to the public were offered to the public exceeds the amount of any
damages that such underwriter has otherwise paid by reason of such untrue or
alleged untrue statement or omission or alleged omission, and no Holder of
Registrable Securities shall be required to contribute any amount in excess of
the amount by which the total price at which the Registrable Securities of such
Holder
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were offered to the public exceeds the amount of any damages that such Holder
has otherwise paid by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the 1933 Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. Each Holder's obligation to contribute pursuant to this
Section 2.5 is several in the proportion that the proceeds of the offering
received by such Holder bears to the total proceeds of the offering received by
all Holders and not joint.
SECTION 2.7 Nominees of Beneficial Owners.
In the event that any Registrable Securities are held by a nominee for
the beneficial owner thereof, the beneficial owner thereof may, at its
election, be treated as the Holder of such Registrable Securities for purposes
of any request or other action by any Holder or Holders of Registrable
Securities pursuant to this Agreement or any determination of any number or
percentage of shares of Registrable Securities held by any Holder or Holders of
Registrable Securities contemplated by this Agreement. If the beneficial owner
of any Registrable Securities so elects, the Company may require assurances
reasonably satisfactory to it of such owner's beneficial ownership of such
Registrable Securities.
ARTICLE III
Miscellaneous
SECTION 3.1. Termination. This Agreement shall terminate on the fifth
anniversary of the execution and delivery hereof.
SECTION 3.2. Representations. Each of the parties hereto represents
that this Agreement has been duly authorized, executed and delivered by it and
constitutes its legal, valid and binding obligation, enforceable against it in
accordance with its terms.
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SECTION 3.3. Certain Remedies. Without intending to limit the remedies
available to any of the parties hereto, each of the parties hereto agrees that
damages at law will be an insufficient remedy in the event such party violates
the terms hereof and each of the parties hereto further agrees that each of the
other parties hereto may apply for and have injunctive or other equitable
relief in any court of competent jurisdiction to restrain the breach or
threatened breach of, or otherwise specifically to enforce, any of such party's
agreements set forth herein.
SECTION 3.4. Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any such term may be waived (either generally or
in a particular instance and either retroactively or prospectively) only with
the written consent of the Company and a majority in interest of the holders of
the Registrable Securities. Each Holder shall be bound by any amendment or
waiver authorized by this Section 3.4, whether or not such Holder shall have
consented thereto.
SECTION 3.5. Notices. All notices and other communications provided
for herein shall be in writing and shall be delivered by telecopy, by hand or
sent by certified or registered mail, return receipt requested, postage
prepaid, addressed, if to any Holder, to such Holder at such address as such
Holder shall have specified in writing to the party giving any such notice or
sending any such communication), and, if to the Company, to Multimedia Games,
Inc., 7335 South Lewis Avenue, Tulsa, Oklahoma 74136, Attention: Vice
President-Finance, (or to such other address as the Company shall have
specified in writing to the party giving any such notice or sending any such
communication). All such notices shall be conclusively deemed to be received
and shall be effective, (i) if sent by hand delivery, upon receipt, (ii) if
sent by telecopy, upon dispatch thereof, or (iii) if sent by registered or
certified mail, on the third day after the day on which such notice is mailed.
SECTION 3.6. Benefit; Successors and Assigns. Except as otherwise
provided herein, this Agreement shall be binding upon and
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shall inure to the benefit of the parties hereto and their respective
successors and permitted assigns; provided, however, that this Agreement shall
not inure to the benefit of any Permitted Transferee unless such Permitted
Transferee shall have executed and delivered to the Company an executed
counterpart of this Agreement and shall have agreed to be bound hereunder in
the same manner and to the same extent as Holder is bound hereunder. Holder may
not assign any of its rights hereunder to any Person other than a Permitted
Transferee that has complied with the requirements of the preceding sentence in
all respects. Nothing in this Agreement either express or implied is intended
to confer on any person other than the parties hereto and their respective
successors and permitted assigns, any rights, remedies or obligations under or
by reason of this Agreement.
SECTION 3.7 Attorneys' Fees. In any action or proceeding brought to
enforce any provision of this Agreement or where any provision hereof is
validly asserted as a defense, the successful party shall be entitled to
recover reasonable attorneys' fees and expenses in addition to any other
available remedy.
SECTION 3.8. Miscellaneous. This Agreement sets forth the entire
agreement and understanding among the parties hereto, and supersedes all prior
agreements and understandings, relating to the subject matter hereof. All
representations and warranties contained herein shall survive the execution and
delivery of this Agreement, regardless of any investigation made by any party
hereto or on such party's behalf. This Agreement shall be construed and
enforced in accordance with and governed by the law of the State of Oklahoma
without regard to the conflict of laws provisions thereof. The headings in
this Agreement are for purposes of reference only and shall not limit or
otherwise affect the meaning hereof. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original, but
all of which together shall constitute one instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized signatories thereunto duly
authorized as of the day and year first above written.
MULTIMEDIA GAMES, INC.
By:
---------------------------------------
HOLDER
By:
---------------------------------------
Address:
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EXHIBIT 10.28
MULTIMEDIA GAMES, INC.
PLACEMENT AGENCY AGREEMENT
July 24, 1996
Walsh, Manning Securities, Inc.
90 Broad Street
New York, New York 10004
Gentlemen:
Multimedia Games, Inc, a Texas corporation (the "Company"), proposes to
offer for sale (the "Offering") in a private offering pursuant to Section 4(2)
of the Securities Act of 1933, as amended (the "Act"), and/or Rule 506 of
Regulation D promulgated thereunder, up to 70 units (the "Units"), each Unit
consisting of (i) 16,667 shares of Common Stock, $.01 par value (the "Common
Stock") and (ii) warrants to purchase 16,667 shares of Common Stock (the
"Warrants"). The Units will be offered at a purchase price of $50,000 each.
The Offering will be made on a "best efforts, all or none" basis as to 50 Units
(the "Minimum Offering") and on a "best efforts" basis as to an additional 20
Units (the "Maximum Offering"). Unless the Minimum Offering is sold, no Units
will be sold and all subscriptions will be returned to subscribers without
interest or deductions. The Company also proposes to offer for sale (the
"Bridge Offering") on a "best efforts, all or none" basis 16 Units at $50,000
per Unit (the "Bridge Units"). Each Bridge Unit will be comprised of a one (1)
year 10 1/2% $50,000 promissory note (the "Bridge Note") and a warrant to
purchase 22,500 shares of Common Stock (the "Bridge Warrant") The terms of the
Bridge Offering are set forth in Section "2" hereof. This letter agreement
shall confirm our agreement that Walsh, Manning Securities, Inc. will act as
our exclusive placement agent in connection with the Bridge Offering and
Offering.
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The Company shall prepare and deliver to the Placement Agent copies of a
disclosure statement with respect to the Offering (the "Disclosure Statement")
and a disclosure statement with respect to the Bridge Offering (the "Bridge
Disclosure Statement"). The Disclosure Statement and Bridge Disclosure
Statement shall relate to, among other things, the Company, the Units, the
Bridge Units and the terms of sale thereof. The Disclosure Statement and
Bridge Disclosure Statement shall include exhibits and supplements or
amendments in accordance with this Agreement.
1. Appointment of Placement Agent.
On the basis of the representations and warranties contained herein, and
subject to the terms and conditions set forth herein, the Company hereby
appoints Walsh, Manning Securities, Inc. as its placement agent (the "Placement
Agent") and grants to you the exclusive right to offer, as its agent, the Units
and Bridge Units which are the subject of the Offering and Bridge Offering
pursuant to the terms of this Agreement. On the basis of such representations
and warranties, and subject to such conditions, you hereby accept such
appointment and agree to use your reasonable best efforts to secure
subscriptions to purchase the Units and Bridge Units which are subject to the
Offering and Bridge Offering. The agency created hereby is not terminable by
the Company except in accordance with the terms of this Agreement or upon
breach of this Agreement by the Placement Agent.
2. Bridge Offering.
The Placement Agent shall assist the Company in arranging interim
financing prior to the Offering through the sale of 16 Units in the Bridge
Offering in the aggregate principal amount of $800,000 to "Accredited
Investors" as defined under Regulation D of the Act. The sale of Bridge Units
shall be on a "best efforts, all or none" basis and shall be sold in reliance
upon an exemption from registration pursuant to Section 4(2) of the Act and/or
Rule 506 of Regulation D. The Bridge Offering shall
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commence on the date hereof and continue for a 15-day period and may be
extended for an additional 15-day period by the Placement Agent. All funds
received in the Bridge Offering shall be held in escrow at a bank located in
New York City pending the sale of all of the Bridge Units being offered in the
Bridge Offering. The Bridge Units will be offered at $50,000 each. Each
Bridge Unit will consist of one (1) Bridge Note and a five (5) year Bridge
Warrant exercisable at $8.00 per share to purchase 22,500 shares of Common
Stock. The Bridge Units, Bridge Notes and Bridge Warrants will conform to the
description thereof, in form and substance, as set forth in the Bridge
Disclosure Statement.
The Placement Agent shall receive a commission of 5% of the gross
proceeds from the sale of the Bridge Units in the Bridge Offering for its
services as Placement Agent. The Placement Agent shall also be entitled to a
non-accountable expense allowance equal to 12 of the gross proceeds from the
sale of the Bride Units in the Bridge Offering. Concurrent with, and as a
condition precedent to the closing of the Bridge Offering, the Company will
sell to the Placement Agent (or its designated affiliates) warrants ("Bridge
Placement Warrants") to purchase 173,310 shares of the Company's Common Stock
exercisable at $8.00 per share subject to adjustment. The Bridge Placement
Warrants will be substantially the same with respect to the terms and
conditions thereof as the Bridge Warrants.
The Bridge Offering shall be conducted substantially on the same terms
as the Offering including, without limitation, preparation and delivery of the
Bridge Disclosure Statement, representations, warranties and covenants of the
Company, closing conditions, closing documents, and compliance with federal and
state securities laws. The Company shall also be responsible for all fees and
expenses of the Bridge Offering including "blue sky" filing and legal fees,
duplicating, mailing and other expenses, excluding fees of the Placement
Agent's legal counsel. The term "Disclosure Statement" as hereinafter set
forth in this Agreement,
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where applicable with respect to the Bridge Offering, shall also be deemed to
mean the "Bridge Disclosure Statement".
3. The Offering.
(a) The Offering shall consist of up to 70 Units at a purchase
price of $50,000 per Unit. The Offering shall be made on a "best
efforts, all or none" basis as to 50 Units (as previously defined, the
"Minimum offering") and on a "best efforts" basis as to an additional 20
Units (as previously defined, "Maximum Offering"). The Warrants
contained in the Units will conform to the description thereof , in form
and substance, as set forth in the Disclosure Statement. Unless the
Minimum Offering is sold, no Units will be sold and all subscriptions
will be returned to subscribers without interest or deduction.
(b) The Offering shall commence upon the delivery to the
Placement Agent of definitive copies of the Disclosure Statement. The
delivery of the Disclosure Statement shall occur not later than 30 days
after the closing of the Bridge Offering, and shall expire at 5:00 p.m.,
New York time, on a date which is 60 days after delivery of the
Disclosure Statement. The Offering may be extended for an additional 30
days by the Placement Agent. Such period, as same may be so
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extended, shall hereinafter be referred to as the "Offering Period."
(c) Each prospective investor ("Prospective Investor") who
desires to purchase Units shall deliver to the Placement Agent two
copies of a subscription agreement (a "Subscription Agreement"), in the
form annexed to the Disclosure Statement, two copies of an investor
questionnaire (the "Investor Questionnaire"), and immediately available
funds in the amount necessary to purchase the number of Units such
Prospective Investor desires to purchase. The Placement Agent shall not
have any obligation to independently verify the accuracy or completeness
of any information contained in any Subscription Agreement or the
authenticity, sufficiency, or validity of any check delivered by any
Prospective Investor in payment for the Units.
(d) The Placement Agent and the Company shall establish an
escrow account (the "Escrow Account") with an independent bank (the
"Escrow Agent") in New York City. The Placement Agent shall deliver
each check received from a Prospective Investor to the Escrow Agent for
deposit in the Escrow Account and shall deliver an executed copy of the
Subscription Agreement and Investor Questionnaire received from
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such Prospective Investor to the Company. The Company shall notify the
Placement Agent promptly of the acceptance or rejection of any
subscription to purchase Units.
(e) If subscriptions for the Minimum Offering are not received
from Prospective Investors prior to the expiration of the offering
Period and accepted by the Company, the Offering shall be canceled, all
funds received and held in the Escrow Account shall be refunded in full
without interest or deduction and this Agreement and the agency created
hereby shall be terminated without any further obligation on the part of
either party, except as provided in Section 16 hereof.
(f) The Placement Agent may engage other broker/dealers selected
by the Placement Agent to assist it in the Offering (each such
broker/dealer being hereinafter referred to as a "Selling Group Member")
and you may allow such Selling Group Member such part of the
compensation and payment of expenses payable to you under Section 6
hereof as you shall determine. Any such Selling Group Member shall be a
member in good standing of the National Association of Securities
Dealers, Inc. (the "NASD"). Each Selling Group Member shall be required
to agree in writing
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to comply with the provisions of this Section 3. The Company hereby
agrees to make such representations and warranties to, and covenants and
agreements with, any Selling Group Member (including an agreement to
indemnify such Selling Group Member on terms substantially similar to
Section 15 hereof) as provided herein.
4. Interim Closings/Final Closing.
(a) Subject to consummation of the conditions set forth in
Section 10 hereof, if subscriptions for the Minimum Offering have been
received in escrow prior to the expiration of the Offering Period and
accepted by the Company, a closing under this Agreement (the "Initial
Closing") shall be held at the offices of the Placement Agent, or such
other place in New York City as the parties may agree, as soon as
practicable (but not later than five (5) business days) following the
date upon which the Placement Agent and the Company confirm in writing
to each other that subscriptions for the Minimum Offering have been
accepted or at such other place, time, or date as the Company and you
shall agree upon. The date upon which the Initial Closing is held shall
hereinafter be referred to as the "Initial Closing Date.
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(b) At any time prior to the expiration of the Offering
Period following the Initial Closing and after receipt in escrow
and acceptance by the Company of subscriptions for the sale of
additional Units ("Interim Closing Amount") up to the Maximum
Offering, one or more closings (each an "Interim Closing") shall
take place in the manner herein set forth with respect to the
Initial Closing with respect to increments of $200,000. In the
event that the Offering Period expires prior to receipt in escrow
and acceptance by the Company of an Interim Closing Amount, a
final closing shall be held at such time regardless of the amount
then held in escrow. The final Interim Closing to be held in
accordance herewith shall be deemed the "Final Closing" and the
date thereof shall be the "Final Closing Date". References
herein to a "Closing" shall mean the Initial Closing, any Interim
Closing or the Final Closing, as the context requires, and the
date thereof shall be referred to as a "Closing Date."
5. Representations and Warranties of the Placement Agent.
The Placement Agent represents and warrants to the Company as follows:
(a) The Placement Agent is duly organized and validly existing
and in
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good standing under the laws of its State of formation.
(b) The Placement Agent is, and at the time of each Closing will
be, a member in good standing of the NASD.
(c) Sales of the Bridge Units and Units in the Bridge Offering
and offering respectively by the Placement Agent will only be made in
such jurisdictions in which the Placement Agent or a Selling Group
Member is a registered broker-dealer or where an applicable exemption
from such registration exists.
(d) Offers and sales of the Bridge Units and Units in the Bridge
Offering and Offering by the Placement Agent will be made only in
accordance with this Placement Agreement and in compliance with the
provisions of Rule 506 of Regulation D (it being understood and agreed
that the Placement Agent shall be entitled to rely upon the information
and statements provided by the Prospective Investor in the Subscription
Agreement and Investor Questionnaires), and the Placement Agent will
furnish to each Prospective Investor a copy of the Bridge Disclosure
Statement and/or the Disclosure Statement, as the case may be, prior to
accepting any subscription for the Bridge Units and Units.
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6. Compensation.
The Company shall pay to the Placement Agent the following compensation
in connection with the Offering:
(a) If subscriptions for the Minimum offering are received in
escrow prior to the expiration of the Offering Period and accepted by
the Company, you shall be entitled, on each Closing Date, as
compensation for your services rendered in the Offering as Placement
Agent under this Agreement, to selling commissions equal to 10% of the
gross proceeds received by the Company from the sale of the Units
effected at each Closing and 3% of the gross proceeds from the sale of
the Units effected at each Closing in payment for a non-accountable
expense allowance. Such amounts shall be paid directly to you by the
Escrow Agent from the Escrow Account.
(b) In addition to the compensation payable to the Placement
Agent set forth in (a) above, the Company shall sell to the Placement
Agent, for nominal consideration, at the Initial Closing of the Minimum
Offering, five (5) year warrants ("Offering Placement Warrants") to
purchase 350,000 shares of its Common Stock at an initial exercise price
of $8.00 per share. The Offering Placement Warrants will conform to the
description thereof, in
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form and substance, as set forth in the Disclosure Statement.
7. Representations and Warranties of the Company.
(a) The Company represents and warrants to, and agrees with, the
Placement Agent that:
(i) Assuming the accuracy of the representations and
warranties of the Prospective Investors set forth in the
Subscription Agreement and Investor Questionnaire and the
representations and warranties of the Placement Agent set forth
herein, the Bridge Disclosure Statement and Disclosure Statement
(from the date of the Disclosure Statement) (a) shall contain,
and at all times during the period from the date hereof to the
Final Closing Date, will contain all information required to be
contained therein, pursuant to Rules 502 and 506 of Regulation D
and all applicable federal and/or state securities and "blue sky"
laws, and (b) do not, and during such period will not, contain
any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make
the statements therein in light of the circumstances made therein
not misleading. Each contract, agreement, instrument, lease,
license, or other document required to be described in the Bridge
Disclosure Statement and Disclosure Statement shall be, and have
been, accurately described therein.
(ii) The Bridge Disclosure Statement and the Disclosure
Statement or information provided by the Company to Prospective
Investors shall not contain any untrue statement of a material
fact or omit to state any material fact required to be stated
therein or necessary to make the
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statements therein in light of circumstances made therein not
misleading.
(iii) The Company has not, directly or indirectly,
solicited any offer to sell or buy any Bridge Units or Units or
any other securities of the Company during the 12 month period
ending on the date hereof except as may be indicated in Schedule
A hereto and has no present intention to solicit any offer to
sell or buy any Bridge Units or Units or any other securities of
the Company other than pursuant to this Agreement.
(iv) The Company (the term "Company" includes all
subsidiary corporations as used in this Section "7") is, and at
all times during the period from the date hereof to the Final
Closing Date will be, a corporation duly organized, validly
existing, and in good standing under the laws of its respective
state of incorporation, with full corporate power and authority,
and all necessary consents, authorizations, approvals, orders,
licenses, certificates,, and permits and declarations of and
from, and has made filings with, all federal, state, Indian and
local authorities, to own, lease, license, and use its properties
and assets and to conduct its business as presently conducted as
described in the Bridge Disclosure Statement and Disclosure
Statement. As of the date hereof, the Company is, and at all
times during the period from the date hereof to and including the
Final Closing Date, duly qualified to do business and is in good
standing in every jurisdiction in which its ownership, leasing,
licensing, or use of property and assets or the conduct of its
business makes such qualification necessary except where the
failure to be so qualified would not have a material adverse
effect on the Company's business.
(v) The Company has, as of the date hereof, and shall
have at each Closing (except as effected by the
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transactions contemplated hereby and except as disclosed in the
Bridge Disclosure Statement) an authorized capitalization
consisting of 10,000,000 shares of Common Stock, $.Ol par value,
of which 2,734,200 shares are issued and outstanding. Each
issued and outstanding share of Common Stock is duly authorized,
validly issued, fully paid, and non-assessable, without any
personal liability attaching to the ownership thereof solely by
being such a holder, and has not been issued and is not owned or
held in violation of any preemptive rights of stockholders.
There is no commitment, plan, or arrangement to issue, and no
outstanding option, warrant, or other right calling for the
issuance of, any share of capital stock of the Company or any
security or other instrument which by its terms is convertible
into, exercisable for, or exchangeable for capital stock of the
Company, except as indicated in the Bridge Disclosure Statement
and Disclosure Statement. There is outstanding no other security
or other instrument which by its terms is convertible into or
exchangeable for any class of capital stock of the Company,
except as may be properly described in the Bridge Disclosure
Statement and Disclosure Statement.
(vi) The audited financial statements for the fiscal year
ended September 30, 1995 and all other financial statements (the
"Financial Statements") of the Company included in the Bridge
Disclosure Statement, and to be included in the Disclosure
Statement, fairly and accurately (and will fairly and accurately
with respect to the Disclosure Statement) present in accordance
with generally accepted accounting principles the financial
position, the results of operations, and other information with
respect to the Company purported to be shown therein at the
respective dates and for the respective periods to which they
apply. The Financial Statements have been prepared (and will be
prepared with respect to the Disclosure Statement) in accordance
with generally accepted
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accounting principles consistently applied throughout the periods
involved, are correct and complete, and are in accordance with
the books and records of the Company. There has at no time been
a material adverse change in the financial condition, results of
operations, business, properties, assets, liabilities, or future
prospects of the Company from the latest information set forth in
the Bridge Disclosure Statement and Disclosure Statement, (which
Disclosure Statement will contain the Company's Balance Sheet and
Profit and Loss Statement as at and for a period not earlier than
June 30, 1996), except as may be properly described in the Bridge
Disclosure Statement and the Disclosure Statement as having
occurred or as may occur.
(vii) As of the date hereof there is no, and as of each
Closing Date there shall not be any, litigation, arbitration,
claim, governmental or other proceeding (formal or informal), or
investigation pending or to the Company's knowledge threatened,
with respect to the company, or its respective operations,
businesses, properties, or assets, except as properly described
in the Bridge Disclosure Statement or Disclosure Statement or
such as individually or in the aggregate do not now have and will
not in the future have a material adverse effect upon the
operations, business, properties, or assets of the Company. The
Company is not, nor as of each Closing Date shall be, in
violation of, or in default with respect to, any law, rule,
regulation, order, judgment, or decree, except as properly
described in the Bridge Disclosure Statement or Disclosure
Statement or such as individually or in the aggregate do not have
and will not in the future have a material adverse effect upon
the operations, business, properties, or assets of the Company;
nor is the Company required to take any action in order to avoid
any such violation or default.
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(viii) As of the date hereof, the Company has, and at all
times during the period from the date hereof to and including the
Final Closing Date, shall have, good and marketable title in fee
simple absolute to all real properties and good title to all
other properties and assets which the Bridge Disclosure Statement
and Disclosure Statement indicates are owned by it, free and
clear of all liens, charges, pledges, mortgages, security
interests, and encumbrances (collectively, the "Liens"), except
as may be described in the Bridge Disclosure Statement and
Disclosure Statement and which Liens, individually or in the
aggregate, do not have and will not in the future have a material
adverse effect upon the operations, business, properties or
assets of the Company.
(ix) As of the date hereof, the Company is not, and at
all times during the period from the date hereof to and including
the Final Closing Date, shall not be, in violation or breach of,
or in default with respect to complying with any material
provision of any contract, agreement, instrument, lease, license,
permit, consent, law, rule, regulation, arrangement, and each
such contract, agreement, consent, instrument, lease, license,
arrangement, and understanding is in full force and effect and is
a legal, valid, and binding obligation of the parties thereto
enforceable as to them in accordance with its terms. The Company
enjoys peaceful and undisturbed possession under all leases,
permits and licenses under which it is operating as of the date
hereof. As of the date hereof, the Company is not a party to or
bound by any contract, agreement, instrument, lease, license,
permit, consent, arrangement, or understanding, or subject to any
charter or other restriction, which has had or may in the future
have a material adverse effect on the financial condition,
results of operations, business, properties, assets, liabilities,
or future prospects of the Company. The Company is not in
violation or breach of, or in default
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with respect to, any term of its Certificate of Incorporation as
amended or its By-Laws.
(x) To its best knowledge, the Company has not infringed,
is not infringing, nor has received notice of infringement with
respect to the Intangibles of others. The term "Intangibles"
shall mean any patent, trademark, tradename service mark,
copyright, franchise, or application therefor or other intangible
property or asset. To the best knowledge of the Company, none of
the Intangibles presently owned or held by the Company,
materially infringe upon any right of any other person or entity.
The Company (i) owns or has the right to use, free and clear of
all liens, charges, claims, encumbrances, pledges, security
interests, defects or other restrictions of any kind whatsoever,
sufficient patents, trademarks, service marks, trade names,
copyrights, licenses and rights with respect to the foregoing, to
conduct its business as presently conducted except as set forth
in the Bridge Disclosure Statement and Disclosure Statement, and
(ii) except as set forth in the Bridge Disclosure Statement and
Disclosure Statement, is not obligated or under any material
liability whatsoever to make any payments by way of royalties,
fees or otherwise to any owner or licensee of, or other claimant
to, any patent, trademark, service mark, trade name, copyright,
know-how, technology or other intangible asset, with respect to
the use thereof or in connection with the conduct of its business
as now conducted or otherwise.
(xi) The Company has all requisite corporate power and
authority to execute, deliver, and perform this Agreement and to
consummate the transactions contemplated hereby. All necessary
corporate proceedings of the Company have been duly taken to
authorize the execution, delivery, and performance by the Company
of this Agreement and the consummation of the transactions
contemplated hereby. This
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Agreement has been duly authorized, executed, and delivered by
the Company, is a legal, valid, and binding obligation of the
Company, and is enforceable as to the Company in accordance with
its terms. Assuming the accuracy of the representations and
warranties of the Prospective Investors set forth in the
Subscription Agreements and Purchaser Questionnaires and the
representations and warranties of the Placement Agent set forth
herein, no consent, authorization, approval, order, license,
certificate, or permit of or from, or registration,
qualification, declaration, or filing with, any federal, state,
local, foreign, or other governmental authority or any court or
other tribunal is required by the Company for the execution,
delivery, or performance by the Company of this Agreement, the
consummation of the transactions contemplated hereby and thereby,
except the filing of a Notice of Sales of Securities on Form D
pursuant to Regulation D, and such consents, authorizations,
approvals, registrations, and qualifications as may be required
under all applicable federal and/or securities or "blue sky" laws
in connection with the issuance., sale, and delivery of the Units
pursuant to this Agreement. No consent of any party to any
material contract, agreement, obligation, note, indenture,
instrument, lease, license, arrangement, or understanding to
which the Company is a party, or to which any of its properties
or assets are subject, is required for the execution, delivery,
or performance of this Agreement, and the consummation of the
transactions contemplated hereby and thereby, and such execution,
delivery and performance will not violate, result in a breach of,
conflict with, or (with or without the giving of notice or the
passage of time or both) entitle any party to terminate or call a
default under any such contract, obligation, note, indenture,
agreement, instrument, lease, license, arrangement, or
understanding, violate or result in a breach of any term of the
certificate of incorporation or by-laws of the Company, or
assuming the accuracy of the
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representations and warranties of the Prospective Investors set
forth in the Subscription Agreements and Investor Questionnaires
and the representations and warranties of the Placement Agent set
forth herein, violate, result in a breach of, or conflict with
any law, rule, regulation, order, judgment, or decree binding on
the Company or to which any of its operations, businesses,
properties, or assets are subject.
(xii) All of the securities to be issued by the Company
in the Bridge Offering and Offering to the Prospective Investors
and the Placement Agent shall conform to all statements relating
thereto as contained in the Bridge Disclosure Statement and
Disclosure Statement. The securities, when issued and delivered
to the Prospective Investors pursuant to the terms of this
Agreement shall be duly authorized, validly issued, fully paid
and nonassessable, without any personal liability attaching to
the ownership thereof solely by being such holder and shall not
have been issued in violation of any preemptive rights of
stockholders.
(xiii) Except and to the extent described in or referred
to in Schedule B to the Bridge Disclosure Statement (i) no
holders of any securities of the Company or of any options,
warrants or other convertible securities of the Company have the
right to include or demand any securities issued by the Company
be included in any registration statement to be filed by the
Company or to require the Company to file a registration
statement under the Act., and (ii) no person or entity holds any
anti-dilution rights with respect to any securities of the
Company.
(xiv) Neither the Company nor any of its officers,
directors,, or affiliates, has engaged or will engage, directly
or indirectly, in any act or activity that may
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jeopardize the status of the offering and sale of the Bridge
Units or Units as an exempt transaction under the Act or under
all applicable federal and/or state securities or "blue sky" laws
of any jurisdiction in which the Units may be offered or sold.
8. Covenants of the Company.
The Company covenants that it will:
(a) Notify you immediately, and confirm such notice in writing,
(i) when any event shall have occurred during the period commencing on
the date hereof and ending on the Final Closing Date, as a result of
which the Bridge Disclosure Statement or Disclosure Statement would
include any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were
made, not misleading, and (ii) of the receipt of any notification with
respect to the modification, rescission, withdrawal, or suspension of
the qualification or registration of the Bridge Units or Units, or of an
exemption from such registration or qualification, in any jurisdiction.
The Company will use its best efforts to prevent the issuance of any
such modification, rescission,, withdrawal, or suspension and if you so
request, to obtain the lifting thereof as promptly as possible.
(b) Not make any supplement or amendment to the Bridge
Disclosure Statement or Disclosure Statement unless such supplement or
amendment complies with the requirements of the Act and Regulation D and
the applicable federal and/or state securities and "blue sky" laws and
unless you shall have approved of such supplement or amendment in
writing. If, at any time during the period commencing on the date
hereof and ending on the Final Closing Date, any event shall have
occurred as a result of which the Bridge Disclosure Statement or
Disclosure
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Statement contains any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading, or if, in the opinion of
counsel to the Company or counsel to the Placement Agent, it is
necessary at any time to supplement or amend the Bridge Disclosure
Statement or Disclosure Statement to comply with the Act, Regulation D,
or any applicable securities or "blue sky" laws, the Company will
promptly prepare an appropriate supplement or amendment (in form and
substance satisfactory to you) which will correct such statement or
omission or which will effect such compliance.
(c) Deliver without charge to the Placement Agent such number of
copies of the Bridge Disclosure Statement or Disclosure Statement and
any supplement or amendment thereto as may reasonably be requested by
the Placement Agent.
(d) Not, directly or indirectly, solicit any offer to buy from,
or offer to sell to any person any Bridge Units or Units, except through
the Placement Agent.
(e) Use its best efforts to qualify or register the Bridge Units
and Units for offering and sale under, or establish an exemption from
such qualification or registration under, the securities or "blue sky"
laws of such jurisdictions as you may reasonably request; provided,
however, that the Company will not be obligated to qualify to do
business as a dealer in securities in any jurisdiction in which it is
not so qualified. The Company will not consummate any sale of the
Bridge Units and Units in any jurisdiction or in any manner in which
such sale may not be lawfully made; in this regard the Company shall be
entitled to rely on the Placement Agent's representations herein, and
the representations of Prospective Investors in the Subscription
Agreement and Purchaser Questionnaire and on the Blue Sky qualifications
effected by the Placement Agent's counsel.
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<PAGE> 21
(f) At all times during the period commencing on the date hereof
and ending on the Final Closing Date, provide to each Prospective
Investor or his Purchaser Representative (as defined in Regulation D),
if any, on request, such information (in addition to that contained in
the Bridge Disclosure Statement or Disclosure Statement) concerning the
Bridge Offering and Offering, the Company and any other relevant
matters, as it possesses or can acquire without unreasonable effort or
expense, and to extend to each Prospective Investor or his Purchaser
Representative, if any, the opportunity to ask questions of, and receive
answers from an officer of the Company concerning the terms and
conditions of the Bridge Offering and Offering and the business of the
Company and to obtain any other additional information, to the extent it
possesses the same or can acquire it without unreasonable effort or
expense, as such Prospective Investor or Purchaser Representative may
consider necessary in making an informed investment decision or in order
to verify the accuracy of the information furnished to such Prospective
Investor or Purchaser Representative, as the case may be.
(g) Provide to each Prospective Investor or his Purchaser
Representative any information required to be delivered by Rule 502(b)
of Regulation D.
(h) Disclose to each Prospective Investor, in writing, any
material relationship between such Prospective Investor's Purchaser
Representative, if any, or its affiliates, on the one hand, and the
Company or its affiliates, on the other hand, which, to the knowledge of
the Company, then exists or is understood to be contemplated or has
existed at any time during the previous two years and any compensation
received or to be received as a result of such relationship.
(i) Before accepting any subscription to purchase Bridge Units
or Units from, or making any sale to, any Prospective Investor, have
reasonable grounds to believe and will believe (after making reasonable
inquiry as required under the
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<PAGE> 22
Subscription Agreements and Investor Questionnaires) that (A) such
Prospective Investor meets the suitability requirements for investing in
the Bridge Units or Units as set forth respectively in the Bridge
Disclosure Statement or Disclosure Statement, and (B) such Prospective
Investor is an Accredited Investor (as defined in Regulation D).
(j) Notify you promptly of the acceptance or rejection of any
subscription. The Company shall not (i) accept subscriptions from, or
make sales of the Bridge Units or Units to, any Prospective Investors
who are not, to the Company's knowledge, accredited investors, or (ii)
unreasonably reject any subscription for the Bridge Units or Units.
(k) File five copies of a Notice of Sales of Securities on Form
D with the Securities and Exchange Commission (the "Commission") no
later than 15 days after the first sale of the Bridge Units or Units and
file a final notice on Form D with the Commission no later than 30 days
after the last sale of the Bridge Units or Units. The Company shall
file promptly such amendments to such Notice on Form D as shall become
necessary and, as requested by you, shall also comply with any filing
requirement imposed by the laws of any state or jurisdiction in which
offers and sales are made. The Company shall furnish you with copies of
all such filings.
(1) Not, directly or indirectly, engage in any act or activity
which may jeopardize the status of the Offering and sale of the Bridge
Units or Units as exempt transactions under the Act or under the
securities or "blue sky" laws of any jurisdiction in which the Bridge
Offering or Offering may be made. Without limiting the generality of
the foregoing, and notwithstanding anything contained herein to the
contrary, the Company shall not, directly or indirectly, engage in any
offering of securities which, if integrated with the Offering in the
manner prescribed by Rule 502(a) of Regulation D and applicable releases
of the Commission, may jeopardize the status
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of the offering and sale of the Units as exempt transactions under
Regulation D.
(m) Apply the net proceeds from the sale of the Bridge Units and
Units as set forth in the Bridge Disclosure Statement or Disclosure
Statement.
(n) Not, during the period commencing on the date hereof and
ending on the Final Closing Date, issue any press release or other
communication, or hold any press conference with respect to the Company,
its financial condition, results of operations, business, properties,
assets, or liabilities, Bridge Offering or the Offering, without your
prior written consent, except as required by applicable securities laws.
(o) During the period commencing on the date hereof and ending
on the Final Closing Date, the Company shall not, without prior notice
to and consent of the Placement Agent subject to Schedule B of the
Disclosure Statement: (A) issue any securities or incur any liability or
obligation, for borrowed money; (B) enter into any transaction not in
the ordinary course of business; or (C) declare or pay any dividend on
its capital stock except for the regular quarterly dividend on its
outstanding preferred stock.
(p) Not, under any Stock Option Plan now or hereafter in effect,
grant options for the issuance by the Company in any one year, on an
aggregate basis, to purchase more than (i) 200,000 shares of the
Company's Common Stock during the one (1) year period commencing from
the date hereof and (ii) 100,000 shares of the Company's Common Stock
for each of the next three (3) years thereafter.
(q) Not during the 12-month period following the Final Closing
Date, except with respect to outstanding warrants or options or warrants
issued in connection with the Bridge Offering or Offering, offer for
sale or sell any shares of its
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<PAGE> 24
Common Stock or any securities convertible into or exchangeable for
shares of its Common Stock without the prior written consent of the
Placement Agent; provided, however, that the Company may offer for sale,
sell or grant options, rights or warrants in connection with its shares
of Common Stock at a price in excess of $8.00. Further, in connection
with any future issuance of its Common Stock, during the aforesaid 12-
month period, the Company shall not grant registration rights to any
party which requires the Company to file a Registration Statement with
the Commission, which Registration Statement shall include therein more
than 25% of the shares of the Company's Common Stock issued by the
Company in any one transaction; except, however, for 70,000 shares of
the Company's Common Stock which is disclosed in Part II of Schedule B
to the Bridge Disclosure Statement.
9. Payment of Expenses.
The Company hereby agrees to pay all fees, charges, and expenses
incident to the performance by the Company and the Placement Agent of its
obligations hereunder, including, without limitation, all fees, charges, and
expenses in connection with: (i) the preparation, printing, filing,
distribution, and mailing of the Bridge Disclosure Statement. Disclosure
Statement, the Subscription Agreements, the Investor Questionnaire, and all
other documents relating to the Bridge, the Offering, the purchase, sale, and
delivery of the Bridge Units and Units, and any supplements or amendments
thereto, including the cost of all copies thereof; (ii) the preparation and
reproduction of this Agreement; (iii) the issuance, sale, and delivery of the
Bridge Units and Units and securities contained therein, including any issuance
taxes payable thereon and the fees of any transfer agent or registrar; (iv) the
registration or qualification of the Bridge Units and Units or the securing of
an exemption therefrom under state or foreign "blue sky" or securities laws,
including without limitation, filing fees payable in the jurisdictions in which
such registration or qualification or exemption therefrom is sought,
disbursements in connection therewith, the costs of preparing preliminary,
supplemental, and final "Blue Sky Surveys" relating to
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<PAGE> 25
the offer and sale of the Units, and the "Blue Sky" fees of counsel for the
Placement Agent in connection therewith in an amount equal to $5000 in
connection with the Bridge Offering and $5000 in connection with the Offering,
all of which shall be paid prior to commencement of each of the Bridge Offering
and Offering; and (v) filing fees payable to governmental agencies, if any;
(vi) the retention of the Escrow Agent, including the fees and expenses of the
Escrow Agent for serving as such and the fees and expenses of its counsel, if
any. Notwithstanding the foregoing, the parties agree that the Company shall
not be responsible for payment of the non-"Blue Sky" legal fees of counsel to
the Placement Agent.
10. Conditions of Placement Agent's Obligations.
The obligations of the Placement Agent pursuant to this Agreement shall
be subject, at its option, to the continuing accuracy of the representations
and warranties of the Company contained herein and in each certificate and
document contemplated under this Agreement to be delivered to the Placement
Agent, as of the date hereof and as of each Closing Date of the Bridge Offering
and Offering, with respect to the performance by the Company of its obligations
hereunder, and to the following conditions:
(a) At each Closing, the Placement Agent shall have received the
favorable opinion of Hall, Estill, Hardwick, Gable, Golden & Nelson,
legal counsel for the Company, dated each Closing Date, addressed to the
Placement Agent, and in form and substance satisfactory to legal counsel
for the Placement Agent to the effect that:
(i) the Company and each of its subsidiary corporations
are duly organized, validly existing, and in good standing under
the laws of the respective states of incorporation, with full
corporate power and authority to own, lease, license, and use its
properties and assets and to conduct its business in the manner
described in the Bridge Disclosure Statement and Disclosure
Statement and is
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<PAGE> 26
duly qualified to do business and is in good standing as a
foreign corporation (where such certificate of foreign
qualification is on file with the appropriate state agency) in
every jurisdiction in which its ownership, leasing, licensing, or
use of property and assets or the conduct of its business makes
such qualification necessary (except where the failure to so
qualify would not have a material adverse effect upon the Company
or its business);
(ii) the Company has, as of the date hereof, an
authorized capitalization as set forth in the Bridge Disclosure
Statement and Disclosure Statement. Each issued and outstanding
share of Common Stock and Preferred Stock is duly authorized,
validly issued, fully paid, and nonassessable, with no personal
liability attaching to the ownership thereof solely by being such
a holder and has not been issued and is not owned or held in
violation of any preemptive right of stockholders. To Counsel's
knowledge there is no commitment, plan, or arrangement to issue,
and no outstanding option, warrant, security, or other right
calling for the issuance of, any share of capital stock of the
Company or any security or other instrument which by its terms is
convertible into, exercisable for, or exchangeable for capital
stock of the Company, except as may be properly described in the
Bridge Disclosure Statement, the Disclosure Statement or in this
Agreement. To Counsel's knowledge there is outstanding no
security or other instrument which by its terms is convertible
into or exchangeable for capital stock of the Company, except as
may be properly described in the Bridge Disclosure Statement and
Disclosure Statement or in a schedule hereto;
(iii) To Counsel's knowledge there is no litigation,
arbitration, claim, governmental or other proceeding (formal or
informal), or investigation pending or threatened with respect to
the Company or any of its operations, businesses, properties, or
assets except as may
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<PAGE> 27
be properly described in the Bridge Disclosure Statement or
Disclosure Statement, in this Agreement or in a schedule hereto;
(iv) counsel has not received written or oral notice that
the Company is in violation or breach of, or in default with
respect to, complying with any provision of any contract,
agreement, instrument, lease, license, permit, law, regulation,
arrangement, or understanding;
(v) the Company has all requisite corporate power and
authority to execute, deliver, and perform this Agreement, and to
consummate the transactions contemplated hereby. All necessary
corporate proceedings of the Company have been taken to authorize
the execution, delivery, and performance by the Company of this
Agreement, and the consummation of the transactions contemplated
hereby. This Agreement has been duly authorized, executed, and
delivered by the Company, is the legal, valid, and binding
obligation of the Company, and is enforceable against the Company
in accordance with its terms, except as such enforceability may
be limited by applicable bankruptcy, insolvency, reorganization,
moratorium and other laws of general application now or hereafter
in effect relating to or affecting the enforcement of creditors'
right generally and the application of general equitable
principles in any action, legal or equitable and then except, as
to those provisions relating to indemnity or contribution, such
opinion shall be limited as effected by any Federal or state
securities laws regarding indemnity and/or contribution;
(vi) the Bridge Units and Units conform to all statements
relating thereto contained in the Bridge Disclosure Statement and
Disclosure Statement. The Bridge Units and Units and the
securities contained therein, are duly authorized, validly
issued, fully paid (including all
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<PAGE> 28
shares issued upon warrants described therein when paid for), and
nonassessable, with no personal liability attaching to the
ownership or any of the components thereof (other than the
contractual obligations of such holders contained in the Notes
and Warrants) and to such counsel's knowledge shall not have been
issued in violation of any preemptive rights of stockholders;
(vii) the Bridge Disclosure Statement and Disclosure
Statement (except that no opinion need be expressed as to the
financial statements, related schedules, or other financial data
contained therein) comply as to form in all material respects
with requirements of the Act and the regulations thereunder
applicable to offerings made pursuant to Rule 506 of Regulation D
and to the best knowledge of such counsel, any contract,
agreement, instrument, lease, license, or document described in
the Bridge Disclosure Statement and Disclosure Statement has been
accurately described therein;
(viii) such counsel's opinion shall also include a
statement to the effect that it has participated in conferences
with officers and other representatives of the Company and
representatives of the independent public accountants of the
Company at which the contents of the Bridge Disclosure Statement
and Disclosure Statement were discussed and, on the basis of the
foregoing, nothing has come to such counsel's attention that
causes it to believe that the Bridge Offering and Offering as
supplemented or amended at all times up to and including the date
of such opinion, contained an untrue statement of a material fact
or omitted to state a material fact required to be stated therein
or necessary to make the statements therein, in light of
circumstances under which they were made, not misleading (it
being understood that such counsel expresses no opinion or belief
with respect to the financial
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<PAGE> 29
information included in the Bridge Disclosure Statement or
Disclosure Statement);
(ix) assuming that (i) a proper Form D is filed in
accordance with Rule 503 of Regulation D, (ii) that the offer and
the sale of the Bridge Units by the Placement Agent was made in
compliance with Rule 506 of Regulation D and that the Placement
Agent's representations and warranties set forth herein are true
and correct, and (iii) that the representations of the
Prospective Investors in the Subscription Agreements and
Investors Questionnaire signed by them are true and correct
(which facts will not be independently verified by such counsel),
the sale of the Bridge Units in the Bridge Offering and sale of
the Units in the Offering is exempt from registration under the
Securities Act of 1933 and is in compliance with Rule 506 of
Regulation D;
(x) neither the execution and delivery of this Agreement,
the Bridge Notes and Bridge Warrants contained in the Bridge
Units and the Common Stock and Warrants contained in the Units,
nor compliance with the terms hereof or thereof will (i) conflict
with, result in a breach of, or constitute a default under the
Certificate of Incorporation or By-Laws of the Company, or, to
the best of such counsel's knowledge, any material contract,
instrument, obligation, agreement or document to which the
Company is a party, or by which the assets or properties of the
Company are bound; or (ii) to the best knowledge of such counsel,
have any material adverse effect on any permit, certification,
registration, approval, consent, license or franchise necessary
for the Company to own or lease and operate any of its properties
and to conduct its business or the ability of the Company to make
use thereof as described in the Bridge Disclosure Statement or
Disclosure Statement;
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<PAGE> 30
(xi) counsel has not been advised in writing or otherwise
that there are any licenses, permits, certificates,
registrations, approvals or consents of any governmental agency,
commission, board, instrumentality or department that are
required to be obtained by the Company in order to conduct its
business as conducted at the date hereof which have not been so
obtained and where the failure to so obtain would have a material
adverse effect on the Company's business or the business of any
subsidiary;
(xii) To the knowledge of counsel the issuance of the
Bridge Units in the Bridge Offering or the Units in the Offering
will not give any holder of any of the Company's outstanding
Common Stock, options, warrants, convertible securities or rights
to purchase shares of the Company's Common Stock or Preferred
Stock, the right to purchase any additional shares of Common
Stock.
In rendering such opinion, counsel for the Company may
rely (A) as to matters of fact, to the extent they deem proper,
on certificates of officers of the Company; and (B) to the extent
they deem proper, upon written statements or certificates of
officers of departments of various jurisdictions having custody
of documents respecting the corporate existence or good standing
of the Company, provided that copies of any such statements or
certificates shall be delivered to counsel for the Placement
Agent.
(b) on or prior to the Closing of the Bridge offering and
Initial Closing of the Offering the Placement Agent shall have been
furnished such information, documents, certificates, and opinions as it
may reasonably require for the purpose of enabling it to review the
matters referred to in Section 7, and in order to evidence the accuracy,
completeness, or satisfaction of any of the representations, warranties,
covenants,
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<PAGE> 31
agreements, or conditions herein contained, or as it may otherwise
reasonably request.
(c) Upon Closing of the Bridge Offering and each Closing Date of
the Offering, the Placement Agent shall have received a certificate of
the chief executive officer and of the chief financial officer of the
Company, dated the applicable Closing Date to the effect that, as of the
date of this Agreement and as each Closing Date the representations and
warranties of the Company contained herein and therein were and are
accurate, and that as of each Closing Date the obligations to be
performed by the Company hereunder on or prior thereto have been fully
performed.
(d) All proceedings taken in connection with the issuance, sale,
and delivery of the Bridge Units and Units shall be satisfactory in form
and substance to you and your counsel.
(e) There shall not have occurred after the date hereof, at any
time prior to each Closing Date: (A) any domestic or international
event, act, or occurrence which has materially disrupted, or in your
opinion will in the immediate future materially disrupt the securities
markets; (B) a general suspension of, or a general limitation on prices
for, trading in securities on the Nasdaq SmallCap Market or the over-
the-counter market; (C) any banking moratorium declared by a state or
federal authority; (D) any material interruption in the mail service or
other means of communication within the United States; (E) any adverse
change in the business, properties, assets, results of operations, or
financial condition of the Company; or (F) any change in the market for
securities in general or in political, financial, or economic conditions
which, in your judgment, makes it inadvisable to proceed with the
offering, sale, and delivery of the Units.
Any certificate or other document signed by any officer of the
Company and delivered to you or to your counsel at the
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Closing of the Bridge Offering or each Closing Date of the Offering
shall be deemed a representation and warranty by the Company hereunder
as to the statements made therein. If any condition to your obligations
hereunder has not been fulfilled as and when required to be so
fulfilled, you may terminate this Agreement or, if you so elect, in
writing waive any such conditions which have not been fulfilled or
extend the time for their fulfillment. In the event that you elect to
terminate this Agreement, you shall notify the Company of such election
in writing. Upon such termination, neither party shall have any
further liability or obligation to the other except as provided in
Section 11 hereof.
(f) At the Closing of the Bridge Offering and each Closing of
the Offering, the Placement Agent shall have received the favorable
opinion of counsel satisfactory to counsel to the Placement Agent as to
the compliance by the Company with all federal, state, Indian and local
laws, rules and regulations, or any license, permit, certification,
approval or consent, in each case relating to the Company's services as
described in the Bridge Disclosure Statement and Disclosure Statement.
(g) On or before the Closing of the Bridge Offering, the Company
shall provide the Placement Agent with enforceable agreements (the
"Lock-Up Agreements") from each of the Company's officers, directors,
and shareholders owning 1% or more of the Company's outstanding Common
Stock and all holders of the Company's outstanding warrants, options and
other convertible securities requiring the issuance of more than 1% of
the Company's outstanding Common Stock, as of the date hereof, which
Lock-Up Agreements shall provide that the party executing the Lock-Up
Agreements shall not, for a period of 12 months from the later of (i)
Closing of the Bridge Offering or (ii) Final Closing of the Offering,
(and except where a different period is provided for therein with the
permission of the Placement Agent), directly or indirectly, issue, offer
to sell, grant an option for the sale of, assign, transfer, pledge,
hypothecate or
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<PAGE> 33
otherwise encumber or dispose of any shares of the Company's Common
Stock or securities convertible into, exercisable or exchangeable for or
evidencing any right to purchase or subscribe for any shares of Common
Stock (either pursuant to Rule 144 of the Rules and Regulations or
otherwise) or dispose of any beneficial interest therein without the
written consent of the Placement Agent. The Lock-Up Agreements shall
terminate if the Minimum Offering is not consummated and such failure to
consummate the Minimum Offering was not caused by the act or omission of
the Company. Notwithstanding the foregoing, a Lock-Up Agreement shall
not be required from those parties indicated on Schedule B to this
Agreement.
(h) The Company shall execute and deliver a Registration Rights
Agreement, in form acceptable to the Placement Agent, with respect to
the Bridge Warrants; shares of Common Stock underlying the Bridge
Warrants; securities issuable upon conversion of Bridge Notes; Warrants
and the shares of Common Stock underlying the Warrants; Bridge Placement
Warrants and the shares of common stock underlying the Bridge Placement
Warrants; and Offering Placement Warrants and the shares of Common Stock
underlying the Offering Placement Warrants.
(i) The Placement Agent shall have received from the Company a
modification to a certain placement agent agreement dated January 29,
1996 by and between the Company and G-V Capital Corp., in the form as
set forth on Schedule C annexed hereto.
11. Conditions of Company's Obligations.
The obligations of the Company pursuant to this Agreement shall be
subject, in its discretion, to the performance by the Placement Agent in all
material respects of its obligations hereunder.
12. Break-Up Fee.
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<PAGE> 34
The Company agrees that if the Bridge Offering or Offering contemplated
hereunder is not consummated because of a breach by the Company of any
covenant, representation or warranty contained in the Placement Agreement then,
in that event, the Company shall be liable for the Placement Agent's expenses,
including counsel fees, and, in addition, shall pay to the Placement Agent as
liquidated damages an amount equal to $50,000 with respect to the Bridge
offering and $100,000 with respect to the Offering.
13. Right of First Refusal.
Upon the Closing of the Bridge Offering, the Company will deliver an
agreement to the effect that the Placement Agent shall thereafter have an
irrevocable right of first refusal for a period of two (2) years from such
Closing to purchase for its account or to sell for the account of the Company,
or any subsidiary of or successor to the Company, or any of its stockholders
owning at least one (1%) percent or more of the Common Stock of the Company or
a party holding the Company's convertible securities which require the issuance
by the Company of at least 1% or more of the Common Stock of the Company on the
date hereof (the "Principal Stockholders") any securities of the Company or any
such subsidiary or successor of the Company, that the Company or any such
subsidiary or successor or any of its Principal Stockholders may seek to sell
through an underwriter, placement agent or broker/dealer whether pursuant to
registration under the Act or otherwise. The Company, any such subsidiary or
successor and its Principal Stockholders will consult with the Placement Agent
with regard to any such offering and will offer the Placement Agent the
opportunity to purchase or sell any such securities on terms not less favorable
to the Company, any such subsidiary or successor or its Principal Stockholders
than it or they can secure elsewhere. If the Placement Agent fails to accept
such offer within 15 business days after the mailing of a notice containing
such offer by registered mail addressed to the Placement Agent (three (3)
business days in the event the offer covers a sale under Rule 144 or Rule
144(k)), then the Placement Agent shall have no further claim or right with
respect to the financing or stock sale
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<PAGE> 35
proposal contained in such notice. If, however, the terms of such proposal are
subsequently modified in any material respect, the preferential right referred
to herein shall apply to such modified proposal as if the original proposal had
not been made. The Placement Agent's failure to exercise its preferential
right with respect to any particular proposal shall not affect its preferential
rights relative to future proposals. The Company represents and warrants that
there are presently no other rights of first refusal for future financing now
outstanding. The agreement to be furnished to the Placement Agent under this
Section shall terminate if the Minimum Offering is not consummated.
14. Warrant Solicitation Fee.
Commencing on the date hereof, upon the exercise of any Bridge Warrant
or Warrant, the exercise of which was solicited by the Placement Agent in
accordance with the applicable rules and regulations of the NASD prevailing at
the time of such solicitation, the Company shall pay to the Placement Agent a
fee of 4% of the aggregate exercise price of such Bridge Warrant or Warrant
within five (5) business days of such exercise. The Company further agrees
that it will not solicit the exercise of any Bridge Warrant or Warrant other
than through the Placement Agent, unless the Placement Agent cannot legally
solicit the exercise of the Bridge Warrants or Warrants at the time of such
solicitation.
15. Solicitation Prohibition.
The Company agrees that, for a period of two (2) years from the date
hereof, it shall not solicit any offer to buy from or offer to sell to any
person introduced to the Company by the Placement Agent in connection with the
Offering, directly or indirectly, any securities of the Company or of any other
entity, or provide the name of any such person to any other securities broker
or dealer or selling agent. In the event that the Company or any of its
affiliates, directly or indirectly, solicits, offers to buy from or offers to
sell to any such person any such securities, or provides
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<PAGE> 36
the name of any such person to any other securities broker or dealer or selling
agent, and such person purchases such securities or purchases securities from
any other securities broker or dealer or selling agent, the Company shall pay
to the Placement Agent an amount equal to 10% of the aggregate purchase price
of the securities so purchased by such person.
16. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless the
Placement Agent, its officers, directors, partners, employees, agents,
and counsel, and each person, if any, who controls the Placement Agent
within the meaning of Section 15 of the Act or Section 20(a) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
against any and all loss, liability, claim, damage, and expense
whatsoever (which shall include, for all purposes of this Section 15,
but not be limited to, attorneys' fees and any and all expense
whatsoever incurred in investigating, preparing, or defending against
any litigation, commenced or threatened, or any claim whatsoever and any
and all amounts paid in settlement of any claim or litigation) as and
when incurred arising out of, based upon, or in connection with (i) any
untrue statement or alleged untrue statement of a material fact
contained in the Disclosure Statement or in any document delivered or
written statement made pursuant to Section 8 (g) , or (B) in any
application or other document or communication (it being understood that
neither the Company nor any officer, director or employee shall provide
any information to any Prospective Investor which is not contained in
the Disclosure Statement) (in this Section 15 collectively called an
"application") executed by or on behalf of the Company or based upon
written information furnished by or on behalf of the Company filed in
any jurisdiction in order to register or qualify the Units under the
"blue sky" or securities laws thereof or in order to secure an exemption
from such registration or qualification or filed with the Commission; or
any omission or alleged omission to state a material fact
-36-
<PAGE> 37
required to be stated therein or necessary to make the statements
therein not misleading, unless such statement or omission was made in
reliance upon and in conformity with written information furnished to
the Company as stated in Section 15(b) with respect to the Placement
Agent expressly for inclusion in the Bridge Disclosure Statement or
Disclosure Statement or in any application, as the case may be; or (ii)
any breach of any representation, warranty, covenant, or agreement of
the Company contained in this Agreement. The foregoing agreement to
indemnify shall be in addition to any liability the Company may
otherwise have, including liabilities arising under this Agreement.
If any action is brought against the Placement Agent or any of
its officers, directors, partners, employees, agent, or counsel, or any
controlling persons of the Placement Agent (an "indemnified party"), in
respect of which indemnify may be sought against the Company pursuant to
the foregoing paragraph, such indemnified party or parties shall
promptly notify the Company (the "indemnifying party") in writing of the
institution of such action (but the failure so to notify shall not
relieve the indemnifying party from any liability it may have other than
pursuant to this Section 15(a)) and the indemnifying party shall
promptly assume the defense of such action, including the employment of
counsel (reasonably satisfactory to such indemnified party or parties)
and payment of expenses. Such indemnified party shall have the right to
employ its own counsel in any such case, but the fees and expense of
such counsel shall be at the expense of such indemnified party unless
the employment of such counsel shall have been authorized in writing by
the indemnifying party in connection with the defense of such action or
the indemnifying party shall not have promptly employed counsel
satisfactory to such indemnified party or parties to have charge of the
defense of such action or such indemnified party or parties shall have
reasonably concluded that there may be one or more legal defenses
available to it or them or to other indemnified parties which are
different from or
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<PAGE> 38
additional to those available to one or more of the indemnifying
parties, in any of which events such fees and expenses of one such
counsel shall be borne by the indemnifying party and the indemnifying
party shall not have the right to direct the defense of such action on
behalf of the indemnified party or parties. Anything in this paragraph
to the contrary notwithstanding, the indemnifying party shall not be
liable for any settlement of any such claim or action effected without
its written consent. The Company agrees promptly to notify the
Placement Agent of the commencement of any litigation or proceedings
against the Company or any of its officers or directors in connection
with the sale of the Units, the Disclosure Statement, or any
application.
(b) The Placement Agent agrees to indemnify and hold harmless
the Company, its officers, directors, employees, agents, and counsel,
and each other person, if any, who controls the Company within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act,
to the same extent as the foregoing indemnity from the Company to the
Placement Agent in Section 15(a), with respect to any and all loss,
liability, claim, damage, and expense whatsoever (which shall include,
for all purposes of this Section 15, but not be limited to, attorneys'
fees and any and all expense whatsoever incurred in investigating,
preparing, or defending against any litigation, commenced or threatened,
or any claim whatsoever and any and all amounts paid in settlement of
any claim or litigation) as and when incurred arising out of, based
upon, or in connection with (i) statements or omissions, if any, made in
the Bridge Disclosure Statement or Disclosure Statement in reliance upon
and in conformity with written information furnished to the Company as
stated in this Section 15(b) with respect to the Placement Agent
expressly for inclusion in the Bridge Disclosure Statement or Disclosure
Statement, and (ii) the failure of the Placement Agent to comply with
the provisions of section 2(c) hereof or with the "blue sky" or
securities laws of the jurisdictions in which the Placement Agent
solicits offers to
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<PAGE> 39
buy or offers to sell any Units or any breach of any representation,
warranty, covenant or agreement of the Placement Agent contained in this
Agreement. The foregoing agreement to indemnify shall be in addition to
any liability the Placement Agent may otherwise have, including
liabilities arising under this Agreement. If any action shall be
brought against the Company or any other person so indemnified based on
the Bridge Disclosure Statement or Disclosure Statement and in respect
of which indemnity may be sought against the Placement Agent pursuant to
this Section 15(b), the Placement Agent shall have the rights and duties
given to the indemnifying party, and the Company and each other person
so indemnified shall have the rights and duties given to the indemnified
parties, by the provisions of Section 15(a).
(c) To provide for just and equitable contribution, if (i) an
indemnified party makes a claim for indemnification pursuant to Sections
15(a) and 15(b) but it is found in a final judicial determination, not
subject to further appeal, that such indemnification may not be enforced
in such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying
party seeks contribution under the Act, the Exchange Act, or otherwise,
then the Company (including for this purpose any contribution made by or
on behalf of any officer, director, employee, agent, or counsel of the
Company, or any controlling person of the Company), on the one hand, and
the Placement Agent (including for this purpose any contribution by or
on behalf of an indemnified party), on the other hand, shall contribute
to the losses, liabilities, claims, damages, and expenses whatsoever to
which any of them may be subject, in such proportions as are appropriate
to reflect the relative benefits received by the Company, on the one
hand, and the Placement Agent, on the other hand; provided, however,
that if applicable law does not permit such allocation, then other
relevant equitable considerations such as the relative fault of the
Company and the Placement Agent in connection with the facts which
resulted in such
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<PAGE> 40
losses, liabilities, claims, damages, and expenses shall also be
considered. The relative benefits received by the Company, on the one
hand, and the Placement Agent, on the other hand, shall be deemed to be
in the same proportion as (x) the total proceeds from the Bridge
Offering or Offering, as the case may be, (net of compensation payable
to the Placement Agent pursuant to Section 2 or Section 6, as the case
may be, hereof but before deducting expenses) received by the Company,
and (y) the compensation received by the Placement Agent pursuant to
Section 2 or Section 6 hereof.
The relative fault, in the case of an untrue statement, alleged
untrue statement, omission, or alleged omission, shall be determined by,
among other things, whether such statement, alleged statement, omission,
or alleged omission relates to information supplied by the Company or by
the Placement Agent, and the parties' relative intent, knowledge, access
to information, and opportunity to correct or prevent such statement,
alleged statement, omission, or alleged omission. The Company and the
Placement Agent agree that it would be unjust and inequitable if the
respective obligations of the Company and the Placement Agent for
contribution were determined by pro rata or per capita allocation of the
aggregate losses, liabilities, claims, damages, and expenses or by any
other method of allocation that does not reflect the equitable
considerations referred to in this Section 18(c). In no case shall the
Placement Agent by responsible for a portion of the contribution
obligation in excess of the compensation received by it pursuant to
Section 2 with respect to the Bridge offering and Section 6 with respect
to the offering. No person guilty of a fraudulent misrepresentation
shall be entitled to contribution from any person who is not guilty of
such fraudulent misrepresentation. For purposes of this Section 18(c),
each person, if any, who controls the Placement Agent within the meaning
of Section 15 of the Act or Section 20(a) of the Exchange Act and each
officer, director, partners, employee, agent, and counsel of the
Placement Agent, shall have the same
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<PAGE> 41
rights to contribution as the Placement Agent, and each person, if any,
who controls the Company within the meaning of Section 15 of the Act or
Section 20(a) of the Exchange Act and each officer, director, employee,
agent, and counsel of the Company, shall have the same rights to
contribution as the Company, subject in each case to the provisions of
this Section 15 (c). Anything in this Section 15(c) to the contrary
notwithstanding, no party shall be liable for contribution with respect
to the settlement of any claim or action effected without its written
consent. This Section 15(c) is intended to supersede any right to
contribution under the Act, the Exchange Act, or otherwise.
17. Representations and Agreements to Survive Delivery.
All representations, warranties, covenants, and agreements contained in
this Agreement shall be deemed to be representations, warranties, covenants,
and agreements as of the date hereof and at each Closing Date of the Bridge
Offering and the Offering and, such representations, warranties, covenants,,
and agreements, including the indemnification and contribution agreements
contained in this Agreement, shall remain operative and in full force and
effect regardless of any investigation made by or on behalf of the Placement
Agent or any indemnified person, or by or on behalf of the Company or any
person or entity which is entitled to be indemnified under Section 15, and
shall survive termination of this Agreement and the issuance, sale, and
delivery of the Bridge Units or Units. In addition, notwithstanding any
election hereunder or any termination of this Agreement, and whether or not the
terms of this Agreement are otherwise carried out, the provisions of Sections
9, 12, 14, 15 and 16 shall survive termination of this Agreement and shall not
be affected in any way by such election or termination or failure to carry out
the terms of this Agreement or any part thereof.
18. Notices.
All communications hereunder, except as may be otherwise specifically
provided herein, shall be in writing and, if sent to the
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<PAGE> 42
Placement Agent, shall be mailed, delivered, or telexed and confirmed by
letter, to Walsh, Manning Securities, Inc., 90 Broad Street, New York, New York
10004, attention Theodore J. Burns, with a copy to Goldstein & DiGioia LLP, 369
Lexington Avenue, New York, New York 10017, Attention: Stanley R. Goldstein,
Esq.; or if sent to the Company, shall be mailed, delivered or telexed and
confirmed by letter, to Multimedia Games, Inc., 7335 South Lewis Avenue, Tulsa,
Oklahoma 74136, Attention: President, with a copy to Hall, Estill, Hardwick,
Gable, Golden & Nelson, 320 South Boston Avenue, Suite 400, Tulsa, Oklahoma
74103, Attention: Larry W. Sandel, Esq. All notices hereunder shall be
effective upon receipt by the party to which it is addressed.
The parties hereto acknowledge and agree that the Placement Agent shall
have the right and option to act as agent for the holders of any Units, Bridge
Unit Warrants or the securities contained therein in providing any notice to
the Company, including without limitation, any notice required to exercise any
registration rights granted herein.
19. Parties.
This Agreement shall inure solely to the benefit of, and shall be
binding upon, the Placement Agent and the Company and the persons and entities
referred to in Section 15 who are entitled to indemnification or contribution,
and their respective successors, legal representatives, and assigns (which
shall not include any purchaser, as such, of Units), and no other person shall
have or be construed to have any legal or equitable right remedy, or claim
under or in respect of or by virtue of this Agreement or any provision herein
contained.
20. Construction.
This Agreement shall be construed in accordance with the laws of the
State of New York, without giving effect to conflict of laws. Any action at
law or equity under this Agreement shall be brought in
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<PAGE> 43
federal or state courts located within the State of New York, except that any
action in equity may be brought by any of the parties hereto in any court
having the appropriate in personam jurisdiction in the matter.
21. Counterparts.
This Agreement may be executed in counterparts, each of which shall
constitute an original and all of which, when taken together, shall constitute
one agreement.
If the foregoing correctly sets forth the understanding between us,
please so indicate in the space provided below for that purpose, whereupon this
letter shall constitute a binding agreement among us.
Very truly yours,
MULTIMEDIA GAMES, INC.
By:
---------------------------------------
Name:
-------------------------------------
Title:
------------------------------------
Accepted as of the date
first above written:
WALSH, MANNING SECURITIES, INC.
By:
-----------------------------------
Name:
---------------------------------
Title:
--------------------------------
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<PAGE> 44
SCHEDULE A
Securities Sold Within Last 12 Months
<TABLE>
<CAPTION>
Number
Name Event Date of Shares
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Gordon & Cynthia Graves Exercise Warrants Jun-95 66,000
Marvin Burke Exercise Warrants Jun-95 6,667
Jonathan Goodson Private Placement Aug-95 27,273
I.M. Tassos Consulting Aug-95 1,000
Graff Pay-Per-View Exercise Warrant Jun-95 175,000
Graff Pay-Per-View Private Placement Jun-95 100,000
First Capital Financial Exercise Warrants Aug-95 13,000
Gro-Vest Offering Private Placement Feb-96 589,375
Gordon Graves Exercise Warrant Feb-96 291,545
Various Exercise Warrant Mar-96 13,332
---------
Total Issue Since 6-1-95 1,283,192
Outstanding Prior to 6-1-95 1,451,008
- -----------------------------------------------------------------------------
Total Outstanding Currently 2,734,200
=========
</TABLE>
* All scheduled parties are Accredited Investors as such term is defined
under Rule 506 of Regulation D of the Securities Act of 1933.
- ----------------------------------- -----------------------------------
(Initials) (Initials)
-44-
<PAGE> 45
SCHEDULE B
Individuals Not Under Lock-Up
<TABLE>
<CAPTION>
Name Number Shares
<S> <C>
Cede & Co. (1) 546,961
GLM, Inc. 45,000
SCA Promotions 108,497
Frank T. Nickell 108,497
Krugman Chapnick 29,205
Jonathan Goodson (2) 83,523
American Gaming 62,500
Communities Foundation of
Texas, Inc. 37,900
Officers & Directors (3)
</TABLE>
- ---------------
(1) Nominee for shares publicly held.
(2) Shares issuable upon exercise of outstanding warrants.
(3) Six (6) months from the final closing date of the Offering, officers and
directors of the Company may each sell up to 10,000 shares of the
Company's Common Stock or an aggregate of 90,000 shares.
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<PAGE> 46
SCHEDULE C
Modification to Placement Agent Agreement
dated January 29, 1996 by and between Multimedia
Games, Inc. and G-V Capital Corp.
July 24, 1996
Multimedia Games, Inc.
7335 South Lewis Avenue
Tulsa, Oklahoma 74136
Gentlemen:
We have been advised that Multimedia Games, Inc. (the "Company") has
entered into a Placement Agency Agreement (the "WM Agreement") with Walsh,
Manning Securities, Inc. ("WM") on the date hereof pursuant to which WM will
act as Placement Agent with respect to the sale of certain securities offerings
contemplated in the WM Agreement and for other good and valuable consideration,
the receipt whereof is hereby acknowledged by the Company and the undersigned,
the parties hereto agree that:
1. Section 3(y) of a certain placement agent agreement dated January
29, 1996 between the Company and the undersigned (the "G-V Agreement") is
herewith deleted and of no further force or effect.
2. The undersigned agrees that it will not release the restrictions
contained in Section 3(z) of the G-V Agreement without the consent of WM.
3. This agreement amends the G-V Agreement and shall become
effective upon consummation of a certain "Bridge Offering" contemplated in the
WM Agreement.
4. Upon the G-V Agreement being amended as described herein, such
amendments may not be further amended or modified without the consent of WM.
5. WM may bring any action at law or in equity to enforce this
agreement.
Very truly yours,
G-V Capital Corp.
By:
---------------------------------------
AGREED AND CONSENTED TO:
Multimedia Games, Inc.
By:
------------------------------
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<PAGE> 1
EXHIBIT 10.29
PLACEMENT AGENT AGREEMENT
This Placement Agent Agreement is made this ___ day of January, 1996, by and
between Multimedia Games, inc. (The "Company") and G-V capital corp. ("G.V.").
RECITALS
WHEREAS, the Company intends to offer and sell (the "Offering") up to
550,000 shares of its Common Stock, par value $.01 per share (the "Shares"), to
accredited investors (as (as such term is defined in Rule 501(a) of Regulation
D. Promulgation under the Securities Act of 1933, as amended (the "Securities
Act"), and has prepared certain offering materials in connection therewith (the
"Offering Materials").
WHEREAS, the Offering Materials consist of (i) the Company's Form 10-KSB
for the fiscal year ended September 30, 1995 as filed with the Securities and
Exchange Commission (the "SEC"), (ii) the Company's Executive Summary dated
January 26, 1996, (iii) the Company's Summary of Risk Factors dated January 26,
1996, and (iv) the Company's Summary of Offering dated January 26, 1996;
WHEREAS, the Company desires that G-V act as the exclusive placement
agent for the Offering and, in connection therewith, the Company has agreed to
pay G-V certain commissions and expenses and to issue G-V certain shares of
Common Stock;
WHEREAS, G-V desires to act as placement agent for the Offering, subject
to the terms and conditions set forth herein; and
WHEREAS, the parties desire to establish an escrow in connection with
the Offering;
AGREEMENTS
NOW, THEREFORE, for the mutual promises set forth herein and other good
and valuable consideration, the parties hereto agree as follows:
1. Placement Agent.
(a) G-V shall act as placement agent in connection with the Offering
and use its commercially reasonable efforts, subject to the Securities Act, the
Securities Exchange Act of 1934, as amended, and all applicable state
securities laws, to solicit prospective investors for the Offering.
-1-
<PAGE> 2
(b) As consideration for G-V's agreement to act as placement agent in
connection with the Offering, the Company agrees to pay to G-V (i) a seven and
one-half (7-1/2%) commission ($.15 per Share) for each Share (the "Commission")
and (ii) a two and one-half percent (2-1/2%) non-accountable expense allowance
($.05 per Share) for each Share (the "Expense Allowance"). The Commission and
the Expense Allowance will be payable on all Shares sold or otherwise issued in
the Offering.
(c) In addition to the consideration set forth in Section 1(b) above,
as closing, the Company shall issue to G-V a number of shares of Common Stock
equal to seven and one-half percent (7-1/2%) of the number of Shares sold or
otherwise issued in the Offering.
2. ESCROW.
(a) All subscription proceeds for Shares subscribed to be purchased in
the Offering (the "Funds") shall be held by G-V in a segregated interest-
bearing account at NorthFork Bank, Long Island, New York (or such other bank
selected by G-V). The Funds will not be released until all of the conditions
listed in Section 2)c) below have occurred or are otherwise waived in writing
by G-V.
(b) Provided that the conditions listed in Section 2(c) below have
occurred or are otherwise waived and provided further that G-V has received
(and the Company has accepted) subscription documents and Funds relating to the
sale of at least 150,000 Shares, the company and G-V will proceed with an
initial closing of the Offering. The date on which such initial closing occurs
shall be the "First Closing Date." On the First closing Date, G-V shall wire
transfer to the company's account, pursuant to wiring instruction provided in
writing by the Company to G-V, the Funds relating to the subscriptions accepted
by the Company as of the First Closing Date. The Company shall promptly
thereafter issue, or cause to be issued, to such subscribers certificates
representing the requisite Shares subscribed for. Subsequent closings of the
Offering shall occur on the same basis when and as the Company and G-V mutually
agree and provided that the conditions listed in Section 2(c) below have
occurred or are otherwise waived. Each date on which a closing occurs shall be
a "Closing Date."
(c) Listed below are the conditions to each closing, including, without
limitation, the initial closing to occur on the First Closing Date:
(ii) The Company shall have accepted the subscriptions held in escrow.
Such acceptance to be evidenced by the Company's execution of the
subscription documents.
(ii) There shall have been furnished to G-V a certificate, dated the
applicable Closing Date (as described below) and addressed to G-
V, signed by Gordon T. Graves, Chairman of
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<PAGE> 3
the Board and Chief Executive Officer of the company, and by
Frederick E. Roll, Vice President, Treasurer and Secretary of the
Company to the effect that: (i) The representations and
warranties of the Company contained in this Agreement are true
and correct, as if made at and as of such Closing Date, and the
Company has complied with all the agreements and satisfied all
the conditions on its part to be complied with or satisfied at or
prior to such Closing date; and (ii) the signer of said
certificate have carefully examined the Offering Materials and
any amendments or supplements thereto, and such documents do not
include any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to
make the statements therein not misleading.
(iii) Since the date hereof, the Company shall not have sustained any
loss or interference with its business from fire, explosion,
accident, malfunction, flood or other calamity, or shall have
become a party to or the subject of any litigation, which in each
case is materially adverse to the Company, nor, except as
accurately described in the Offering Materials (exclusive of any
amendment or supplement thereto), shall there have been any
material adverse change, or any development involving a
prospective material adverse change in or affecting the condition
(financial or other), business prospects, net worth or results of
operations of the Company taken as a whole, whether or not
arising in the ordinary course of business.
(iv) On or prior to the First Closing Date (as defined below), G-V
shall receive from each person or entity referred to in Section
3(z) hereof the letters contemplated by Section 3(z) hereof.
(v) The Company shall have furnished G-V with such additional
documents and certificates as G-V or counsel to G-V may
reasonably request.
All such certificates, letters and documents shall be in compliance with the
provisions hereof only if they are satisfactory in form and substance to G-V
and its counsel. If any of the conditions specified in this Section 2(c) shall
not have been fulfilled when and as required by this agreement, G-V shall have
no obligation to transfer any Funds to the Company and may, in its sole
discretion, return such Funds to subscribers in the Offering. Any such return
of Funds to subscribers shall be without liability of G-V to the Company or to
any stockholder, officer, director, employee or creditor of the Company.
Notice of such return of Funds to subscribers shall be given to the Company in
writing, or by telephone and confirmed in writing.
-3-
<PAGE> 4
3. Representations, Warranties and Agreements of the Company. The Company
represents and warrants to, and agrees with, G-V that:
(a) The Offering Materials do not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading.
(b) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the State of Texas with full
corporate power and authority to own or lease its properties and conduct its
business as described in the Offering Materials and is duly qualified to do
business and is in good standing as a foreign corporation in each jurisdiction
in which the character of the business conducted by it or the properties owned
or leased by it make such qualification necessary, except where the failure to
be so qualified will not, individually or int he aggregate, have a material
adverse effect on the condition (financial or other), business prospects, net
worth or results or operations of the Company taken as a whole.
(c) All of the outstanding shares of capital stock of the Company have
been duly authorized and validly issued, fully paid and nonassessable, with no
personal liability attaching to the ownership thereof. Excepts as described in
the Offering Materials (including the notes to the financial statements
included therein), there are (i) no outstanding warrants or options issued or
granted by the Company to purchase any shares of the capital stock of the
Company, (ii)no preemptive rights or other rights to subscribe for or to
purchase, or, any restriction upon the voting or transfer of, any shares of
Common Stock pursuant to the certificate of incorporation, by-laws or other
governing documents of the Company or any agreement or other instrument to
which the Company is a party or by which any of them may be bound, and (iii) no
person has any rights for or relating to the registration of any shares of
Common Stock or other securities of the Company. The capitalization of the
Company as of January 26, 1996, after giving effect to the offering of the
Shares, is as set forth in the Offering Materials and the Shares conform to the
description thereof contained in the Offering Materials. The Company has not
direct or indirect subsidiaries.
(d) The Shares have been duly authorized and, when issued and
delivered, the Shares will be duly authorized, validly issued, fully paid and
non-assessable and free of preemptive rights and no personal liability will
attach to the ownership thereof.
(e) The Shares which may be issuable pursuant to Section 3(cc) hereof
have been reserved for issuance and, when issued in accordance with the terms
of Section 3(cc) hereof, will be duly
-4-
<PAGE> 5
authorized, validly issued, fully paid and non-assessable and free of
preemptive rights and no personal liability will attach to the ownership
thereof.
(f) The Company has all necessary corporate power and authority to
execute and deliver this Agreement and to perform its obligations hereunder;
and such agreements have been duly authorized, executed and delivered by the
Company and constitute the valid and binding agreements of the Company
enforceable against the Company in accordance with their terms, subject to
bankruptcy, insolvency, reorganization, moratorium or other similar laws now or
hereafter in effect relating to creditors' rights generally.
(g) Neither the execution, delivery or performance of this Agreement by
the Company nor the consummation by the Company of the transactions
contemplated hereby will conflict with, or constitute a breach or violation of,
or a default under, the certificate of incorporation, by-laws or other
governing documents of the Company, or any material agreement, indenture,
mortgage, deed of trust or other instrument to which the Company is a party o
by which it si bound, or to which any of its properties or assets is subject,
or any statute, law, governmental or administrative rule or regulation, order
or decree of any court or any governmental agency or body having jurisdiction
over the Company or any of its properties, or result in the creation or
imposition of any lien, charge, claim, encumbrance, security interest or
restriction whatsoever upon any right, property or asset of the Company.
Except for (i) permits and similar authorizations required to be obtained by
the Company under applicable state securities or "Blue Sky" laws and (ii) such
permits, consents and authorizations which have been obtained, no consent,
approval, authorizations or order of any court, governmental agency or body or
financial institution is required in connection with the consummation by the
Company of the transactions contemplated by this Agreement. The Offering
complies with an exemption from the registration requirements of the Securities
Act.
(h) The Company has not sustained, since the date of the latest audited
financial statements included int he Offering Materials, any loss, interruption
or interference with its business or its principal assets from fire, explosion,
flood, accident, malfunction or other calamity, whether or not covered by
insurance, or from any court or governmental action, order or decree (by its
terms applicable to the Company), which loss or interference would be material
with respect to the Company; and, since the respective dates as of which
information is given in the Offering Materials, (i) the Company has not
incurred any material liability or obligation, direct or contingent, or entered
into any material transaction not in the ordinary course of business, (ii) the
Company has not purchased any of its capital stock, or declared, paid or
otherwise made any dividend or distribution of any kind on its capital stock,
or declared, paid or otherwise made any dividend or distribution of any kind on
its capital stock, and (iii) there has not been any change in the capital stock
of the Company or any material change in the short-
-5-
<PAGE> 6
term or long-term debt of the Company or any other material adverse change, or
any development involving a prospective material adverse change, in or
affecting the condition (financial or other), business prospects, net worth or
results or operations of the Company taken as a whole, except in each case as
described in the Offering Materials.
(i) The financial statements included as a part of the Offering
Materials present fairly, in all material respects, the financial conditions
and results of operations of the Company, at the dates and for the periods
indicated and, except as noted therein, have been prepared in the conformity
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved.
(j) The Company has good and marketable title to all real property
owned by it and owns or has valid rights to use all personal property (which is
material to its businesses), free and clear of all liens, encumbrances and
defects except as described in the Offering Materials and except such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company; and any property
or equipment, real, personal or mixed, and buildings held under lease by the
Company are held under valid, subsisting and enforceable leases with such
exceptions as are OT material and do not interfere with the use made and
proposed to be made of such property and buildings by the Company.
(k) The Company is insured by insurers of recognized financial
responsibility against such losses and risks and in such amounts as are prudent
and customary in the businesses in which it is engaged; the Company has not
been refused any insurance coverage sought or applied for; and the Company has
no reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not materially and adversely affect the condition (financial or other),
business prospects, net worth or results of operations of the Company taken as
a whole.
(l) The Company owns or possesses adequate rights to use all patents,
trademarks, service marks, trade names, copyrightable works and licenses (and
any authorizations or permits) necessary, in each case, for the conduct of its
business. The Company has no reason to believe that the conduct of its
business will conflict with, nor has any knowledge of any claim that will
conflict with, the rights of others in respect thereof.
(m) Except as described in the Offering Materials, there are no legal
or governmental proceedings pending to which the Company is a party or of which
any property of the Company is the subject with may reasonably be expected to,
individually or in the aggregate, have a material adverse effect on the
condition (financial or other), business prospects, net worth or results of
operations of the
-6-
<PAGE> 7
Company taken as a whole; and to the best of the Company's knowledge, no such
proceedings are threatened or contemplated by governmental authorities or
threatened by any other party, except in each case as described in the Offering
Materials.
(n) To the best of the Company's knowledge, no labor dispute with the
employees of the Company exists or is threatened or imminent that could result
in a material adverse change in the condition (financial or other), business
prospects, net worth or results of operations of the Company taken as a whole.
(o) No relationship, direct or indirect, exists between or among the
Company on the one hand and the directors, officers, shareholders, customers or
suppliers of the Company on the other hand, except as described in the Offering
Materials.
(p) The Company is in compliance in all material respects with all
presently applicable provisions of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and the regulations and published
interpretations thereunder, and no "reportable event" (as defined in ERISA and
the regulations and published interpretations thereunder) has occurred with
respect to any "employee benefit plan" (as defined in ERISA and the regulations
and published interpretations thereunder) of the Company, and the Company has
not incurred or expects to incur liability under Title IV of ERISA.
(q) The Company has filed, or has obtained currently effective
extensions with respect to, all federal, state and local tax returns required
to be filed through the date hereof and all such returns are true, correct and
complete in all material respects. The Company has paid, or has obtained
currently effective extensions with respect to, all taxes due with respect to
all such federal, state and local tax returns, and no tax deficiency has been,
nor does the Company have any knowledge of any tax deficiency which, if
determined adversely to the Company, is reasonably likely, individually or in
the aggregate, to have a material adverse effect on the condition (financial or
other), business prospects, net worth or results of operations of the Company
taken as a whole. To the best of the Company's knowledge, there is no pending
or threatened action, audit, investigation or other proceeding regarding the
assessment against, or collection from, the Company of any taxes.
(r) The Company (i) makes and keeps accurate books and records and (ii)
maintains internal accounting controls which provide reasonable assurance that
(A) transactions are executed in accordance with managements authorization, (B)
transactions are recorded as necessary to permit preparation of its financial
statements in accordance with generally accepted accounting principles and to
maintain accountability for its assets, (C) access to its accounts and
financial assets is permitted only
-7-
<PAGE> 8
in accordance with management's authorization and (D) the reported
accountability for its assets is compared with existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
(s) The Company is not (i) in violation of its certificate of
incorporation, by-laws or other governing documents, (ii) in default in any
respect, and no event has occurred which, with notice or lapse of time or both,
would constitute such default, in the due performance or observance of any
term, covenant or condition contained in any agreement, indenture, mortgage,
deed of trust or other instrument to which it is a party or by which is bound,
or to which any of its property or assets is subject, or (iii) in violation in
any respect of any federal or state law or regulation, or any other statute,
law, governmental or administrative rule or regulation, order or decree of any
court or governmental agency or body to which it or its property is subject,
except for any such violation or default referred to in (ii) and (iii) above
which would not, individually or in the aggregate, have material adverse effect
on the condition (financial or other), business prospects, net worth or results
of operations of the Company taken as a whole.
(t) Except as described in the Offering Materials, the Company
possesses all material certificates, authorizations and permits issued by the
appropriate federal or state regulatory authorities necessary to conduct its
businesses, and the Company has not received any notice of proceedings relating
to the suspension, revocation or modification of any such certificate,
authorization or permit or the imposition of any fine or penalty with respect
to such certificate, authorization or permit, which individually or in the
aggregate, if the subject of an unfavorable decision, ruling or finding, would
result in a material adverse change in the operations of the Company or its
condition (financial or other), business prospects, net worth or results of
operations taken as a whole.
(u) The Company has not taken and will not take, directly or
indirectly, any action designed to cause or result in, or which might
reasonably be expected to constitute, the stabilization or manipulation of the
price of its securities to facilitate the sale or resale thereof.
(v) The Company shall furnish promptly to G-V and to G-V's counsel such
number of copies of the Offering Materials in such quantities as G-V may from
time to time reasonably request.
(w) If, prior to the final closing of the Offering, any event occurs as
a result of which the Offering Materials as then amended or supplemented would
include an untrue statement of a material fact or omit to state any material
fact necessary in order to make the statements therein, in the light of the
circumstances then existing, not misleading, the Company shall promptly notify
G-V and shall
-8-
<PAGE> 9
prepare and furnish without charge to G-V as many copies as necessary of an
amended Offering Materials or a supplement to the Offering Materials which will
correct such statement or omission.
(x) The Company shall use its best efforts to take or cause to be taken
all necessary action and furnish to whomever G-V may reasonably direct such
information as may be required in qualifying the Shares for sale under the laws
of such jurisdictions within the United States as G-V shall designate, and
shall continue such qualifications in effect for as long as may be necessary
for completion of the distribution of the Shares in accordance with the terms
hereof; except that in no event shall the Company be obligated in connection
therewith to qualify to do business in any jurisdiction where it is not now so
qualified nor to take any action that will subject it to general service of
process in any jurisdiction where it is not now so subject.
(y) The Company shall not, during the twelve (12) month period
following the Effective Date (as defined below), except with respect to
issuance of a maximum of 817,682 shares of Common Stock relating to options
previously granted, offer for sale, sell, grant any option, right or warrant
with respect to, or otherwise dispose of, any Shares or shares of Common Stock
or any other securities convertible into, or exchangeable or exercisable for,
shares of Common Stock (or announce its intention to undertake any of the
foregoing), otherwise than in accordance with the Offering Materials, or in
connection with Section 3(cc) hereof) or with the prior written consent of G-V,
which consent shall not be unreasonably withheld; provided, however, that,
subject to the following sentence, the Company may offer for sale, sell, or
grant options, rights or warrants with respect to, shares of Common Stock at a
per share price in excess of $2.00, without the prior written consent of G-V.
Notwithstanding anything to the contrary contained in this Section 3(y), the
Company shall not file any registration statement on Form S-3, For S-4 or Form
S-8 or make any sales of the Company's securities pursuant to Regulation S,
without the prior written consent of G-V, which consent shall not be
unreasonably withheld.
(z) The Company shall cause each director and officer of the Company,
and shall use its best efforts to cause each current shareholder known to the
Company who beneficially holds 5% or more of the Common Stock of the Company,
to furnish to G-V, on or prior to the First Closing Date, a letter or letters,
in form and substance satisfactory to counsel for G-V, pursuant to which each
such person or entity shall agree not to offer for sale, sell, grant any
option, right or warrant with respect to, or otherwise dispose of, any shares
of Common Stock or any securities convertible into, or exchangeable or
exercisable for, shares of Common Stock (including, without limitation, Shares)
(or announce its intention to undertake any of the foregoing), from the date
hereof until the date eighteen (18) months after the Effective Date, except
with the prior written consent of G-V.
-9-
<PAGE> 10
(aa) There are no statutes, regulations, contracts, indentures,
mortgages, loan agreements, notes, leases, instruments or other documents which
are material to the business of the Company, other than those described or
referred to in the Offering Materials.
(bb) There are not contracts, agreements or arrangements (written or
oral) which are material to the business of the Company, other than those
described or referred to in the Offering Materials.
(cc) The Company shall prepare and file with the SEC a registration
statement ("Registration Statement") with respect to the Shares not later than
90 days from the First Closing Date (the "Filing Deadline"). The Company shall
prepare and file such amendments and supplements to the Registration Statement
as may be necessary to keep the Registration Statement effective until all the
Shares have been sold pursuant thereto or until the Shares are no longer, by
reason of Rule 144(k) under the Securities Act or any other rule of similar
effect, required to be registered for the resale thereof. The Company shall
use its best efforts to cause the Registration Statement to become effective
and shall diligently pursue such effectiveness. The date on which the
Registration Statement is declared effective by the SEC shall be referred to as
the "Effective Date." The Company shall provide, at the Company's sole cost
and expense, G-V and its counsel, with copies of all filings, correspondence,
and other non-privileged documents, relating to the Registration Statement and
its amendments. The Company shall not enter into any registration rights,
underwriting or private placement arrangement which will conflict with the
Company's obligations under this Section 3(cc). In the event that the Company
fails to file the Registration Statement with the SEC by the Filing Deadline,
the Company shall issue to each of the purchasers of Shares in the Offering
one-tenth of a share of Common Stock for each Share purchased in the Offering
for no additional consideration. In the event that the Company fails to file
the Registration Statement with the SEC within 90 days after the Filing
Deadline, the Company shall issue to the purchasers of Shares in the Offering
an additional one-tenth of a share of Common Stock for each Share purchased in
the Offering for no additional consideration. In the event that the Company
fails to file the Registration Statement with the SEC within 180 days after the
Filing Deadline, the Company shall issue to the purchasers of Shares in the
Offering an additional one-tenth of a share of Common Stock for each Share
purchased in the Offering for no additional consideration and the Company shall
be obligated to issue to the purchasers of Shares in the Offering an additional
one-tenth of a share of Common Stock for each subsequent 90-day period which
passes without the Registration Statement being filed with the SEC.
4. Expenses. The Company shall pay or cause to be paid (a) all expenses
(including stock transfer taxes) incurred in connection with the delivery to
investors in the Offering of the Shares; (b) all fees and expenses (including,
without limitation, fees and expenses of the Company's accountants and counsel,
-10-
<PAGE> 11
but excluding fees and expenses of counsel for G-V, except as provided below)
in connection with the preparation, printing, and delivery of the Offering
Materials and any amendments or supplements thereto and "blue Sky" clearance of
the foregoing: (c) any applicable "Blue Sky" listing or other fees; (d) the
cost of printing certificates representing the Shares; (e) the cost and charges
of any transfer agent or registrar; (f) the cost of the escrow contemplated by
Section 2 above; and (g) all other costs and expenses incident to the
performance of the obligations of the Company hereunder for which provision is
not otherwise made in this Section. It is understood, however, that, except as
expressly provided in this Agreement, G-V shall pay all of its own costs and
expenses, including the fees of its counsel, and any expenses incurred in
connection with G-V's performance hereunder. In the event that G-V's counsel
is required or requested to perform legal services on behalf of the Company or
legal services normally the responsibility of Company counsel, then the Company
will be responsible for the payment of G-V counsel's reasonable legal fees and
expenses relating to such legal services performed on the Company's behalf.
5. Indemnification.
(a) The Company shall indemnify and hold harmless G-V from and against
any loss, claim, damage or liability (or any action in respect thereof), joint
or several, to which G-V may become subject, under the Securities Act or
otherwise, insofar as such loss, claim, damage or liability (or action in
respect thereof) arises out of or ins based upon (i) failure to comply with the
registration requirements of the Securities Act, (ii) any untrue statement or
alleged untrue statement of a material fact contained in the Offering
Materials, or any amendment or supplement thereto, or in any blue sky
application or other document executed by the Company or based upon written
information furnished by the Company filed in any state or other jurisdiction
in order to qualify any or all of the Shares under the securities laws thereof
(any such application, document or information being hereinafter referred to as
a "Blue Sky Application"), (iii) the omission or alleged omission to state in
the Offering Materials, or any amendment or supplement thereto, or in any Blue
Sky Application, a material fact required to be stated therein or necessary to
make the statements therein not misleading, or (iv) any action or inaction by
the Company in connection with the transactions contemplated by this Agreement
which is in violation of, or non-compliance with, the Securities Act or the
securities acts of any state or jurisdiction (regardless of whether a Blue Sky
Application in such state or jurisdiction was filed), and shall reimburse G-V
promptly upon demand for any legal or other expenses as reasonably incurred by
G-V in connection with investigating, preparing to defend or defending against
or appearing as a third party witness in connection with any such loss, claim,
damage, liability or action, notwithstanding the possibility that payments for
such expenses might later be held to be improper, in which case such payments
shall be promptly refunded.
-11-
<PAGE> 12
(b) The obligations of the Company under this Section 5 shall be in
addition to any liability which the Company may otherwise have, and shall
extend, upon the same terms and conditions, to each person, if any, who
controls G-V within the meaning of the Securities Act or any officer, director,
stockholder or partner or any authorized agent of G-V (including, without
limitation, G-V's legal counsel); and the obligations of G-V under this Section
5 shall be in addition to any liability that G-V may otherwise have, and shall
extend, upon the same terms and conditions, to each officer and director of the
Company.
(c) Promptly after receipt by any indemnified party under subsection
(a) or (b) above of notice of any claim or the commencement of any action, the
indemnified party shall notify the Company in writing of the claim or the
commencement of that action; provided, however, that the failure to so notify
the Company shall not relieve it from any liability which it may have under
this Section 5 except to the extent it has been prejudiced in any material
respect by such failure or from any liability which it may have to an
indemnified party otherwise than under this Section 5. If any such claim or
action shall be brought against any indemnified party, and such indemnified
party, and such indemnified party shall notify the Company thereof, the Company
shall be entitled to participate therein and, to the extent that it wishes to
assume the defense thereof with counsel reasonably satisfactory to the
indemnified party. After notice from the Company to the indemnified party of
its election to assume the defense of such claim or action, the Company shall
not be liable to the indemnified party under this Section 5 for any legal or
other expenses subsequently incurred by the indemnified party in connection
with the defense thereof other than reasonable costs of investigation; except
that G-V shall have the right to employ counsel to represent it and other
indemnified party in connection with the defense thereof other than reasonable
costs of investigation; except that G-V shall have the right to employ counsel
to represent it and other indemnified parties who may be subject to liability
arising out of any claim in respect of which indemnity may be sought by them
against the Company under this Section 5 if, in G-V's reasonable judgment, it
is advisable for them to be represented by separate counsel, and in that event
the reasonable fees and expenses of such separate counsel shall be paid by the
Company.
6. Breaches and Remedies. In the event that the Company, its officers or
directors breach any of the covenants or agreements contained in this
Agreement, and G-V shall prevail in an action to enforce this Agreement,
whether by specific performance or for damages relating to such breach or
otherwise, then the Company hereby agrees that it shall be responsible for the
payment or reimbursement of all reasonable legal fees and disbursements of
counsel in connection with the investigation, prosecution and litigation
relating to the enforcement of any provisions of this Agreement, and all other
related expenses of G-V in connection therewith.
-12-
<PAGE> 13
7. Survival of Certain Provisions. The agreements contained in Sections 1,4,
5 and 6 hereof, and the representations, warranties and agreements of the
Company contained in Section 3 hereof, shall survive the sale of Shares to
investors in the Offering and the closing of escrow hereunder and shall remain
in full force and effect, regardless of any investigation made by or on behalf
of any indemnified party.
8. Notices. Except as otherwise provided in this Agreement, all statements,
requests, notices and agreements hereunder shall be in writing, and (a) if to
the Company, shall be delivered or sent by mail, telex or facsimile
transmission to 7335 South Lewis Avenue, Tulsa, Oklahoma 74136, Attn: Frederick
E. Roll; and (b) if to G-V, shall be delivered or sent by mail, telex or
facsimile transmission to 150 Vanderbilt Motor Parkway, Suite 311, Hauppague,
New York 11788, Attention: Lawrence Kaplan.
9. Parties. This Agreement shall inure to the benefit of and be binding upon
the Company and G-V and their respective successors and assigns. This
Agreement and the terms and provisions hereof are for the sole benefit of only
those persons, except as set forth in Section 5(b). Nothing in this Agreement
shall be construed to give any person, other than the persons referred to in
Section 5(b), any legal or equitable right, remedy or claim under or in respect
of this Agreement, shall not include any purchaser of Shares in the Offering
merely by reason of such purchase; provided, however, that purchasers of Shares
in the Offering shall benefit from the terms of Section 3(cc) and shall have
the right to enforce such terms against the Company.
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York.
11. Counterparts. This Agreement may be signed in one or more counterparts,
each of which shall constitute an original and all of which together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement of
the date first set forth above.
MULTIMEDIA GAMES, INC..
By:
--------------------------------------
Its:
---------------------------------
G-V CAPITAL CORP.
By:
--------------------------------------
Its:
---------------------------------
-13-
<PAGE> 1
Exhibit 11.1
Earnings Per Share Statement
<TABLE>
<CAPTION>
Primary & Fully Diluted
-----------------------
<S> <C>
Net income $ 40,000
Preferred dividends (149,000)
-----------
Net (loss) attributable to common
shareholders $ (109,000)
===========
Weighted average shares outstanding 2,460,258
Dilutive effect of common stock
equivalents --
Contingent share issuances 412,000
-----------
Total weighted shares outstanding 2,872,258
===========
Earnings (loss) per share $ (.04)
===========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
SUBSIDIARIES OF REGISTRANT
TV Games, Inc., a Delaware corporation
MegaBingo, Inc., a Delaware corporation
Multimedia Creative Services, Inc., a Delaware corporation
<PAGE> 1
EXHIBIT 23.1
Consent of Coopers & Lybrand
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the registration statement of
Multimedia Games, Inc., on Form S-3 (File No. 333-16729) of our report dated
December 18, 1996, on our audits of the consolidated financial statements of
Multimedia Games, Inc. and Subsidiaries as of September 30, 1996 and for each
of the two years in the period ended September 30, 1996, which report is
included in this Annual Report on Form 10-KSB.
COOPERS & LYBRAND L.L.P.
Tulsa, Oklahoma
December 18, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS INCLUDED IN THIS ANNUAL REPORT ON FORM 10-KSB AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-END> SEP-30-1996
<CASH> 1,508,000
<SECURITIES> 0
<RECEIVABLES> 292,000
<ALLOWANCES> 76,000
<INVENTORY> 358,000
<CURRENT-ASSETS> 2,250,000
<PP&E> 3,319,000
<DEPRECIATION> 703,000
<TOTAL-ASSETS> 7,431,000
<CURRENT-LIABILITIES> 2,078,000
<BONDS> 0
0
1,000
<COMMON> 29,000
<OTHER-SE> 2,364,000
<TOTAL-LIABILITY-AND-EQUITY> 7,431,000
<SALES> 0
<TOTAL-REVENUES> 22,887,000
<CGS> 0
<TOTAL-COSTS> 22,685,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 213,000
<INCOME-PRETAX> 40,000
<INCOME-TAX> 0
<INCOME-CONTINUING> 40,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 40,000
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
