<PAGE> 1
SCHEDULE 14a INFORMATION
PROXY STATEMENT PURSUANT TO THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement / / CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED
BY RULE 14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
MULTIMEDIA GAMES, INC.
----------------------------------------
(Name of Registrant as Specified In Its Charter)
N/A
----------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction
applies:
(2) Aggregate number of securities to which transaction applies:
(3) Per unit price or other underlying value of transaction
computed pursuant to Exchange Act Rule 0-11 (Set forth the
amount on which the filing fee is calculated and state how it
was determined):
(4) Proposed maximum aggregate value of transaction:
(5) Total fee paid:
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
<PAGE> 2
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
March 6, 1997
<PAGE> 3
[Multimedia Letterhead]
March 6, 1997
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders
of Multimedia Games, Inc. (the "Company") which will be held on Saturday, March
29, 1997 at 10:00 a.m., local time, at Tulsa Marriott Southern Hills, 1902 East
71st Street, Tulsa, Oklahoma, 74136.
Details of the business to be conducted at the annual meeting are
given in the attached Notice of Annual Meeting Of Shareholders and Proxy
Statement.
Whether or not you attend the annual meeting it is important that your
shares be represented and voted at the meeting. Therefore, I urge you to sign,
date, and promptly return the enclosed proxy in the enclosed postage-prepaid
envelope. If you decide to attend the annual meeting and vote in person, you
will of course have that opportunity. YOUR SHARES CANNOT BE VOTED UNLESS YOU
SIGN AND RETURN THE ENCLOSED PROXY OR ATTEND THE ANNUAL MEETING IN PERSON.
A copy of the Company's 1996 Annual Report under the Securities
Exchange Act of 1934 (Form 10-KSB) is also enclosed.
On behalf of the Board of Directors and Management, I would like to
express our appreciation for your continued interest in the affairs of the
Company. We sincerely hope you will be able to join us at the meeting, and we
look forward to seeing you at that time.
Sincerely yours,
GORDON T. GRAVES
Chairman and Chief
Executive Officer
<PAGE> 4
MULTIMEDIA GAMES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MARCH 29, 1997
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Shareholders of
Multimedia Games, Inc. (the "Company"), a Texas corporation, will be held on
Saturday, March 29, 1997 at 10:00 a.m., local time, at Tulsa Marriott Southern
Hills, 1902 East 71st Street, Tulsa, Oklahoma for the following purposes:
1. To elect the following directors to serve for the ensuing year
and until their successors are elected: Gordon T. Graves;
Larry D. Montgomery; Gregory N. Stern; and Daniel J. Sarnoff.
2. To amend the Company's Articles of Incorporation to increase
the number of authorized shares of Common Stock from
10,000,000 shares to 25,000,000 shares;
3. To ratify and approve the adoption of the Company's 1996 Stock
Incentive Plan;
4. To ratify and approve the appointment of Coopers & Lybrand
L.L.P. as the Company's independent auditors; and
5. To transact such other business as may properly come before
the Annual Meeting and any adjournment or postponement
thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on January 31,
1997 are entitled to notice of and to vote at the Annual Meeting. A complete
list of shareholders entitled to vote will be available at the Company's
headquarters, 7335 South Lewis, Tulsa, Oklahoma, for ten days prior to the
meeting.
All shareholders are invited to attend the Annual Meeting in person.
However, to assure your representation at the Annual Meeting, you are urged to
mark, sign and return the enclosed proxy card as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. If a shareholder receives
more than one proxy because he or she owns shares registered in different names
or addresses, each proxy should be completed and returned. PROMPTLY SIGNING,
DATING, AND RETURNING THE PROXY WILL SAVE THE COMPANY THE EXPENSES AND EXTRA
WORK OF ADDITIONAL SOLICITATION. Any shareholder attending the Annual Meeting
may vote in person even if he or she returned a proxy.
BY ORDER OF THE BOARD OF DIRECTORS
FREDERICK E. ROLL
Vice President, Secretary, Treasurer,
and Chief Financial Officer
March 6, 1997
<PAGE> 5
MULTIMEDIA GAMES, INC.
7335 SOUTH LEWIS
TULSA, OKLAHOMA 74136
PROXY STATEMENT FOR ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD MARCH 29, 1997
General
The enclosed proxy is solicited on behalf of the Board of Directors of
Multimedia Games, Inc. (the "Company") for use at the Annual Meeting of
Shareholders to be held March 29, 1997 at 10:00 a.m., local time, or at any
adjournment or postponement thereof, for the purposes set forth in this Proxy
Statement and in the accompanying Notice of Annual Meeting of Shareholders.
The Annual Meeting will be held at Tulsa Marriott Southern Hills, 1902 East
71st Street, Tulsa, Oklahoma. The Tulsa Marriott Southern Hills telephone
number is (918) 493-7000.
These proxy solicitation materials were mailed on or about March 6,
1997 to all shareholders entitled to vote at the Annual Meeting.
Revocability of Proxies
The enclosed proxy, even though executed and returned, may be revoked
at any time prior to the voting of the proxy by (1) the subsequent execution
and submission of a revised proxy, (2) giving written notice to the Company,
Attention: Frederick E. Roll, Inspector of Elections, or (3) voting in person
at the meeting. The mere presence at the Annual Meeting of a shareholder who
has executed and returned a proxy will not revoke the prior proxy. If not
revoked, the proxy will be voted at the Annual Meeting in accordance with the
instructions indicated on the proxy card. If no instructions are indicated,
the proxy will be voted FOR the election of the four (4) nominees for director
listed in this Proxy Statement, FOR ratification of the appointment of Coopers
& Lybrand L.L.P. as independent auditors, FOR Proposals Two and Three as
described in this Proxy Statement, and as to any other matter that may be
properly brought before the Annual Meeting, as the Board of Directors may
recommend, or, in the absence of a recommendation, as the proxy holders deem
advisable. The Board of Directors does not know of any other matter
that is expected to be presented for consideration at the Annual Meeting.
Voting and Solicitation
Only the record holders of shares of Common Stock and Series A
Preferred Stock ("Preferred Stock") of the Company as of the close of business
on January 31, 1997 (the "Record Date") are entitled to notice of and to vote
at the Annual Meeting. At the close of business on the Record Date, there were
4,036,450 shares of Common Stock and 134,318 shares of Preferred Stock issued
and outstanding. Each shareholder of record on the Record Date will have one
vote for each share of Common Stock and Preferred Stock held by such
shareholder. All shares of Common Stock
<PAGE> 6
and Preferred Stock will vote together as a single class on all matters coming
before the Annual Meeting, except with regard to Proposal Two which also
requires a separate vote of Common Stock as described below. A majority of all
of the outstanding shares of Common Stock and Preferred Stock of the Company,
represented as a single class, entitled to notice of, and to vote at, the
Annual Meeting, represented in person or by proxy, will constitute a quorum for
the Annual Meeting. Abstentions and broker non-votes are counted for purposes
of determining the presence or absence of a quorum for the transaction of
business. Abstentions and broker non-votes will not be counted as votes cast
on any matter to which they relate.
Provided that a quorum is present at the Annual Meeting, the following
outlines the manner in which the election of directors and the approval of
proposals will be determined. Regarding Proposal One, election of directors,
the four (4) nominees receiving the highest number of affirmative votes of the
shares voting shall be elected as directors. Every shareholder voting for the
election of directors may vote the number of shares owned by him or her for up
to four (4) persons. Proposal Two, which increases the authorized Common Stock
of the Company, requires the following vote for approval: (a) the affirmative
vote of the holders of at least two-thirds of the outstanding shares of Common
Stock as of the Record Date, and (b) the affirmative vote of the holders of at
least two-thirds of the outstanding shares of Common Stock and Preferred Stock,
voting together as a single class, as of the Record Date. Proposal Three, the
ratification and approval of the 1996 Stock Incentive Plan, and Proposal Four,
the ratification and approval of the Company's independent public accountants,
require the affirmative vote of a majority of the shares of Common Stock and
Preferred Stock, voting together as a single class, represented at the Annual
Meeting.
All costs associated with soliciting proxies will be paid by the
Company. In addition to solicitation by mail, directors, officers and regular
employees of the Company (who will not be specifically compensated for such
services) may solicit proxies by telephone or otherwise. The Company will pay
persons holding shares of Common Stock in their names or in the names of
nominees, but not owning such shares beneficially, such as brokerage houses,
banks, and other fiduciaries, for the expense of forwarding solicitation
materials to their principals.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of the Record
Date with respect to the number of shares of Common Stock and Preferred
-2-
<PAGE> 7
Stock owned by (i) each person known by the Company to own beneficially more
than 5% of the outstanding shares of each of the Common Stock and Preferred
Stock, (ii) each director of the Company, (iii) each executive officer named in
the Summary Compensation Table, and (iv) all directors and executive officers
of the Company as a group:
<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) 23.5 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 D. Montgomery 84,684 (5) 2.0 1,411 1.1
1920 S. West Union Road
Topeka, Kansas 66615
Gordon Sjodin 46,358 (6) 1.1 1,272 (7)
5804 E. 104th Street
Tulsa, Oklahoma 74137
Daniel J. Sarnoff 46,607 (9) 1.1 --- ---
1861 Nichols Canyon
Los Angeles, California 90046
Gregory N. Stern 13,334 (8) (7) --- ---
130 Barton Road
Stow, Massachusetts 01775
All executive officers 1,272,931 (10) 27.6 83,351 62.1
and directors as a group
(7 persons)
</TABLE>
____________________
(1) Consists of (i) 318,818 shares owned of record by Mr. Graves, (ii)
272,727 shares owned of record by Graves Properties, Ltd., a limited
partnership controlled by Mr. Graves, (iii) 51,000 shares owned by
Graves Management, Inc., a corporation controlled by Mr. Graves and
(iv) 400,875 shares issuable upon the conversion of the Preferred
Stock. Excludes an aggregate of 90,600 shares as to which Mr. Graves
disclaims beneficial ownership, consisting of: (i) 44,100 shares
owned of record by Cynthia Graves, Mr. Graves' wife, and (ii) 46,500
shares beneficially owned by the Gordon Graves Grandchildren Trust.
(2) Consists of (i) 5,175 shares owned of record by Mr. Graves, and (ii)
75,000 shares owned of record by Graves Properties Ltd., a limited
partnership controlled by Mr. Graves.
-3-
<PAGE> 8
(3) Consists of (i) 45,682 issuable upon the exercise of currently
exercisable warrants, and (ii) 62,815 shares issuable upon the
conversion of the Preferred Stock.
(4) Excludes shares of Common Stock and Preferred Stock beneficially
owned by SCA Promotions, Inc., in which Mr. Nickell is a principal
shareholder, as to which Mr. Nickell disclaims any beneficial
ownership.
(5) Consists of (i) 30,000 shares owned of record by Mr. Montgomery,
(ii) 39,250 shares issuable upon the exercise of currently
exercisable stock options, (iii) 3,250 shares issuable upon the
exercise of stock options that become exercisable within the next 60
days, (iv) 5,129 shares issuable upon the exercise of currently
exercisable warrants, and (v) 7,055 shares issuable upon conversion
of the Preferred Stock.
(6) Consists of (i) 11,750 shares owned of record or beneficially by Mr.
Sjodin, (ii) 4,623 shares issuable upon the exercise of
currently exercisable warrants, (iii) 1,125 shares issuable upon the
exercise of the stock options that become exercisable within the next
60 days, (iv) 22,500 shares issuable upon the exercise of currently
exercisable stock options, and (v) 6,360 shares issuable upon
conversion of the Preferred Stock.
(7) Less than 1%.
(8) Consists of shares issuable upon the exercise of currently
exercisable stock options.
(9) Consists of (i) 39,334 shares issuable upon the exercise of currently
exercisable stock options by Mr. Sarnoff and (ii) 7,273 shares
issuable upon the exercise of currently exercisable warrants.
(10) Consists of (i) 684,695 shares owned of record, (ii) 130,416 shares
issuable upon the exercise of currently exercisable stock
options, (iii) 4,375 shares issuable upon the exercise of stock
options that become exercisable within the next 60 days, (iv) 36,690
shares issuable upon the exercise of currently exercisable warrants,
and (v) 416,755 shares issuable upon conversion of Preferred Stock.
-4-
<PAGE> 9
PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
As the Bylaws of the Company presently provide that there shall be
four directors, a board of four directors is to be elected at the Annual
Meeting. The four nominees receiving the highest number of affirmative votes
of the shares voting shall be elected as directors. Every shareholder voting
for the election of directors may vote the number of shares of Common Stock and
Preferred Stock owned by him or her for up to four persons. Unless otherwise
instructed, the proxy holders will vote the proxies received by them FOR the
Company's four nominees named below. If any nominee of the Company is unable
or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any nominee designated by the present Board of
Directors to fill the vacancy. Management has no reason to believe that any of
the nominees will be unable or unwilling to serve if elected. The term of
office of each person elected as a director will continue until the next Annual
Meeting of Shareholders or until his successor has been elected and qualified.
The following table sets forth the nominees, their ages, their
principal occupations and the year in which each became a director of the
Company. Messrs. Gordon T. Graves, Larry D. Montgomery and Gregory N. Stern
were elected to the Board at the Company's Annual Meeting of Shareholders held
on August 25, 1995, and have continued to serve since that time. Mr. Sarnoff
was elected to the Board at the Company's Annual Meeting of Shareholders held
on August 26, 1995, and resigned as a director on July 10, 1996. No family
relationship exists between any of the directors or executive officers of the
Company.
<TABLE>
<CAPTION>
Director
Name of Nominee Age Principal Occupation Since
- --------------- --- -------------------- --------
<S> <C> <C> <C>
Gordon T. Graves 60 Chairman of the Board and Chief 1991
Executive Officer of the Company
Larry D. Montgomery 59 President and Chief Operating 1992
Officer of the Company
Gregory N. Stern 52 Independent Management Consultant 1993
to the Littleton Group
Daniel J. Sarnoff 41 Vice President --
</TABLE>
_______________________
-5-
<PAGE> 10
Mr. 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. From 1992 through December, 1993, Mr. Graves was President
and Chief Executive Officer of Arrowsmith Technologies, Inc., a computer
systems company, and from 1991 to 1993, 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.), a
company co-founded by him.
Mr. 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.
Mr. 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.
Mr. Sarnoff has been Vice President of the Company since February 1,
1997. Mr. Sarnoff served as a director of the Company from September, 1994
until July 10, 1996, and as Vice President of the Company from March, 1995
until July 10, 1996. Mr. Sarnoff also serves as President and Chief Executive
Officer of TV Games, Inc., a wholly owned subsidiary of the Company. Since
1993, Mr. Sarnoff has been President and Chief Executive Officer of Pioneer
Pictures which develops and packages movies for television. From August, 1989
until May, 1990, Mr. Sarnoff served as President of RKO Express Pictures and
from June, 1990 until May, 1993 Mr. Sarnoff was involved with production and
marketing for Bonanza Ventures Inc. From 1986-1990 Mr. Sarnoff founded and was
Chief Executive Officer of Super TVOLTA, which designs international television
lottery programs. Previously, Mr. Sarnoff was responsible for new business
development, NBC SPOT Sales, New York, and was a member of the RCA new business
task force.
_______________________
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of three (3)
meetings during the fiscal year ended September 30, 1996. No director attended
fewer than 75% of the total number of meetings of the Board of Directors held
during the period for which he was a director. The Board presently has no
committees.
-6-
<PAGE> 11
Non-employee directors do not receive compensation for attending
meetings or otherwise serving on the Board. Non-employee directors are
reimbursed for their expenses incurred in attending meetings of the Board of
Directors and are eligible to receive stock options under the 1996 Stock
Incentive Plan. (For further information regarding the 1996 Stock Incentive
Plan, see Proposal Three,"SUMMARY OF PROPOSED 1996 STOCK INCENTIVE PLAN.") As
of September 30, 1996, non-employee directors had received no awards under the
1996 Stock Incentive Plan. Employee directors do not receive additional
compensation for attendance of Board Meetings.
INFORMATION REGARDING EXECUTIVE OFFICER COMPENSATION
The executive officers 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 60 Chairman of the Board, Chief Executive Officer and Director
Larry D. Montgomery 59 President, Chief Operating Officer and Director
Gordon Sjodin 56 Executive Vice President
Michael E. Newell 45 Vice President
Frederick E. Roll 54 Vice President, Secretary, Treasurer,
and Chief Financial Officer
Daniel J. Sarnoff 41 Vice President
</TABLE>
_______________________
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"):
-7-
<PAGE> 12
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 D. 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 and its Salaried
Employee Participation Plan (see Proposal Three below), and
underlying warrants issued in lieu of compensation in July 1994; does
not include shares of Common Stock underlying warrants acquired for
investment (See "CERTAIN RELATIONSHIP 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
Preferred Stock.
(5) Mr. Sjodin joined the Company in April, 1994.
_______________________
-8-
<PAGE> 13
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 "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" below).
Option/Warrant Grants in Last Fiscal Year
Individual Grants
<TABLE>
<CAPTION>
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 D. 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 "CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS" below). No named executive officer
exercised any stock options or warrants during said period (except for warrants
acquired for investment as described in "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(*)
------------ -----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Gordon T. Graves -- -- $-- $--
Larry D. 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.
-9-
<PAGE> 14
Stock Plans. For further information regarding the Company's employee
stock plans, see Proposal Three, "HISTORY OF COMPANY STOCK PLANS" and "SUMMARY
OF PROPOSED 1996 STOCK INCENTIVE PLAN."
EMPLOYMENT CONTRACTS AND SEVERANCE ARRANGEMENTS
The Company does not have any employment or severance agreements with any
officer or director of the Company.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During 1996, Gordon T. Graves, the Company's Chairman and Chief
Executive Officer, 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 Promotions, Inc. ("SCA"), exchanged
certain outstanding subordinated notes due them by the Company for shares of
the Company's Preferred Stock, at the exchange price of $10 principal amount of
such notes for each share of Preferred Stock. In connection with such
exchange, the Company issued its substitute warrants for other warrants held by
such parties. As a result of such exchange, Mr. Graves (and such limited
partnership) held 80,175 shares of Preferred Stock and substitute warrants for
the purchase of 291,545 shares of Common Stock; Messrs. Montgomery and Sjodin
each held 534 shares of Preferred Stock and substitute warrants for the
purchase of 1,940 shares of Common Stock; and Mr. Newell held 107 shares of
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.
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 a $336,000 note payable to the Company by AGN Venturer LLC.
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 by the Company with an unaffiliated third
party.
PROPOSAL TWO
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<PAGE> 15
TO AMEND THE COMPANY'S
ARTICLES OF INCORPORATION TO INCREASE
THE NUMBER OF AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors has approved a proposal to amend the Company's
Articles of Incorporation to increase the number of authorized shares of Common
Stock from 10,000,000 to 25,000,000. As of the Record Date, 8,331,978 shares
of the Company's Common Stock were either issued and outstanding (4,036,450
shares) or were reserved for issuance pursuant to the 1996 Stock Incentive Plan
or upon the exercise of outstanding options, warrants and convertible
securities (4,295,528 shares).
If the proposed amendment is adopted, Article IV (A) of the Amended
and Restated Articles of Incorporation will read as follows:
A. COMMON STOCK. The Corporation shall have the authority to issue
25,000,000 shares of Common Stock with a par value of $.01 per share.
The remainder of Article IV regarding Preferred Stock shall remain unchanged.
Attached as Appendix A to this Proxy Statement is the full text of the
Amended and Restated Articles of Incorporation of the Company. Except for the
designated amendment, the Amended and Restated Articles of Incorporation
correctly set forth without change the corresponding provisions of the Articles
of Incorporation as theretofore amended, and the Amended and Restated Articles
of Incorporation together with the designated amendment supersede the original
Articles of Incorporation and all amendments thereto. If approved by the
shareholders, the proposed amendment and the restatement of the Articles of
Incorporation will become effective upon the filing of an amendment to the
Company's Articles of Incorporation with the Secretary of State of Texas, which
will occur as soon as reasonably practicable.
INCREASE IN AUTHORIZED SHARES OF COMMON STOCK
The Board of Directors believes that it is in the Company's best
interests to increase the number of authorized shares of Common Stock in order
to have additional authorized but unissued shares of Common Stock available for
issuance to meet business needs as they arise. The Board of Directors believes
that the availability of such additional shares will provide the Company with
the flexibility to issue Common Stock for possible future financings, stock
dividends or distributions, acquisitions, stock option plans or other proper
corporate purposes which may be identified in the future by the Board of
Directors, without the possible expense and delay of a special shareholders'
meeting. The issuance of additional shares of Common Stock may have a dilutive
effect on earnings per share and, for persons who do not purchase additional
shares to maintain their pro rata interest in the Company, on such
shareholders' percentage voting power.
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The authorized shares of Common Stock in excess of those issued will
be available for issuance at such times and for such corporate purposes as the
Board of Directors may deem advisable, without further action by the Company's
shareholders, except as may be required by applicable law or regulation. Upon
issuance, such shares will have the same rights as the outstanding shares of
Common Stock. Holders of Common Stock have no preemptive rights.
The Company has no arrangements, agreements, understandings or plans
at the present time for the issuance or use of additional shares of Common
Stock proposed to be authorized. The Board of Directors does not intend to
issue any Common Stock except on terms which the Board deems to be in the best
interests of the Company and its then existing shareholders.
Although the Company has no present intention to issue shares of
Common Stock in the future in order to make acquisition of control of the
Company more difficult, future issuances of Common Stock could have that
effect. For example, the acquisition of shares of the Company's Common Stock
by an entity in order to acquire control of the Company might be discouraged
through the public or private issuance of additional shares of Common Stock,
since such issuance would dilute the stock ownership of the acquiring entity.
Common Stock could also be issued to existing shareholders as a dividend or
privately placed with purchasers who might side with the Board in opposing a
takeover bid, thus discouraging such bid.
REQUIRED VOTE
The affirmative vote by the holders of at least two-thirds of the
outstanding shares of Common Stock as of the Record Date, and the affirmative
vote of holders of at least two-thirds of the outstanding shares of Common
Stock and Preferred Stock as of the Record Date, voting together as a single
class, is required for approval of the proposed amendment.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE PROPOSAL
TO AMEND THE COMPANY'S ARTICLES OF INCORPORATION TO INCREASE THE NUMBER OF
AUTHORIZED SHARES OF COMMON STOCK.
PROPOSAL THREE
APPROVAL AND RATIFICATION OF 1996 STOCK INCENTIVE PLAN
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HISTORY OF COMPANY STOCK PLANS
In November, 1994, the shareholders 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 either Plan had been exercised as of such date. 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 D. 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.
SUMMARY OF PROPOSED 1996 STOCK INCENTIVE PLAN
In August 1996, the Board of Directors adopted the Company's 1996
Plan. With respect to the authority to grant Incentive Stock Options pursuant
to the 1996 Plan, such adoption by the Board of Directors was made subject to
the approval of the Company's shareholders. As of the Record Date, the Company
has outstanding options granted pursuant to the 1996 Plan to purchase 162,000
shares of Common Stock, of which options to purchase an aggregate of 15,000
shares were granted to all officers and directors of the Company as a group (3
persons) and the balance were granted to thirty-five (35) other employees.
Because the officers, directors and employees of the Company who may
participate, and the amount of any awards made thereto, are determined by the
Board of Directors (or other plan Administrator) in its sole discretion, it is
not possible to state the names or positions of, or the number of awards that
may in the future be granted to, the Company's officers, directors, employees
and other eligible participants.
The essential features of the 1996 Plan are outlined below. A
complete copy of the 1996 Plan is attached hereto as Appendix B. Capitalized
terms found under this Proposal Three, if not defined herein, are used as
defined in the 1996 Plan.
Purpose. The purpose of the 1996 Plan is to enable the Company to
attract and retain highly qualified personnel who will contribute to the
Company's success and to provide incentives to the participating officers,
employees, directors, consultants and advisors that are linked directly to
increases in shareholder value and will therefore inure to the benefit of all
shareholders of the Company.
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Administration. 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 which complies with Rule 16b-3 of the Securities Exchange Act of 1934,
as amended (the "Act") (the "Administrator").
The Administrator of the 1996 Plan has full power to select, from
among the Company's officers, employees, directors, consultants and advisors,
the individuals to whom awards will be granted, to make any combination of
awards to participants and to determine the specific terms of each grant,
subject to the provisions of the 1996 Plan. Awards under the 1996 Plan 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 interpretation and construction of any
provisions of the 1996 Plan by the Administrator is final and conclusive.
Members of the Board of Directors receive no additional compensation
for their services in connection with the administration of the 1996 Plan.
Eligibility. The 1996 Plan provides that non-qualified stock options
and stock rights may be granted to employees, including officers and directors,
and consultants and advisors of the Company. Incentive stock options may be
granted only to employees, including officers and directors, of the Company or
any subsidiary of the Company. There is a $100,000 limit on the total market
value of shares subject to all incentive stock options which are granted by the
Company to any employee which are exercisable for the first time in any one
calendar year. To the extent such total market value exceeds the $100,000
limit, such stock options are treated as non-qualified stock options.
Reserved Shares. The Company may issue 274,320 shares of Common Stock
or Common Stock equivalents pursuant to the 1996 Plan 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 "Additional Shares"). As of the Record Date, the Additional Shares
equaled 129,325, creating a total of 403,645 shares of Common Stock or Common
Stock equivalents issuable under the 1996 Plan as of the Record Date.
To the extent that (i) a Stock Option expires or is otherwise
terminated without being exercised, or (ii) any shares of Common Stock subject
to any Restricted Stock, Deferred Stock or Performance Share award granted
under the 1996 Plan are forfeited, such shares shall again be available for
issuance in connection with future awards under the 1996 Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend or other change in corporate structure
affecting the Common Stock, a substitution or adjustment shall be made in (i)
the aggregate number of shares reserved for issuance under the 1996 Plan, (ii)
the kind, number and option price of shares subject to outstanding Stock
Options granted under the 1996 Plan, and (iii) the kind, number and purchase
price of shares issuable pursuant to awards of Restricted Stock, Deferred Stock
and Performance Shares, as may be determined by the Administrator, in its sole
discretion. In connection
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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.
Stock Options. The 1996 Plan permits the granting of nontransferable
Stock Options that either qualify as incentive stock options ("Incentive Stock
Options" or "ISOs") under Section 422 of the Internal Revenue Code (the "Code")
or do not so qualify ("Non-qualified Stock Options" or "NSOs").
The term of each Stock Option will be fixed by the Administrator but
may not exceed ten years from the date of grant in the case of ISOs, or five
years from the date of grant in the case of ISOs granted to the owner of Common
Stock possessing more than 10% of the total combined voting power of all
classes of stock of the Company. The Administrator will determine the time or
times each option may be exercised. Options may be made exercisable in
installments, and the exercisability of options may be accelerated by the
Administrator.
The option price per share of Common Stock purchasable under a Stock
Option is determined by the Administrator in its sole discretion at the time of
the grant, but shall not (i) in the case of ISOs, be less than 100% of fair
market value of the Common Stock on such date, (ii) in the case of NSOs, be
less than 85% of the Fair Market Value of the Common Stock on such date, and
(iii) in any event, be less than the par value of the Common Stock. In the
case of ISOs granted to the owner of Common Stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company, the
option price may not be less than 110% of the Fair Market Value of a share of
Common Stock on the date of grant of such option.
As determined by the Administrator, in its sole discretion, payment
for the purchase of shares upon the exercise of Stock Options may be made in
cash or in shares of unrestricted Common Stock already owned by the optionee,
or, in the case of the exercise of a NSO, in the form of Restricted Stock or
Performance Shares subject to an award under the 1996 Plan (based, in each
case, on the Fair Market Value of the Common Stock on the date the option is
exercised). In the case of an ISO, the right to make payment in the form of
already owned shares may be authorized only at the time of grant.
The Company may make loans to Stock Option holders in connection with
the exercise of outstanding options granted under the 1996 Plan, as the
Administrator, in its discretion, may determine. 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 Common 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.
Stock Appreciation Rights and Limited Stock Appreciation Rights. The
1996 Plan also permits the granting of Stock Appreciation Rights and Limited
Stock Appreciation Rights ("SARs"). SARs may be granted alone
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(a "Free Standing SAR") or in connection with all or any part of a Stock Option
(a "Related SAR"). Both Free Standing and Related SARs are nontransferable,
except as determined by the Administrator.
A Related SAR entitles the optionee to exercise the SAR by
surrendering to the Company, unexercised, a portion of the related Stock
Option. No SARs may be exercised during the first six months of its term,
except in the event of death or disability of the optionee prior to the
expiration of such six-month period.
A Related SAR is exercisable only when and to the extent that the
related Stock Option is exercisable and expires no later than the date on which
the related Stock Option expires. Upon exercise of a Related SAR, the optionee
shall receive in exchange from the Company an amount in cash or that number of
shares of Common Stock (or in some combination of cash and shares of Common
Stock) equal in value to the excess of the Fair Market Value of one share of
Common 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
Common Stock in respect of which the Related SAR is being exercised. The
Administrator has the right to determine the form of payment.
A Free Standing SAR 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 the grant. No Free Standing SAR shall be exercisable
more than ten years after the date such right is granted. Upon exercise of a
Free Standing SAR, a recipient shall be entitled to receive up to, but not more
than, an amount in cash or that number of shares of Common Stock (or any
combination of cash or shares of Common Stock) equal in value to the excess of
the Fair Market Value of one share of Common Stock as of the date of exercise
over the price per share specified in the Free Standing SAR (which price shall
be no less than 100% of the Fair Market Value of the Common Stock on the date
of grant) multiplied by the number of shares of Common Stock in respect to
which the right is being exercised. The Administrator has the right to
determine the form of payment.
Limited SARs 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 SAR) and, with respect to Limited SARs that are also
Related SARs, only to the extent that the Stock Options to which they relate
shall be exercisable in accordance with the 1996 Plan.
Restricted Stock, Deferred Stock and Performance Shares. Restricted
Stock means an award to receive Common Stock granted subject to certain
restrictions. Deferred Stock means an award to receive Common Stock at the end
of a specified deferral period. Performance Share means an award of Common
Stock that is subject to restrictions based upon the attainment of specified
performance objectives.
The right to receive Restricted Stock, Deferred Stock or Performance
Share awards (collectively, "Stock Rights") may be issued either alone or in
addition to other awards granted under the 1996 Plan.
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The Administrator shall determine the eligible employees, consultants and
advisors to whom, and the time or times at which, grants of Stock Rights shall
be made; the number of shares to be awarded; the price, if any, to be paid by
the recipient of Stock Rights; the restricted period 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 terms and conditions of the
Stock Rights.
In the discretion of the Administrator, loans may be made to
participants in connection with the purchase of Stock Rights under
substantially the same terms and conditions as with respect to the exercise of
Stock Options.
Amendment and Termination. The Board of Directors may amend, alter or
discontinue the 1996 Plan, but no amendment, alteration, or discontinuation
shall be made that would impair the rights of a participant in the 1996 Plan
under any award theretofore granted without such participant's consent. To the
extent necessary to comply with any applicable law or regulation, the Company
will obtain shareholder approval of any amendment to the 1996 Plan in such a
manner and to such a degree as required.
Nontransferability of Options and Stock Rights. Awards granted
pursuant to the 1996 Plan are nontransferable by the participant, other than by
will or by the laws of descent and distribution and may be exercised, during
the lifetime of the participant, only by the participant, except as otherwise
determined by the Administrator in its sole discretion.
FEDERAL INCOME TAX ASPECTS OF THE 1996 PLAN
The following is a brief summary of the Federal income tax
consequences of transactions under the 1996 Plan. This summary is not intended
to be exhaustive and does not discuss the tax consequences of a participant's
death or provisions of the income tax laws of any municipality, state or
foreign country in which an optionee may reside.
Incentive Stock Options. An optionee who is granted an ISO will not
recognize taxable income either at the time the option is granted or upon its
exercise, although the exercise may subject the optionee to the alternative
minimum tax. Upon the sale or exchange of the shares more than two years after
the grant of the option and one year after exercising the option, any gain or
loss will be treated as long-term capital gain or loss. If these holding
periods are not satisfied, the optionee will recognize as ordinary income, at
the time of sale or exchange, an amount equal to the difference between the
exercise price and the lower of (i) the fair market value of the shares at the
date of the option exercise, or (ii) the sale price of the shares. A different
rule for measuring ordinary income upon such a premature disposition may apply
in the case of optionees who are subject to Section 16 of the Act. The Company
will be entitled to a deduction in the same amount as the
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ordinary income recognized by the optionee. Any gain or loss recognized on
such a premature disposition of the shares in excess of the amount treated as
ordinary income will be characterized as long-term or short-term capital gain
or loss, depending on the holding period.
Non-qualified Stock Options. An optionee will not recognize any
taxable income at the time he or she is granted a NSO. However, upon exercise
of the NSO, the optionee will recognize taxable income generally measured as
the excess of the then Fair Market Value of the shares purchased over the
purchase price. Any taxable income recognized in connection with an option
exercise by an optionee who is also an employee of the Company will be subject
to tax withholding by the Company. Upon resale of such shares by the optionee,
any difference between the sales price and the optionee's purchase price, to
the extent not recognized as taxable income as described above, will be treated
as long- term or short-term capital gain or loss, depending on the holding
period.
The Company will generally be entitled to a tax deduction in the same
amount as the ordinary income recognized by the optionee with respect to shares
acquired upon exercise of a NSO.
Stock Appreciation Rights. No income will be realized by an optionee
in connection with the grant of a SAR. When the SAR is exercised, the optionee
will generally be required to include as taxable ordinary income in the year of
exercise, an amount equal to the amount of cash received and the Fair Market
Value of any Common Stock received on the exercise. In the case of an optionee
who is also an employee, any income realized upon exercise of a SAR will
constitute wages for which withholding will be required. The Company will
generally be entitled to a tax deduction in the same amount.
Stock Rights. Awards of Restricted Stock, Deferred Stock and
Performance Shares are generally issued to a participant subject to conditions
that constitute a "substantial risk of forfeiture" within the meaning of
Section 83 of the Code. As a result, the participant will not recognize
ordinary income at the time of grant. Instead, the participant will recognize
ordinary income on the dates when the stock ceases to be subject to a
"substantial risk of forfeiture" which will generally be when the stock is no
longer subject to the Company's right to repurchase upon the purchaser's
termination of employment with the Company (i.e., as the Stock Right "vests").
At vesting, the participant will recognize ordinary income measured as the
difference between the purchase price (if any) and the Fair Market Value of the
stock on the date of vesting. The ordinary income recognized by a participant
who is an employee will be treated as wages and will be subject to tax
withholding by the Company. Generally, the Company will be entitled to a tax
deduction in the amount and at the time the participant recognized ordinary
income.
Payments in Respect to a Change in Control. The 1996 Plan authorizes
the acceleration or payment of awards and related shares in the event of a
Change in Control as defined in the agreements pertaining
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to the awards under the 1996 Plan. Such acceleration or payment may cause part
or all of the consideration involved to be treated as a "parachute payment"
under the Code, which may subject the recipient thereof to a 20% excise tax and
which may not be deductible by the Participant's employer.
Walsh, Manning Securities, L.L.C. Agreement. The Company has agreed
with Walsh, Manning Securities, L.L.C., 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.
VOTE REQUIRED
The affirmative vote of a majority of the shares of Common Stock and
Preferred Stock, voting together as a single class, represented at the Annual
Meeting, is required to approve Proposal Three. If such shareholder approval is
not obtained, the 1996 Plan shall remain in effect except that there shall be
no authority to grant ISOs thereunder.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
APPROVAL OF THE 1996 STOCK INCENTIVE PLAN.
PROPOSAL FOUR
APPROVAL AND RATIFICATION OF INDEPENDENT
PUBLIC ACCOUNTANTS
The Board of Directors has selected Coopers & Lybrand L.L.P. as the
Company's independent certified public accountants, to audit the books and
records of the Company for the current fiscal year, and the Board recommends
that the shareholders of the Company ratify such appointment.
Representatives of Coopers & Lybrand L.L.P. are expected to be
available at the Annual Meeting to respond to appropriate questions and will be
given the opportunity to make a statement if they desire to do so.
VOTE REQUIRED
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The affirmative vote of a majority of the shares of Common Stock and
Preferred Stock represented at the Annual Meeting, voting together as a single
class, is required to approve Proposal Four.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS.
SECTION 16(a)BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
In May, 1996, when the Company's Common Stock first became registered
under Section 12(g) of the Act, Larry Montgomery, Michael Newell, Frederick
Roll, Daniel Sarnoff and Gordon Sjodin failed to include in their original
report on Form 3 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). 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.
DEADLINE FOR RECEIPT OF SHAREHOLDER
PROPOSALS -- 1998 ANNUAL MEETING
Proposals of shareholders of the Company which are intended to be
presented by such shareholders at the Company's 1998 Annual Meeting must be
received by the Company no later than November 5, 1997. Such proposals must
also meet the other requirements of the rules of the Securities and Exchange
Commission relating to shareholders' proposals.
OTHER MATTERS
The Company knows of no other matters to be submitted to the
shareholders at the Annual Meeting. If any other matters properly come before
the Annual Meeting, it is the intention of the persons named in the enclosed
Proxy to vote the shares they represent as the Board of Directors may
recommend, or, in the absence of a recommendation, as such persons deem
advisable.
BY ORDER OF THE BOARD OF DIRECTORS
FREDERICK E. ROLL
Vice President, Secretary, Treasurer,
and Chief Financial Officer
Tulsa, Oklahoma
March 5, 1997
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APPENDIX A
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
MULTIMEDIA GAMES, INC.
ARTICLE ONE
NAME
The name of the Corporation is Multimedia Games, Inc.
ARTICLE TWO
DURATION
The period of its duration is perpetual.
ARTICLE THREE
PURPOSE
The purposes for which the Corporation is organized are to engage in
any activities in which corporations may lawfully engage under the Texas
Business Corporation Act.
ARTICLE FOUR
AUTHORIZED SHARES
The aggregate number of shares which the Corporation shall have
authority to issue is set forth as follows:
A. COMMON STOCK. The Corporation shall have the authority to
issue 25,000,000 shares of Common Stock with a par value of $0.01 per share.
B. PREFERRED STOCK. The Corporation shall have the authority to
issue 2,000,000 shares of Preferred Stock with a par value of $0.01 per share.
The par value, powers, designations, preferences and relative, participating,
optional or other special rights, qualifications, limitations or restrictions
to the Preferred Stock shall be as follows:
1. (a) The Preferred Stock may be issued from time
to time as shares of one or more series of Preferred Stock,
and in the resolution or resolutions providing for issue of
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shares of each particular series, before issuance, the Board
of Directors of the Corporation is expressly authorized to
fix:
(i) the distinctive designation of
such series and the number of shares which shall
constitute such series, which number may be increased
(except where otherwise provided by the Board of
Directors in creating such series) or decreased (but
not below the number of shares thereof then
outstanding) from time to time by like action of the
Board of Directors;
(ii) the rate of dividends payable on
such series, whether or not dividends shall be
cumulative, the date or date from which dividends
shall accrue and, if cumulative, shall be cumulative
and the relationships which the dividends shall bear
to dividends payable on any other series;
(iii) whether or not the shares of
such series shall be subject to the redemption by the
Corporation and, if so, the times, prices and other
terms and conditions of such redemption;
(iv) whether or not shares of such
series shall be subject to the operation of a sinking
fund or a fund of a similar nature and, if so, the
terms thereof;
(v) the rights of the shares of each
series in case of liquidation, dissolution or winding
up of the Corporation, whether voluntary or
involuntary, or upon any distribution of its assets;
(vi) whether or not the shares of
such series shall be convertible into or exchangeable
for shares of any other series or class of stock of
the Corporation and, if so, the terms of conversion
or exchange;
(vii) whether or not the shares of
such series shall have voting rights in addition to
the voting rights provided by law in paragraph 5
below and, if so, the nature and extent thereof; and
(viii) the consideration to be received
by the Corporation for the shares of such series.
(b) The shares of the Preferred Stock of any one
series shall be identical with each other in all respects
except as to the dates from which dividends thereon shall
accrue or be cumulative.
(c) In case the stated dividends and the amounts,
if any, payable on liquidation, dissolution or winding up of
the
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Corporation are not paid in full, the shares of each series
of the Preferred Stock, after the payment in full of such
dividends and amounts to all series of the Preferred Stock
ranking senior to such series and before any payment to any
series ranking junior thereto, shall share ratably in the
payment of dividends, including accumulations, if any, in
accordance with the sums which would be payable on said shares
if all dividends were declared and paid in full, and in any
distribution of assets other than by way of dividends, in
accordance with the sums which would be payable on such
distribution if all sums payable were discharged in full.
(d) Prior to the issuance of any series of
Preferred Stock, a statement, including a copy of the
resolution or resolutions (including the designation,
description and terms of such series) adopted by the Board of
Directors with respect to such series shall be made and filed
in accordance with the then applicable requirements, if any,
of the laws of the State of Texas, or, if no certificate is
then so required, such certificate shall be signed and
acknowledged on behalf of the Corporation by its Chairman of
the Board, President or a Vice President, and its corporate
seal shall be affixed thereto and attested by its Secretary or
an Assistant Secretary, and such certificate shall be filed
and kept on file at the principal office of the corporation in
the State of Texas or at such other place or places as the
Board of Directors shall designate.
2. The holder of each series of the Preferred Stock
shall be entitled to receive, when and as declared by the Board of
Directors, but only out of funds of the Corporation legally available
for the payment of dividends, dividends in cash at the annual rate of
such series provided by the Board of Directors in the Statement made
pursuant to subparagraph (d) of paragraph 1 with respect to such
series.
3. If so provided by the Board of Directors in the
Statement made pursuant to subparagraph (d) of paragraph 1, the
Corporation, at the option of the Board of Directors (or in accordance
with the requirements of any sinking fund for any one or more series
of Preferred Stock established by the Board of Directors), may redeem
the whole or any part of the Preferred Stock at any time outstanding,
or the whole or any part of any series thereof, at such time or times
and from time to time and at such redemption price or prices as may be
provided by the Board of Directors in such Statement, together in each
case with all dividends accrued and accumulated but unpaid (other than
noncumulative dividends from past dividend periods), but computed
without interest, and otherwise upon the terms and conditions fixed by
the Board of Directors for any such redemptions.
4. In the event of any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the
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holders of each series of the Preferred Stock then outstanding shall
be entitled to receive, after the payment in full of all amounts to
which the holders of all series of the Preferred Stock ranking senior
thereto are entitled, out of the assets of the Corporation, before any
distribution or payment shall be made to the holders of any series of
the Preferred Stock ranking junior to such series upon liquidation,
dissolution or winding up of the Corporation or of any junior stock,
the amount, if any, for each share provided by the Board of Directors
in the Statement made pursuant to subparagraph (d) of paragraph 1,
plus, in respect of each such share, all dividends accrued and
accumulated but unpaid (other than noncumulative dividends from
past-dividend periods), but computed without interest. If payment
shall have been made in full to the holders of each series of the
Preferred Stock, the remaining assets of the Corporation shall be
distributed among the holders of the junior stock, according to their
respective rights and preferences and pro rata in accordance with
their respective holdings.
5. On all matters with respect to which holders of the
Preferred Stock or of certain series thereof are entitled to vote as a
single class, each holder of Preferred Stock afforded such class
voting right shall be entitled to one vote for each share held.
6. For purposes of this Article Four, the term "junior
stock" shall mean the Common Stock and any other class of stock of the
Corporation hereafter authorized which shall rank junior to all series
of Preferred Stock as to all dividends or preference on dissolution,
liquidation or winding up of the Corporation.
C. SERIES A PREFERRED STOCK.
1. Designation and Amount. An aggregate of 2,000,000
shares of Preferred Stock, $.01 par value, of the Corporation are
hereby constituted as a series designated as "Series A Preferred
Stock" (the "Series A Preferred Stock"). Such number of shares may be
increased or decreased by resolution of the Board of Directors,
provided, that no decrease shall reduce the number of shares of Series
A Preferred Stock to a number less than the number of shares then
outstanding plus the number of shares reserved for issuance upon the
exercise of outstanding options, rights or warrants or upon the
conversion of any outstanding securities issued by the Corporation
convertible into Series A Preferred Stock.
2. Dividends.
(a) The holders of shares of Series A Preferred
Stock, in preference to the holders of Common Stock (as
hereinafter defined) and of any other junior stock (as
hereinafter defined), shall be entitled to receive, when, as
and if declared by the Board of Directors out of funds legally
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<PAGE> 29
available for that purpose, quarterly dividends payable in
cash on the first day of January, April, July and October in
each year (each such data being referred to herein as a
"Quarterly Dividend Payment Date"), commencing on the first
Quarterly Dividend Payment Date after the first issuance of a
share or fraction of a share of Series A Preferred Stock, in
an amount per share equal to $.275 (rounded to the nearest
cent).
(b) Dividends shall begin to accrue and be
cumulative, whether or not earned or declared, on outstanding
shares of Series A Preferred Stock from and after the date of
issue of such shares, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend
Payment Date, in which case dividends on such shares shall
begin to accrue from the date of issue of such shares, or
unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of
holders of shares of Series A Preferred Stock entitled to
receive a Quarterly Dividend and before such Quarterly
Dividend Payment Date, in either of which events such
dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends
shall not bear interest. Dividends paid on the shares of
Series A Preferred Stock in an amount less than the total
amount of such dividends at the time accrued and payable on
such shares shall be allocated pro rata on a share-by-share
basis among all such shares at the time outstanding. The
Board of Directors may fix a record date for the determination
of holders of shares of Series A Preferred Stock entitled to
receive payment of a dividend declared, which record date
shall not be more than 60 days prior to the date fixed for the
payment thereof.
3. Voting Rights. The holders of shares of Series A
Preferred Stock shall have the following voting rights:
(a) Subject to the provisions for adjustment
hereinafter set forth, each share of Series A Preferred Stock
shall entitle the holder thereof to one vote on all matters
submitted to a vote of the shareholders of the Corporation.
In the event the Corporation shall at any time declare or pay
any dividend on the Common Stock payable in shares of Common
Stock, or affect a subdivision or combination or consolidation
of the outstanding shares of Common Stock (by reclassification
or otherwise than by payment of a dividend in shares of Common
Stock) into a greater or lesser number of shares of Common
Stock, then in each such case the number of votes per share to
which holders of shares of Series A Preferred Stock were
entitled immediately prior to such event shall be adjusted by
multiplying such number by a fraction, the numerator of which
is the number of shares of Common Stock outstanding
immediately after such event and the
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<PAGE> 30
denominator of which is the number of shares of Common Stock
that were outstanding immediately prior to such event.
(b) Except as otherwise provided herein, in any
other Statement of Resolution creating a series of Preferred
Stock or any similar stock, or by law, the holders of shares
of Series A Preferred Stock and the holders of shares of
Common Stock and any other capital stock of the Corporation
having general voting rights shall vote together as one class
on all matters submitted to a vote of stockholders of the
Corporation.
(c) If at any time quarterly dividends payable on
the Series A Preferred Stock as provided in Paragraph 2 hereof
are in arrears for two consecutive quarterly periods,
thereafter and until all accrued and unpaid dividends, whether
or not earned or declared, on shares of Series A Preferred
Stock outstanding shall be paid in full, the holders of record
of the Series A Preferred Stock, voting separately as a class,
shall immediately have the right (subject to compliance with
all applicable law, without limitation including any
applicable provisions of the Securities Exchange Act of 1934)
to elect a majority of the Board of Directors of the
Corporation, and the holders of the Common Stock and any other
class of stock of the Corporation shall not be entitled to
vote in the election of such directors so to be elected by
holders of record of the Series A Preferred Stock. Upon the
vesting of the aforesaid voting rights in the Series A
Preferred Stock, the number of directors constituting the
Board of Directors shall, without the necessity of any further
action by any party or any amendment of the Bylaws of the
Corporation, be automatically increased by such number as
shall permit the election of the majority of the Board of
Directors by the holders of record of the Series A Preferred
Stock. Whenever the holders of record of the Series A
Preferred Stock shall have the right to elect directors as
provided hereinabove, a meeting of the holders of record of
the Series A Preferred Stock for the election of such
directors shall be held on the earliest practicable date at
the principal office of the Corporation. If not called
pursuant to the Bylaws of the Corporation, such meeting shall
be immediately called by the Secretary of the Corporation upon
the written request of the holders of record of at least 100
outstanding shares of the Series A Preferred Stock. At such
time as the right of the holders of record of the Series A
Preferred Stock to elect such directors shall terminate, the
respective terms of office of any directors in office shall
immediately terminate, and the number of directors
constituting the Board of Directors shall, without the
necessity of any further action by any party or any amendment
of the Bylaws of the Corporation, be automatically decreased
by the number added as aforesaid so
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<PAGE> 31
as to permit exercise by the holders of record of the Series A
Preferred Stock of their rights as aforesaid.
4. Conversion.
(a) Right to Convert. Subject to and upon
compliance with the provisions hereof, each holder of record
of shares of Series A Preferred Stock shall have the right, at
such holder's option, at any time or from time to time
subsequent to two years after the issuance, respectively, of
the shares held by such holder (except that upon any
liquidation of the Corporation the right of conversion shall
terminate at the close of business on the last full business
day next preceding the date fixed for payment of the amount
distributable on the Series A Preferred Stock), to convert any
such shares into such number of shares of Common Stock as is
obtained by multiplying the number of shares of Series A
Preferred Stock so to be converted by $10.00 and dividing the
result by the applicable Conversion Price (as hereinafter
defined).
(b) Exercise. In order to exercise the
conversion privilege, the holder of Series A Preferred Stock
shall surrender a certificate or certificates for the shares
so to be converted to the Corporation at the principal
executive offices of the Corporation at 1920 S. West Union
Road, Topeka, Kansas 66614 (or such other office or agency of
the Corporation as the Corporation may designate by notice in
writing to the holders of record of Series A Preferred Stock),
accompanied by written notice to the Corporation that the
holder elects to convert a stated number of shares of Series A
Preferred Stock into Common Stock. Such notice shall also
state the name or names (with address or addresses) in which
the certificate or certificates for shares of Common Stock
which shall be issuable on such conversion shall be issued, in
each case subject to the provisions of applicable law. As
soon as practicable after the receipt of such notice and the
surrender of the certificate or certificates for the shares of
Series A Preferred Stock to be converted, the Corporation
shall issue and shall deliver at said offices to the holder a
certificate or certificates for the number of full shares of
Common Stock issuable upon the conversion of such share or
shares of Series A Preferred Stock, and provision shall be
made for any fraction of a share as provided in Subparagraph
(c) hereof. Such conversion shall be deemed to have been
effected immediately prior to the close of business on the
date on which such notice shall have been received by the
Corporation and conversion shall be at the Conversion Price in
effect at such time, and at such time the rights of the holder
of such share or shares of Series A Preferred Stock shall
cease and the person or persons in whose name or names any
certificate or certificates for shares of Common Stock shall
be issuable
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<PAGE> 32
upon such conversion shall be deemed to have become the holder
or holders of record of the shares of Common Stock represented
thereby.
(c) Adjustment for Fractional Shares; Dividends;
Partial Conversions. No fractional shares of Common Stock or
scrip shall be issued upon conversion of Series A Preferred
Stock, and no payment or adjustment shall be made upon any
conversion on account of any cash dividends on the Common
Stock issued upon such conversion. In case the number of
shares of Series A Preferred Stock represented by the
certificate or certificates surrendered pursuant to
Subparagraph (b) exceeds the number of shares converted, the
Corporation shall, upon such conversion, execute and deliver
to the holder thereof, at the expense of the Corporation, a
new certificate or certificates for the number of shares of
Series A Preferred Stock represented by the certificate or
certificates surrendered which are not to be converted.
Instead of any fractional shares of Common Stock which would
otherwise be issuable upon conversion, the Corporation shall
pay a cash adjustment in respect of such fractional share of
Common Stock in an amount equal to the same fraction of the
then current fair value of a share of Common Stock, as
determined in good faith by the Board of Directors of the
Corporation.
(d) Conversion Price. The Conversion Price per
share of Common Stock shall be $2.00, subject to adjustment as
herein provided.
(e) Adjustment for Dividends. In case the
Corporation shall declare a dividend upon the shares of Common
Stock payable otherwise than out of earned surplus or
otherwise than in shares of Common Stock or convertible
securities of the Corporation, the Conversion Price in effect
immediately prior to the declaration of such dividend shall be
reduced by an amount equal, in the case of a dividend in cash,
to the amount thereof payable per share of Common Stock or, in
the case of any other dividend, to the fair value thereof per
share of Common Stock as determined in good faith by the Board
of Directors of the Corporation. For the purposes of the
foregoing, a dividend other than in cash shall be considered
payable out of earned surplus only to the extent that such
earned surplus is charged an amount equal to the fair value of
such dividend as determined in good faith by the Board of
Directors of the Corporation. Such reductions shall take
effect as of the date on which a record is taken for the
purpose of such dividend, or, if a record is not taken, the
date as of which the holders of shares of Common Stock of
record entitled to such dividend are to be determined.
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<PAGE> 33
(f) Subdivisions and Combinations; Stock
Dividends. In case the Corporation 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 Corporation 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. In case the
Corporation shall declare a dividend or make any other
distribution upon any stock of the Corporation payable in
Common Stock, rights to subscribe for or to purchase, or any
options for the purchase of, Common Stock or any stock or
securities convertible into or exchangeable for Common Stock,
any Common Stock, rights to subscribe for or to purchase, or
any options for the purchase of, Common Stock or any stock or
securities convertible into or exchangeable for Common Stock,
as the case may be, issuable in payment of such dividend or
distribution shall be deemed to have been issued in a
subdivision of outstanding shares as provided in this
Subparagraph (f).
(g) Issuance of Rights or Warrants; Evidences of
Indebtedness or Assets.
(i) In case the Corporation shall
hereafter issue rights or warrants to holders of its
outstanding Common Stock generally entitling them to
subscribe for or purchase Common Stock at a price per
share less than the current market price per share (as
determined pursuant to Subparagraph (iii) of this
Paragraph (g)) of the Common Stock on the effective
date of the adjustment under this paragraph mentioned
below, the Conversion Price shall be adjusted to
equal the price determined by multiplying the
Conversion Price then in effect by a fraction the
numerator of which shall be the number of shares of
Common Stock outstanding on the date of issuance of
such rights or warrants plus the number of shares
which the aggregate offering price of the total
number of shares so offered would purchase at such
current market price, and the denominator of which
shall be the number of shares of Common Stock
outstanding on the date of issuance of such rights or
warrants plus the number of additional shares of
Common Stock offered for subscription or purchase.
Such adjustment shall take effect as of the date on
which a record is taken for the purpose of such
issuance, or, if a record is not taken, the date as
of which the holders of shares of Common Stock of
record entitled to receive such rights or warrants
are to be determined.
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<PAGE> 34
(ii) In case the Corporation shall
hereafter distribute to holders of its outstanding
Common Stock generally evidences of its indebtedness
or assets (excluding any cash dividend paid from
retained earnings of the Corporation and dividends or
distributions payable in stock for such adjustment is
made pursuant to Subparagraph (e) or rights or
warrants to subscribe to securities of the
Corporation (excluding those referred to in clause
(i) of this Subparagraph (g), then in each such case
the Conversion Price shall be adjusted to equal the
price determined by multiplying the Conversion Price
then in effect by a fraction the numerator of which
shall be the current market price per share
(determined as provided in clause (iii) of this
Subparagraph (g)) of the Common Stock on the
effective date of the adjustment under this clause
mentioned below less the then fair market value (as
determined in good faith by the Board of Directors of
the Corporation) of the portion of the evidences of
indebtedness or assets so distributed to the holder
of one share of Common Stock or of such subscription
rights or warrants applicable to one share of Common
Stock, and the denominator of which shall be such
current market price per share of Common Stock. Such
adjustment shall take effect as of the date on which
a record is taken for the purpose of such
distribution, or, if a record is not taken, the date
as of which the holders of shares of Common Stock of
record entitled to receive such distribution are to
be determined.
(iii) For the purposes of any
computation under clauses (i) and (ii) of this
Subparagraph (g), the current market price per share
of Common Stock on any date shall be deemed to be the
average of the daily market prices for the 30
consecutive business days commencing 45 business days
before the day in question. The market price for
each day shall be: (1) if the Common Stock is listed
or admitted to the trading on a national securities
exchange, the closing price on the NYSE-Consolidated
Tape (or any successor composite tape reporting
transactions on national securities exchanges) or, if
such a composite tape shall not be in use or shall
not report transactions in the Common Stock, the last
reported sales price regular way on the principal
national securities exchange on which the Common
Stock is listed or admitted to trading (which shall
be the national securities exchange on which the
greatest number of shares of Common Stock have been
traded during such 30 consecutive trading days), or,
if there is no transaction on any such day in any
such situation, the mean of the bid and asked prices
on such day, or (2) if the Common Stock is not listed
or
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<PAGE> 35
admitted to trading on any such exchange, the last
sales price, if reported, or, if the last sales price
is not reported, the average of the closing bid and
asked prices as reported by the National Association
of Securities Dealers Automated Quotations System or
a similar source selected from time to time by the
Corporation for the purpose, or (3) if the Common
Stock is not quoted by any such organization, the
fair value of the Common Stock on such date as
determined in good faith by the Board of Directors of
the Corporation.
(h) Consolidation Merger, Sale of Assets
Reorganization or Reclassification. If any consolidation or
merger of the Corporation with or into another corporation, or
the sale or all or substantially all of its assets to another
corporation shall be effected, or in case of any capital
reorganization or reclassification of the capital stock of the
Corporation, then, as a condition of such consolidation,
merger or sale, reorganization or reclassification, lawful and
adequate provision shall be made whereby the holders of record
of the Series A Preferred Stock shall thereafter have the
right to receive upon the basis and upon the terms and
conditions specified herein and in lieu of the shares of
Common Stock of the Corporation immediately theretofore
receivable upon the conversion of Series A Preferred Stock,
such shares of stock, securities or assets as may be issued or
payable with respect to or in exchange for a number of
outstanding shares of Common Stock equal to the number or
shares of Common Stock immediately theretofore so receivable
by such holder 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 such holder to the end that the
provisions hereof (including without limitation provisions for
adjustment of the Conversion Price) shall thereafter be
applicable, as nearly as may be, in relation to any shares of
stock, securities or assets thereafter deliverable upon the
exercise of such conversion rights.
(i) Notice of Adjustment of Conversion Price.
Upon any adjustment of the Conversion Price, then and in each
such case the Corporation shall give written notice thereof,
by first class mail, postage prepaid, to each holder of record
of Series A Preferred Stock, which notice shall state the
Conversion Price resulting from such adjustment, setting forth
in reasonable detail the method of calculation and the facts
upon which such calculation is based.
(j) Notice of Certain Actions. In case at any
time:
(i) the Corporation shall declare to
the holders of its shares of Common Stock any cash
dividend
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<PAGE> 36
at a rate in excess of the rate of the last cash
dividend theretofore paid;
(ii) the Corporation shall declare
any dividend upon its shares of Common Stock payable
in stock or make any special dividend or other
distribution (other than a cash dividend to the
holders of its shares of Common Stock);
(iii) the Corporation shall offer for
subscription pro rata to the holders of its shares of
Common Stock any additional shares of stock of any
class or other rights;
(iv) there shall be any capital
reorganization or reclassification of the capital
stock of the Corporation, or consolidation or merger
of the Corporation with, or sale of all or
substantially all its assets to, another corporation;
or
(v) there shall be a voluntary or
involuntary dissolution, liquidation or winding-up of
the Corporation;
then, in any one or more of said cases, the
Corporation shall give written notice, by first class
mail, postage prepaid, to each holder of record of
Series A Preferred Stock, of the date on which (A)
the books of the Corporation 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
Corporation's transfer books are closed in respect
thereto.
(k) Reservation of Shares. The Corporation shall
at all times reserve and keep available out of its authorized
shares of Common Stock or its treasury shares, solely for the
purpose of issue upon the conversion of shares of Series A
Preferred Stock, such number of shares of Common Stock as
shall then be issuable upon the conversion of all outstanding
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<PAGE> 37
shares of Series A Preferred Stock. The Corporation 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 conversion of the
Series A Preferred Stock would exceed the total number of
shares of Common Stock then authorized by the Articles of
Incorporation of the Corporation.
(l) Taxes. The issuance of certificates of
shares of Common Stock upon the conversions of Series A
Preferred Stock shall be made without charge to the holders
thereof for any issuance tax in respect thereto; provided,
however, that the Corporation shall not be required to pay any
tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name
other than that of the holders of record of Series A Preferred
Stock, respectively.
(m) Closing of Books. The Corporation will at no
time close its transfer books against the transfer of any
shares of Common Stock issued or issuable upon the conversion
of any shares of Series A Preferred Stock in any manner which
interferes with the timely conversion of Series A Preferred
Stock.
(n) Miscellaneous. Notwithstanding any other
provision of this Paragraph 4, conversion of the Series A
Preferred Stock shall be subject to the requirement that if at
any time the Board of Directors shall determine that the
registration, listing or qualification of the shares of Common
Stock covered thereby upon any securities exchange or under
any federal or state law, or the consent or approval of any
governmental regulatory body is necessary or desirable as a
condition of, or in connection with, the acquisition of shares
of Common Stock upon conversion, no such conversion may be
effected unless and until such registration, listing,
qualification, consent or approval shall have been effected or
obtained free of any conditions not acceptable to the Board of
Directors. The Company may require that any person converting
Series A Preferred Stock shall make such representations and
agreements and furnish such information as it deems
appropriate to assure compliance with the foregoing or any
other applicable legal requirement.
5. Certain Restrictions. Whenever quarterly dividends
payable on the Series A Preferred Stock as provided in Paragraph 2
hereof are in arrears for two consecutive quarterly periods,
thereafter and until all accrued and unpaid dividends, whether or not
earned or declared, on shares of Series A Preferred Stock outstanding
shall have been paid in full, the Corporation shall not:
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<PAGE> 38
(a) declare or pay dividends on any shares of
stock ranking junior (either as to dividends or upon
liquidation, dissolution or winding up) to the Series A
Preferred Stock;
(b) declare or pay dividends on any shares
ranking pari passu (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A
Preferred Stock, except dividends paid ratably on the Series A
Preferred Stock and all such parity stock on which dividends
are payable or in arrears in proportion to the total amounts
to which the holders of all such shares are then entitled;
(c) redeem or purchase or otherwise acquire for
consideration shares of any stock ranking junior (either as to
dividends or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock, provided that the Corporation
may at any time, redeem, purchase or otherwise acquire shares
of any such junior stock in exchange for shares of any stock
of this Corporation ranking junior (either as to dividends or
upon dissolution, liquidation or winding up) to the Series A
Preferred Stock; and
(d) redeem or purchase or otherwise acquire for
consideration shares of Series A Preferred Stock, or any
shares of stock ranking pari passu with the Series A Preferred
Stock except in accordance with a purchase offer made in
writing or by publication (as determined by the Board of
Directors) to all holders of such shares upon such terms as
the Board of Directors, after consideration of the respective
annual dividend rate and other relative rights and preferences
of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the
respective series or classes.
6. Reacquired Shares. Any shares of the Series A
Preferred Stock purchased or otherwise acquired by this Corporation in
any manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares shall upon their cancellation
become authorized but unissued as shares of Preferred Stock and may be
reissued as Series A Preferred Stock or as part of a new series of
Preferred Stock subject to the conditions and restrictions of issuance
set forth herein, in the Articles of Incorporation or as otherwise
required by law.
7. Liquidation, Dissolution or Winding Up.
(a) Upon any liquidation, dissolution or winding
up of this Corporation, no distribution shall be made to the
holders of shares of stock ranking junior (either as to
dividends, or upon liquidation, dissolution or winding up) to
the Series A Preferred Stock unless prior thereto, the holders
of shares of Series A Preferred Stock shall have received $10
per share, plus an amount equal to accrued and
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<PAGE> 39
unpaid dividends thereon, whether or not declared or earned,
to the date of such payment. After such payments to holders
of Series A Preferred Stock, the holders thereof, as such,
shall not have any right to participate in any further
distribution of or payment out of the assets of the
Corporation.
(b) If upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the
assets available for distribution to holders of shares of
Series A Preferred Stock shall be insufficient to pay such
holders the full preferential amount to which they are
entitled, then such assets shall be distributed ratably among
the shares of Series A Preferred Stock in accordance with the
respective preferential amounts, including unpaid cumulative
dividends, if any, payable with respect thereto.
8. Optional Redemption. Each share of Series A
Preferred Stock shall, out of funds legally available for that
purpose, be subject to redemption, at the election of the Corporation,
on any date (the "Redemption Date") subsequent to issuance, at a
redemption price of $10, plus an amount equal to all accrued and
unpaid dividends on such share, whether or not declared or earned, to
the Redemption Date. Notice of each redemption shall be mailed at
least 30 days prior to the Redemption Date with respect thereto, shall
state that the Series A Preferred Stock, or part thereof, shall be
redeemed, and the date, place and purchase price of such redemption,
upon surrender of the certificates representing shares of Series A
Preferred Stock, and shall be given to the holders of record of the
shares of Series A Preferred Stock to be redeemed, by first class mail,
postage prepaid, at such holder's address of record. In the event
that the Corporation at any particular time proposes to redeem fewer
than all of the then outstanding shares of Series A Preferred Stock,
the shares of Series A Preferred Stock to be redeemed shall be
selected to such manner that the number of shares of Series A
Preferred Stock (to the nearest full share) to be redeemed from each
holder of record of Series A Preferred Stock shall bear the same
proportional relationship to all shares of Series A Preferred Stock
held by such holder is the aggregate number of shares to be redeemed
bears to all the shares of Series A Preferred Stock then outstanding.
On the Redemption Date, all dividends on the shares to be redeemed
shall cease to accrue, all rights with respect to such shares so to be
redeemed shall forthwith on such date cease and determine (except only
the right of the holder to receive the redemption price therefor, but
without any interest) and such shares so called for redemption shall
no longer be deemed outstanding. On or before each Redemption Date,
the respective holders of record of shares to be redeemed shall
deliver to the Corporation the certificates for the shares to be
redeemed.
9. Junior Stock; Common Stock. For purposes hereof:
(a) the term "junior stock" shall mean the Common Stock and any other
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<PAGE> 40
class of stock of the Corporation hereinafter authorized which shall
rank junior to the Series A Preferred Stock as to all dividends or
preference on dissolution, liquidation or winding up of the
Corporation; and (b) the term "Common Stock" shall mean shares of the
common stock, $.01 par value, of the Corporation and shall also
include shares of any capital stock of any class of the Corporation
hereinafter authorized which shall not be limited to a fixed sum or
percentage or par value in respect of the rights of the holders
thereof to participate in dividends and in the distribution of assets
upon the voluntary liquidation, dissolution or winding up of the
Corporation; provided, however, that the shares of Common Stock
receivable upon conversion, of shares of Series A Preferred Stock
shall include only shares of Common Stock, as constituted on January
11, 1995 (including any stock into which it may be changed,
reclassified or converted).
10. No Pre-Emption Amendment. No right to subscribe for
or to take any stock of any class or any securities convertible to any
stock, at any time issued by the Corporation shall vest in or accrue
to any holder of shares of Series A Preferred Stock with respect to
any shares which he holds. The Articles of Incorporation of this
Corporation shall not be amended in any manner which would materially
alter or change the powers, preferences or special rights of the
Series A Preferred Stock so as to affect them adversely without the
affirmative vote of the holders of at least two-thirds of the
outstanding shares of Series A Preferred Stock, voting together as a
single series. Furthermore, whenever the Series A Preferred Stock
shall have elected the Board of Directors of the Corporation in
accordance with the provisions of Subparagraph (c) of Paragraph 3
hereof, and until such right shall terminate, the Articles of
Incorporation of this Corporation shall not be amended in any manner
which would materially alter or change the powers, preferences or
special rights of the Series A Preferred Stock so as to affect them
favorably without the affirmative vote of the holders of at least
two-thirds of the outstanding shares of Common Stock, voting together
as a single series.
ARTICLE FIVE
COMMENCEMENT OF BUSINESS
The Corporation will not commence business until it has received for
the issuance of its shares consideration of the value of One Thousand Dollars
($1,000), consisting of money, labor done or property actually received.
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<PAGE> 41
ARTICLE SIX
PREEMPTIVE RIGHTS AND CUMULATIVE VOTING
No shareholder or other person shall have any preemptive right
whatsoever. Cumulative voting shall not be permitted.
ARTICLE SEVEN
AGENT FOR PROCESS
The street address of the Corporation's initial registered office is
1301 West 25th Street, Suite 300, Austin, Texas, and the name of its initial
registered agent at such address is Gordon Graves.
ARTICLE EIGHT
DIRECTORS
The number of directors constituting the Corporation's initial board
of directors is two (2), and the names and addresses of the persons who are to
serve as directors until the first meeting of the shareholders or until their
successors are elected and have qualified are:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Gordon Graves 1301 West 25th Street
Suite 300
Austin, Texas 78705
Don Wilson 2250 Ridgepoint, #503
Austin, Texas 78754
</TABLE>
ARTICLE NINE
ACTION OF SHAREHOLDERS WITHOUT A MEETING
Any action required by the Texas Business Corporation Act to be taken
at any annual or special meeting of shareholders, or any action which may be
taken at any annual or special meeting of shareholders, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting forth the action so taken, shall have been signed by the
holder or holders of shares having not less than the minimum number of votes
that would be necessary to take such action at a meeting at which the holders
of all shares entitled to vote on the action were present and voted.
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ARTICLE TEN
EXEMPTION OF DIRECTORS FROM LIABILITY
A director of the Corporation shall not be liable to the Corporation
or its shareholders for monetary damages for an act or omission in the
director's capacity as a director, except to the extent that any applicable law
may prevent such director from being relieved of such personal liability. Any
repeal or modification of this Article shall be prospective only and shall not
adversely affect any limitation of the personal liability of a director of the
Corporation existing at the time of such repeal or modification.
ARTICLE ELEVEN
INCORPORATORS
The name and address of the incorporator of the Corporation is:
<TABLE>
<CAPTION>
NAME ADDRESS
---- -------
<S> <C>
Gordon Graves 1301 West 25th Street
Suite 300
Austin, Texas 78705
</TABLE>
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APPENDIX B
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 in 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 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
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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 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.
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(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.
(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, (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;
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(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 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
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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, 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 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
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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 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
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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 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 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
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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.
(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
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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 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.
(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,
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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) 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
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Stock Appreciation Right which is a Free 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 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
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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 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.
SECTION 8. AMENDMENT AND TERMINATION.
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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 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
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<PAGE> 56
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.
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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<PAGE> 57
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
MULTIMEDIA GAMES, INC.
- - - - - - - - - - - - - - - - - - - - - - -
MULTIMEDIA GAMES, INC.
7335 SOUTH LEWIS
TULSA, OKLAHOMA 74136
PROXY FOR 1997 ANNUAL MEETING OF SHAREHOLDERS
MARCH 29, 1997
The undersigned shareholder(s) of Multimedia Games, Inc., a Texas corporation,
hereby acknowledges receipt of the Notice of Annual Meeting of Shareholders and
Proxy Statement, each dated March 6, 1997, and hereby appoints Gordon T. Graves
and Larry D. Montgomery, and each of them, Proxies and Attorneys-in-Fact, with
full power to each of substitution, on behalf and in the name of the
undersigned, to represent the undersigned at the 1997 Annual Meeting of
Shareholders of Multimedia Games, Inc. to be held on March 29, 1997 at 10:00
a.m., local time, at the Tulsa Marriott Southern Hills located at 1902 East
71st Street, Tulsa, Oklahoma 74136 and at any adjournment or postponement
thereof, and to vote all shares of Common Stock and Preferred Stock which the
undersigned would be entitled to vote if personally present on any of the
following matters and with discretionary authority as to any and all other
matters that may properly come before the meeting.
1. Election of Directors.
/ / FOR all the nominees listed below (except as indicated).
/ / WITHHOLD authority to vote for all nominees listed below.
IF YOU WISH TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE,
STRIKE A LINE THROUGH THAT NOMINEE'S NAME IN THE LIST BELOW:
Gordon T. Graves, Larry D. Montgomery, Gregory N. Stern, Daniel J. Sarnoff
2. To amend the Company's Articles of Incorporation to increase
the number of authorized shares of Common Stock from 10,000,000 shares to
25,000,000 shares.
/ / FOR
/ / AGAINST
/ / ABSTAIN
<PAGE> 58
3. To ratify and approve the adoption of the Company's 1996 Stock
Incentive Plan described in the Proxy Statement related to the Annual Meeting.
/ / FOR
/ / AGAINST
/ / ABSTAIN
4. To ratify and approve the appointment of Coopers & Lybrand,
L.L.P. as the independent public accountants of the Company for the fiscal year
ending September 30, 1997.
/ / FOR
/ / AGAINST
/ / ABSTAIN
5. To transact such other business as may properly come before
the meeting or any postponements or adjournments thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE. IF NO SPECIFICATION IS MADE, THE SHARES REPRESENTED BY
THIS PROXY WILL BE VOTED FOR EACH OF THE ABOVE PERSONS AND PROPOSALS, AND FOR
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AS THE BOARD OF
DIRECTORS MAY RECOMMEND OR, IN THE ABSENCE OF A RECOMMENDATION, AS THE PROXY
HOLDERS DEEM ADVISABLE.
Dated , 1997
----------------------------------------
Signature:
-----------------------------------------
Signature:
-----------------------------------------
I plan to attend the meeting: / /
(This proxy should be marked, dated and signed by each shareholder exactly as
such shareholder's name appears hereon, and returned promptly in the enclosed
envelope. Persons signing in a fiduciary capacity should so indicate. A
corporation is requested to sign its name by its president or other authorized
officer, with the office held designated. If shares are held by joint tenants
or as community property, both holders should sign.)
TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE MARK, SIGN AND DATE
THIS PROXY AND RETURN IT AS PROMPTLY AS POSSIBLE.
March 6, 1997
Tulsa, Oklahoma
