<PAGE> 1
SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act Of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
<TABLE>
<S> <C>
[ ] 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 Section 240.14a-11(c) or Section 240.14a-12
</TABLE>
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.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-12.
(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 or 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:
(2) Form, Schedule or Registration Statement No.:
(3) Filing Party:
(4) Date Filed:
<PAGE> 2
MULTIMEDIA GAMES, INC.
March 9, 1998
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, April 4,
1998 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 1997 Annual Report is also enclosed.
On behalf of the Board of Directors and Management, I would like to express
our appreciation for your continued support 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> 3
MULTIMEDIA GAMES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 4, 1998
NOTICE IS HEREBY GIVEN that the 1998 Annual Meeting of Shareholders of
Multimedia Games, Inc. (the "Company"), a Texas corporation, will be held on
Saturday, April 4, 1998 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 Thomas W. Sarnoff.
2. To ratify and approve amendments to the Company's 1996 Stock
Incentive Plan to (i) increase the number of shares reserved for issuance
under the Plan, and (ii) provide for additional automatic annual increases
in the number of shares reserved for issuance under the Plan by 4% of the
number of shares of Common Stock outstanding as of December 31 of each year
starting with December 31, 1998 and ending with December 31, 2001;
3. To ratify and approve the appointment of Coopers & Lybrand L.L.P.,
as the Company's independent auditors; and
4. To transact such other business as may properly come before the
meeting or an 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 February 4, 1998
are entitled to notice of and to vote at the Annual Meeting. A complete list of
shareholders entitled to vote will be available for inspection 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
/s/ FREDERICK E. ROLL
FREDERICK E. ROLL
Vice President, Secretary,
Treasurer,
and Chief Financial Officer
March 9, 1998
<PAGE> 4
MULTIMEDIA GAMES, INC.
7335 SOUTH LEWIS
TULSA, OKLAHOMA 74136
PROXY STATEMENT FOR ANNUAL MEETING
OF SHAREHOLDERS
TO BE HELD APRIL 4, 1998
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 April 4, 1998 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 10, 1998
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 the ratification and adoption of the
proposed amendments to the 1996 Stock Incentive Plan, FOR ratification of the
appointment of Coopers & Lybrand L.L.P. as independent auditors, 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 February
4, 1998 (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 5,369,971
shares of Common Stock and 90,789 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 and Preferred Stock will vote together as a
single class on all matters coming before the Annual Meeting. 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
<PAGE> 5
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, the ratification and approval of amendments to the 1996 Stock
Incentive Plan, and Proposal Three, 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 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 and director nominee 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 PERCENT
BENEFICIALLY PERCENT BENEFICIALLY OF
BENEFICIAL OWNER OWNED OF CLASS OWNED CLASS(1)
---------------- ------------ -------- ------------ --------
<S> <C> <C> <C> <C>
Gordon T. Graves.................................. 1,084,620(1) 20.1 80,175(2) 88.3
1604 Crested Butte
Austin, Texas 78746
Larry D. Montgomery............................... 89,934(3) 1.7 1,411 1.6
1920 S. West Union Road
Topeka, Kansas 66615
Gordon T. Sjodin.................................. 56,983(4) 1.1 1,272 1.4
5804 E. 104th Street
Tulsa, Oklahoma 74137
Thomas W. Sarnoff................................. -- -- -- --
2451 Century Hill
Los Angeles, California 90067
Gregory N. Stern.................................. 20,000(5) (6) -- --
130 Barton Road
Stow, Massachusetts 01775
All executive officers and directors as a group
(eight persons)................................. 1,393,180(7) 25.8 83,351 91.8
</TABLE>
- ---------------
(1) Consists of (i) 591,545 shares owned of record by Graves Properties, Ltd.,
a limited partnership controlled by Mr. Graves, (ii) 51,000 shares owned of
record by Graves Management, Inc., a corporation controlled by Mr. Graves,
(iii) 41,200 shares owned of record by Gordon T. Graves, and (iv) 400,875
shares issuable upon the conversion of the Series A Preferred Stock. Does
not include 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.
2
<PAGE> 6
(3) Consists of (i) 66,189 shares owned of record by Mr. Montgomery, (ii)
14,750 shares issuable upon the exercise of stock options that are
currently exercisable (13,500 shares) or are exercisable within the next 60
days (1,250 shares), (iii) 1,940 shares issuable upon the exercise of
currently exercisable warrants, and (iv) 7,055 shares issuable upon
conversion of the Series A Preferred Stock.
(4) Consists of (i) 13,373 shares owned of record or beneficially by Mr.
Sjodin, (ii) 37,250 shares issuable upon the exercise of stock options that
are currently exercisable (36,125 shares) or are exercisable within the
next 60 days (1,125 shares), and (iii) 6,360 shares issuable upon
conversion of the Series A Preferred Stock.
(5) Consists of shares issuable upon the exercise of currently exercisable
stock options.
(6) Less than 1%.
(7) Consists of (i) 764,295 shares owned of record, (ii) 210,500 shares
issuable upon the exercise of stock options that are currently exercisable
(187,000 shares) or are exercisable within the next 60 days (23,500
shares), (iii) 1,940 shares issuable upon the exercise of currently
exercisable warrants, and (iv) 416,445 shares issuable upon conversion of
Series A Preferred Stock.
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. Thomas
W. Sarnoff was elected to the Board at a meeting of the Board of Directors held
on December 29, 1997, to fill a vacancy created by the resignation of his son,
Daniel J. Sarnoff. Daniel J. Sarnoff continued as an officer of the Company.
Except for the relationship between Mr. Thomas W. Sarnoff and Daniel J. Sarnoff,
no family relationship exists between any of the directors or executive officers
of the Company.
<TABLE>
<CAPTION>
NAME OF NOMINEE AGE PRINCIPAL OCCUPATION DIRECTOR SINCE
--------------- --- -------------------- --------------
<S> <C> <C> <C>
Gordon T. Graves....... 60 Chairman of the Board, Chief Executive Officer and Director 1991
Larry D. Montgomery.... 59 Director and Independent Consultant to Company 1992
Thomas W. Sarnoff...... 71 Director and President of Academy of Television Arts and 1996
Sciences
Gregory N. Stern....... 52 Director and Independent Management Consultant to the 1993
Littleton Group
</TABLE>
Gordon T. Graves has been Chairman of the Board and a director of the
Company since its inception, and has been Chief Executive Officer since
September 1994. Since December 1993 and from 1989 to 1990, Mr. Graves has been
the President of Graves Management, Inc., a management consultant and investment
company. From 1992 through December 1993, Mr. Graves was president and Chief
Executive Officer of Arrowsmith Technologies, Inc. ("Arrowsmith"), a computer
systems company. From 1991 to 1993,
3
<PAGE> 7
Mr. Graves was employed by KDT Industries, Inc., a high-tech manufacturing and
services company and an 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).
Larry D. Montgomery has been a director of the Company since November 1992.
Mr. Montgomery was the President of the Company from November 1992 until
December 1996, 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.
Montgomery is currently an independent consultant to the Company specializing in
Indian regulatory affairs.
Thomas W. Sarnoff was elected as a director of the Company in December
1997, to fill the vacancy resulting from the resignation of his son, Daniel J.
Sarnoff. Thomas W. Sarnoff was employed by the National Broadcasting Company,
Inc. ("NBC") for over 25 years, holding positions that included Vice President,
Production and Business Affairs, Executive Vice President of West Coast
activities, and last serving as President of NBC Entertainment Corporation from
1969 to 1977. After retiring from NBC in 1997, Mr. Sarnoff has been engaged in
the production of television and film entertainment, primarily through Sarnoff
Entertainment Corporation which was formed in 1987. Mr. Sarnoff serves on many
civic and charitable organizations and is currently the President and a member
of the Board of Directors of the Academy of Television Arts & Sciences.
Gregory N. 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.
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, 1997. 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.
During the fiscal year ended September 30, 1997, the Board had no
committees. On December 29, 1997, the Board established an Audit Committee and a
Compensation Committee. Messrs. Graves, Stern and Montgomery serve on the Audit
Committee, which will meet with financial management and the independent
auditors to review internal accounting controls and accounting, auditing, and
financial reporting matters. Messrs. Graves, Sarnoff and Stern serve on the
Compensation Committee, which will review the compensation of the officers of
the Company and make recommendations on the grant of stock options to officers
and employees of the Company. Actual grants of stock options will continue to be
approved and made by the Board of Directors.
Non-employee directors do not receive compensation for attending meetings
or otherwise serving on the Board, but are reimbursed for their expenses
incurred in attending meetings of the Board of Directors and any committee of
the Board. Non-employee directors are eligible to receive stock options under
the Company's stock option plans (see "Security Ownership of Certain Beneficial
Owners and Management"). Employee directors do not receive additional
compensation for attendance of Board Meetings.
4
<PAGE> 8
PROPOSAL TWO
APPROVAL OF IMMEDIATE INCREASE IN NUMBER OF SHARES
RESERVED FOR ISSUANCE UNDER THE 1996 STOCK INCENTIVE PLAN AND
APPROVAL OF AUTOMATIC YEARLY INCREASES IN THE NUMBER OF SHARES
RESERVED FOR ISSUANCE UNDER THE PLAN
The Company's 1996 Stock Incentive Plan was adopted by the Board of
Directors in August 1996 and approved by the shareholders in March 1997. Prior
to the proposed amendments, as of December 31, 1997, a total of 540,225 shares
of Common Stock were reserved for issuance under the 1996 Stock Incentive Plan.
In March 1998, the Board of Directors approved amendments to the 1996 Stock
Incentive Plan to (i) increase to 760,000 the number of shares of Common Stock
reserved for issuance under the Plan, such increase to take effect of as of
January 1, 1998, and (ii) allow for additional automatic annual increases in the
number of shares reserved for issuance under the 1996 Stock Incentive Plan
beginning in 1999 and continuing through 2001. Such automatic annual increases
would take effect on January 1 of each year, commencing with January 1, 1999,
and ending with January 1, 2002, and would be in the amount of 4% of the number
of shares of Common Stock outstanding on the preceding December 31. The proposed
amendment allowing for automatic annual increases would replace the provision in
the 1996 Stock Incentive Plan that permits increases in the number of shares
reserved and available for grant by an amount equal to 10% of the number of
shares of Common Stock issued by the Company after August 1, 1996 and prior to
December 31, 2000.
The Board of Directors believes that the automatic increase mechanism is in
the best interests of the Company because it enables the Company to assure an
adequate and reasonable reserve of shares for issuance under the 1996 Stock
Incentive Plan without the uncertainties attendant to the present plan provision
and the need to seek shareholder approval of increases in the shares available
for issuance at each annual meeting. An adequate reserve of shares is important
to the Company in order to enable the Company to compete successfully with other
companies to attract and retain valuable employees. The Board of Directors
believes that the automatic annual increase percentage of 4% is reasonable and
will provide an adequate number of shares in light of the Company's historical
rates of usage.
As of January 8, 1998, without giving effect to the proposed amendments, a
total of 540,225 shares had been reserved for issuance under the 1996 Stock
Incentive Plan, of which options to purchase 401,375 shares were issued and
outstanding and options to purchase 120,225 shares remained available for future
grant. As of March 1, 1998, options granted under the 1996 Stock Incentive Plan
to purchase 18,625 shares had been exercised at an exercise price of $4.375 per
share and the aggregate market value of shares underlying unexercised options
was $3,612,375.
The amendment to the 1996 Stock Incentive Plan relating to an immediate
increase in the number of shares reserved and available for grant under the Plan
provides that, effective as of January 1, 1998, the number of shares so reserved
and available for grant be increased to 760,000 from the presently authorized
540,225, or an increase of approximately 4% of the number of shares of Common
Stock outstanding at December 31, 1997.
The amendment to the 1996 Stock Incentive Plan relating to future automatic
annual increases provides that, on January 1 of each year beginning with January
1, 1999 and ending with January 1, 2002, the number of shares reserved and
available for grant under the 1996 Stock Incentive Plan will be increased by a
number of shares equal to 4% of the number of shares of the Company's Common
Stock outstanding on the immediately preceding December 31. Due to restrictions
imposed by the Internal Revenue Code of 1986, as amended, the number of shares
reserved for issuance pursuant to incentive stock options will remain at 760,000
unless further shareholder approval is obtained. The proposed amendment allowing
for automatic annual increases would replace the provision in the 1996 Stock
Incentive Plan that permits increases in the number of shares reserved and
available for grant by an amount equal to 10% of the number of shares of Common
Stock issued by the Company after August 1, 1996 and prior to December 31, 2000.
5
<PAGE> 9
The amendments will amend the first paragraph of Section 3 of the 1996
Stock Incentive Plan to read as follows:
"Stock Subject to the Plan. The total number of shares of Stock
reserved and available for issuance under the Plan shall be 760,000 shares,
as the same shall be increased each January 1, from and including January
1, 1999, through and including January 1, 2002, by a number of shares of
Stock equal to 4% of the number of shares of Stock outstanding as of the
immediately preceding December 31. The maximum number of shares of Stock
reserved and available for issuance pursuant to Incentive Stock Options is
760,000. Such shares may consist, in whole or in part, of authorized and
unissued shares or treasury shares."
A summary of the principal terms of the 1996 Stock Incentive Plan, both
before and after giving effect to the proposed amendments, is included as
Appendix A to this Proxy Statement. A complete copy of the Amended and Restated
1996 Stock Incentive Plan, which gives effect to the proposed amendments, is
included as Appendix B to this Proxy Statement.
See "Information Regarding Executive Officer Compensation -- Option/Warrant
Grant Table -- Option/Warrant Grants in Last Fiscal Year" for certain
information regarding options granted under the 1996 Stock Incentive Plan.
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 Two.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
PROPOSED AMENDMENTS TO THE 1996 STOCK INCENTIVE PLAN.
PROPOSAL THREE
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
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.
6
<PAGE> 10
INFORMATION REGARDING EXECUTIVE OFFICER COMPENSATION
The executive officers and directors of the Company, and their respective
ages and positions with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Gordon T. Graves....................... 60 Chairman of the Board, Chief Executive Officer
and Director
Larry D. Montgomery.................... 59 President (through December 29, 1997) and
Director
Daniel J. Sarnoff...................... 41 Vice President and Director
Gordon T. Sjodin....................... 56 Executive Vice President
Michael E. Newell...................... 46 Vice President
Frederick E. Roll...................... 54 Vice President, Secretary and Chief Financial
Officer
Robert F. Lannert...................... 42 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, 1997 (the "named executive officers"):
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 1997 $ 70,000 (3) $ --
Chairman of the 1996 65,423 -- 485
Board and Chief 1995 46,364(4) -- --
Executive Officer
Larry D. Montgomery 1997 115,160 10,000 --
President and Chief 1996 100,939 5,000 3,238
Operating Officer 1995 108,000 13,000 3,420
Gordon T. Sjodin 1997 120,360 5,000 --
Vice President 1996 115,669 4,445 3,309
1995 108,000 -- 13,206
</TABLE>
- ---------------
(1) Consists of shares of Common Stock underlying options granted pursuant to
the Company's 1994 Employee Stock Option Plan, 1996 Stock Incentive Plan
and its Salaried Employee Participation Plan, and underlying warrants
issued in lieu of compensation in July 1994 (see "Stock Plans" below).
(2) Consists of contributions made by the Company on behalf of the named
executive officers to the Company's 401(k) plan.
(3) Does not include (i) shares of Common Stock underlying warrants issued to
Equipment Purchasing L.L.C., or (ii) shares of Common Stock issuable upon
the exercise by AGN Venturers of a put right. See "Certain Relationships
and Related Transactions."
(4) Such amount (except for $1,129) was contributed by Mr. Graves to the
Company.
7
<PAGE> 11
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, 1997 to the named executive officers.
OPTION/WARRANT GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS
<TABLE>
<CAPTION>
NUMBER OF % OF TOTAL
SECURITIES OPTIONS/
UNDERLYING WARRANTS
OPTIONS/ GRANTED TO
WARRANTS EMPLOYEE IN PRICE EXPIRATION
NAME GRANTED(#) FISCAL YEAR PER SHARE DATE
---- ---------- ----------- --------- ----------
<S> <C> <C> <C> <C>
Gordon T. Graves(1).......................... -- -- -- --
Larry D. Montgomery.......................... 5,000 0.9 $4.375 10/18/06
5,000 0.9 $5.688 2/20/07
Gordon T. Sjodin............................. 5,000 0.9 $4.375 10/18/06
</TABLE>
- ---------------
(1) Does not include (i) shares of Common Stock underlying warrants issued to
Equipment Purchasing L.L.C., or (ii) shares of Common Stock issuable upon
the exercise by AGN Venturers of a put right. See "Certain Relationships
and Related Transactions."
Aggregate Option/Warrant Exercises and Year-End Option Table. The following
table sets forth certain information regarding the exercise of stock options and
warrants during the fiscal year ended September 30, 1997, and the unexercised
stock options and warrants held as of September 30, 1997, by the named executive
officers.
<TABLE>
<CAPTION>
NO. OF
SHARES NO. OF SECURITIES
ACQUIRED VALUE UNDERLYING VALUE OF UNEXERCISED
UPON REALIZED UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
NAME EXERCISE $(1) AT FY-END AT FY-END(2)
---- -------- -------- --------------------------- ---------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gordon T. Graves(3)............. -- -- -- -- -- --
Larry D. Montgomery(4).......... 10,000 $85,000 33,750 29,250 $389,189 $305,905
Gordon T. Sjodin(5)............. -- -- 34,875 19,625 $377,577 $198,983
</TABLE>
- ---------------
(1) Market value of underlying Common Stock on date of exercise, minus the
exercise price.
(2) Market value of the underlying Common Stock at fiscal year end, minus the
exercise price.
(3) Does not include (i) shares of Common Stock underlying warrants issued to
Equipment Purchasing L.L.C., or (ii) shares of Common Stock issuable upon
the exercise by AGN Venturers of a put right. See "Certain Relationships
and Related Transactions."
(4) Does not include warrants acquired for investment in January 1995 to
purchase 5,129 shares of Common Stock, of which 3,189 were exercised in June
1997 at $2.75 per share.
(5) Does not include warrants acquired for investment in January 1995 to
purchase 4,623 shares of Common Stock, of which 2,683 were exercised in June
1997 at $2.75 per share.
Stock Plans. For further information regarding the Company's employee stock
plans, see Appendix A.
EMPLOYMENT CONTRACTS AND SEVERANCE ARRANGEMENTS
The Company does not have any employment or severance agreements with any
officer or director of the Company.
8
<PAGE> 12
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In June 1997, Graves Properties, Ltd., a limited partnership controlled by
Gordon T. Graves, the Company's Chairman and Chief Executive Officer, formed
Equipment Purchasing L.L.C. ("EPLLC") for the purpose of purchasing MegaMania
player stations from the Company and leasing the stations to Indian tribes. In
June 1997, EPLLC purchased approximately 100 MegaMania player stations from the
Company for a total purchase price of $637,347, payable in two promissory notes
of EPLLC, one a short term note in the principal amount of $400,000 bearing
interest at approximately 7% per annum, and the other a 12% note in the
principal amount of $237,437 due in two years, with interest only payable
monthly. In December 1997, EPLLC paid the short term note in full. The purchased
equipment has been leased to a tribe under terms where the Company receives a
percentage of the revenues generated by the equipment in consideration of
providing the equipment and the MegaMania game to the tribe. The Company and
EPLLC have agreed to a sharing of such percentage of revenues, with EPLLC
receiving a share equal to the greater of a fixed percentage amount or such
amount as is necessary to satisfy EPLLC's monthly payment on the purchase note
due the Company and to amortize on a monthly basis the cash contributed to EPLLC
by Graves Properties, Ltd.
In September 1997, EPLLC purchased approximately 345 MegaMania player
stations from the Company for a total purchase price of approximately
$1,800,000, of which $990,000 was paid in cash in December 1997, and the balance
with a 12% note of EPLLC in the principal amount of $810,000 due in two years,
with interest only payable monthly. The purchased equipment has been leased to
five different tribes under terms where the Company receives a percentage of the
revenues generated by the equipment which is shared with EPLLC under terms
consistent with those of the June 1997 sale discussed above.
In connection with the sales of electronic player stations to EPLLC, the
Company recorded revenues of $2,436,000 during the year ended September 30, 1997
with related costs of sales of $1,183,000.
As an inducement to consummate the June 1997 sale, the Company issued to
EPLLC 50,000 warrants to purchase common stock at an exercise price of $11.00
per share, which was the market value of the common stock on the date of
issuance. The estimated fair market value of these warrants is $2,500 and has
been recorded as additional cost of sales. As an inducement to consummate the
September 1997 sale, the Company issued to EPLLC 100,000 warrants to purchase
common stock at an exercise price of $13.38 per share which was the market value
of the common stock on the date of issuance. The estimated fair market value of
these warrants is $5,000 and has been recorded as additional cost of sales. The
warrants will become exercisable one year after the date of issue and expire
five years after the date of issue. The warrants are redeemable by the Company
at $.10 per share if the closing price of the common stock for 20 consecutive
trading days has been at least 150% of the applicable exercise price.
Because of uncertainties relating to the legality of MegaMania and the
ability of lenders to obtain rights to collateral located on Indian lands, the
Company has found it difficult to obtain equipment purchase financing on terms
acceptable to the Company. Accordingly, the Company believes that the terms of
the equipment sales to EPLLC are at least as favorable as could have been
obtained from more traditional sources of financing.
In August 1996, the Company sold AGN Venturers L.L.C. to a group of
investors that included Mr. Graves as to a 10% interest in AGN Venturers L.L.C.
AGN Venturers L.L.C. owned a 51% interest in AGN, the Company's proxy play
subsidiary. Mr. Graves purchased the 10% interest for $50,000 in cash and a
several guarantee (i.e., 10%) of a $336,000 note payable to the Company by AGN.
As part of the transaction, the Company and AGN Venturers L.L.C. entered into a
Put and Call Agreement pursuant to which AGN Venturers L.L.C. had the right to
"put" back to the Company the 51% interest in AGN and repay the $336,000 note in
exchange for 278,667 shares of Common Stock. The Put and Call Agreement further
provides that the Company would issue AGN Venturers L.L.C. an additional 133,333
shares upon the payment by AGN Venturers L.L.C. of a $400,000 note due the
former partner in AGN which was guaranteed by AGN. In October 1997, AGN
Venturers L.L.C. exercised its "put" right with respect to the 278,667 shares
and in December 1997 paid the $400,000 note and exercised its "put" right with
respect to the 133,333 shares.
9
<PAGE> 13
As a result, since October 1997, AGN is 100% owned by the Company. Pursuant to
the exercise of the put rights by AGN Venturers, Mr. Graves acquired 41,200
shares of Common Stock.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During the fiscal year ended September 30, 1997, four officers and one
director were delinquent in making filings under Section 16(a) of the Securities
Exchange Act of 1934, as amended. Larry D. Montgomery, President of the Company,
was delinquent in reporting three transactions, all of which occurred in March
1997. During March 1997, Mr. Montgomery made a gift of 2,000 shares, exercised
an employee stock option for 10,000 shares and disposed of 10,000 shares.
Frederick E. Roll, Vice President and Chief Financial Officer of the Company,
was delinquent in reporting two transactions, both of which occurred in March
1997. During March 1997, Mr. Roll exercised an employee stock option for 10,000
shares and disposed of 10,000 shares. Gordon Sjodin, Vice President of the
Company, was delinquent in reporting the acquisition of 2,683 shares in June
1997. Gregory T. Stern, a Director of the Company, was delinquent in reporting
an option grant in February 1997 to purchase 10,000 shares of Common Stock.
Robert F. Lannert was elected a Vice President of the Company in August 1997 and
was delinquent in filing his initial report on Form 3 for that month.
DEADLINE FOR RECEIPT OF SHAREHOLDER
PROPOSALS -- 1999 ANNUAL MEETING
Proposals of shareholders of the Company which are intended to be presented
by such shareholders at the Company's 1999 Annual Meeting must be received by
the Company no later than November 5, 1998. 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
/s/ FREDERICK E. ROLL
FREDERICK E. ROLL
Vice President, Secretary,
Treasurer,
and Chief Financial Officer
Tulsa, Oklahoma
March 9, 1998
10
<PAGE> 14
APPENDIX A
SUMMARY DESCRIPTION OF 1996 STOCK INCENTIVE PLAN
HISTORY OF COMPANY STOCK PLANS
In November 1994, the stockholders of the Company approved the Company's
1994 Employee Stock Option Plan (the "1994 Plan") and the 1994 Director Stock
Option Plan ("Director Plan"), under which options to purchase an aggregate of
360,000 shares and 60,000 shares, respectively, of Common Stock were reserved
for issuance. As of December 31, 1997, options to purchase 222,500 shares had
been granted under the 1994 Plan of which 17,500 had been exercised at prices
ranging from $2.00 to $2.50 per share and options to purchase 205,000 shares
were outstanding. As of December 31, 1997, options to purchase 40,000 shares of
Common Stock had been granted under the Director Plan, none of which had been
exercised. After the adoption of the Company's 1996 Stock Incentive Plan, no new
options were granted under the 1994 Plan or the Director Plan.
As of December 31, 1997, options for an aggregate of 45,000 shares of
Common Stock had been granted to Larry Montgomery under the Company's 1993
Salaried Employee Participation Plan, all of which had been exercised at a price
of $1.50 per share. Such Plan has been terminated and no further options will be
granted thereunder.
In August 1996, the Board of Directors adopted the Company's 1996 Incentive
Stock Plan (the "1996 Plan") pursuant to which 274,320 shares of Common Stock or
Common Stock equivalents were initially reserved for issuance thereunder 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. As of January 8, 1998, 540,225 shares were reserved for grant
and issuance under the 1996 Plan, of which 18,625 shares had been exercised at a
price of $4.375 per share and options to purchase 401,375 shares were
outstanding at exercise prices ranging from $4.375 per share to $8.00 per share.
SUMMARY OF 1996 STOCK INCENTIVE PLAN
The essential features of the 1996 Plan are outlined below. A complete copy
of the 1996 Plan, as amended and restated to give effect to the amendments
proposed in Proposal Two of this Proxy Statement, is attached hereto as Appendix
B. Capitalized terms found in this summary, 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.
Administration. The 1996 Plan will be administered by the Board of
Directors of the Company or by the Compensation Committee, as determined by the
Board of Directors (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 or of the Compensation Committee will
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
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<PAGE> 15
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. Prior to the amendments to the 1996 Plan contained in
Proposal Two, the Company may issue 540,225 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 December 31, 1997 and prior to December 31, 2001 (the
"Additional Shares"). After giving effect to the amendments contained in
Proposal Two, the Company may issue 760,000 shares of Common Stock or Common
Stock equivalents pursuant to the 1996 Plan increased on each January 1
(commencing with January 1, 1999 and ending with January 1, 2002) by an
additional amount equal to 4% of the number of shares of Common Stock
outstanding on the December 31 immediately preceding such January 1. The total
number of shares of Common Stock subject to Incentive Stock Options is 760,000
shares.
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 or are used to pay the exercise price of any Stock
Option, 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 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
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<PAGE> 16
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 (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. 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
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<PAGE> 17
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 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
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<PAGE> 18
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 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.
APPENDIX B
MULTIMEDIA GAMES, INC.
AMENDED AND RESTATED 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 Compensation Committee of the Board or such other
committee of the Board as is designated from time to time by the Board to be the
Administrator. 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 Texas corporation (or any
successor corporation).
(6) "Deferred Stock" means an award made pursuant to Section 7 below of the
right to receive Stock at the end of a specified deferral period.
(7) "Disability" means the inability of a Participant to perform
substantially his duties and responsibilities to the Company by reason of a
physical or mental disability or infirmity (i) for a continuous period of six
months, or (ii) at such earlier time as the Participant submits medical evidence
satisfactory to the Company that he has a physical or mental disability or
infirmity which will likely prevent him from returning to the performance of his
work duties for six months or longer. The date of such Disability shall be on
the last day of such six-month period or the day on which the Participant
submits such satisfactory medical evidence, as the case may be.
(8) "Effective Date" shall mean the date provided pursuant to Section 11.
(9) "Eligible Employee" means an employee of the Company eligible to
participate in the Plan pursuant to Section 4.
(10) "Fair Market Value" means, as of any given date, with respect to any
awards granted hereunder, at the discretion of the Administrator and subject to
such limitations as the Administrator may impose, (A) if
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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.
(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 Securities Exchange Act of 1934, as amended (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.
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In particular, the Administrator shall have the authority:
(a) to select those employees of the Company who shall be Eligible
Employees;
(b) to determine whether and to what extent Stock Options, Stock
Appreciation Rights, Limited Stock Appreciation Rights, Restricted Stock,
Deferred Stock, Performance Shares or a combination of the foregoing, are to be
granted hereunder to Eligible Employees, consultants and advisors to the
Company;
(c) to determine the number of shares to be covered by each such award
granted hereunder;
(d) to determine the terms and conditions, not inconsistent with the terms
of the Plan, of any award granted hereunder (including, but not limited to, (x)
the restrictions applicable to Restricted or Deferred Stock awards and the
conditions under which restrictions applicable to such Restricted or Deferred
Stock shall lapse, and (y) the performance goals and periods applicable to the
award of Performance Shares); and
(e) to determine the terms and conditions, not inconsistent with the terms
of the Plan, which shall govern all written instruments evidencing the Stock
Options, Stock Appreciation Rights, Limited Stock Appreciation Rights,
Restricted Stock, Deferred Stock, Performance Shares or any combination of the
foregoing.
The Administrator shall have the authority, in its discretion, to adopt,
alter and repeal such administrative rules, guidelines and practices governing
the Plan as it shall from time to time deem advisable; to interpret the terms
and provisions of the Plan and any 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.
Stock Subject to the Plan. The total number of shares of Stock reserved and
available for issuance under the Plan shall be 760,000 shares, as the same shall
be increased each January 1, from and including January 1, 1999, through and
including January 1, 2002, by a number of shares of Stock equal to 4% of the
number of shares of Stock outstanding as of the immediately preceding December
31. The maximum number of shares of Stock reserved and available for issuance
pursuant to Incentive Stock Options is 760,000. 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, or are used to pay the exercise price of any Stock Option such shares
shall again be available for issuance in connection with future awards under the
Plan. If any shares of Stock have been pledged as collateral for indebtedness
incurred by a Participant in connection with the exercise of a Stock Option and
such shares are returned to the Company in satisfaction of such indebtedness,
such shares shall again be available for issuance in connection with future
awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividend or other change in corporate structure
affecting the Stock, a substitution or adjustment shall be made in (i) the
aggregate number of shares reserved for issuance under the Plan, (ii) the kind,
number and option price of shares subject to outstanding Stock Options granted
under the Plan, and (iii) the kind, number and purchase price of shares issuable
pursuant to awards of Restricted Stock, Deferred Stock and Performance Shares,
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.
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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 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
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waive such installment exercise provisions at any time in whole or in part based
on such factors as the Administrator may determine, in its sole discretion.
(4) Method of Exercise. Subject to Section 5(3) above, Stock Options may be
exercised in whole or in part at any time during the option period, by giving
written notice of exercise to the Company satisfying the number of shares to be
purchased, accompanied by payment in full of the purchase price in cash or its
equivalent as determined by the Administrator. As determined by the
Administrator, in its sole discretion, payment in whole or in part may also be
made in the form of unrestricted Stock already owned by the optionee, or, in the
case of the exercise of a Non-Qualified Stock Option, in the form of Restricted
Stock or Performance Shares subject to an award hereunder (based, in each case,
on the Fair Market Value of the Stock on the date the option is exercised);
provided, however, that in the case of an Incentive Stock Option, the right to
make payment in the 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 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
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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 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.
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(e) A Related Stock Appreciation Right granted in connection with an
Incentive Stock Option may be exercised only if and when the Fair Market Value
of the Stock subject to the Incentive Stock Option exceeds the exercise price of
such Stock Option.
(f) Stock Appreciation Rights that are Free Standing Rights ("Free Standing
Stock Appreciation Rights") shall be exercisable at such time or times and
subject to such terms and conditions as shall be determined by the Administrator
at or after grant; provided, however, that no Free Standing Stock Appreciation
Right shall be exercisable during the first six months of its term, except that
this limitation shall not apply in the event of death or disability of the
recipient of the Free Standing Stock Appreciation Right prior to the expiration
of such six-month period.
(g) The term of each Free Standing Stock Appreciation Right shall be fixed
by the Administrator, but no Free Standing Stock Appreciation Right shall be
exercisable more than ten years after the date such right is granted.
(h) Upon the exercise of a Free Standing Stock Appreciation Right, a
recipient shall be entitled to receive up to, but not more than, an amount in
cash or that number of shares of Stock (or any combination of cash or shares of
Stock) equal in value to the excess of the Fair Market Value of one share of
Stock as of the date of exercise over the price per share specified in the Free
Standing Stock Appreciation Right (which price shall be no less than 100% of the
Fair Market Value of the Stock on the date of grant) multiplied by the number of
shares of Stock in respect to which the right is being exercised, with the
Administrator having the right to determine the form of payment.
(i) Free Standing Stock Appreciation Rights shall be transferable or
exercisable only when and to the extent that a Stock Option would be
transferable or exercisable under paragraph (6) of Section 5 of the Plan.
(j) In the event of the termination of employment or service of a
Participant who has been granted one or more Free Standing Stock Appreciation
Rights, such rights shall be exercisable at such time or times and subject to
such terms and conditions as shall be determined by the Administrator at or
after grant.
(k) Limited Stock Appreciation Rights may only be exercised within the
30-day period following a "Change of Control" (as defined by the Administrator
in the agreement evidencing such Limited Stock Appreciation Right) and, with
respect to Limited Stock Appreciation Rights that are Related Rights ("Related
Limited Stock Appreciation Rights"), only to the extent that the Stock Options
to which they relate shall be exercisable in accordance with the provisions of
Section 5 and this Section 6 of the Plan; provided, however, that no Related
Limited Stock Appreciation Right shall be exercisable during the first six
months of its term, except that this additional limitation shall not apply in
the event of death or Disability of the optionee prior to the expiration of such
six-month period.
(l) Upon the exercise of a Limited Stock Appreciation Right, the recipient
shall be entitled to receive an amount in cash equal in value to the excess of
the "Change of Control Price" (as defined in the agreement evidencing such
Limited Stock Appreciation Right) of one share of Stock as of the date of
exercise over (A) the option price per share specified in the related Stock
Option, or (B) in the case of a Limited Stock Appreciation Right which is a Free
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
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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 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.
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SECTION 8. Amendment and Termination.
The Board may amend, alter or discontinue the Plan, but no amendment,
alteration, or discontinuation shall be made that would impair the rights of a
Participant under any award theretofore granted without such Participant's
consent.
The Administrator may amend the terms of any award theretofore granted,
prospectively or retroactively, but, subject to Section 3 above, no such
amendment shall impair the rights of any holder without his or her consent.
SECTION 9. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive
compensation. With respect to any payments not yet made to a Participant by the
Company, nothing contained herein shall give any such Participant any rights
that are greater than those of a general creditor of the Company.
SECTION 10. General Provisions.
(1) The Administrator may require each person purchasing shares pursuant to
a Stock Option to represent to and agree with the Company in writing that such
person is acquiring the shares without a view to distribution thereof. The
certificates for such shares may include any legend which the Administrator
deems appropriate to reflect any restrictions on transfer.
All certificates for shares of Stock delivered under the Plan shall be
subject to such stock-transfer orders and other restrictions as the
Administrator may deem advisable under the rules, regulations, and other
requirements of the Commission, any stock exchange upon which the Stock is then
listed, and any applicable federal or state securities law, and the
Administrator may cause a legend or legends to be placed on any such
certificates to make appropriate reference to such restrictions.
(2) Nothing contained in the Plan shall prevent the Board from adopting
other or additional compensation arrangements, subject to stockholder approval
if such approval is required; and such arrangements may be either generally
applicable or applicable only in specific cases. The adoption of the Plan shall
not confer upon any employee, director, consultant or advisor of the Company any
right to continued employment or service with the Company, as the case may be,
nor shall it interfere in any way with the right of the Company to terminate the
employment or service of any of its employees, directors, consultants or
advisors at any time.
(3) Each Participant shall, no later than the date as of which the value of
an award first becomes includible in the gross income of the Participant for
federal income tax purposes, pay to the Company, or make arrangements
satisfactory to the Administrator regarding payment of, any federal, state, or
local taxes of any kind required by law to be withheld with respect to the
award. The obligations of the Company under the Plan shall be conditional on the
making of such payments or arrangements, and the Company shall, to the extent
permitted by law, have the right to deduct any such taxes from any payment of
any kind otherwise due to the Participant.
(4) No member of the Board or the Administrator, nor any officer or
employee of the Company acting on behalf of the Board or the Administrator,
shall be personally liable for any action, determination, or interpretation
taken or made in good faith with respect to the Plan, and all members of the
Board or the Administrator and each and any officer or employee of the Company
acting on their behalf shall, to the extent permitted by law, be fully
indemnified and protected by the Company in respect of any such action,
determination or interpretation.
SECTION 11. Effective Date of Plan.
The Plan became effective (the "Effective Date") on February 21, 1998;
provided that, the Plan shall become effective with respect to Incentive Stock
Options on the date the Company's stockholders formally approve the Plan.
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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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MULTIMEDIA GAMES, INC.
THE PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
PROXY FOR 1998 ANNUAL MEETING OF SHAREHOLDERS APRIL 4, 1998
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 9, 1998, and hereby appoints
Gordon T. Graves and Frederick E. Roll, 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 1998 Annual Meeting
of Shareholders of Multimedia Games, Inc. to be held on April 4, 1998 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, Thomas W. Sarnoff
2. To ratify and approve the adoption of amendments to the Company's 1996 Stock
Incentive Plan as described in the Proxy Statement related to the Annual
Meeting.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. 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, 1998.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued and to be signed and dated on the other side.)
<PAGE> 29
(Continued from other side)
4. To transact such other business as may properly come before the meeting or
any postponements or adjournments thereof.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
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: _______________________________, 1998
--------------------------------------------
Signature
--------------------------------------------
Signature (if held jointly)
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.
