<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] CONFIDENTIAL, FOR USE OF THE
COMMISSION ONLY (AS PERMITTED BY
RULE 14A-6(E)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Multimedia Games, Inc.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
April 5, 1999
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders of
Multimedia Games, Inc. (the "Company") which will be held on Tuesday, May 11,
1999 at 10:00 a.m., local time, at the Holiday Inn Northwest, 8901 Business
Park Drive, Austin, Texas 78759.
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 1998 Annual Report on Form 10-KSB is also enclosed.
On behalf of the Board of Directors and Management, I would like to express
our appreciation for your continued 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 of the Board and Chief
Executive Officer
<PAGE>
MULTIMEDIA GAMES, INC.
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 11, 1999
NOTICE IS HEREBY GIVEN that the 1999 Annual Meeting of Shareholders of
Multimedia Games, Inc. (the "Company"), a Texas corporation, will be held on
Tuesday, May 11, 1999 at 10:00 a.m., local time, at the Holiday Inn Northwest,
8901 Business Park Drive, Austin, Texas 78759 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; Thomas W. Sarnoff and Robert D. Bullock;
2. To ratify and approve an amendment to the Company's 1996 Stock
Incentive Plan to increase the number of shares reserved for issuance under
the Plan;
3. To ratify and approve the Company's 1998 President's Stock Option Plan
as incentive stock options;
4. To ratify and approve the Company's 1998 Senior Executive Stock Option
Plan as incentive stock options;
5. To ratify and approve the appointment of PricewaterhouseCoopers LLP,
as the Company's independent auditors; and
6. 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 March 15, 1999 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 offices, 8900 Shoal Creek Blvd., Austin, Texas, 78759, 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
GORDON T. GRAVES
Chairman of the Board and
Chief Executive Officer
April 5, 1999
<PAGE>
MULTIMEDIA GAMES, INC.
8900 Shoal Creek Boulevard
Austin, Texas 78759
Proxy Statement for Annual Meeting
of Shareholders
to be held May 11, 1999
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 May 11, 1999 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 the Holiday Inn Northwest, 8901 Business
Park Drive, Austin, Texas 78759. The Holiday Inn Northwest telephone number is
(512) 343-0888.
These proxy solicitation materials were mailed on or about April 5, 1999 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: George J. Akmon, 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 five (5) nominees for director
listed in this Proxy Statement and FOR each of the other matters proposed in
this Proxy Statement. As to any other matter that may be properly brought
before the Annual Meeting, the proxy will be voted 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 March
15, 1999 (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
5,451,275 shares of Common Stock and 90,789 shares of Preferred Stock
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 each
included in the determination of the number of shares present and voting, for
purposes of determining the presence or absence of a quorum. Neither
abstentions nor broker non-votes are counted as voted either for or against a
proposal. Except as otherwise stated herein, provided a quorum is present, the
affirmative vote of the holders of a majority of the shares entitled to vote
on, and that vote for or against, the matter is required to approve any
matter.
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
1
<PAGE>
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
Beneficially Percent Beneficially Percent
Beneficial Owner Owned of Class Owned of Class(1)
- ---------------- ------------ -------- ------------ -----------
<S> <C> <C> <C> <C>
Gordon T. Graves.............. 1,077,620(2) 19.7 80,175(3) 88.8%
1604 Crested Butte
Austin, Texas 78746
Clifton E. Lind............... 160,588(4) 2.9 -- --
2 Las Brisas
Austin, Texas 78746
Larry D. Montgomery........... 101,684(5) 1.9 1,411 1.5
1920 S. West Union Road
Topeka, Kansas 66615
Gordon T. Sjodin.............. 69,548(6) 1.3 1,272 1.4
5804 E. 104th Street
Tulsa, Oklahoma 74137
Thomas W. Sarnoff............. 2,500(7) (9) -- --
2451 Century Hill
Los Angeles, California 90067
Gregory N. Stern.............. 22,500(8) (9) -- --
130 Barton Road
Stow, Massachusetts 01775
Robert D. Bullock............. -- -- -- --
3001 Gilbert
Austin, Texas 78703
All executive officers and
directors as a group
(11 persons)................. 1,506,908(10) 27.6 83,351 91.8
</TABLE>
- --------
(1) Based upon 5,451,275 shares of Common Stock and 90,789 shares of Series A
Preferred Stock outstanding.
(2) Consists of (i) 581,545 shares owned of record by Graves Properties,
Ltd., a limited partnership controlled by Mr. Graves, (ii) 51,000 shares
owned by Graves Management, Inc. Defined Benefit Trust (Graves
Management, Inc. is a corporation controlled by Mr. Graves), (iii) 44,200
shares owned of record or beneficially in street name by Mr. 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.
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<PAGE>
(3) 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.
(4) Consists of (i) 6,088 shares owned of record or beneficially in street
name by Mr. Lind, and (ii) 154,500 shares issuable upon the exercise of
stock options that are currently exercisable.
(5) Consists of (i) 96,129 shares owned of record by Mr. Montgomery, and (ii)
7,055 shares issuable upon conversion of the Series A Preferred Stock.
(6) Consists of (i) 13,433 shares owned of record by Mr. Sjodin, (ii) 49,750
shares issuable upon the exercise of stock options that are currently
exercisable, and (iii) 6,360 shares issuable upon conversion of the
Series A Preferred Stock.
(7) Consists of shares issuable upon the exercise of stock options that are
currently exercisable.
(8) Consists of shares issuable upon the exercise of stock options that are
currently exercisable.
(9) Less than 1%.
(10) Consists of (i) 800,305 shares owned of record or beneficially in street
name, (ii) 292,313 shares issuable upon the exercise of stock options
that are currently exercisable (278,250 shares) or are exercisable within
the next 60 days (14,063 shares), and (iii) 414,290 shares issuable upon
conversion of the Series A Preferred Stock.
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<PAGE>
PROPOSAL ONE
ELECTION OF DIRECTORS
Nominees
In accordance with the Bylaws of the Company, a board of five (5) directors
is to be elected at the Annual Meeting. The five (5) 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 five (5) persons. Unless otherwise instructed, the proxy holders will
vote the proxies received by them FOR the Company's five (5) nominees named
below. If any nominee of the Company is unable or declines to serve as a
director at the time of the Annual Meeting, the proxies will be voted for any
nominee designated by the present Board of Directors to fill the vacancy.
Management has no reason to believe that any of the nominees will be unable or
unwilling to serve if elected. The term of office of each person elected as a
director will continue until the next Annual Meeting of Shareholders or until
his successor has been elected and qualified.
The following table sets forth the nominees, their ages, their principal
occupations and the year in which each became a director of the Company.
Messrs. Gordon T. Graves, Larry D. Montgomery and Gregory N. Stern were
elected to the Board at the Company's Annual Meeting of Shareholders held on
August 25, 1995, and have continued to serve since that time. Thomas W.
Sarnoff was elected to the Board at the Company's Annual Meeting of
Shareholders held on April 4, 1998, and has continued to serve since that
time. Daniel J. Sarnoff, President of a subsidiary of the Company, is the son
of Thomas W. Sarnoff. Except for that family relationship, no other family
relationship exists between any of the directors or executive officers of the
Company.
<TABLE>
<CAPTION>
Name of Nominee Age Principal Occupation Director Since
--------------- --- -------------------- --------------
<C> <C> <S> <C>
Gordon T. Graves 61 Chairman of the Board, Chief 1991
Executive Officer and Director
Larry D. Montgomery 61 Director and Independent Consultant 1992
to Company
Thomas W. Sarnoff 72 Director and President of Academy of 1997
Television Arts & Sciences Foundation
Gregory N. Stern 53 Director and Independent Management 1993
Consultant to The Littleton Group
Robert D. Bullock 70 Director and Senior Advisor to Public 1999
Strategies, Inc.
</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, 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 regulatory affairs.
4
<PAGE>
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 Foundation.
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.
Robert D. Bullock has been a director of the Company since January 1999.
From January 1991 until joining the Company as a director, Mr. Bullock was the
Lieutenant Governor of the State of Texas and President of the Texas State
Senate. Mr. Bullock is currently Senior Advisor to Public Strategies, Inc., an
Austin, Texas based strategic communications firm.
Board Meetings and Committees
The Board of Directors of the Company held a total of four (4) meetings
during the fiscal year ended September 30, 1998. No director attended fewer
than 75% of the total number of meetings of the Board of Directors held during
the period for which he was a director.
The Board has established an Audit Committee and a Compensation Committee.
Messrs. Graves, Stern and Montgomery serve on the Audit Committee, which met
twice during the last fiscal year to review with financial management the
recommendations of the Company's independent auditors with respect to internal
accounting controls and accounting, auditing, and financial reporting matters.
Messrs. Graves, Sarnoff and Stern serve on the Compensation Committee, which
met twice during the last fiscal year to review the compensation of the
officers of the Company and to make recommendations on the grant of stock
options to officers and employees of the Company. Actual grants of stock
options have continued to be approved 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
1996 Stock Incentive Plan (see "Security Ownership of Certain Beneficial
Owners and Management"). Employee directors do not receive additional
compensation for attendance of Board or Committee meetings.
5
<PAGE>
PROPOSAL TWO
APPROVAL OF INCREASE IN NUMBER OF SHARES
RESERVED FOR ISSUANCE UNDER THE 1996 STOCK INCENTIVE 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. In
March 1999, the Board of Directors approved an amendment to the 1996 Stock
Incentive Plan to increase by 250,000 the number of shares of Common Stock
reserved for issuance under the Plan, such increase to take effect of as of
March 1, 1999. The Board of Directors believes that the increase is in the
best interests of the Company because it enables the Company to have an
adequate and reasonable reserve of shares for issuance under the 1996 Stock
Incentive Plan. 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 increase will reserve an adequate number of shares in light of the
Company's historical rates of usage.
As of December 31, 1998, without giving effect to the proposed increase, a
total of 545,127 shares had been reserved for issuance under the 1996 Stock
Incentive Plan, of which options to purchase 487,950 shares were issued and
outstanding, 6,200 shares had been exercised (at an exercise price of $3.81
per share) and options to purchase 50,977 shares remained available for future
grant. As of December 31, 1998, the aggregate market value of shares
underlying unexercised options granted under the 1996 Stock Incentive Plan was
$3,322,940.
The amendment to the 1996 Stock Incentive Plan relating to an increase in
the number of shares reserved and available for grant under the Plan provides
that, effective as of March 1, 1999, the number of shares so reserved and
available for grant be increased to 795,127 from the presently authorized 545,
127, or an increase of approximately 4.5% of the number of shares of Common
Stock outstanding at December 31, 1998.
The amendment 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 795,127 shares. The
maximum number of shares of Stock reserved and available for issuance
pursuant to Incentive Stock Options is 795,127. 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 amendment, is included as
Appendix A to this Proxy Statement. A copy of the Amended and Restated 1996
Stock Incentive Plan, which gives effect to the proposed amendment, is
included as Appendix B to this Proxy Statement. A summary of the Federal
income tax aspects of the 1996 Stock Incentive Plan and of the other stock
option plans referred to in Proposals Three and Four of this Proxy Statement
is included as Appendix E to this Proxy Statement.
See "Information Regarding Executive Officer Compensation" for certain
information regarding options granted under the 1996 Stock Incentive Plan,
including options repriced during the last fiscal year.
Vote Required
The affirmative vote of the holders of a majority of the shares entitled to
vote on, and that vote for or against, is required to approve Proposal Two.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR" THE
PROPOSED INCREASE IN THE NUMBER OF SHARES RESERVED UNDER THE 1996 STOCK
INCENTIVE PLAN.
6
<PAGE>
PROPOSAL THREE
APPROVAL AND RATIFICATION OF
1998 PRESIDENT'S STOCK OPTION PLAN
AS INCENTIVE STOCK OPTIONS
Summary of Proposed 1998 President's Stock Option Plan
In June, 1998, the Board of Directors adopted the Company's 1998 President's
Stock Option Plan (the "President's Plan") pursuant to which the Company
granted options to purchase 338,000 shares of Common Stock to Clifton E. Lind
as an inducement to employ Mr. Lind as the Company's President and Chief
Operating Officer. With respect to the authority to grant Incentive Stock
Options pursuant to the President's Plan, such adoption by the Board of
Directors was made subject to the approval of the Company's shareholders. No
other officer, director or employee of the Company is eligible to participate
in the President's Plan and no additional options may be granted under the
Plan.
The essential features of the President's Plan are summarized below. A
complete copy of the President's Plan is attached hereto as Appendix C. A
summary of the Federal income tax aspects of the President's Plan is included
as Appendix E to this Proxy Statement.
Purpose. The purpose of the President's Plan is to enable the Company to
attract and retain Clifton E. Lind as the President and Chief Operating
Officer of the Company. No other officer, director or employee of the Company
is eligible to participate in the President's Plan.
Reserved Shares. A total of 338,000 shares of Common Stock may be issued
pursuant to the President's Plan, and options to purchase 338,000 shares have
been granted to Mr. Lind at an exercise price of $3.81 per share, which was
the market value of the Common Stock on the date of grant. To the extent that
any option expires or is otherwise terminated without being exercised, such
shares shall not thereafter be available for issuance in connection with
future grants.
Incentive Stock Options. Subject to the approval of the Company's
shareholders, it is intended that the options granted to Mr. Lind qualify as
incentive stock options ("Incentive Stock Options" or "ISOs") under Section
422 of the Internal Revenue Code (the "Code"). In the event the shareholders
fail to approve such options as ISOs as provided in this Proposal Three, the
options granted to Mr. Lind will remain outstanding in accordance with their
terms but will not qualify as ISO's ("Non-qualified Stock Options" or "NSOs").
Expiration Dates and Vesting. The following Table sets forth the expiration
and vesting dates of the options granted to Mr. Lind under the President's
Plan:
<TABLE>
<CAPTION>
Number of Shares
Subject to Option Date Initially Exercisable Expiration Date
- ----------------- -------------------------- ------------------
<S> <C> <C>
27,000 June 17, 1998 May 29, 2002
50,000 September 30, 1998 September 30, 2002
12,250 June 17, 1998 February 20, 2007
12,250 February 20, 1999 February 20, 2007
12,250 February 20, 2000 February 20, 2007
12,250 February 20, 2001 February 20, 2007
12,500 January 8, 1999 January 8, 2008
12,500 January 8, 2000 January 8, 2008
12,500 January 8, 2001 January 8, 2008
12,500 January 8, 2002 January 8, 2008
40,500 August 28, 1998 August 28, 2007
40,500 August 28, 1999 August 28, 2007
40,500 August 28, 2000 August 28, 2007
40,500 August 28, 2001 August 28, 2007
</TABLE>
7
<PAGE>
Vesting may be accelerated in the event of a "change of control" or upon the
death, disability or involuntary termination of Mr. Lind.
Payment. Payment for any shares purchased upon the exercise of any vested
options may be made, at the election of Mr. Lind, either in cash, in shares of
Common Stock or by delivery of a promissory note of Mr. Lind, or any
combination of the foregoing.
Nontransferability of Options. The options granted to Mr. Lind are not
transferable by him other than by will or by the laws of descent and
distribution.
See "Information Regarding Executive Officer Compensation" for additional
information.
Vote Required
The affirmative vote of the holders of a majority of the shares entitled to
vote on, and that vote for or against, is required to approve Proposal Three.
If such majority does not vote affirmatively for Proposal Three, the
President's Plan, and all of the options granted thereunder, shall
nevertheless remain in full force and effect, except that such options shall
be Non-qualified Stock Options.
8
<PAGE>
PROPOSAL FOUR
APPROVAL AND RATIFICATION OF
1998 SENIOR EXECUTIVE STOCK OPTION PLAN
AS INCENTIVE STOCK OPTIONS
Summary of Proposed 1998 Senior Executive Stock Option Plan
In November 1998, the Board of Directors adopted the Company's 1998 Senior
Executive Stock Option Plan (the "Senior Executive Plan") pursuant to which
the Company granted options to purchase an aggregate of 205,000 shares of
Common Stock to three persons--Timothy R. Stuart, George J. Akmon and Gary L.
Loebig--as an inducement to become employed as senior executive officers of
the Company. With respect to the authority to grant Incentive Stock Options
pursuant to the Senior Executive Plan, such adoption by the Board of Directors
was made subject to the approval of the Company's shareholders. No other
officer, director or employee of the Company is eligible to participate in the
Senior Executive Plan and no additional options may be granted under the Plan.
The essential features of the Senior Executive Plan are summarized below. A
complete copy of the Senior Executive Plan is attached hereto as Appendix D. A
summary of the Federal income tax aspects of the Senior Executive Plan is
included as Appendix E to this Proxy Statement.
Purpose. The purpose of the Senior Executive Plan is to enable the Company
to attract and retain Timothy R. Stuart, George J. Akmon and Gary L. Loebig as
senior executive officers of the Company. No other officer, director or
employee of the Company is eligible to participate in the Senior Executive
Plan.
Reserved Shares. A total of 205,000 shares of Common Stock may be issued
pursuant to the Senior Executive Plan, and options to purchase 80,000 shares,
75,000 shares and 50,000 shares have been granted to Messrs. Stuart, Akmon and
Loebig, respectively, at an exercise price of $3.81 per share, which was in
excess of the market value of the Common Stock on the date of grant. To the
extent that any option expires or is otherwise terminated without being
exercised, such shares shall not thereafter be available for issuance in
connection with future grants.
Incentive Stock Options. Subject to the approval of the Company's
shareholders, it is intended that the options granted to Messrs. Stuart, Akmon
and Loebig qualify as ISO's.
Expiration Dates and Vesting. The following Table sets forth the expiration
and vesting dates of the options granted to Messrs. Stuart, Akmon and Loebig
under the Senior Executive Plan. All options expire in November 2008 to the
extent not exercised.
Timothy Stuart:
<TABLE>
<CAPTION>
Number of Shares
Subject to Option Date Initially Exercisable
----------------- --------------------------
<S> <C>
9,375 May 6, 1999
9,375 November 6, 1999
18,750 November 6, 2000
18,750 November 6, 2001
18,750 November 6, 2002
5,000 May 6, 2003
</TABLE>
9
<PAGE>
George Akmon:
<TABLE>
<CAPTION>
Number of Shares
Subject to Option Date Initially Exercisable
----------------- --------------------------
<S> <C>
18,750 November 6, 1999
18,750 November 6, 2000
18,750 November 6, 2001
18,750 November 6, 2002
</TABLE>
Gary Loebig:
<TABLE>
<CAPTION>
Number of Shares
Subject to Option Date Initially Exercisable
----------------- --------------------------
<S> <C>
4,688 May 6, 1999
4,687 November 6, 1999
9,375 November 6, 2000
9,375 November 6, 2001
9,375 November 6, 2002
6,250 November 6, 2003
6,250 November 6, 2004
</TABLE>
In all cases, vesting may be accelerated in the event of a "change of
control". In the cases of Mr. Stuart and Mr. Loebig, vesting will accelerate
as to options initially exercisable on or prior to November 6, 2000, upon
their involuntary termination prior to that date.
Payment. Payment for any shares purchased upon the exercise of any vested
options may be made, at the election of Messrs. Stuart, Akmon and Loebig,
either in cash, in shares of Common Stock or by delivery of a promissory note
of such person, or any combination of the foregoing.
Nontransferability of Options. The options granted to Messrs. Stuart, Akmon
and Loebig are not transferable other than by will or by the laws of descent
and distribution.
Vote Required
The affirmative vote of the holders of a majority of the shares entitled to
vote on, and that vote for or against, is required to approve Proposal Four.
If such majority does not vote affirmatively for Proposal Four, the Senior
Executive Plan, and all of the options granted thereunder, shall nevertheless
remain in full force and effect, except that such options shall be Non-
qualified Stock Options.
PROPOSAL FIVE
APPROVAL AND RATIFICATION OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected PricewaterhouseCoopers LLP 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 PricewaterhouseCoopers LLP 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 the holders of a majority of the shares entitled to
vote on, and that vote for or against, is required to approve Proposal Four.
10
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE "FOR"
RATIFICATION OF THE APPOINTMENT OF PRICEWATERHOUSECOOPERS LLP AS THE COMPANY'S
INDEPENDENT PUBLIC ACCOUNTANTS.
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
---- --- --------
<C> <C> <S>
Gordon T. Graves 61 Chairman of the Board, Chief Executive Officer and
Director
Clifton E. Lind 52 President and Chief Operating Officer
Gordon T. Sjodin 57 President of MegaBingo Inc.
Michael E. Newell 47 Vice President
Robert F. Lannert 43 Vice President
Daniel J. Sarnoff 42 President of TV Games, Inc.
Timothy R. Stuart 46 ExecutiveVice President for Marketing Services; Vice
President of Creative Services Division
George J. Akmon 55 Vice President and Chief Financial Officer
Gary L. Loebig 50 Vice President for Marketing Services; Vice President
of Creative Services, Inc.
Larry D. Montgomery 61 Vice Chairman of the Board and Director
Thomas W. Sarnoff 71 Director
Gregory N. Stern 53 Director
Robert D. Bullock 70 Director
</TABLE>
11
<PAGE>
Summary Compensation Table. The following table sets forth certain
information concerning the annual compensation for the Company's chief
executive officer and for each other executive officer earning more than
$100,000 for the fiscal year ended September 30, 1998 (the "named executive
officers"):
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
Awards
Securities
Annual Underlying
Compensation Options/ All Other
Financial Position Year Salary Warrants(#)(1) Compensation(2)
- ------------------ ---- ------------ -------------- ---------------
<S> <C> <C> <C> <C>
Gordon T. Graves.............. 1998 $87,308 (3) $4,213
Chairman and CEO 1997 70,000 (4) 3,877
1996 65,423 -- 485
Clifton E. Lind(5)............ 1998 156,733 338,000 2,492
President and COO
Larry D. Montgomery(6)........ 1998 171,777 22,500 3,560
1997 115,160 10,000 6,474
1996 100,939 5,000 3,238
Gordon T. Sjodin.............. 1998 115,731 10,100 7,647
Vice President 1997 120,360 5,000 7,222
1996 115,669 4,445 3,309
</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 President's Plan.
(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 shares of Common Stock underlying warrants issued to
Equipment Purchasing II L.L.C. See "Certain Relationships and Related
Transactions".
(4) 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".
(5) Mr. Lind became President and COO of the Company in June, 1998. Includes
amounts paid to Mr. Lind since that date and for the period commencing
October 1, 1997 through June, 1998 while Mr. Lind served as an independent
consultant to the Company.
(6) Mr. Montgomery served as President of the Company during 1996 and 1997 and
resigned as President in December 1997. Mr. Montgomery remained an
employee of the Company until April 1998 at which time he became a
consultant. Amounts paid in 1998 include all amounts paid to Mr.
Montgomery while an employee and amounts paid to him as a consultant after
April 1998. See "Certain Relationships and Related Transactions".
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, 1998 to the named executive officers.
12
<PAGE>
Option/Warrant Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
------------------------
Number of % of Total
Securities Options/
Underlying Warrants
Options/ Granted to
Warrants Employees in Price Expiration
Name Granted (#) Fiscal Year Per Share (1) Date
- ---- ----------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
Gordon T. Graves(2)........... -- -- -- --
Clifton E. Lind............... 338,000 45.68% $3.81 (3)
Larry D. Montgomery........... 22,500 3.0 % $3.81 1/08/08
Gordon T. Sjodin.............. 10,100 1.35% $3.81 1/08/08
</TABLE>
- --------
(1) Is the exercise price of the options after giving effect to the repricing
discussed below under "Option Repricing."
(2) Does not include (i) shares of Common Stock underlying warrants issued to
Equipment Purchasing II L.L.C. See "Certain Relationships and Related
Transactions".
(3) 27,000 options expire in May 2002; 50,000 options expire in September
2002; 49,000 options expire in February 2007; 162,000 options expire in
August 2007; and 50,000 options expire in January 2008.
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, 1998, and the
unexercised stock options and warrants held as of September 30, 1998, by the
named executive officers.
<TABLE>
<CAPTION>
No. of No. of Securities Value of Unexercised In-
Shares Underlying Unexercised The-Money Options at
Acquired Value Options at FY-End FY- End (2)
Upon Realized ------------------------- -------------------------
Name Exercise $(1) Exercisable Unexercisable Exercisable Unexercisable
---- -------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Gordon T. Graves(3)..... -- -- -- -- -- --
Clifton E. Lind......... -- -- -- 338,000 -- --
Larry D. Montgomery..... 64,940 $661,139 -- 22,500 -- --
Gordon T. Sjodin........ 1,940 $ 15,559 47,250 12,350 $6,750 --
</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 ($2.65 per
share), minus the exercise price.
(3) Does not include shares of Common Stock underlying warrants issued to
Equipment Purchasing L.L.C., or Equipment Purchasing II L.L.C. See
"Certain Relationships and Related Transactions".
Option Repricing. On June 12, 1998, the Board of Directors of the Company
canceled all outstanding options held by optionees under the 1996 Stock
Incentive Plan and granted new options to all such optionees. The new options
were for the same number of shares and upon the same terms of expiration and
vesting as the canceled options, except that the exercise price for the new
options was $3.81 per share, the market value of the Common Stock on June 12,
1998. In effect, therefore, the Board of Directors reduced the exercise price
of all such outstanding options which had exercise prices at the time of
cancellation ranging from $4.38 per share to $13.38 per share. A total of
275,300 options granted to over 65 employees under the 1996 Stock Incentive
Plan were repriced by the June 12, 1998 action.
Also at the June 12, 1998 meeting, Mr. Lind was offered the position of
President of the Company and the 1998 President's Plan was established as an
inducement to Mr. Lind to accept the position. Pursuant to the 1998
President's Plan, Mr. Lind was granted options to purchase 338,000 shares at
$3.81 per share, the market value of the Common Stock on June 12, 1998. In
connection with the grant under the 1998 President's Plan, all options
13
<PAGE>
and warrants to purchase Common Stock that had previously been granted to Mr.
Lind in consideration of prior financial and consulting services to the
Company (aggregating 338,000 shares at exercise prices ranging from $5.68 to
$13.38 per share) were canceled. These have been treated as repriced options
for purposes of the Repricing Table set forth below.
The Board of Directors took such action in the belief that it was
appropriate in order to attract and retain the qualified personnel desired to
operate the Company. By June 12, 1998, the legality of the Company's
activities was being challenged by the Department of Justice before two
Federal District Courts and one shareholder class action had been filed. The
uncertainties raised by these actions, and the time and attention devoted by
personnel to assist in the defense of these actions while at the same time
trying to expand and operate the business, placed severe strains on all
personnel who were asked to meet this challenge. The existence of the
Department of Justice litigation had also resulted in a precipitous decline in
the market price of the Company's Common Stock so that all of the repriced
options were significantly "underwater." Since the Board of Directors believes
that the incentives offered by stock options are important to employee morale
and retention, after careful consideration of the challenges and opportunities
facing the Company, the Board of Directors made the good faith judgment that
it was in the best interests of the Company and its stockholders to lower the
exercise price of outstanding options, thus restoring the opportunity for
employees to receive value in the near term by continuing to persevere against
litigation that is perceived by most employees as unfair and unjust and
building the Company through increased and improved operations.
Repricing Table
<TABLE>
<CAPTION>
Number of Shares Option Term
Underlying Exercise Price of New Exercise Remaining at
Name Repriced Options Terminated Options Price of Repriced Options Repricing Date
- ---- ---------------- ------------------ ------------------------- --------------
<S> <C> <C> <C> <C>
Gordon T. Graves........ -- -- -- --
Clifton E. Lind......... 338,000 (1) $3.81 (1)
Larry D. Montgomery..... 15,000 $7.50 $3.81 9 years
Gordon T. Sjodin........ 5,000 $4.37 $3.81 8 years
5,000 $9.50 $3.81 9 years
</TABLE>
- --------
(1) The expiration date of new options granted to Mr. Lind remains the same as
the options and warrants that were canceled/repriced. The exercise price
of the canceled/repriced options was as follows; 27,000 options at $10.00
per share expiring in May 2002; 50,000 warrants at $13.38 per share
expiring in September 2002; 49,000 options at $5.68 per share expiring in
February 2007; 54,000 options at $8.00 per share expiring in August 2007;
54,000 options at $10.00 per share expiring in August 2007; 54,000 options
at $12.00 per share expiring in August 2007; and 50,000 options at $9.50
per share expiring in January 2008.
Stock Plans. For further information regarding the Company's employee stock
plans, see Appendix A.
Employment Contracts and Severance Arrangements
On April 15, 1998, the Company entered into a Consulting Agreement, as later
amended, with Larry D. Montgomery, a Director of the Company. Mr. Montgomery
was the President and COO of the Company until December 1997. The Consulting
Agreement has a term of five years, but may be terminated by either party with
six months notice given at any time after January 1, 1999. Mr. Montgomery is
compensated at the rate of $126,000 annually, and received a bonus of $57,500
in September 1998 and an additional bonus of $3,000 in November 1998. The
Company has also agreed to pay the cost of all premiums on life, health and
disability insurance for Mr. Montgomery and his family for five years and,
during the term of the agreement, will pay Mr. Montgomery rent of $1,000 per
month for the use of office space in Topeka, Kansas.
14
<PAGE>
Certain Relationships and Related Transactions
Equipment Sales
In March 1998, the Company entered into an agreement to sell electronic
player stations (EPS) and related equipment to a third party for a sales price
of approximately $2.4 million. The sales price was paid in March 1998 by
delivery to the Company of a promissory note of the third party purchaser that
was due and payable on or before April 30, 1998. Subsequent to March 31, 1998,
the third party purchaser assigned its right under the purchase agreement to a
newly-formed limited liability company ("EPLLC-2"). An affiliate of Gordon T.
Graves, the Company's Chairman of the Board and Chief Executive Officer, and
Clifton E. Lind, the Company's President and Chief Operating Officer, each
owned a 10.5% interest in EPLLC-2. Mr. Graves also owns and controls the
corporation having management authority over EPLLC-2. The terms of the sale
which was assigned to EPLLC-2 are the same as the original terms entered into
with the third party purchaser in March 1998. The promissory note was paid by
EPLLC-2 on May 15, 1998.
In June 1998, the Company sold EPS and related equipment to EPLLC-2 for a
sales price of approximately $1.4 million, which included a non-refundable
deposit of $140,000 received on the effective date of the transaction. The
sales price was paid in June 1998 by delivery to the Company of $140,000 in
cash and a promissory note of EPLLC-2 that was due and paid on July 15, 1998
out of funds contributed to EPLLC-2 from a group of investors that did not
include either Mr. Graves or Mr. Lind or any other officer, director or
employee of the Company. As a result of the additional contribution, the
ownership interest of each of Mr. Graves and Mr. Lind in EPLLC-2 was reduced
to 6.36%. Mr. Graves continues to own and control the corporation having
management authority over EPLLC-2.
The EPS and related equipment purchased by EPLLC-2 has been leased to a
number of Indian tribes under terms where the Company and EPLLC-2 share in a
percentage of the revenues generated by the use and operation of the EPS at
the tribes' bingo facilities. As an inducement to consummate the March 1998
sale, the Company had agreed to issue to the original third party issuer, and
did issue to EPLLC-2, warrants to purchase 20,000 shares of common stock
(exercisable for a period of five years, non-exercisable in the first year) at
an exercise price of $9.44 per share, which was the market value of the common
stock on the date the equipment purchase agreement was executed. The estimated
fair market value of these warrants was $1,000 and has been recorded as
additional cost of sales. As an inducement to consummate the June 1998 sale,
the Company issued to EPLLC-2 warrants to purchase 262,500 shares of common
stock (exercisable for a period of five years, non-exercisable in the first
year) at an exercise price of $7.00 per share which was in excess of the
market value of the common stock on the date the equipment purchase agreement
was executed ($3.50 per share). The estimated fair market value of these
warrants was $26,250 and has been recorded as additional cost of sales.
In June 1997, Graves Properties, Ltd., a limited partnership controlled by
Gordon T. Graves, formed Equipment Purchasing L.L.C. ("EPLLC") for the purpose
of purchasing EPS from the Company and leasing the EPS to Indian tribes. In
June 1997, EPLLC purchased approximately 100 EPS 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, as to both principal and interest, in two years. In December
1997, EPLLC paid the short term note in full. The purchased equipment was
leased to a tribe under terms where the Company and EPLLC share in a
percentage of the revenues generated by the use and operation of the EPS at
the tribe's bingo hall, 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, as
to both principal and interest, in two years. The purchased equipment was
leased to five different tribes under terms where the
15
<PAGE>
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
to EPLLC discussed above.
As an inducement to consummate the June 1997 sale, the Company issued to
EPLLC warrants to purchase 50,000 shares of 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 was $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 warrants to
purchase 100,000 shares of 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 was $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.
In connection with the sale of the equipment, the Company also entered into
a management agreement with EPLLC and EPLLC-2 whereby the Company is
responsible for proposing, establishing and modifying interactive game
procedures and the related game accounting procedures; supervising and
administering the rental agreement with the Indian tribe; using its best
efforts to re-lease the purchased equipment to other parties if the present
rental agreement is terminated; collecting all rents due under the rental
agreement; performing all necessary repairs and maintenance, but not bearing
any risk of loss for damages; conducting necessary marketing; maintaining
insurance; and paying all sales and use taxes and performing other
administrative functions. As compensation for these services, the Company will
receive $10.00 per EPS as a re-leasing fee and $10.00 per EPS per month as a
management fee ($15.00 per EPS per month in the case of EPLLC-2). The Company
has the option to repurchase the equipment at its then fair market value if
after giving effect to the payment of such repurchase price and the net rental
income received by EPLLC and EPLLC-2, respectively, such entity has received a
20% internal rate of return.
During 1998, EPLLC and EPLLC-2 paid $175,000 in management fees to the
Company pursuant to these contracts.
Because of uncertainties relating to the legality of the Company's
interactive gaming activities 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 and EPLLC-2 are at least as favorable as could have been obtained from
more traditional sources of financing.
American Gaming Network
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 provided 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. 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.
16
<PAGE>
Equipment Repurchase
On October 1, 1998, the Company purchased 356 EPS and related equipment for
$1,349,000 from EPLLC that had originally been sold by the Company to EP LLC
in the June and September 1997 transactions described above. Pursuant to
agreements entered into at the time of the June and September 1997 sale
transactions, the Company had an option to repurchase the EPS from EP LLC at
fair market value. While the purchase price paid by the Company was not the
result of an arms-length negotiation with an unaffiliated third party, the
Company believes that such purchase price is comparable to what the Company
would have paid to an unaffiliated third party. The purchase price was paid by
(i) cancellation by the Company of $992,000 in notes receivable due from EP
LLC, (ii) the assumption by the Company of $77,800 in debt owed by the
affiliate of Mr. Graves to a financial institution, (iii) the payment by the
Company of $133,000 to EP LLC, (iv) the delivery to EP LLC of a 6% promissory
note of the Company in the principal amount of $133,000 due on April 1, 1999,
(v) the issuance of 50,000 warrants to purchase shares of common stock of the
Company at $3.81 per share expiring on June 30, 2002, and (vi) the issuance of
50,000 warrants to purchase shares of common stock of the Company at $3.81 per
share expiring on September 30, 2002. On October 1, 1998, the closing price of
the Company's common stock as quoted on the Nasdaq SmallCap market was $2.50
per share. The warrants, which were valued by the Company and EP LLC at
$12,000, were issued in cancellation of warrants to purchase the same number
of shares that had been granted to EP LLC in connection with the June and
September 1997 sale transactions at exercise prices of $11.00 and $13.38 per
share. The $133,000 paid to EP LLC was applied by the affiliate of Mr. Graves
to pay a portion of outstanding notes due the Company by such affiliate.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
During the fiscal year ended September 30, 1998, three 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, a Director
of the Company, was delinquent in reporting three transactions: an October,
1997 exercise of a stock option, a January 1998 exercise of a warrant, and an
April 1998 exercise of four stock options. Frederick E. Roll, Vice President
and Chief Financial Officer of the Company, Mike Newell, Vice President of the
Company, and Gordon Sjodin, Vice President of the Company, were all delinquent
in reporting the acquisition of common stock upon the exercise of warrants in
January, 1998.
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, 1999. 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
Gordon T. Graves
Chairman of the Board
and Chief Executive Officer
Austin, Texas
April 5, 1999
17
<PAGE>
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, 1998, options to purchase 141,500 shares were
outstanding under the 1994 Plan and 39,250 shares had been issued upon the
exercise of options at prices ranging from $2.00 to $4.00. As of December 31,
1997, options to purchase 40,000 shares of Common Stock were outstanding under
the Director Plan, none of which had been exercised. After the adoption of the
Company's 1996 Stock Incentive Plan, no new options have been granted under
the 1994 Plan or the Director Plan.
As of December 31, 1998, 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"). As of December 31, 1998, a total of 545,127
shares had been reserved for issuance under the 1996 Stock Incentive Plan, of
which options to purchase 487,950 shares were issued and outstanding (at an
exercise price of $3.81 per share), 6,200 shares had been exercised (at an
exercise price of $3.81 per share) and options to purchase 50,977 shares
remained available for future grant.
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 options may be
granted only to employees, including officers and directors, of the Company or
any subsidiary of
A-1
<PAGE>
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 amendment to the 1996 Plan contained in
Proposal Two, the Company may issue 545,127 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, 1998 and prior to December 31,
2001 (the "Additional Shares"). After giving effect to such proposed
amendment, the Company may issue 795,127 shares of Common Stock or Common
Stock equivalents pursuant to the 1996 Plan without any increase in Additional
Shares. The total number of shares of Common Stock subject to Incentive Stock
Options is 795,127 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.
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The Company may make loans to Stock Option holders in connection with the
exercise of outstanding options granted under the 1996 Plan, as the
Administrator, in its discretion, may determine. In no event may the principal
amount of any such loan exceed the sum of (x) the exercise price less the par
value of the shares of Common Stock covered by the option, or portion thereof,
exercised by the holder, and (y) any federal, state, and local income tax
attributable to such exercise.
Stock Appreciation Rights and Limited Stock Appreciation Rights. The 1996
Plan also permits the granting of Stock Appreciation Rights and Limited Stock
Appreciation Rights ("SARs"). SARs may be granted alone (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.
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Amendment and Termination. The Board of Directors may amend, alter or
discontinue the 1996 Plan, but no amendment, alteration, or discontinuation
shall be made that would impair the rights of a participant in the 1996 Plan
under any award theretofore granted without such participant's consent. To the
extent necessary to comply with any applicable law or regulation, the Company
will obtain shareholder approval of any amendment to the 1996 Plan in such a
manner and to such a degree as required.
Nontransferability of Options and Stock Rights. Awards granted pursuant to
the 1996 Plan are nontransferable by the participant, other than by will or by
the laws of descent and distribution and may be exercised, during the lifetime
of the participant, only by the participant, except as otherwise determined by
the Administrator in its sole discretion.
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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 and was
amended by the Board in March 1999. 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 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).
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(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.
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
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(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 795,127 shares. The maximum
number of shares of Stock reserved and available for issuance pursuant to
Incentive Stock Options is 795,127. 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.
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.
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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 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
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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
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.
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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.
(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
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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 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.
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(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.
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.
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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") as to 545,127 shares (as of
December 31, 1998) on February 21, 1998 and as to a total of 795,127 shares on
March 1, 1999, provided that, in each case, the Plan shall become effective
with respect to Incentive Stock Options on the date the Company's stockholders
formally approve the Plan.
SECTION 12. TERM OF PLAN.
No Stock Option, Stock Appreciation Right, Limited Stock Appreciation Right,
Restricted Stock, Deferred Stock or Performance Share award shall be granted
pursuant to the Plan on or after the tenth anniversary of the Effective Date,
but awards theretofore granted may extend beyond that date.
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APPENDIX C
MULTIMEDIA GAMES, INC.
STOCK OPTION PLAN AND AGREEMENT
1998 PRESIDENT'S PLAN
THIS STOCK OPTION PLAN AND AGREEMENT, entered into this 12th day of June,
1998, by and between Multimedia Games, Inc., a Texas corporation (the
"Company"), and Clifton Lind (the "Employee"),
WITNESSETH:
WHEREAS, the Company desires to employ the Employee as its President and
Chief Operating Officer;
WHEREAS, as an inducement to accept such employment, the Company desires to
grant the Employee options to acquire shares of the Company's common stock,
$.01 par value per share ("Common Stock");
WHEREAS, subject to Section 15 of this Agreement, it is intended that each
option qualify as an "Incentive Stock Option" within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, the Company and the Employee have agreed to terminate and cancel
all of the "Other Options" as provided in Section 14 of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual covenants
and agreements contained herein, the Company and the Employee hereby agree as
follows:
1. Grant of Option. (a) On the terms and conditions hereinafter set forth,
the Company hereby irrevocably grants to the Employee each of the options
(each an "Option" and collectively, the "Options") to purchase shares of
Common Stock (the "Shares") as set forth on Schedule A attached hereto.
(b) Subject to Section 15, it intended that each Option shall be an
Incentive Stock Option.
(c) If an Option is an Incentive Stock Option, the aggregate Fair Market
Value (determined as of the date of this Agreement) of the Shares subject to
the Option and of all other shares of Common Stock subject to options granted
under any other option plans of the Company (or any of its affiliated
companies) that become exercisable for the first time by the Employee during
any calendar year shall not exceed $100,000; and to the extent such $100,000
amount is exceeded, the Option shall be treated as a Non-Qualified Stock
Option.
2. Purchase Price. The purchase price ("Purchase Price") for the Shares
covered by each Option shall be $3.8125 per Share.
3. Time of Exercise of Option; Exercisability. (a) Each Option shall become
exercisable on the Date Initially Exercisable of such Option as set forth on
Schedule A hereto.
(b) Each Option shall expire if and to the extent not exercised prior to the
Expiration Date of such Option as set forth on Schedule A.
(c) Notwithstanding the foregoing provisions of this Section 3,
(i) Upon the death of Employee or upon the occurrence of a "Change of
Control" (as hereinafter defined):
(A) each Option that is then exercisable on the date of such event shall
remain exercisable until the 30th day following such event; provided that
if such event is the death of Employee, such Option shall remain
exercisable for a period of 365 days from the date of Employee's death; and
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(B) each Option that is not then exercisable on the date of such event
shall nevertheless become immediately exercisable as to all of the Shares
subject to such Option shall remain exercisable until the 30th day
following such event; provided that if such event is the death of Employee,
such Option shall remain exercisable for a period of 365 days from the date
of Employee's death.
(ii) In the event of the termination of the Employee's employment with the
Company for Cause (as hereinafter defined):
(A) each Option that is then exercisable on the date of such termination
shall remain exercisable until the 30th day following such termination; and
(B) each Option that is not then exercisable on the date of such
termination shall expire on the date of such termination.
(iii) In the event of the termination of the Employee's employment with the
Company due to the death or "disability" (as hereinafter defined) of the
Employee:
(A) each Option that is then exercisable on the date of such death or
disability shall remain exercisable until the 365th day following such
termination; and
(B) each Option that is not then exercisable on the date of such death or
disability shall expire on the date of such termination.
(iv) In the event the Employee's employment with the Company is terminated
by the Company without "Cause" or in the event the Employee terminates his
employment with the Company for "Good Reason" (as hereinafter defined):
(A) each Option that is then exercisable on the date of such termination
shall remain exercisable until the 90th day following such termination;
(B) each Option that would become exercisable on or before the second
anniversary of the date of such termination shall become exercisable as of
the date of such termination and shall thereafter remain exercisable until
the 90th day following such termination; and
(C) each other Option not referred to in clauses (A) and (B) of this
Section 3(c)(iv) shall terminate on the date of such termination.
(v) In the event the Employee's employment with the Company is voluntarily
terminated by the Employee without "Good Reason":
(A) each Option that is then exercisable on the date of such termination
shall remain exercisable until the 90th day following such termination;
(B) each Option that would become exercisable on or before the first
anniversary of the date of such termination shall become exercisable as of
the date of such termination and shall thereafter remain exercisable until
the 90th day following such termination; and
(C) each other Option not referred to in clauses (A) and (B) of this
Section 3(c)(v) shall terminate on the date of such termination.
(vi) When used in this Agreement, the following terms shall have the
indicated meanings:
"Cause" shall mean (A) the commission by the Employee of an act of
dishonesty, fraud or embezzlement (including the unauthorized disclosure of
confidential or proprietary information of the Company) which results in,
or reasonably could be expected to result in, material injury to the
Company, (B) a felony conviction of, or plea of guilty or nolo contendre to
a felony by, the Employee, (C) willful misconduct by the Employee as an
employee of the Company which results in, or reasonably could be expected
to result in, material injury to the Company, or (D) the willful failure of
the Employee to render services to the Company in accordance with the terms
of his employment which failure amounts to a material neglect of his duties
to, and results in material injury to, the Company, as determined in each
case in good faith by the Company's Board of Directors.
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"Change of Control" shall mean (A) the merger or consolidation of the
Company with any Person (other than a merger or consolidation to change the
place of domicile of the Company) where the Company is not the surviving
entity (or survives only as the subsidiary of another Person), or (B) the
sale of all or substantially all of the Company's assets to any Person, or
(C) the dissolution of the Company, or (D) if any Person together with its
affiliates shall become, directly or indirectly, the beneficial owner of at
least 51% of the voting stock of the Company.
"disability" shall mean the permanent disability of the Employee in
accordance with the then- applicable provisions of the disability policy of
the Company as in effect from time to time or, if no such policy is in
effect, in accordance with the definition of disability under the Social
Security Act of 1935, as amended.
"Good Reason" shall mean (i) the failure to pay the Employee an annual
salary at least equal to that in effect on the date of this Agreement (or
any greater amount that may be in effect after the date of this Agreement,
(ii) the failure to retain the Employee as the President and Chief
Operating Officer of the Company, (iii) the imposition upon the Employee of
duties materially less in stature than those performed by a president and
chief operating officer of a publicly traded company, and (iv) the
imposition upon the Employee of any requirement to perform any illegal act.
"Person" shall mean an individual, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization, a limited liability
company or any other entity.
(d) Anything to the contrary in this Section 3 notwithstanding, in no event
shall any Option be exercised prior to December 17, 1998; and should any of
the events specified in Section 3(c) require the exercise of an Option prior
to December 17, 1998, the right to make such exercise shall be continued until
December 17, 1998.
4. Manner of Exercise of Option. (a) To the extent that the right to
exercise an Option is then in effect, such Option may be exercised in full or
in part by giving written notice to the Company stating the number of Shares
exercised and accompanied by payment in full for the Purchase Price of such
Shares. Payment may be made, at the election of the Employee,
(i) in cash (or by authorizing a third party to sell all or a portion of
the Shares being purchased on the condition that an appropriate portion of
such sale proceeds are remitted to the Company), or
(ii) by check payable to the Company, or
(iii) in shares of Common Stock (having a Fair Market Value on the date
of payment equal to that portion of the Purchase Price being paid in such
shares), or
(iv) by a promissory note of the Employee payable to the Company (having
the terms set forth in Section 4(d) below), or
(v) a combination of the foregoing, or
(vi) in such other form of consideration as the Board of Directors of the
Company may, in its sole discretion, agree;
provided that, if at the time of exercise such Option (or a portion of such
Option) is a Non-Qualified Stock Option then Employee shall be required to pay
to the Company an amount of cash at least equal to the Company's obligation to
withhold for federal and state income taxes. Upon such exercise, delivery of a
certificate for paid-up, non-assessable Shares shall be made to the Employee
at the principal office of the Company not more than thirty (30) days from the
date of receipt of the notice by the Company.
(b) The Company shall at all times during the term of each Option reserve
and keep available such number of Shares of its Common Stock as will be
sufficient to satisfy the requirements of such Option.
(c) Notwithstanding the provision of Section 4(a) of this Agreement, the
Company may delay the issuance of Shares covered by the exercise of an Option
and the delivery of a certificate for such Shares until one of the following
conditions shall be satisfied:
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(i) The Shares with respect to which such Option has been exercised are
at the time of the issue thereof effectively registered or qualified under
applicable federal and state securities acts now in force or as hereafter
amended; or
(ii) Counsel for the Company shall have given an opinion, which opinion
shall not be unreasonably conditioned or withheld, that such Shares are
exempt from registration and qualification under applicable federal and
state securities acts now in force or as hereafter amended. The Company
shall use its best efforts to obtain a favorable opinion to the foregoing
effect.
(d) Any promissory delivered by the Employee shall be due and payable as to
principal on the third anniversary of the date of the note, and shall be
payable as to interest on a monthly basis at a rate per annum equal to the
"applicable federal rate" as then in effect for notes of like duration and
terms of payment.
5. Non-Transferability. The right of the Employee to exercise an Option
shall not be assignable or transferable by the Employee otherwise than by will
or the laws of descent and distribution, and each Option may be exercised
during the lifetime of the Employee only by the Employee. Any transfer or
purported transfer of an Option in violation of the preceding sentence shall
be null and void and without effect, including without limitation any
purported transfer or assignment, whether voluntary or by operation of law,
pledge, hypothecation or other disposition contrary to the provisions hereof,
or levy of execution, attachment, trustee process or similar process, whether
legal or equitable, upon an Option.
6. Restrictions. (a) In the event that for any reason the Shares to be
issued upon exercise of an Option shall not be effectively registered under
the Securities Act of 1933 (the "1933 Act"), upon any date on which an Option
is exercised in whole or in part, the Employee shall give a written
representation to the Company in the form attached hereto as Exhibit 1 and the
Company shall place an "investment legend", as described in Exhibit 1 hereto,
upon any certificate for the Shares issued by reason of such exercise.
(b) Within 90 days from the date of this Agreement, the Company shall file a
registration statement on Form S-3 for the purpose of registering under the
1933 Act the resale of the Shares. The Company shall use its best efforts to
cause such registration statement to be declared effective and to remain in
effect until registration of the Shares is no longer necessary in order for
the Employee to sell the Shares publicly under Rule 144.
7. Recapitalizations, Reorganizations, Changes in Control and the Like. In
the event that the outstanding shares of the Common Stock of the Company are
changed into or exchanged for a different number or kind of shares or other
securities of the Company or of another Person by reason of any
reorganization, merger, consolidation, recapitalization, reclassification,
stock split-up, combination of shares, Change of Control or dividends payable
in capital stock, appropriate adjustment shall be made in the number and kind
of Shares or other securities as to which each Option shall be exercisable.
Such adjustment shall be made without change in the total purchase price
applicable to the unexercised portion of an Option.
8. No Special Employment Rights. Nothing contained in this Agreement shall
be construed or deemed by any person under any circumstances to bind the
Company to continue the employment of the Employee for the period within which
any Option may be exercised.
9. Rights as a Shareholder. The Employee shall have no rights as a
shareholder with respect to any Shares which may be purchased by exercise of
any Option unless and until a certificate or certificates representing Shares
are duly issued and delivered to the Employee and the Employee has executed
and delivered to the Company any and all agreements, instruments and other
documents required by the Company pursuant to Section 6(a) hereof.
10. Withholding Taxes. Whenever Shares are to be issued upon exercise of an
Option, the Company shall have the right to require the Employee to remit to
the Company an amount sufficient to satisfy all Federal, state and local
withholding tax requirements prior to the delivery of any certificate or
certificates for Shares. In all events Employee shall pay such withholding tax
in cash to the Company.
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11. Fractional Shares. No fraction of a Share shall be purchasable or
deliverable upon the exercise of an Option, but in the event any adjustment
hereunder of the number of Shares or other securities covered by an Option
shall cause such number to include a fraction of a Share, such fraction shall
be adjusted to the nearest smaller whole number of a Share.
12. Notices. Any communication or notice required or permitted to be given
under this Agreement shall be in writing and shall be deemed duly given if
sent by telecopy, upon dispatch thereof (answerback received), or if hand
delivered upon receipt thereof or if mailed by registered or certified mail,
postage prepaid, return receipt requested, upon the third business day after
dispatch thereof, as follows:
If to the Company:
Multimedia Games, Inc.
7335 South Lewis Avenue, Suite 204
Tulsa, Oklahoma 74136
Attention: Chairman of the Board
Telecopy: (918) 494-0177
If to the Employee:
At the address set forth below
the signature of Employee
13. Miscellaneous. (a) This Agreement constitutes the entire Agreement
between the parties hereto with regard to the subject matter hereof,
terminating and superseding all prior understandings and agreements, whether
written or oral. This Agreement may not be amended or revised except by a
writing signed by the parties.
(b) Captions herein have been inserted solely for convenience of reference
and in no way define, limit or describe the scope or substance of any
provision of this Agreement.
(c) This Agreement shall be construed under and governed by the laws of the
State of Oklahoma.
14. Cancellation of Other Options. The Company and the Employee hereby
mutually agree to terminate and cancel, effective immediately, each and every
of the warrants, options and other rights to purchase Common Stock heretofore
granted by the Company to the Employee as in effect immediately prior to the
date of this Agreement.
15. Shareholder Approval of Incentive Stock Options. This Agreement is
intended to be a "plan" within the meaning of Section 422 of the Code. The
total number of shares of Common Stock subject to this "plan" that may be
issued as Incentive Stock Options is 338,000 shares. This Agreement and the
Options granted hereunder shall become effective with respect to Incentive
Stock Options on the date the Company's stockholders formally approve the
Plan; provided that, if such approval is not obtained on or before June 17,
1999, the Options shall remain in effect in accordance with their respective
terms but shall be non-qualified stock options.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed by
its duly authorized officer and the Employee has hereunto set his or her hand,
all as of the day and year first above written.
Multimedia Games, Inc.
By: _________________________________
EMPLOYEE
_____________________________________
Name: Clifton Lind
Address: ____________________________
-------------------------------
Social Security No.: ________________
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STOCK OPTION PLAN AND AGREEMENT
EXHIBIT 1
Gentlemen:
In connection with the exercise by me as to shares of Common Stock, $.01
par value per share, of Multimedia Games, Inc. (the "Company") under the Stock
Option Agreement dated , granted to me under the 1996 Stock Incentive
Plan, I hereby acknowledge that I have been informed as follows:
1. The shares of Common Stock of the Company to be issued to me pursuant
to the exercise of said option have not been registered under the
Securities Act of 1933, as amended (the "Act"), and accordingly, must be
held indefinitely unless such shares are subsequently registered under the
Act, or an exemption from such registration is available.
2. Routine sales of securities made in reliance upon Rule 144 under the
Act can be made only after the holding period and in limited amounts in
accordance with the terms and conditions provided by that Rule, and in any
sale to which that Rule is not applicable, registration or compliance with
some other exemption under the Act will be required.
3. The Company is under no obligation to me to register the shares or to
comply with any such exemptions under the Act.
4. The availability of Rule 144 is dependent upon adequate current public
information with respect to the Company being available and, at the time
that I may desire to make a sale pursuant to the Rule, the Company may
neither wish nor be able to comply with such requirement.
In consideration of the issuance of certificates for the shares to me, I
hereby represent and warrant that I am acquiring such shares for my own
account for investment, and that I will not sell, pledge or transfer such
shares in the absence of an effective registration statement covering the
same, except as permitted by the provisions of Rule 144, if applicable, or
some other applicable exemption under the Act. In view of this representation
and warranty, I agree that there may be affixed to the certificates for the
shares to be issued to me, and to all certificates issued hereafter
representing such shares (until in the opinion of counsel, which opinion must
be reasonably satisfactory in form and substance to counsel for the Company,
it is no longer necessary or required) a legend as follows:
"These securities have not been registered under the Securities Act of 1933
and may not be sold, transferred, offered for sale, pledged or hypothecated
in the absence of an effective registration statement as to the securities
under said Act or an opinion of counsel satisfactory to the Company, both
as to opinion and counsel, that such registration is not required."
I further agree that the Company may place a stop order with its Transfer
Agent, prohibiting the transfer of such shares, so long as the legend remains
on the certificates representing the shares.
Very truly yours,
C-6
<PAGE>
SCHEDULE A
LIST OF OPTIONS
<TABLE>
<CAPTION>
Number of
Shares
Subject to
Option Date Initially Exercisable Expiration Date
---------- -------------------------- ------------------
<S> <C> <C>
27,000.......................... June 17, 1998 May 29, 2002
50,000.......................... September 30, 1998 September 30, 2002
12,250.......................... June 17, 1998 February 20, 2007
12,250.......................... February 20, 1999 February 20, 2007
12,250.......................... February 20, 2000 February 20, 2007
12,250.......................... February 20, 2001 February 20, 2007
12,500.......................... January 8, 1999 January 8, 2008
12,500.......................... January 8, 2000 January 8, 2008
12,500.......................... January 8, 2001 January 8, 2008
12,500.......................... January 8, 2002 January 8, 2008
40,500.......................... August 28, 1998 August 28, 2007
40,500.......................... August 28, 1999 August 28, 2007
40,500.......................... August 28, 2000 August 28, 2007
40,500.......................... August 28, 2001 August 28, 2007
</TABLE>
C-7
<PAGE>
APPENDIX D
MULTIMEDIA GAMES, INC.
1998 SENIOR EXECUTIVE STOCK OPTION PLAN
Section 1. General Purpose of Plan; Definitions.
The name of this plan is the Multimedia Games, Inc. 1998 Senior Executive
Stock Plan (the "Plan"). The purpose of the Plan is to enable the Company to
attract and retain Timothy R. Stuart, George J. Akmon and Gary L. Loebig as
senior executive personnel who will contribute to the Company's success by
their ability, ingenuity and industry by providing incentives 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:
"Act" means Securities Exchange Act of 1934, as amended.
"Administrator" means the Board, or if the Board does not administer the
Plan, the Committee in accordance with Section 2.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor thereto.
"Committee" means the Committee of the Board designated from time to time
by the Board to be the Administrator.
"Commission" means Securities and Exchange Commission to be effective as
of August 15, 1996, and as such Rule may be amended from time to time, or
any successor definition adopted by the Commission. If at any time the
Board shall not administer the Plan, then the functions of the Board
specified in the Plan shall be exercised by the Committee.
"Company" means Multimedia Games, Inc., a Texas corporation (or any
successor corporation).
"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.
"Effective Date" shall mean the date provided pursuant to Section 9.
"Eligible Employee" means each of Timothy R. Stuart, George J. Akmon and
Gary L. Loebig.
"Fair Market Value" means, as of any given date, with respect to any
awards granted hereunder, at the discretion of the Administrator and
subject to such limitations as the Administrator may impose, (A) if the
Stock is publicly traded, the closing sale price of the Stock on such date
as reported in the Wall Street Journal, or the average of the closing price
of the Stock on each day on which the Stock was traded over a period-of up
to twenty trading days immediately prior to such date, (B) the fair market
value of the Stock as determined in accordance with a method prescribed in
the agreement evidencing any award hereunder, or (C) the fair market value
of the Stock as otherwise determined by the Administrator in the good faith
exercise of its discretion.
"Incentive Stock Option" or "ISO" means any Stock Option intended to be
designated as an "incentive stock option" within the meaning of Section 422
of the Code (and any successor provision of the Code having a similar
intent).
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<PAGE>
"Non-Qualified Stock Option" or "NQSO" 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.
"Parent Corporation" means any corporation (other than 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.
"Participant" means any Eligible Employee that has received the grant of
a Stock Option.
"Stock" means the Common Stock, $0.01 par value, of the Company.
"Stock Option" means any option to purchase shares of Stock granted
pursuant to Section 5.
"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 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 Stock Options
to Eligible Employees pursuant to the terms of the Plan.
In particular, the Administrator shall have the authority:
(a) to determine whether and to what extent Stock Options are to be
granted hereunder to Eligible Employees;
(b) to determine the number of shares to be covered by each Stock Option
granted hereunder;
(c) to determine the terms and conditions, not inconsistent with the
terms of the Plan, of any Stock Option granted hereunder; and
(d) to determine the terms and conditions, not inconsistent with the
terms of the Plan, which shall govern all written instruments evidencing
the Stock Options.
The Administrator shall have the authority, in its discretion, to adopt,
alter and repeal such administrative rules, guidelines and practices governing
the Plan as it shall from time to time deem advisable; to interpret the terms
and provisions of the Plan and any award issued under the Plan (and any
agreements relating thereto); and to otherwise supervise the administration of
the Plan.
All decisions made by the Administrator pursuant to the provisions of the
Plan shall be final and binding on all persons, including the Company and the
Participants.
Section 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for issuance
under the Plan (and the total number of shares that may be granted as ISO's)
shall be 205,000 of shares of Stock. Such shares may consist, in whole or in
part, of authorized and unissued shares or treasury shares.
To the extent that a Stock Option expires or is otherwise terminated without
being exercised, such shares shall not thereafter 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
D-2
<PAGE>
shall not thereafter be available for issuance in connection with future
awards under the Plan. To the extent that a Participant is eligible to use,
and uses, shares of Stock to exercise a Stock Option, the number of Shares of
Stock so used shall not 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, an
appropriate substitution or adjustment shall be made in the aggregate number
of shares reserved for issuance under the Plan as may be determined by the
Administrator, in its sole discretion. Any other substitutions or adjustments
shall be made 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.
Section 4. Eligibility.
Timothy R. Stuart, George J. Akmon and Gary L. Loebig or the only employees
of the Company that are eligible to be granted Stock Options.
Section 5. Stock Options.
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. Consultants and advisors may only be granted Non- Qualified Stock
Options. 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, in any case, be less than
100% of the Fair Market Value of the Stock on such date. 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.
D-3
<PAGE>
(3) Exercisability. Stock Options shall be exercisable at such time or
times and subject to such terms and conditions as shall be determined by
the Administrator at or after grant. The Administrator may provide, in its
discretion, that any Stock Option shall be exercisable only in
installments, and the Administrator may waive such installment exercise
provisions at any time in whole or in part based on such factors as the
Administrator may determine, in its sole discretion.
(4) Method of Exercise. Subject to Section 5(3) above, Stock Options may
be exercised in whole or in part at any time during the option period, by
giving written notice of exercise to the Company satisfying the number of
shares to be purchased, accompanied by payment in full of the purchase
price in cash or in such other form of consideration as is set forth in the
related Stock Option agreement 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; provided, however, that the right to make payment in the
form of already owned shares may be authorized only at the time of grant.
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; provided,
however, that the right to make payment in the form of loans may be
authorized only at the time of grant and the terms of such loans shall be
specified in the related Stock Option agreement. 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, no Stock Option shall be transferable by the optionee, and
all Stock Options shall be exercisable, during the optionee's lifetime,
only by the optionee.
(7) Termination of Employment or Service. If an optionee's employment
with or service as a director of or consultant or advisor to the Company
terminates by reason of death, Disability or for any other reason, the
Stock Option may thereafter be exercised to the extent provided in the
applicable subscription or award agreement, or as otherwise determined by
the Administrator.
D-4
<PAGE>
(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. 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 7. 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 8. 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.
D-5
<PAGE>
Section 9. Effective Date of Plan.
The Plan became effective (the "Effective Date") on November 6, 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.
Section 10. Term of Plan.
No Stock Option 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.
D-6
<PAGE>
APPENDIX E
FEDERAL INCOME TAX ASPECTS OF STOCK OPTION PLANS
The following is a brief summary of the Federal income tax consequences of
transactions under the 1996 Plan, the President's Plan and the Senior
Executive 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.
Applicable to All Plans
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.
Applicable to the 1996 Stock Incentive Plan
Stock Appreciation Rights. No income will be realized by an optionee in
connection with the grant of a SAR. When the SAR is exercised, the optionee
will generally be required to include as taxable ordinary income in the year
of exercise, an amount equal to the amount of cash received and the Fair
Market Value of any Common Stock received on the exercise. In the case of an
optionee who is also an employee, any income realized upon exercise of a SAR
will constitute wages for which withholding will be required. The Company will
generally be entitled to a tax deduction in the same amount.
Stock Rights. Awards of Restricted Stock, Deferred Stock and Performance
Shares are generally issued to a participant subject to conditions that
constitute a "substantial risk of forfeiture" within the meaning of Section 83
of the Code. As a result, the participant will not recognize ordinary income
at the time of grant. Instead, the participant will recognize ordinary income
on the dates when the stock ceases to be subject to a "substantial risk of
forfeiture" which will generally be when the stock is no longer subject to the
Company's right to repurchase upon the purchaser's termination of employment
with the Company (i.e., as the Stock Right "vests"). At vesting, the
participant will recognize ordinary income measured as the difference between
the purchase price (if any) and the Fair Market Value of the stock on the date
of vesting. The ordinary income recognized by a participant who is an employee
will be treated as wages and will be subject to tax withholding by the
Company. Generally,
E-1
<PAGE>
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.
E-2
<PAGE>
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MULTIMEDIA
GAMES, INC.
MULTIMEDIA GAMES, INC.
8900 SHOAL CREEK BLVD.
AUSTIN, TEXAS 78759
PROXY FOR 1999 ANNUAL MEETING OF SHAREHOLDERS MAY 11, 1999
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 April 5, 1999, and hereby appoints
Gordon T. Graves and Clifton E. Lind, 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 1999 Annual Meeting of
Shareholders of Multimedia Games, Inc. to be held on May 11, 1999 at 10:00
a.m., local time, at the Holiday Inn Northwest, located at 8901 Business Park
Drive, Austin, Texas 78759 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
and Robert D. Bullock
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 adoption of the Company's 1998 President's
Stock Option Plan as described in the Proxy Statement related to the
Annual Meeting.
[_] FOR[_] AGAINST[_] ABSTAIN
4. To ratify and approve the adoption of the Company's 1998 Senior Executive
Stock Option Plan as described in the Proxy Statement related to the
Annual Meeting.
[_] FOR[_] AGAINST[_] ABSTAIN
5. To ratify and approve the appointment of PricewaterhouseCoopers LLP as
the independent public accountants of the Company for the fiscal year
ending September 30, 1999.
[_] FOR[_] AGAINST[_] ABSTAIN
6. To transact such other business as may properly come before the meeting
or any postponements or adjournments thereof.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED IN ACCORDANCE WITH THE
SPECIFICATIONS MADE. IF NO SPECIFICATION IS MADE, THE SHARES REPRESENTED BY
THIS PROXY WILL BE VOTED FOR EACH OF THE ABOVE PERSONS AND PROPOSALS, AND FOR
SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING AS THE BOARD OF
DIRECTORS MAY RECOMMEND OR, IN THE ABSENCE OF A RECOMMENDATION, AS THE PROXY
HOLDERS DEEM ADVISABLE.
April 5, 1999
Austin, Texas
DATED: _______________________, 1999
------------------------------------
Signature:
------------------------------------
Signature:
(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.)
I plan to attend the meeting: [_]
TO ENSURE YOUR REPRESENTATION AT THE ANNUAL MEETING, PLEASE MARK, SIGN AND DATE
THIS PROXY AND RETURN IT AS PROMPTLY AS POSSIBLE.
